Practice Problems

Set A.

Problem 1. Lazy Builders has entered into a very profitable fixed price contract for constructing
a high-rise building over a period of three years. It incurs the following costs relating to the
contract during the first year:

Cost of material – P25 million

Site Labor cost – P20 million
Agreed administrative costs per contract to be reimbursed by the customer – P10 million
Depreciation of the plant used for the construction – P5 million
Marketing costs for selling apartments when they are ready – P10 million

Total estimated cost of the project – P180 million

The percentage of completion of this contract at the year-end is:

A. 33% B. 28% C. 25% D. 39%

Answer: A (60M/180M)

Problem 2. Jackson Company uses a job order costing system and the following information is
available from its records. The company has three jobs in process: #6, #9, and #13.

Raw material used P120,000

Direct labor per hour P8.50
Overhead applied based on direct labor cost 120%

Direct material was requisitioned as follows for each job respectively: 30 percent, 25 percent,
and 25 percent; the balance of the requisitions was considered indirect. Direct labor hours per
job are 2,500; 3,100; and 4,200; respectively. Indirect labor is P33,000. Other actual overhead
costs totaled P36,000.

Refer to Jackson Company. If Job #13 is completed and transferred, what is the balance in
Work in Process Inventory at the end of the period if overhead is applied at the end of the
period?
a. P 96,700
b. P 99,020
c. P139,540
d. P170,720

ANS: D

Step 1: Determine Total Cost of Job 13

DM: P120,000 * .25 P 30,000
DL: 4,200 * 8.50 35,700
FOH: 35,700 * 120% 42,840 108,540

Step 2: Compute Total Cost of Job 6

DM: P120,000 * .30 P 36,000
DL: 2,500 * 8.50 21,250
FOH: 21,250 * 120% 25,500 82,750
Step 2: Compute Total Cost of Job 9
DM: P120,000 * .25 P 30,000
DL: 3,100 * 8.50 26,350
FOH: 26,350 * 120% 31,620
87,970
Total Costs of Jobs 6 and 9 170,720

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Problem 3. Maxwell Company adds material at the start of production. The following
production information is available for June:

Beginning Work in Process Inventory

(45% complete as to conversion) 10,000 Units
Started this period 120,000 Units
Ending Work in Process Inventory
(80% complete as to conversion) 8,200 units

Beginning Work in Process Inventory

Costs:
Material P24,500
Conversion 68,905

Current Period Costs:

Material P 75,600
Conversion 130,053

What is the conversion cost per equivalent unit using the weighted average method?
a. P1.01
b. P1.05
c. P1.55
d. P1.61

ANS: B

Conversion Costs:
Beginning P
68,905
Current Period 130,053
198,958 ÷ 128,360 P 1.55
=
units per unit

Problem 4. Cherub Co.

Beginning inventory (30% complete as to 700 units
Material B and 60% complete for conversion)
Started this cycle 2,000 units
Ending inventory (50% complete as to Material B 500 units
and 80% complete for conversion)

Beginning inventory costs:

Material A P14,270
Material B 5,950
Conversion 5,640

Current Period costs:

Material A P40,000
Material B 70,000
Conversion 98,100

Material A is added at the start of production, while Material B is added uniformly throughout the
process.
Assuming a FIFO method of process costing, compute the average cost per EUP for
conversion.
a. P45.50
b. P45.00
c. P43.03
d. P47.59

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ANS: B
Conversion Costs Equivalent Units Average Cost per EUP
(Current Period)
P98,100 2,180 P45.00

Assuming a weighted average method of process costing, compute the average cost per EUP
for conversion.
a. P39.90
b. P45.00
c. P43.03
d. P47.59

ANS: A
Conversion Costs Equivalent Units Average Cost per
(Beginning WIP and Current Period) EUP

P98,100 + P5,640 2,600 P39.90

Problem 5. The following information is available for Talmidge Company for the current year:

Beginning Work in Process Costs of Beginning Work in Process:

(75% complete) 14,500 units Material P25,100
Started 75,000 units Conversion 50,000
Ending Work in Process Current Costs:
(60% complete) 16,000 units Material P120,000
Abnormal spoilage 2,500 units Conversion 300,000
Normal spoilage 5,000 units
(continuous)
Transferred out 66,000 units

All materials are added at the start of production.

Using weighted average, what are equivalent units for material?
a. 82,000
b. 89,500
c. 84,500
d. 70,000

ANS: C

Materials: Weighted Average Units % Complete Eq. Units

Beginning Work in Process 14,5 100% 14,
00 500
+ Units Started and Completed 51,5 100% 51,
00 500
+ Ending Work in Process 16,0 100% 16,
00 000
+ Abnormal Spoilage 2,5 100% 2,
00 500
Equivalent Units of 84,5
Production 00

What is the cost assigned to normal spoilage using weighted average?

a. P31,000
b. P15,500
c. P30,850
d. None of the responses are correct

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ANS: D
No costs are assigned to normal, continuous spoilage. Higher costs are assigned to
good units produced.

Problem 6. Bowman Company has the following information for July:

Units started 100,000 units

Beginning Work in Process: (35% complete) 20,000 units
Normal spoilage (discrete) 3,500 units
Abnormal spoilage 5,000 units
Ending Work in Process: (70% complete) 14,500 units
Transferred out 97,000 units
Beginning Work in Process Costs:
Material P15,000
Conversion 10,000

All materials are added at the start of the production process. Bowman Company inspects
goods at 75 percent completion as to conversion.

Assume that the costs per EUP for material and conversion are P1.00 and P1.50, respectively.
What is the amount of the period cost for July using FIFO?
a. P0
b. P9,375
c. P10,625
d. P12,500

ANS: C

Abnormal spoilage is a period cost.

Materials 5,000 * P1.00/unit P5,000

Conversion Costs 3,750 * P1.50/unit 5,625
Total Abnormal Spoilage P10,625

Problem 7. Whalen Company manufactures products X and Y from a joint process that also
yields a by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs.
Additional information is as follows:

Products
X Y Z Total
Units produced   20,000   20,000  10,000   50,000
Joint costs        ?        ?       ? P262,000
Sales value at
split-off P300,000 P150,000 P10,000 P460,000

Joint costs were allocated using the sales value at split-off approach.

The joint costs allocated to product X were

a. P84,000
b. P100,800
c. P150,000
d. P168,000

Answer: D

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Problem 8. AMAYA manufactures products B, C and D from a joint process. The total cost of
January is P500,000. Other information for January show:
B C D
550,00
Final sales value 300,000 0 450,000
150,00
Cost after separation 100,000 0 250,000
Quantity sold 1000 2000 2000
Quantity on hand 5000 6000 4000
What is the total production cost of product C?
a. 300,000 c. 275,000
b. 350,000 d. 400,000

Answer: D
FSP FPC NRV JC FPC TPC
10000
B 300,000 0 200,000 125000 100000 225,000
15000
C 550,000 0 400,000 250000 150000 400,000
25000
D 450,000 0 200,000 125000 250000 375,000
800,000 500,000

Problem 9. RALPHALY Corp. was contracted by Ms. M. A. Bilbao to construct a warehouse for
her business. The estimated total cost was P29,000,000. Ralphaly Corp. bills its clients at 125%
of total costs estimated to complete a project. Details regarding the contract are given below:
Costs incurred Estimated costs to complete
2010 8,637,500 25,912,500
2011 15,770,000 13,142,500
2012 10,842,500 -

Billings, based on the contract price, were made as follows: 25% in 2010, 35% in 2011, 40% in
2012. What is the balance of the construction in progress account, net of progress billings, on
December 31, 2011?
a. 5,707,500 c. 2,657,500
b. 1,042,000 d. 1,357,500

Answer: D
For 2011:
Contract Price 36250000
Estimated total costs 37550000
GP (1300000)
2010 2011
CIP 8637500 23107500
Progress billings 9062500 21750000
CIP, net of PB (425000) 1,357,500

Problem 10. The SYMANUEVO Co.’s home office bills Rizal branch at 120% above cost
during 2009 and 125% of cost during 2010. In 2010, goods billed at 355,600 were shipped to
the branch. Also, during the year, the branch returned 119,050 worth of defective merchandise
to the home office. The account unrealized intra-company inventory profit has a balance of
18,240 at the end of last year. The branch started to acquire merchandise from outsiders during
the year in the amount of 54,000 and returned defective merchandise to the vendor amounting
to 19,570. How much is the total goods available for sale, at cost?
a. 314,870 c. 311,222
b. 189,308 d. 300,420

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Answer: A
Beginning inventory (109440/1.2) 91200
Purchases 54000
Purchase returns (19570) 34430
Shipments from HO at cost 284480
Returns (95240)
COGAS at cost 314,870

Problem 11. On December 31, 2011, Dewyze Inc. authorized Cook to operate as a franchise
for an initial franchise fee of P3,400,000. P900,000 was received upon signing the contract, and
the balance is to be paid by a non-interest bearing note, due in five equal annual installments
beginning December 31, 2012. Prevailing market rate is 12%. PV factor is 3.60478. The down
payment is nonrefundable and it represents a fair measure of the services already performed by
Dewyze, however, with regards to the balance, substantial future services are still required. How
much is the uneraned revenue to be recognized as of December 31, 2011?
a. P 1,802,390 b. P 1,518,677
c. P 2,500,000 d. P 2,702,390

Answer: A

SET B.

1. Paul Constructions has entered into a contract beginning January 1, 2020, to build a pool. It
has been estimated that the pool will cost P300,000, and will take three years to construct.
The pool will be billed to the purchasing at P450,000. The following data pertain to the
construction period.

2020 2021 2022

Cost to date 135,000 210,000 300,000
Estimated cost to complete 165,000 90,000 0
Progress billing to date 135,000 275,000 450,000
Cash collected to date 120,000 250,000 450,000

During 2020, Costs incurred include P15,000 standard materials stored at the site to be used in
2022 to complete the project. Using the percentage of completion method, compute the
recognize gross profit for 2022:

a. 52,500 c. 97,500
b. 45,000 d. 150,000

2. The CIP net of Progress billing is:

a. 27,500 current liability c. 167,500 current asset
b. 32,500 current asset d. 102,500 current liability

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3. Ivonne sold a restaurant franchise to Irvin. The sale agreement signed on January 2, 2025
called for a P30,000 down payment plus an interest bearing note of P20,000 payable in two
annual payments representing the value of initial franchise services rendered by Ivonne. In
addition, the agreement required the franchisee to pay 5% of its gross revenues to the
franchisor; this was deemed sufficient to cover the cost and provide a reasonable profit
margin on continuing franchise services to be performed by franchisee. The restaurant
opened early in 2025, and its sales for the year amounted to P500,000. The management of
Irvin Co. has estimated that they can borrow a loan of this type at the rate of 10%. The
present value factor of an ordinary annuity at 10% for 2 periods is 1.7335. Ivonne Co should
recognized total revenue from the franchise will be:
a. 77,000 c. 75,000
b. 74,069 d. 72,335

4. XYZ, franchisor, entered into franchise agreement with ABC, franchisee, on July 1, 2027.
The total franchise fee agreed upon is P550,000, of which P50,000 is payable upon signing
and the balance is covered by a non – interest bearing note payable in four equal annual
installments. The direct franchise cost incurred was P325,000. Indirect franchise expense of
P31,250 was also incurred. The management of ABC has estimated that they can borrow a
loan of this type at the rate of 12%. The franchisee commenced its operations on July 31,
2027, how much is the net income (loss) to be reported? (use PV factor of 3.04).
a. 14,357 c. 119,750
b. 77,550 d. (15,240)

5. The following are the unadjusted trial balances of Chris Corp and its branch on December 31,
2020 follow:
Home Office Branch
Shipment to branch 120,000
Branch inventory allowance 39,960
Shipment from home office 156,000
Purchases 56,580
Inventory Jan. 1 21,840
Inventory Dec. 31 19,500
Sales 216,000
Expenses 20,400

The branch ending inventory acquired from the home office is P15,600 at billed price. The
branch billed for merchandise shipments at 30% based on cost.

Calculate the overstatement or(understatement) of the branch’s cost of sales:

a. 36,360 c. 37,100
b. 4,740 d. (21,840)

6. The home office transfers inventory to its branch at 20% of billed price. During the year,
inventory costing the home office P320,000 was transferred to the branch. At year end, the
home office adjusted its Deferred Profit account by P82,800. The branch year end balance
sheet shows P19,200 of inventory acquired from the home office.

What is the branch beginning inventory at its actual cost.

a. 88,000 c. 33,200
b. 26,560 d. 16,000

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7. Nico had the following information relating to current period:
Unit sold 100,000
Units in work in process inventory 30,000
Materials inventory 50,000
Units in finished good inventory 70,000

Additionally, factory overhead control was charged during the period for P325,000 and factory
overhead applied was P375,000. Which of the following entries is the correct manner to account
for the difference between applied and actual overhead?

a. FOH applied 375,000

COGS 20,000
Finished goods inventory 14,000
Work in process inventory 6,000
Materials inventory 10,000
FOH control 325,000

b. FOH applied 375,000

COGS 25,000
Finished goods inventory 17,500
Work in process inventory 7,500
FOH control 325,000

c. COGS 25,000
Finished goods inventory 17,500
Work in process inventory 7,500
FOH control 325,000
FOH applied 375,000

d. COGS 20,000
Finished goods inventory 14,000
Work in process inventory 6,000
Materials inventory 10,000
FOH control 325,000
FOH applied 375,000

8. ABC had the following production for the month of June, 2020:
Units
Work in Process at June 1 120,000
Started during June 480,000
Abnormal spoilage incurred 24,000
Work in process at June 30 180,000

Materials are added at the beginning of the process. As to conversion cost, the beginning work in
process was 70% completed, and the ending work in process was 60% completed. Using the
weighted average method, the EUP for June with respect to conversion cost is:
a. 528,000 c. 540,000
b. 504,000 d. 600,000

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SET C.

Problem 1. On October 1, 2011, Sweet Philippines took delivery from US firm of inventory costing
285,000 dollars. Payment is due on January 30, 2012. Concurrently, Sweet Philippines paid P3,925 cash
to acquire an at-the-money call option for 285,000 US Dollars. Strike price is P4.40
12/31/2011 1/30/2012
Market price P4.423 P4.427
Fair value of call option P7,050 ?

The foreign exchange gain/(loss) on hedging instrument due to change in the effective portion on
December 31, 2012 if changes in the time value will be excluded from the assessment of hedge
effectiveness should be:
A. P1,140 B. P(1,140) C. P(3,430) D. P645

Problem 2. On June 1, Happy Company forecasted the purchase of 17,000 units of inventory from HK
Company. The purchase would probably occur on September 2 and require the payment of 690,000
dollars. It is anticipated that the inventory could be further processed and delivered to customers by
early October. On June 1, the company purchased a call option to buy 690,000 dollars at a strike price of
1FC = P0.95. An option premium of P2,950 was paid. Changes in the value of the option will be
excluded from the assessment of hedge effectiveness.
Spot rates and option values are as follows;
June 1 June 30 July 31 September 2
Spot rate P0.93 P0.952 P0.963 P0.97
Fair value of call option ? P5,230 P11,470 ?

On September 2, Happy Company purchased 17,000 units of inventory at a cost of 698,000 dollars. The
option was settled/sold on September 2 at its fair value. After incurring further processing costs of
P16,000, the inventory was sold for P780,000 on October 7. The gain/(loss) on option contract on July
31 presented in other comprehensive income
A. P6,470 B. P8,970 C. P7,590 D. P11,470

Problem 3. Merry Company sold merchandise for 27,800 dollars to a customer in US on November 02,
2011. Collection in US dollars was due on January 31, 2012. On the same date, to hedge this foreign
currency exposure, M Company entered into a futures contract to sell 27,800 dollars to a bank for
delivery on January 31, 2012. Exchange rates for rupees on different dates are as follows:
Nov. 2 Dec. 31 Jan. 31
Strike price P41.8 P41.8 P41.8
Buying spot rate 41.9 40.7 40.1
Selling spot rate 41.7 40.5 40.3
30-day futures 42.3 40.4 43.9
60-day futures 41.8 40.3 42.6
90-day futures 40.6 41.6 43.4
120-day futures 40.1 41.4 42.8

How much is the gain/(loss) due to hedging instrument in the 2012 profit and loss statement?
A. P8,340 B. P(33,360) C. P(8,340) D. P33,360

Problem 4. Cool Company acquired machinery for 42,300 dollars from a vendor in US on December 1,
2011. Payment in dollars was due on March 31, 2012. On the same date, to hedge this foreign currency
exposure, Cool entered into a futures contract to purchase 42,300 dollars from a bank for delivery on
March 31, 2012. Exchange rates for dollars on different dates are as follows:
Dec. 1 Dec. 31 March 31
Strike price P41.5 P41.5 P41.5
Buying spot rate 41.6 42.5 43.4
Selling spot rate 41.4 42.3 43.7
30-day futures 42.3 41.8 43.2
60-day futures 41.8 42.2 42.6
90-day futures 40.6 42.5 43.4

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 120-day futures 42.2 42.8 42.9

What was the net impact in Cool Company’s income in 2011 as a result of this hedging activity?
A. P25,380 B. P(36,240) C. P(25,380) D. P36,240

Problem 5. On November 1, Joy Company entered into a firm commitment to acquire a machinery from
US Company. Delivery and passage of title would be on February 28, 2012 at the price of 9,450 dollars
accounted for as fair value hedge. On the same date, to hedge against unfavorable changes in the
exchange rate, S entered into a 120-day forward contract with a bank for 9,450 dollars. Exchange rate
were as follows:
Spot Rate Forward Rate
Nov. 01, 2011 P46.50 P44.30
Dec. 31, 2011 47.25 46.50
Feb. 28, 2012 49.70 49.70

The December 31, 2011 foreign exchange gain/(loss) on the hedging instrument amounted to
A. P20,790 B. P32,950 C. P(20,790) D. P(32,950)

Problem 6. Cleared Corp. owns a subsidiary in Singapore whose statement of financial position in
Singapore Dollars for the last two years follow:
December 31, 2017 December 31, 2018
Assets
Cash and Cash equivalents S$ 90,000 S$ 75,000
Receivables 367,500 442,500
Inventory 480,000 510,000
Property and Equipment, 765,000 690,000
net
Total Assets S$ 1,702,500 S$ 1,717,500
Liabilities and Equity
Accounts Payable S$ 165,000 S$ 225,000
Long-term debt 967,500 855,000
Common stock 345,000 345,000
Retained earnings 225,000 292,500
Total Liabilities and Equity S$ 1,702,500 S$ 1,717,500

Relevant exchange rates are:

January 1, 2017 S$ 1 = P 45
December 31, 2017 S$ 1 = P 42.50
December 31, 2018 S$ 1 = P 47.50
Average 2017 S$ 1 = P 43.75
September 12, 2017 S$ 1 = P 40

Cleared formed the subsidiary on January 1, 2017. Income of the subsidiary was earned evenly throughout
the years and the subsidiary declared dividends worth S$15,000 on September 12, 2017 and none were
declared during 2018. Compute the cumulative translation adjustment for 2018. (P1,818,750)

Hint. The average rate in 2018 is based on simple average.

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