Quick Review
Quick Review
Quick Review
1. A company prepares a flexible budget each month for manufacturing costs. Formulas have
been developed for all costs with a relevant range of 5,000 to 15,000 units per month. The
budget for electricity is P 19,800 at 9,000 units per month and P 21,000 at 10,000 units per
month. How much should be budgeted for electricity for the coming month if 12,000 units are
to be produced?
A. 22,000
B. 21,474
C. 23,400
D. Cannot be determined
2. Citrus, Inc. used the high-low method to estimate that its fixed costs are 210,000. At its low
level of activity, 100,000 units, average cost was P 2.60 per unit. What would Citrus predict
its average cost per unit to be when production is 200,000 units?
a. 1.05
b. 1.55
c. 2.60
d. 5.20
Using the least squares method for splitting a semi-variable cost, what is the variable rate
per hour?
Variable rate per hour Fixed cost
a. 3 500
b. 2 600
c. 2 500
d. 4 600
CVP Analysis
4. August Company sells Product Rhey for P 5 per unit. The fixed cost is P 210,000 and the
variable cost is 60% of the selling price. What amount of sales is needed to realize a profit of
10% of sales?
a. P 700,000 c. P 472,500
b. P 525,000 d. P 420,000
5. Kris Company sells Products S, T and D. Kris sells three units of S for each unit of D and
two units of T for each unit of S. the contribution margins are P 1 per unit of S, P 1.50 per
unit of T, and P 3 per unit of D. fixed costs are P 600,000. How many units of S would Kris
sell at the break-even point?
a. 40,000 units c. 240,000 units
b. 120,000 units d. 400,000 units
6. Heather Company has a contribution margin ratio of 20%, a margin of safety ratio of 33
1/3% and an income of P 5,000. What was Heather Company’s break-even peso sales?
a. P 15,000 c. P 60,000
b. P 50,000 d. P 75,000
7. At 40,000 units of sales, Zhad Corporation had an operating loss of P 3.000 per unit. When
sales were 70,000 units, the company had a profit of P 1.20 per unit. What is the number of
units to break-even?
a. 35,000 units c. 52,500 units
b. 45,000 units d. 57,647 units
Sales at Hero are expected to be P 600,000 next year. Assuming no change in cost structure,
this means that net operating income for next year should be:
a. P 30,000 c. P 50,000
b. P 45,000 d. P 125,000
9. Ralph Company is expecting an increase of fixed costs by P 78,750 upon moving their place
of business to the downtown area. Likewise, it is anticipating that the selling price per unit and
the variable expenses will not change. At present scenario, the sales volume necessary to
breakeven is P 750,000 but with the expected increase in fixed costs, the sales volume
necessary to breakeven would go up to P 975,000. Based on these projections, what would
be the total fixed costs after the increase of P 78,750?
a. P 341,250 c. P 183,750
b. P 262,500 d. P 300,000
Malabon Company has the following information for its first year of operations:
Units produced 10,000
Units sold 7,000
Variable cost per unit:
Direct materials P8
Direct labour P9
Factory overhead P3
Selling, general and administrative P 4
Fixed costs:
Manufacturing overhead P 70,000
Selling, general and administrative P 30,000
12. If a firm produces more units that it sells, absorption costing, relative to variable costing, will
result in:
a. Higher income and assets c. lower income but higher assets
b. Higher income but lower assets d. lower income and assets
13. Espana Company produces a single product. Last year, Espana’s net operating income under
absorption costing was P3,600 lower than under variable costing. The company sold 10,000
units during the year, and its variable costs were P9 per unit, of which P1 was variable selling
expense.
If production cost was P11 per unit under absorption costing, then how many units did the
company produce during the year?
a. 11,200 b. 8,800 c. 8,200 d. 11,800
Standard costs:
Variable manufacturing P 12 per unit
Fixed manufacturing (based on normal production of 20,000 units) P 4 per unit
Variances:
Variable manufacturing – unfavourable P 12,000
Volume P 8,000
Other data:
Production 22,000 units
Sales (P 25/unit) 16,000 units
Operating costs P 64,000
All variances are closed to cost of goods sold. What is the company’s profit under GAAP costing?
a. P 76,000 c. P 44,000
b. P 52,000 d. P 42,000
Standard Costing
16. The Centipede Company uses standard costing. The following data are available for October.
Michelle, Inc. evaluates manufacturing overhead in its factory by using variance analysis. The
following information applies to the month of May:
Actual Budget
Number of frames manufactured 19,000 20,000
Variable overhead costs P 4,100 P 2 per direct labor hour
Fixed overhead costs P 22,000 P 20,000
Direct labor hours 2,100 0.1 hours per frame
Labor payroll P 10,500 P 4.50 per direct labor hour
Lam Company's standard direct labor rates in effect for the fiscal year ending June 30 and
standard hours allowed for the output in April are:
The wage rates for each labor class increased on January 1 under the terms of a new union
contract. The actual direct labor hours (DLH) and the actual direct labor rates for April were as
follows:
Actual Rate Actual DLH
Engineering P 8.50 550
Carpentry 7.50 650
Masonry 5.40 375
22. How much is the labor yield and labor mix variance?
a. P 500 325
b. P 320 50
c. P 820 500
d. P515 66.67
Relevant Costing
23, Yemen Company manufactures 20,000 units of a certain component per year. This
component is used in the production of a main product. The following are the costs to make the
component per unit:
Direct materials P 11
Direct labor 14
Variable overhead 8
Fixed overhead 9
If Yemen buys the component from outside supplier the company can rent out the released
facilities for P 20,000 a year. The cost of the component per unit as quoted by the supplier is P
36. 60% of the fixed overhead applied in the manufacture of the component will continue
regardless of what decision is made. For all purchases made by the company, freight and handling
costs are applied at 1% of the purchase price. The direct materials cost is exclusive of the freight
and handling cost
What is the economic advantage or disadvantage of buying the component?
a. P 24,800 advantage c. P 27,000 disadvantage
b. P 27,000 advantage d. P 63,000 advantage
24. Abu Company sells product B at a selling price of P 21 per unit. Abu’s cost per unit based on
the full capacity of 200,000 units is as follows:
Direct materials P 4.00
Direct labor 5.00
Overhead (2/3 fixed) 6.00
P 15.00
A special order offering to buy 20,000 units was received from a foreign distributor. The only
selling cost that would be incurred for this order would be P 3 per unit for shipping. Abu has
sufficient existing capacity to manufacture the additional units. In negotiating the price for
the special order, Abu should consider that the minimum selling price per unit should be:
a. P14 c. P16
b. P15 d. P18
25. Mumbai Co. is a manufacturer of industrial components. One of their products that is used as
a subcomponent in manufacturing is KB-96. This product has the following financial structure
per unit:
Selling price P 150
Direct materials P 20
Direct labor 15
Variable manufacturing overhead 12
Fixed manufacturing overhead 30
Shipping and handling 3
Fixed selling and administrative 10
Total costs P 90
Mumbai Company has received a special, one-time order for 1,000 KB-96 parts. Assume
that Mumbai is operating at full capacity and that the contribution margin of the output that
would be displaced by the special order is P 10,000. The minimum price that is acceptable,
using the original data, for this one-time special order is in excess of
a. P 60 c. P 87
b. P 70 d. P 100
26. The Uganda Company has two divisions – east and west. The divisions have the following
revenues and expenses:
East West
Salaries P 720,000 P 350,000
Variable costs 370,000 240,000
Traceable fixed costs 130,000 80,000
Allocated common corporate costs 120,000 50,000
Operating income (loss) P 100,000 (P 20,000)
The management at Uganda is pondering the elimination of the West division since it has
shown an operating loss for the past several years. If the West division were eliminated, its
traceable fixed costs could be avoided. The total common corporate costs would be
unaffected by this decision. Given these data, the elimination of the West division would
result in an overall company operating income of:
a. P 120,000 c. P 80,000
b. P 100,000 d. P 50,000
27. The income statement of product Pabigat, one of the several products being sold by Palugi
Company is reproduced below:
Sales P 80,000
Costs and expenses 92,000
Net loss (P 12,000)
P 37,600 of the costs and expenses above are fixed of which P 21,600 is unavoidable
regardless of whether the product will be dropped or not. What is the product elimination
point?
a. P 16,000 c. P 54,400
b. P 50,000 d. P 70,400
28. Desert Company produces three products from a joint process costing P 100,000. The
following information is available:
Units Sales price (Split-off) Cost to Process Sales Price
Further (After Further)
A 10,000 P 35 P 60,000 P 40
B 20,000 P 40 20,000 P 45
C 30,000 P 20 90,000 P 25
Which products should be processed further?
a. A only c. B and C
b. A and B d. A, B and C
29. Sudan Company has three products: A, B and C. Three machines are used to produce the
products. The contribution margins, sales demands, and time on each machine (in minutes)
are as follows:
Demand CM Time on M1 Time on M2 Time on M3
A 100 P 30 10 mins 15 mins 12 mins
B 80 P 20 10 mins 5 mins 8 mins
C 60 P 30 5 mins 10 mins 5 mins
Assuming that there are 2,400 minutes available in each machine, which machine is the
bottleneck?
a. Machine 1 c. Machine 3
b. Machine 2 d. No bottleneck operation
30. Assuming the same data in No. 51, how many units of A, B, C should be produced during
the week?
a. 93 of A, 60 of B, and 90 of C c. 60 of A, 60 of B, and 90 of C
b. 93 of A, 80 of B, and 60 of C d. 90 of A, 60 of B, and 90 of C
Budgeting
Operational budgets are used for planning and controlling its business activities. Data regarding
a company’s sales for the last 6 months of the year and its projected collection patterns are shown
below:
Forecast sales
July P775,000
August 750,000
September 825,000
October 800,000
November 850,000
December 900,000
Types of sales
Cash sales 20%
Credit sales 80%
Collection Pattern for Credit Sales
In the month of sale 40%
In the first month following the sales 57%
Uncollectible 3%
The cost of merchandise averages 40% of its selling price. The company’s policy is to maintain
an inventory equal to 25% of the next month’s forecast sales. The inventory balance cost is
P80,000 as of June 30.
31. The budgeted cost of the company’s purchases for the month of August would be
a. P302,500 c. P307,500
b. P305,000 d. P318,750
32. The company’s total cash receipts from sales and collections on account that would be
budgeted for the month of September would be
a. P757,500 c. P793,800
b. P771,000 d. P856,500
33. Arizona Inc. has projected sales: February, P 10,000; March, P 9,000; April, P 8,000; May, P 10,000
and June, P 11,000. Arizona has 30% cash sales and 70% sales on account. Accounts are collected
40% in the month following the sale and 55% collected the second month. What would be the total
cash receipts in May?
a. P 3,000
b. P 8,150
c. P 8,705
d. Some other number
34. Nevada Company manufactures a single product. The company keeps inventory of raw materials at
50% of the coming month’s budgeted production. Each unit of product requires 3 pounds of materials.
The production budget is (in units): May, 1,000; June, 1,200; July, 1,300; August, 1,600.
35. Michigan Merchandising is preparing its cash budget for June 2022 and made the following
projections:
Sales P 1,500,000
Gross Profit Rate 25%
Decrease in inventories P 70,000
Decrease in Accounts Payable for Inventories P 120,000
For June 2022, what were the estimated cash disbursements for inventories?
a. P 935,000 c. P 1,055,000
b. P 1,050,000 d. P 1,175,000
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