Cost Accounting 7

Stefany O.
Pelayo
(Relavant Costing Theory)
1. Which of the following statements is false?

Statement 1: Under some circumstances, a sunk cost may be a relevant cost.
Statement 2: Future costs that do not differ between alternatives are irrelevant.
Statement 3: The same cost may be relevant or irrelevant depending on the decision context.
Statement 4: Only variable costs are relevant costs. Fixed costs cannot be relevant costs.
A. 1 and 2
B. 1 only
C. 3 and 4
D. 1 and 4
Answer:
D. 1 and 4 are false statements. Sunk costs are always irrelevant. Fixed costs can be relevant costs.
(Relevant Costing: Dropping a Segment)
2. Suppose a company furnishes the following recent operating statement for its three product lines, A,
B and C.
A B C Total
Sales P 400 000 P 360 000 P 300 000 P 1 060 000
Variable expenses P 280 000 P 216 000 P 240 000 P 736 000
Fixed expenses:
Salaries of product line supervisors 30 000 32 000 40 000 102 000
Marketing cost allocated to product 8 000 7 200 6 000 21 200
lines on basis of sales
Administrative costs allocated 22 000 22 000 22 000 66 000
equally
Total expenses P 340 000 P 277 200 P 308 000 P 925 200
Operating Income/Loss P 60 000 P 82 800 P (8 000) P 134 800
Management is considering discontinuing Product C operations.
Assuming that in addition to the data given, the following changes are expected:
1. Sales of Product A and Product B increase by 10% and 15%, respectively.
2. Marketing costs will remain unchanged.
3. Salaries of Product A and B’s product line supervisors would increase by 8% and 10%
respectively due to the increased sales.
4. No increase in total assets is required.
Should the company drop product C?
A. It is not good for the company to drop Product C.

B. The company may decide to drop Product C.
C. The company should drop Product B.
D. The company should not drop any product.
Answer:
B. The company may decide to drop Product C.
Analysis: The following schedule shows the projected operating statement assuming the company
discontinued Product C operations.
Product Lines
A B Total
Sales P 440 000 P 414 000 P 854 000
Variable expenses P 308 000 P 248 400 P 556 400
Fixed expenses:
Salaries of product line 32 400 35 200 67 600
supervisors
Marketing costs 10 923 10 277 21 200
Administrative costs 33 000 33 000 66 000
Total P 384 323 P 326 877 P 711 200
Operating Income/Loss P 55 677 P 87 123 P 142 800
before taxes
As shown above, overall net income will be P 142,800. This is slightly higher than the present overall
income of P 134,800 with no increase in total assets required. However, management should consider
other factors, such as the future sales of product C and whether the increased sales of Product A and B
will continue or would occur without eliminating Product C operations.
(Backflush Costing)
3. Plus Manufacturing Company uses a raw and in process (RIP) inventory account and expenses all
conversion costs to the cost of goods sold account. At the end of each month, all inventories are
counted, their conversion cost components are estimated, and inventory account balances are adjusted
accordingly. Raw material cost is backflushed from RIP to Finished Goods. The following information
is for the month of April:
Beginning balance of RIP account, including P 4 550 of conversion cost P 50 000

Raw materials received on credit P 380 000
Ending RIP inventory per physical count, including P 2 000 conversion P 65 000
cost estimate
Compute the amount to be backflushed from RIP to Finished goods:
A. P 358 450
B. P 368 600
C. P 365 000
D. P 362 450
Answer:
D. P 362 450.
Beginning balance of RIP account (P 50 000 -P 4 450) P 45 450

Add: Raw materials received on credit 380 000
Total 425 450
Less: Ending balance of RIP inventory per physical count ( P65 000- P2 000) 63 000
Amount to be backflushed from RIP to Finished goods P 362 450
Bibliography:
 Brewer, P.C.Introduction to managerial accounting 7th edition.McGraw Hill Education.
 Cabrera, M.B.(2009). Management accounting concepts and applications.Manila,Philippines:
GIC ENTERPISES & CO., INC.
 Punzalan, A.R.Practical accounting 2.Philippines.
Ferrer J. Pelone
Activity-Based Costing
Pelone Company has two products namely: X and Y. Product X and Y has an annual
production and sales of 2000 units and 1500 units, respectively.The company traditionally
used dirct labor-hours as the basis for applying all manufacturing overhead to products.
Product X and Y requires 0.2 and 0.4 direct labor-hours, respectively. $ 690,000 is the total
estimated overhead for the next period.
The company is using an activity-based costing system next period and the system
would have three overhead activity cost pools: Activity 1, Activity 2, and General Factory----
with estimated overhead cost and expected activity as follows:
Activity Cost Pools Estimated Overhead Cost Expected Activity Total

X Y
Activity 1 $ 280,000 550 450 1,000
Activity 2 $ 310,000 100 150
250
General Factory $ 100,000 400 600
1,000
Total $ 690,000
1. Based on the data above, the predertimed overhead rate or the activity rate for
Activity 1 under activity-based costing system is:
A. $ 300
B. $ 275
C. $ 280
D. $ 305
Answer: C
Solution:
(Estimated Overhead Cost)$ 280,000/(Total Activity)1,000 = $ 280
Relevant Costing
FJP Ltd. makes three components F, J and P. The following costs have been recorded:
Components of F Components of J Components of P
Unit Cost(₱) Unit Cost(₱) Unit Cost(₱)
Variable Cost 100 200 300
Fixed Cost 250 150 300
Total Cost 350 350 600
Another company has offered to supply the components of FJP Ltd. at the following
prices:
Price each ₱ 200 ₱ 120 ₱ 350
2. Which component(s), if any, should FJP Ltd. consider buying in?
A. Buy in F only
B. Buy in J only
C. Buy in F and P
D. Buy in all three components
Answer: B
Solution:
Variable Cost in Making ₱ 100 ₱ 200 ₱ 300
Variable Cost in Buying 200 120 350
(100) 80 (50)
Bibliograhpy:
Cost and Management Accounting. (0AD). Retrieved from
https://www.zeepedia.com/read.php?
decision_making_choice_of_product_product_mix_decisions_make_or_buy_decisions_cost
_and_management_accounting&b=42&c=45

Cost Accounting 7

Uploaded by

Copyright:

Available Formats

Cost Accounting 7

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Cost Accounting 7

Uploaded by

Copyright:

Available Formats

Stefany O.

(Relavant Costing Theory)

1. Which of the following statements is false?

(Relevant Costing: Dropping a Segment)

Management is considering discontinuing Product C operations.

Should the company drop product C?

A. It is not good for the company to drop Product C.

B. The company may decide to drop Product C.

Beginning balance of RIP account, including P 4 550 of conversion cost P 50 000

Compute the amount to be backflushed from RIP to Finished goods:

Beginning balance of RIP account (P 50 000 -P 4 450) P 45 450

Activity Cost Pools Estimated Overhead Cost Expected Activity Total

2. Which component(s), if any, should FJP Ltd. consider buying in?

You might also like