True or False

1. Finished goods inventory is an asset, but inventories of raw materials and work in process are

not considered assets until production is completed.

2. Manufacturing costs are regarded as expenses of the current period and are expensed when

incurred.

3. Product costs are the costs of purchasing or manufacturing inventory and considered as assets

until the goods are sold.

4. All costs and expenses incurred by a manufacturing entity are considered product costs rather

than period costs.

5. A manufacturing entity usually has three separate inventories: raw materials, work in process

and finished goods.

6. Raw materials inventory refers to the direct materials on hand and available for use in the

manufacturing process.

7. Manufacturing overhead includes all manufacturing costs except direct labor and direct

materials.

8. The wages paid to supervisors are an example of indirect labor.

9. Product costs are all deducted from revenue in the period in which they are incurred.

10. Prime costs consist of direct materials and direct labor. Conversion cost is essentially direct

labor.

Multiple Choice

1. Manufacturing costs would not include

a. depreciation on factory equipment.

b. indirect labor costs.

c. indirect materials used.

d. sales salaries expense.

2. Each of the following is true with respect to product costs, except

a. Direct labor is an example of a product cost.

b. Product costs are deducted from revenue when the manufacturing process is completed.

c. Product costs are not regarded as expenses of the current period.

d. Product costs represent inventoriable costs.

3. Which of the following is not likely to be treated as a product cost?

a. Depreciation on the factory.

b. Interest paid on notes payable.

c.. Portion of the cost of running the quality control department.

d. Wages paid to factory workers.

4. The purchasesraw materials account is debited when

a. direct materials are placed into production.

b. direct materials are purchased.

c. indirect materials are placed into production.

d. indirect materials are purchased.

5. The direct labor account is debited

a. at the end of the payroll period, when employees are paid.

b. when a new factory employee begins work.

c. when related labor costs are transferred into the work in Process Inventory.

d. when the goods manufactured are completed.

Problem #1 Cost of Goods Manufactured

In addition to the year-end statement of financial position and income statement , the

management of Esterlina Gevera Company required the controller to prepare the statement of

cost of goods manufactured. During 2020, P361,920 of raw materials were purchased. Operating

cost data and Inventory account balances for 2020 follow:

Direct Labor (10,430 at P9.50 per hour) P 99,085

Plant Supervision 42,500

Indirect labor (20,280 hours at P6.25 per hour) 126,750

Factory Utilities 29,220

Factory Insurance 8,100

DepreciationFactory Building 46,200

DepreciationFactory Equipment 62,800

Manufacturing Supplies 9,460

Repairs and Maintenance 14,980

Selling and Administrative Expenses 76,480

Raw Materials Inventory, Jan I, 2020 26,490

Work in Process Inventory, Jan. 1, 2020 101.640

Finished Goods Inventory, Jan. 1, 2020 148.290

Raw Materials Inventory, Dec. 31, 2020 24.910

Work in Process Inventory, Dec. 31, 2020 100,400

Finished Goods Inventory, Dec. 31, 2020 141.100

Required:

1. Compute the cost of direct materials used during the year.

2. Compute the total manufacturing costs for the year.

3. Compute the cost of goods manufactured during the year.

Problem #2 - Cost of Goods Sold

The following information is available for the Norte Company for the month of August.

Inventories Beginning Ending

148

Raw Material P 18,500 P I2,500

Work in Process 41,100 18,500

Finished Goods 29,500 15,500

Raw Material Purchases P220,000

Indirect Labor 21,200

Factory Supplies Used 1,000

Other Expenses:

Depr.-Factory Equipment 10,300

Utilities-Factory 5,000

Insurance-Office 25,500

Office Supplies Expense 1,900

Insurance-Factory 10,000

Depr. Office Equipment 5,000

Repair/Maintenance-Factory 7,000

Utilities-Sales 1,500

Direct Labor 315,000

Required:

1. Determine the total manufacturing cost

2. Cost of goods manufactured,

3. Cost of goods sold.