TOPIC: COST BEHAVIOR

For the next 6 items:

For each of the following costs incurred in a manufacturing operation, indicate whether the costs would be fixed
or variable and whether they would be period costs or product costs. Two shaded letters per item. Shade:
A. Fixed
B. Variable
C. Product
D. Period

1. Assembly line workers wages B, C

2. Salaries of top executives in the company A. D
3. Sales commissions - B, D
4. Supplies used in assembly work B, C
5. Straight line depreciation on furniture for sales staff. A, D
6. Depreciation based on hours the machinery was used in production B, C

TOPIC: COST BEHAVIOR

7. Instead of having the space rented, the owner decided to use it in business. The forgone rental income is an
example of:
A. Standard cost
B. Opportunity cost
C. Differential cost
D. Sunk cost

TOPIC: COST BEHAVIOR

8. Letty purchased a delivery van worth P800,000. She expected to use the delivery van for 8 years. The
P800,000 purchase cost is an example of:
A. Differential cost
B. Relevant cost
C. Standard cost
D. Sunk cost

TOPIC: COST BEHAVIOR

9. Go Enterprises wants to offer a Tee Ey En Gee Ey shirt, a new product line, to its customers featuring
hugot quotations. The management is thinking of buying a new machine worth P500,000 to support this
product line. The P500,000 is an example of:
A. Standard cost
B. Relevant cost
C. Opportunity cost
D. Sunk cost

TOPIC: COST BEHAVIOR

For the next 2 items:
Following are costs incurred by Abtina Manufacturing Corporation during the previous month:

Direct materials 5,000

Indirect materials 2,000
Direct labor 6,000
Indirect labor 1,000
Factory utilities 4,000
Advertising costs 8,000
Sales commissions 12,000
Depreciation on administration building 3,000
Salaries of administrative personnel 20,000
Depreciation of delivery equipment 2,000
Overtime pay factory workers 1,500
Rework cost on defective products discovered during quality 2,500
inspection

10. Total product costs:

 A. P 67,000
B. P 45,000
C. P 22,000
D. P 18,000

11. Total period costs:

A. P 67,000
B. P 45,000
C. P 22,000
D. P 18,000

Product Period
costs costs
Direct materials 5,000.00 5,000.00
Indirect materials 2,000.00 2,000.00
Direct labor 6,000.00 6,000.00
Indirect labor 1,000.00 1,000.00
Factory utilities 4,000.00 4,000.00
Advertising costs 8,000.00 8,000.00
Sales commissions 12,000.00 12,000.00
Depreciation on administration building 3,000.00 3,000.00
Salaries of administrative personnel 20,000.00 20,000.00
Depreciation of delivery equipment 2,000.00 2,000.00
Overtime pay factory workers 1,500.00 1,500.00
Rework cost on defective products 2,500.00 2,500.00
discovered during quality inspection
22,000.00 45,000.00

TOPIC: COST BEHAVIOR

For the next 3 items:
The Awit Company manufactures several different products. Unit costs associated with Product ABC are as
follows:

Direct materials P 60
Direct labor 10
Variable manufacturing overhead 18
Fixed manufacturing overhead 32
Sales commissions (2% of sales) 4
Administrative salaries 16
Total P 140

12. What are the fixed costs per unit associated with Product ABC?
A. P 102
B. P 48
C. P 52
D. P 32

13. What are the inventoriable costs per unit associated with Product ABC?
A. P 120
B. P 140
C. P 50
D. P 88

14. What are the period costs per unit associated with Product ABC?
A. P4
B. P 16
 C. P 20
D. P52

Fixed Inventoriable Period

Direct materials 60
60.00
Direct labor 10
10.00
Variable manufacturing overhead 18
18.00
Fixed manufacturing overhead 32 32.00
32.00
Sales commissions (2% of sales) 4 4.00
Administrative salaries 16 16.00 16.00
Total 140 48.00 20.00
120.00

TOPIC: COST-VOLUME-PROFIT ANALYSIS PRODUCT MIX

For the next 4 items
Based on the following information:

Iphone Ipad Total

Sales price per unit P 70 P 130 P 200
Variable cost per unit 40 80 120
Fixed costs 15,700 25000 40,700
Units produced 2,000 1,000 3,000

15. The weighted contribution margin ratio is:

A. 38.46%
B. 40.00%
C. 40.74%
D. 42.86%

16. The weighted average contribution margin peso amount is:

A. P 17.00
B. P 20.00
C. P 36.67
D. P 80.00

Iphone Ipad Total

Sales 70.00 130.00
Less: Variable cost 40.00 80.00
Contribution margin 30.00 50.00
x Sales ratio 2/3 1/3
Weighted CM per product 20.00 16.67 36.67
Divided by: Weighted Sales 90.00
Weighted CM ratio 40.74%

Sales 70.00 130.00

x Sales ratio 2/3 1/3
Weighted Sales 46.67 43.33 90.00

17. The breakeven point in sales is:

A. P 94,967
B. P 99,900
C. P 101,750
D. P 105,820
 Total Fixed Cost 40,700.00
Divided by: Weighted CM ratio 40.74%
BE units 99,900.00

18. The percentage of total sales attributable to Iphone is:

A. 2/3
B. 1/3
C. 1/1
D. None of the above

TOPIC: COST-VOLUME-PROFIT ANALYSIS MIXED COSTS

19. The following data were collected from the records of the Receiving Department of a company:

Number of
Receiving and
Month Items
Handling Costs
Received
January 2,800 P 17,500
February 2,000 12,500
March 1,190 7,450
April 5,200 32,500
May 4,410 27,600
June 4,016 25,100

The receiving and handling cost is most likely to be a:

A. Step cost
B. Variable cost
C. Fixed cost
D. Semi-variable cost

Receiving
Number of
and
Month Items Per unit
Handling
Received
Costs
January 2,800 17,500 6.25
February 2,000 12,500 6.25
March 1,190 7,450 6.26
April 5,200 32,500 6.25
May 4,410 27,600 6.26
June 4,016 25,100 6.25

TOPIC: COST-VOLUME-PROFIT ANALYSIS

20. Which of the following statements is not correct?
A. All other factors remaining constant, a 10% decrease in the selling price of a given product will
have the same effect on profit as a 10% increase in the unit variable cost of such product.
B. Other things as they are, a P10,000 decrease in fixed costs will increase operating profit by
the same amount.
C. A change in the amount of fixed costs will not affect the ratio of variable costs to sales.
D. A change in fixed costs has no effect on the contribution margin.

TOPIC: COST-VOLUME-PROFIT ANALYSIS

21. Escareno Corporation has provided its contribution format income statement for June. The company
produces and sells a single product.

Sales (8,400 units) P 764,400

Variable expenses 445,200
Contribution margin 319,200
Fixed expenses 250,900
Net operating income P 68,300
 If the company sells 8,200 units, its total contribution margin should be closest to:
A. P 301,000
B. P 311,600
C. P 319,200
D. P 66,674

Per unit For 8,200 units

Sales (8,400 units) 764,400.00 91.00 746,200.00
Variable expenses 445,200.00 53.00 434,600.00
Contribution margin 319,200.00 38.00 311,600.00
Fixed expenses 250,900.00
Net operating income 68,300.00

TOPIC: COST-VOLUME-PROFIT ANALYSIS

22. The Bronco Birdfeed Company reported the following information:

Sales (400 cases) P 100,000

Variable expenses 60,000
Contribution margin 40,000
Fixed expenses 35,000
Net operating income P 5,000

How much will the sale of one additional case add to Bronco's net operating income?
A. P 250.00
B. P 100.00
C. P 150.00
D. P 12.50

Per unit
Sales (400 cases) 100,000.00 250.00
Variable expenses 60,000.00 150.00
Contribution margin 40,000.00 100.00
Fixed expenses 35,000.00
Net operating income 1.14

TOPIC: COST-VOLUME-PROFIT ANALYSIS

For the next 3 items:
Meng Company is preparing a flexible budget for next year and requires a breakdown of the factory
maintenance cost into fixed and variable elements.

The maintenance costs and machine hours (the selected cost driver) for the past six months are as follows:

Month Maintenance costs Machine Hours

January P 15,500 1,800
February 10,720 1,230
March 15,100 1,740
April 15,840 2,190
May 14,800 1,602
June 10,600 1,590

23. If Meng Company uses the high-low method of analysis, the estimated variable rate of maintenance cost per
machine hour is:
A. P7.23
B. P 8.73
C. P 5.46
D. P 5.33
 24. The average annual fixed maintenance cost amounts to:
A. P 4,160
B. P 8,320
C. P 4,920
D. P 5,120

25. What is the average rate per hour at a level of 1,500 machine hours?
A. P 5.33
B. P 8.11
C. P 7.23
D. P 5.46

Machine hrs Maintenance

Highest 2,190.00 15,840.00
Lowest (1,230.00) (10,720.00)
960.00 5,120.00

Difference in Maintenance 5,120.00

Divided by 960.00
Variable cost per unit 5.33

Maintenance cost -
15,840.00
highest
Variable cost
Variable cost per unit 5.33
x Machine hrs - Highest 2,190.00 (11,680.00)
Fixed cost 4,160.00

Variable cost per unit 5.33

X Machine Hours 1,500.00
Variable cost 8,000.00
Fixed cost 4,160.00
Total cost 12,160.00
Divided by: 1,500.00
Rate per machine hour 8.11

TOPIC: COST-VOLUME-PROFIT ANALYSIS

For the next 3 items:
Meng Company decided to use regression in computing for the fixed and variable costs. The computer
generated report shows the following:

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.765843978
R Square 0.586516999
Adjusted R Square 0.483146249
Standard Error 1745.032065
Observations 6

ANOVA
df SS MS F Significance F
Regression 1 17277852.36 17277852.36 5.673916436 0.075824289
Residual 4 12180547.64 3045136.91
Total 5 29458400

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 3752.699708 4261.194147 0.880668559 0.428231809 -8078.271923 15583.67134 -8078.271923 15583.67134
Machine Hours 5.914480078 2.482990772 2.381998412 0.075824289 -0.979407499 12.80836765 -0.979407499 12.80836765
 26. The variable cost per unit amounted to:
A. P 3,752.70
B. P 5.91
C. P4,261.19
D. P 2.48

27. The fixed costs amounted to:

A. P 3,752.70
B. P 5.91
C. P4,261.19
D. P 2.48

28. If the company used 2,000 machine hours, the estimated maintenance costs amounted to:
A. P 8,718.68
B. P 9,227.18
C. P 15,581.66
D. P 16,090.15

Machine hourse 2,000.00

X Variable cost 5.91
11,828.96
Add: Fixed costs 3,752.70
Total Maintenance Costs 15,581.66

TOPIC: COST-VOLUME-PROFIT ANALYSIS

29. Gayne Corporation's contribution margin ratio is 12% and its fixed monthly expenses are P84,000. If the
company's sales for a month are P738,000, what is the best estimate of the company's net operating
income? Assume that the fixed monthly expenses do not change.
A. P 565,440
B. P 654,000
C. P 88,560
D. P 4,560

Sales 738,000.00
x CM ratio 12%
Contribution margin 88,560.00
Less: Fixed costs 84,000.00
Net Income 4,560.00

TOPIC: COST-VOLUME-PROFIT ANALYSIS

For the next 5 items
Mascara Company were able to sell 10,000 products at P20 per unit. The following information is also
available:

Contribution margin ratio 30%

Margin of safety ratio 25%
Degree of operating leverage 4x

Compute for the following:

30. Contribution Margin P 60,000
31. Net income P 15,000
32. Fixed costs P 45,000
33. Break-even sales peso amount P150,000
34. Net income if sales volume increase by 30% - P 33,000
35. Net income if sales price increase by 30%
 Actual
Sales 200,000.00
Variable costs (140,000.00)
Contribution margin 60,000.00
Fixed costs (45,000.00)
Net income 15,000.00

DOL 4.00
MOSR 25%

Actual sales 200,000.00

x 1-MOSR (100%-25%) 0.75
BE Sales 150,000.00

Contribution margin 60,000.00

Divided by: DOL 4.00
Net income 15,000.00

Contribution margin 60,000.00

Less: Net income (15,000.00)
Fixed costs 45,000.00

Net income 15,000.00

X Increase in sales 0.30
X DOL 4.00
Increase in net income 18,000.00
Add: Current net income 15,000.00
Net income after 30% increase in sales 33,000.00

TOPIC: COST-VOLUME-PROFIT ANALYSIS

36. Jilk Inc.'s contribution margin ratio is 58% and its fixed monthly expenses are P36,000. Assuming that the
fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a
month when sales are P103,000?
A. P 23,740
B. P 59,740
C. P 67,000
D. P 7,260