Problem A:

James Corporation produces and sells a single product. The selling price is P30 and the variable costs is
P22 per unit. The corporations fixed costs is P100,000 per month. Average monthly sales is 12,500 units.

1. The corporations break-even point

2. The corporations contribution margin per unit and as a percent of sales (CMR).
3. If the corporation desires to earn profit of P25,000 before tax, it must generate sales of.
4. If the corporation pays corporate income tax at the rate of 30%, and it desires to earn after-tax profit
of P24,000, it must generate sales of.
5. How much sales (in pesos) must be generated to earn profit that is 10% of such sales?
6. How many units must be sold to earn profit of P5 per unit?
7. With an average monthly sales of 12,500 units, the corporations margin of safety is.
8. The margin of safety ratio (MSR) and the break-even sales ratio (BESR).
9. At the present average monthly sales level of 12,500 units, the corporations operating leverage
factor (OLF).
10. If fixed cost will increase by P22,000, the break-even point in units will increase (decrease) by.
11. if variable costs per unit will go up to P27, the peso break-even sales will increase (decrease) to
12. If selling price will increase by P5, the break-even point in unit will?

Problem B: page 183

Lakewood Company wants to analyze the behaviour of its selling costs for budgeting purposes. Cost
drivers (activity measures) and costs incurred in the first quarter and the first month of the second
quarter are as follows:
January February March April
Selling costs:
Sales Salaries P42,500 P42,500 P42,500 P51,000
Commissions 15,000 17,500 14,000 16,000
Shipping costs 34,000 38,000 32,400 35,600
Cost drivers:
Peso sales P300,000 P350,000 P280,000 P320,000
Sales in units 30,000 35,000 28,000 32,000
Sales orders 150 175 140 160

The sales staffs are paid monthly salaries plus commission. Advertising expenses are changed subject to
the discretion of management. The increase in sales salaries in April is due to the increase in the sales
staff, from five to six persons.

13. In relation to the appropriate cost drivers, how should the companys selling costs be classified?
14. Using high-low method and the algebraic equation, where y equals total shipping costs; a equals
total fixed costs; b equals variable shipping cost per unit; and x is the number of units sold, the cost
formula for the shipping costs may be expressed as.
15. If the company plan to sell 40,000 units in May and fixed costs will remain at the April level, the total
selling costs for May would be?

Problem C page 259

A company is planning to introduce a new product next year. Based on the market research conducted
before the new products launching, the sales manager estimates that the company can sell about
65,000 units of the product at P60 each.

Other data about the new product are as follows:

Available productive capacity 50,000 units
Variable costs: Prime costs P20
Factory overhead 5
Selling expenses 3
Total P28
Fixed costs:
Manufacturing costs, including P250,000 depreciation of
new manufacturing equipment P 800,000
Selling and administrative expenses 350,000
Total P1,150,000

16. The maximum amount of profit that can be earned by the company form the sales of the new
product next year is.
17. The companys management laid down a policy that it will not approve the manufacture and sale of
new products unless it would earn a profit ratio at least 20%. The unit selling price to achieve this target
must be.
18. Assume that it is not possible for the company to change the new products selling price and cost
structure. Considering the policy mentioned in previous item, will the production and sale of the new
product next year be approved by management.

Problem
D page 416
Proverbs Corporation uses an absorption costing system for internal reporting purposes. At present,
however, it is considering to use the variable costing system.

Following are some data regarding Proverbs Corporations budgeted and actual operations for the
calendar year 2015:
COSTS BUDGETED ACTUAL
Materials P25,200 P23,400
Labor 18,480 17,160
Variable Factory Overhead 8,400 7,800
Fixed Factory Overhead 10,640 10,000
Variable Selling Expense 16,800 15,000
Fixed Selling Expense 14,700 14,700
Variable Administrative Expense 4,200 3,750
Fixed Administrative Expense 6,300 6,375
TOTAL P104,720 P98,185

BUDGETED (units) ACTUAL (units)

Finished Goods beginning inventory 280 280
Production 1,120 1,040
Sales 1,120 1,000

The budgeted costs were computed based on the budgeted production and sales of 1,120 units, the
companys normal capacity level. Proverbs Corporation uses a predetermined factory overhead rate for
applying manufacturing overhead costs to its product. The denominator level used in developing the
predetermined rate is the firms normal capacity. Any over or underapplied factory overhead cost is
closed ot cost of goods sold at the end of the year.

There are no work in-process inventories at either the beginning or end of the year, The actual selling
price was the same as the amount planned P130.00. The beginning inventory of finished goods for
absorption costing purposes was valued at such per-unit manufacturing cost.

Under Variable Costing

19. The standard product costs per unit
20. The manufacturing cost variance
21. Proverbs Corporations operating income
22. The values of Proverbs Corporations actual ending finished goods inventory
23. Total fsixed cost expense
24. Actual manufacturing contribution margin
25. Actual contribution margin
26. Total variable cost expense

Under Absorption Costing

27. The standard product costs per unit
28. The manufacturing cost variance
29. Proverbs Corporations operating income
30. The values of Proverbs Corporations actual ending finished goods inventory
31. Total fixed cost expense
32. Actual manufacturing contribution margin
33. Actual contribution margin
34. Total variable cost expense
35. The difference between operating income calculated in variable and absorption costing.