MANAGEMENT ADVISORY SERVICES

SOLUTION TO PROBLEM

1. Variable cost per sales office (500,000 – 70,000) ÷ 5 P 86,000

x number of sales offices 7
Total variable costs P602,000
Add fixed costs 70,000
Total budgeted costs P672,000 B

2. Diff. in costs (P12,415 – P11,737) P 678

÷ diff. in hours (150 – 120) 30
Variable rate per hour P22.60

Total cost P12,415 P11,737

Less variable cost 3,390 2,712
Fixed costs P 9,025 P 9,025 B

3. Variable cost (140 x P22.60) P 3,164

Fixed cost 9,025
Total cost P12,189
÷ number of hours 140
Cost per hour P 87.06 B

4. Prime costs P 900,000

Applied overhead (P600,000/75,000 DLH x 75,700) 605,600
Total cost P1,505,600
÷ Units produced 100,000
Unit cost P 15.06 B

5. Activity 1 (P20,000 x 100/500) P 4,000

Activity 2 (P37,000 x 800/1,000) 29,600
Activity 3 (P91,200 x 800/3,800) 19,200
Total allocated cost P52,800
÷ number of units 8,000
Cost per unit P 6.60 C

6. Activity costs, Patient 2:

Room and meals (3 x P150) P 450
Radiology (2 x P95) 190
Pharmacy (1 x P28) 28
Chemistry lab (2 x P85) 170
Operating room (1 x P550) 550
Total P1,388 A

7. Assembly department = P9/machine hour x 3 machine hours x 20 sets = P540 B

8.
Projected sales (125,000 x P6) P750,000
Less contribution margin:
Income before tax (75,000/0.60) P125,000
Add fixed cost 250,000 375,000
Variable costs P375,000
÷ number of units 125,000
Variable cost per unit P 3.00 C
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9. Let S = Sales; CM = 0.40S; NY = 0.10S

Fixed Cost = (0.40S – 0.10S) = 0.30S
Sales (P60,000 ÷ 0.30) P200,000
Less breakeven sales (P60,000 ÷ 0.40) 150,000
Margin of safety P 50,000 D

10. Increase in profit (P40,000 x 20%) P 8,000

÷ Present profit:
Contribution margin P40,000
Less fixed costs 30,000 10,000
% change in profit 80% B

11. Product A Product B Product C Total

CM per unit P2 (2 x 150%) P 3 (P3 x 2) P 6
x Sales mix ratio 1 (2 x 3) 6 3
Composite CM P2 P18 P18 P38
÷ Number of units per mix (1 + 6 + 3) 10
Weighted average CM per unit P3.8
Fixed costs P760,000
Break-even point = = = 200,000 composite units
WaUCM P3.8

Breakdown: Product A = 200,000 x 1/10 = 20,000 units

Product B = 200,000 x 6/10 = 120,000
Product C = 200,000 x 3/10 = 60,000
200,000 composite units B

12.
Fixed costs P148,500
P22,440
Add desired profit ( )
1 – 0.32 33,000
Total P181,500
60 – [22.50 + 4.50]
÷ CMR ( )
60 55%_
Required sales to earn desired profit P330,000 C

13.
Fixed costs:
Manufacturing (148,500 x 60% x 120%) P106,920
Non-manufacturing (148,500 x 40% x 110%) 65,340
Total fixed costs P172,260
Contribution margin ratio:
Selling price P75.00
Less variable costs:
Manufacturing (P22.50 + P4.50) P27.00
Selling and administrative 4.50 31.50
Contribution margin per unit P43.50
÷ Selling price 75.00
Contribution margin ratio P 58%

Required peso-sales to earn a desired profit ratio:

Fixed Cost P172,260

RS = = = P358,875 B
CMR – PR 58% – 10%
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14.
Operating leverage factor Contribution margin
= Profit before tax
P358,875 x 58%
=
P358,875 x 10%
P208,147.50 = 5.8
=
P35,887.50 B

15. Fixed cost P122,500

Add desired profit (P250,000 x 32%) 80,000
Total P202,500
CM per unit [P15 x (100% - 58%)] 6.30
Required sales in units 32,143 C

16. The number of units that must be sold is 90,000 calculated as follows:
Sales = VC + FC + NI
P25X = P16X + P585,000 + .10(P25X)
P6.5X = P585,000
X = 90,000 C

17. Sales = VC + FC + NI
(P25 × 80,000) = (P16 × 80,000) + (P585,000 +Advertising) + P0
P2,000,000 = P1,280,000 + P585,000 + Advertising
Advertising = P135,000 A

18. CM = 5 x 25,000 = 125,000;

CMR = 125/500 = 25%;
Fixed costs = 125,000 – 25,000 = 100,000
Operating Income = (600,000 x 25% = 150,000) – 100,000 = 50,000 C

19.
Mix variance P450 U
Yield variance 150 U
Quantity variance P600 U B

20. Total standard cost P72,000

÷ Std qty for actual production (14,400 x 4) 57,600
Standard price per unit of materials P1.25

The usage variance is P3,000 unfavorable. The standard price is P1.25. Using the
formula for Usage variance, the difference in quantity may be computed as follows:

3,000 U = Difference in quantity x P1.25

Difference in quantity = 3,000 ÷ P1.25
= 2,400 unfavorable

If the difference in quantity is unfavorable, the actual quantity is greater than the
standard quantity:
Standard quantity (14,400 x 4) 57,600
Add unfavorable difference in quantity 2,400
Actual quantity used 60,000 units

Price Variance = (AP – SP) x AQ

= ([P126,000 ÷ 84,000] – P1.25) x 60,000
= P15,000 unfavorable A
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21. Actual price (P10,080 ÷ 4,200) P2.40

Standard price 2.50
Difference in prices - favorable P 0.10
X actual quantity purchased 4,200
Price variance – favorable P 420 D

22. Actual time – hours 4,100

Less standard time (1,000 x 4) 4,000
Difference in time – unfavorable 100
X standard rate per hour P 12
Efficiency variance – unfavorable P1,200 C

23 to 27
Actual variable overhead P4,100
Actual time x std. var. rate (2,100 x P2) 4,200
Spending variance – favorable P 100

Actual time x std. var. rate (2,100 x P2) P4,200

Std. variable overhead [(19,000 x 0.1) x P2] 3,800
Efficiency variance – unfavorable P 400

Actual fixed overhead P22,000

Less budgeted fixed overhead 20,000
Fixed spending variance – unfavorable P 2,000

Budgeted fixed overhead P20,000

Less standard fixed overhead
[1,900 x (P20,000/<20,000 x 0.1>)] 19,000
Volume variance – unfavorable P 1,000

23. Controllable variance (P100 F + P400 U + P2,000 U) = 2,300 U C

24. Spending variance (P100 F + P2,000 U) = P1,900 U B

25. Efficiency variance P400 U A

26. Noncontrollable variance P1,000 U D

27. Fixed overhead efficiency variance Zero D

28. [4,100 – (1,000 x 4)] x P12 = P1,200 B

29. Input quantity – Spoilage = Output amount

X – .2X = 2 yds.
0.8X = 2 yds.
X = 2.5 yds.

Standard direct material cost per unit of finished product = 2.5 yds. × P3 = P7.50 D

30. Change in inventory (100k – 80k) 20,000

x fixed overhead cost per unit (P180k ÷ 100) 1.80
Difference in income P36,000 C

31. 1,000 x 20 = 20,000 B

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32.
Product X Product Y
CM per unit P 50 P 64
÷ hours per unit 5 8
CM per hour P 10 P 8

80% of capacity must be applied to Product X, the product with the higher CM per hour.

Product X (25,000 x 80%) ÷ 5 = 4,000 units x P50 P 200,000

Product Y (25,000 x 20%) ÷ 8 = 625 units x P64 40,000
Total contribution margin P240,000 B

33. Loss P15,000

Desired profit 10,000
Required increase in profit P25,000
÷ number of units 5,000
Profit per unit P 5.00
Add production costs:
Materials (P6.00 – P1.50) P 4.50
Labor 10.00
Variable overhead 3.00
Variable selling exp (P2 – P1) 1.00 18.50
Sales price per unit P23.50 A

34. Avoidable sales P1,000,000

Avoidable costs:
Var. CGS (P800,000 x 75%) P600,000
Fixed CGS (P800,000 – P600,000) x 60% 120,000
Selling expenses 100,000
Admin. exps. (P250,000 x 10%) 25,000 845,000
Decrease in income P155,000 C

35. The special order is for 500 boxes of 24 bottles each or a total of 12,000 bottles. Materials
costs will be:
Chem 1: Total required – 12,000 bottles x 4 ml 48,000 ml
Available Chem 5 that can be substituted
for Chem 1, 20,000 ml, salvage value… * P 6,000
Balance of Chem 1 required
(48,000 ml – 20,000 ml) x P0.54 15,120
Chem 2: 12,000 bottles x 3 ml x P0.36 12,960
Chem 3 12,000 bottles x 2 ml x P0.20 4,800
Chem 4 12,000 bottles x 5 ml x (P0.40 – P0.10)* 18,000

Total materials cost P56,880 D

* The relevant cost of existing stocks is equal to their salvage value that will not be
realized if the stocks are used in the Clever order.

36. Labor: Total required time – 12,000 bottles x 2 hours 24,000 hours
Labor cost at regular rate (24,000 hours x P3) P72,000
Overtime premium (24,000 – 20,000) x P3 x 30% 3,600
Total labor cost P75,600
Factory overhead – variable (24,000 hours x P2) 48,000
Total relevant conversion cost P123,600 A

The overtime premium is part of labor cost, not of overhead cost, because the overtime
work is attributable to a particular job.
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The total fixed factory overhead is assumed to remain constant whether or not the special
order is accepted, hence, irrelevant.
37. Materials cost (from Item #35) P 56,880
Variable conversion cost (from Item #36) 123,600
Fixed factory overhead (24,000 hours x P4) 96,000
Full manufacturing cost P276,480
÷ Number of bottles ordered (500 boxes x 24) 12,000
Full cost per bottle P 23.04
130%
Bid price per unit P 29.95 C

38. Materials:
Chem 1 12,000 bottles x 4 ml x P0.54 P25,920
Chem 2 12,000 bottles x 3 ml x P0.36 12,960
Chem 3 12,000 bottles x 2 ml x P0.20 4,800
Chem 4 12,000 bottles x 5 ml x P0.40 24,000
P67,680
Variable conversion cost (from Item #36) 123,600
Total variable manufacturing costs P191,280 D

For subsequent orders, the company will have to buy all the required materials because
by this time, the inventory of Chem 4 and Chem 5 would have been fully utilized in the
first order.

39. Fixed costs under continued operations (for 2 months):

Factory overhead (P460,000 x 2 months) P 920,000
Selling costs (P620,000 x 2 months) 1,240,000
Total P2,160,000
Less shutdown costs*:
Factory overhead (P340,000 x 2 months) P 680,000
Selling costs ([P620,000 – P62,000] x 2 months) 1,116,000
Start-up costs 56,000 1,852,000
Difference P 308,000
Divide by CM per unit (P280 – P168) ÷ P112
Shutdown point in units 2,750 units A

40. Answer A

41. PAT CHIN

Cont. margin P200,000 P2,000,000
÷ units (P300k ÷ P30) 10,000 50,000
CM per unit P 20 P 40
X change in units 25,000 (5,000)
Change in CM P500,000 (P200,000)

Increase in CM (P500k – P200K) P300,000

Less incremental fixed cost 245,000
Increase in profit P 55,000 C

42. Special price P58

Less relevant costs:
Variable manufacturing P40
Overtime cost 8 48
Contribution margin P10
x Units ordered 50,000
Incremental operating income if order is accepted P500,000 B
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43. Revenue from the special order (50,000 units x P58) P2,900,000
Less relevant costs:
Variable manufacturing (50,000 x P48) P2,400,000
Opportunity cost: lost CM from regular customers
(20,000 units x [P100 – 40]) 1,200,000 3,600,000
Decrease in operating income if order is accepted P700,000 C

44. Product Y should be sold at the split-off point, while Products X and Z should be processed
further:
X Y Z
Units sales price if processed further P100 P60 P75
Unit sales price at split-off 80 45 60
Increase in sales value if processed further P 20 P15 P15
Less additional processing cost 15 20 10
Profit (loss) if processed further P 5 (P 5) P 5

The most profitable action is to sell Product Y at the split-off point and process further
Products X and Z. Total gross profit is computed as follows:
Sales: Product X (5,000 units x P100) P500,000
Y (3,000 units x P 45) 135,000
Z (2,000 units x P 75) 150,000
P785,000
Less costs:
Additional processing cost:
Product X (5,000 units x P15) P 75,000
Z (2,000 units x P10) 20,000
Joint product costs 200,000
P295,000
Gross profit: (P785,000 – 295,000) P490,000 D

45. Purchase price P24

Relevant unit cost to make:
Variable (P20 – P5) P15
Avoidable fixed cost 2 17
Loss per unit if keypads are purchased P 7 D

46. Relevant cost to make (50,000 x P17) P 840,000

Less desired annual savings 80,000
“Should be” net cost to buy P 770,000
Less purchase cost (50,000 x P24) 1,200,000
Minimum annual rental income P 430,000 B

47. Acquisition cost, new lathe P300,000

Less salvage value of old lathe 20,000
Net cost of investment P280,000
÷ savings in cash operating costs (P50,000 – P200,000) 150,000
Payback period 1.87 years A

48. Present value of cost savings (P150,000 x 3.1699) P475,485

Present value of salvage value (P60,000 x 0.6830) 40,980
Total PV of cash inflows P516,465
Less net cost of investment 280,000
Net present value P236,465 A

49. Yearly net cash inflow P 45,000

x PVF, 18% for 6 years 3.4976
Initial cost of the machine P157,392 A
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50.
Cost of DPS P12
Preferred = P120 – P10 = 10.91% D
Net issuance price
Stocks

51. Depreciation expense, as a tax shield, provides tax savings. The difference in the present
values of the tax savings under the two depreciation methods will represent the difference in
the net present values of the equipment.

Year 1 P144,000 x 32% = P46,080 0.909 P41,886.72

2 108,000 x 32% = 34,560 0.826 28,546.56
3 72,000 x 32% = 23,040 0.751 17,303.04
4 36,000 x 32% = 11,520 0.683 7,868.16

Total present value of tax savings, SYD method P95,604.48

PV of tax savings, straight-line method
(P360,000 ÷ 4 years = P90,000 x 32% x 3.170) 91,296.00
Decrease in net present value P 4,308.48 C

52. Indifference point is when the NPVs of the two proposals are equal.
Let x = present value factor for a cost of capital for 6 years
85,000 – 25,000x = 32,000 – 10,000x
x = 3.533, which is between 16% and 18% C

53. Break-even time: the cumulative present value of cash inflows equals the cost of
investment
Cash Inflows x PVF = PV
1 216,309.75 0.926 P200,302.83
2 216,309.75 0.857 185,377.46
3 216,309.75 0.794 171,749.94
4 216,309.75 0.735 158,987.67
5 216,309.75 0.681 147,306.94

Total PV of cash inflows, first 4 years = P716,417.90

Break even time = 4 years B

54.
D 1.20
Price = = = P30 C
K–G 13 – 9

55. Annual lease expense, net of tax (P65,000 x 60%) P 39,000

x PVF, 9%, 5 years 3.8897
Present value of the after-tax cost of leasing P151,698 A

56. Operating net cash inflow after tax but before lease amortization (P7,500 x 60%) P 4,500
Add tax savings due to lease amortization (P5,000 x 40%) 2,000
Net cash inflows P 6,500
x PVF 1.74
Present value P11,310 D

57. Present value of cash inflows (P7.4 m x 0.4371) P 3,234,540

Cash outflow 3,500,000
Net present value (P 265,460) C
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58. PVF of Project B is 0.4020 (4,000/9,950), which is closest to 0.4019, the PVF for 20%,
five periods.
C

59. Potato chips inventory – June 30 18,000

Add expected sales 80,000
Available for sale 98,000
Less Potato chips inventory – June 1 15,000
Budgeted production 83,000
x potatoes required per unit - kilos x5
Production needs 415,000
Add Potatoes inventory – June 30 23,000
Total available for use 438,000
Less potatoes inventory – June 1 27,000
Budgeted purchases 411,000 C

60. Demand 200

Less beginning inventory 70
Production 130 B

61. Projected sales price P50

Less required profit 12
Target cost P38 C

62. A/R balance from April sales P 21,000

÷ uncollected portion (100% - 70% - 15%) 15%
April sale P140,000 D

63. Increase in inventory 3,000

÷ 30%
Sales increase for April over March 10,000 B

64. It is assumed that each unit of product requires one unit of materials. So, production is
equal to raw materials to be used.
Budgeted raw materials to be used (or production) – 140,000+ 5,000 145,000 units
Add raw materials ending inventory 18,500
Total 163,500
Less raw materials beginning inventory 16,000
Budgeted purchases 147,500
Less actual purchases, 1st quarter 27,500
Required purchases in the remaining 3 quarters 120,000 units

Cost computation:
First quarter purchases (27,500 units) P1,760,000
Second quarter (120,000/3 or 40,000 x [P1,760,000÷27,500] or P64/unit) 2,560,000
Third and fourth quarters ([40,000/qtr. x 2] x[P64 x 105%]) 5,376,000
Total cost of budgeted purchases P9,696,000 A

65. Materials inventory, December 31, 2018   18,500

x Purchase price (P64 x 1.05) P67.20
Cost of materials inventory, December 31, 2018 P1,243,200 B

The company uses the FIFO method of costing inventory. Thus, the ending inventory
should be valued at the new purchase price of P67.20.
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66. Original labor cost per unit (P784,000 ÷ 140,000 units) P 5.60
Labor cost per unit effective on the beginning of the 4 quarter (P5.60 x 108%)
th
P6.048
Budgeted labor cost:
First to third quarters (25,000 + 40,000 + 40,000) x P5.60) P588,000
Fourth quarter (40,000 x P6.048) 241,920
Total budgeted labor cost P 829,920 D

67. Materials:
Inventory, January 1 P 960,000
Add purchases 9,696,000
Available for use P10,656,000
Less inventory, December 31 1,243,200 P 9,412,800
Labor 829,920
Factory overhead:
Variable:

Indirect materials (P9,412,800 x 10%) P941,280

Other variable P2,009,600 – P889,600
overhead
( x 145,000 ) 1,160,000
140,000
Total variable overhead P2,101,280
Fixed 1,120,000 3,221,280
Budgeted cost of goods manufactured   P13,464,000 B

68. Cost of goods manufactured (from Item #67) P13,464,000

Add finished goods inventory, January 1 744,000
Total cost of goods available for sale P14,208,000
Less finished goods inventory, December 31
(3,300 units x [P13,464,000 ÷ 145,000]) 306,422
Budgeted cost of goods sold P13,901,578 A

69. Cost of goods sold P300,000

Add inventory, 12/31/18 42,000
Less inventory, 1/1/18 ( 30,000)
Purchases P312,000
Add accounts payable, 1/1/18 20,000
Less accounts payable, 12/31/18 (P312,000/12) ( 26,000)
Budgeted cash payments P306,000 C

70. The amount is equal to July’s collections in September plus August’s collections in
September.
This amount is P169,800 [(36% × P120,000) + (60% × P211,000)]. A

71. Sales, July 24,000

Add ending inventory (30,000 x 30%) + 3,000 12,000
Less beg, inventory (24,000 x 30%) + 3,000 (10,200)
Production, July 25,800 D

72. Internal growth rate is the percentage increase in assets kept in business.
Increase in assets (P30,000 – P10,000) P 20,000
÷ Total assets, beginning of 2018 ÷ 500,000
Internal growth rate 4% B

73. ROS x ATO = ROA

ROS x 5 = 20%
ROS = 20% ÷ 5 = 4% C
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74. Total assets P375,000

Less equity 206,250
Debt P168,750

Debt-to-Equity Ratio (P168,750 ÷ P206,250) 81.82%

*Total financing required for the capital budget P62,500

÷181.82%
Amount to be financed by equity P34,375

Amount to be financed by debt without changing

the debt-to-equity ratio (P62,500 – P34,375) P28,125 A

75. Sales volume variance P80,000 F

Cost volume variance 64,000 U
Gross profit volume variance P16,000 F

– OR –
2018 units @ 2017 gross profit per unit
(P160,000 x 110%) P176,000
Less 2017 gross profit 160,000
Gross profit volume variance P 16,000 F C

76.

Asset Turnover last year = Sales =3

Average Total Assets

Asset Turnover this year = 3 x 1.25 = 3.75 = 3.9 A

1 x 0.95 0.95

77. Capital budget P80,000

Fund from net income (P60,000 x 30%) 18,000
External funding needed P62,000 B

78. The annual benefit is P6,000 which is equal to the

interest income P12,000 (P100,000 × 2 days × 6%) – P6,000 (P500 × 12) cost. C

79. 3/97 x 365/25 = 45.2% D

80. 50,000/450,000 = 11.1% B

81. Failure costs:

Rework cost (750 units x P10) P7,500
Returned units (150 x P15) 2,250
Not reworked (250 units x P15) 3,750 P13,500
Prevention costs 10,000
Appraisal cost 5,000
Total quality costs P28,500 C

82. Purchase price P45

Less variable cost 20
Savings if acquired from within P25
x number of units 4,000
Increase in profit P100,000 B
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83. Purchase price P45

Cost if purchased from within:
Variable cost P20
Opportunity cost 30 50
Loss per unit P 5
x number of units 4,000
Decrease in profit P20,000 C

84. Sales P600,000

Less cost of goods sold 250,000
Gross margin P350,000
Variable selling P30,000
Fixed selling (P50,000 x 80%) 40,000
Fixed admin (P20,000 x 50%) 10,000 80,000
Controllable income P270,000
÷ Assets 800,000
ROI 33.75% B

85. After-tax operating income (P800,000 x [1 – 0.32]) P544,000

Less desired return on investment:
Total assets (P800,000 + P3,200,000) P4,000,000
Less current liabilities 400,000
Investment base P3,600,000
x Weighted-average cost of capital 10% 360,000
Economic value added P184,000 A

86. 300,000/500,000 = 60% A

87. 300,000 – (500,000 x 18%) = 210,000 C

88. Net operating profit after taxes (60,000,000 x 60%)        P36,000,000
Less Capital charge on invested capital (P120,000,000 – P20,000,000) × 10% 10,000,000
Economic value added                                     P26,000,000 B

89. Net operating profit after taxes P36,000,000

+ Depreciation expense 15,000,000
– Change in net working capital (10,000,000)
– Capital expenditures (12,000,000)
Free cash flow P29,000,000 C

90. 1/4 = 25% C

91.
2 x 10,000 x P 100
EOQ =
√ 2
= 1,000 units

500 units 1,000 units

Carrying cost (500/2)2; (1,000/2)2 P 500 P1,000
Ordering cost (10,000/500) x P100 2,000
(10,000/1,000) x P100 1,000
Total cost P2,500 P2,000

Savings (P2,500 – P2,000) P500 A

92. Average daily usage (1,200,000 ÷ 300) 4,000

x lead time 12
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Lead time usage 48,000

add safety stock 10,000
Order point 58,000 D
93. Based on the given data, the expected payoffs are:
Sell halo-halo (15,000 x 60%) + (6,000 x 40%) P11,400
Sell mami (11,400 x 60%) + (12,000 x 40%) 11,640

Therefore, despite the fact that the weather is hot, the canteen should sell mami
because it has the higher expected value or expected payoff. B

94. Plan A P5,000 x 60% = P3,000

B 2,000 x 30% = 600
C 1,000 x 10% = 100
Expected value P3,700 per square meter

95. Expected value of sales volume:

80,000 x 70% 56,000
10,000 x 30% 3,000 59,000
X CM per unit 5
Total CM P295,000
Less fixed costs 200,000
Expected profit P 95,000 A

96. 700,000 x 30% P 210,000

200,000 x 30% 60,000
(400,000) x 40% (160,000)
Expected contribution P 110,000 B

97. Cost of investment P700,000

Add net present value 134,020
Total present value of cash inflows P834,020
÷ present value factor – 10%, 5 periods 3.791
Annual cash savings P220,000 B

98. Target cost = Estimated selling price – Acceptable profit margin

P100 – P24 = P76 B

99. [(30,000 x 70%) + (X/10 x 30%)] x 4.833 = X

(21,000 + 0.03X) x 4.833 = X
101,493 + 0.14499X = X
101,493 = 0.855X
X = 118,705 A

100.
Net cash inflows:
Year 1 (P350,000 – P130,000) P220,000
Year 2 (P450,000 – P190,000) 260,000
Year 3 (P450,000 – P170,000) 280,000

First two years: P600,000 – (P220,000 + P260,000) = P120,000

Third year P120,000 ÷ 280,000 = 0.43 year
12 months x 0.43 = 5.16 months

Payback period is 2 years and 5 months C

- END -
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