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1. Lee Company, which has only one product, has provided the following data concerning
its most recent month of operations:
Fixed costs:
Fixed manufacturing overhead ........... P62,000
Fixed selling and administrative ....... 35,400
The company produces the same number of units every month, although the sales in units vary
from month to month. The company's variable costs per unit and total fixed costs have been
constant from month to month.
Required:
a. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare an income statement for the month using the contribution format and the
variable costing method.
d. Prepare an income statement for the month using the absorption costing method.
e. Reconcile the variable costing and absorption costing net incomes for the month.
2. Pabbatti Company, which has only one product, has provided the following data
concerning its most recent month of operations:
Fixed costs:
Fixed manufacturing overhead ........... P109,200
Fixed selling and administrative ....... 5,800
The company produces the same number of units every month, although the sales in units vary
from month to month. The company's variable costs per unit and total fixed costs have been
constant from month to month.
Required:
a. What is the unit product cost for the month under variable costing?
b. Prepare an income statement for the month using the contribution format and the
variable costing method.
c. Without preparing an income statement, determine the absorption costing net income
for the month.
(Hint: Use the reconciliation method.)
Profit Planning
1. Tilson Company has projected sales and production in units for the second quarter of
the coming year as follows:
Cash-related production costs are budgeted at $7 per unit produced. Of these production
costs, 40% are paid in the month in which they are incurred and the balance in the following
month. Selling and administrative expenses will amount to $110,000 per month. The accounts
payable balance on March 31 totals $193,000, which will be paid in April.
All units are sold on account for $16 each. Cash collections from sales are budgeted at 60%
in the month of sale, 30% in the month following the month of sale, and the remaining 10% in
the second month following the month of sale. Accounts receivable on April 1 totaled $520,000
($100,000 from February's sales and the remainder from March).
Required:
a. Prepare a schedule for each month showing budgeted cash disbursements for the Tilson
Company.
b. Prepare a schedule for each month showing budgeted cash receipts for Tilson Company.
At March 31 Streuling Enterprises, a merchandising firm, had an inventory of 38,000 units, and
it had accounts receivable totaling $85,000. Sales, in units, have been budgeted as follows for
the next four months:
Streuling's board of directors has established a policy to commence in April that the inventory
at the end of each month should contain 40% of the units required for the following month's
budgeted sales.
The selling price is $2 per unit. One-third of sales are paid for by customers in the month of
the sale, the balance is collected in the following month.
Required:
b. Prepare a schedule of expected cash collections for each of the months April, May, and
June.
TabComp Inc. is a retail distributor for MZB-33 computer hardware and related software. TabComp
prepares annual sales forecasts of which the first six months of the coming year are presented
below.
Cash sales account for 25% of TabComp's total sales, 30% of the total sales are paid by bank
credit card, and the remaining 45% are on open account (TabComp's own charge accounts).
The cash and bank credit card sale payments are received in the month of the sale. Bank credit
card sales are subject to a four percent discount which is deducted immediately. The cash
receipts for sales on open account are 70% in the month following the sale, 28% in the second
month following the sale, and the remaining are uncollectible.
TabComp's month-end inventory requirements for computer hardware units are 30% of the
next month's sales. The units must be ordered two months in advance due to long lead times
quoted by the manufacturer.
The company has no beginning or ending inventories and produced and sold 20,000 units during the month.
Required:
c. If sales increase by 100 units, by how much should net income increase?
d. How many units would the company have to sell to attain target profits of P125,000?
The following monthly data are available for the Challenger Company and its only product, Product SW:
Required:
a. Without resorting to calculations, what is the total contribution margin at the break-even point?
b. Management is contemplating the use of plastic gearing rather than metal gearing in Product SW.
This change would reduce variable costs by P15. The company’s marketing manager predicts that this
would reduce the overall quality of the product and thus would result in a decline in sales to a level of
350 units per month. Should this change be made?
c. Assume that Challenger Company is currently selling 400 units of Product SW per month.
Management wants to increase sales and feels this can be done by cutting the selling price by P25
per unit and increasing the advertising budget by P20,000 per month. Management believes that these
actions will increase unit sales by 50%. Should these changes be made?
d. Assume that Challenger Company is currently selling 400 units of Product SW. Management wants
to automate a portion of the production process for Product SW. The new equipment would
reduce direct labor costs by P20 per unit but would result in a monthly rental cost for the new robotic
equipment of P10,000. Management believes that the new equipment will increase the reliability of
Product SW thus resulting in an increase in monthly sales of 12%. Should these changes be made?
Tanner Company's most recent contribution format income statement is presented below:
The company sells its only product for P15 per unit. There were no beginning or ending inventories.
Required:
c. How many units would have to be sold to earn a target profit of P9,000?
d. The sales manager is convinced that a P6,000 increase in the advertising budget would increase total
sales by P25,000. Would you advise the increased advertising outlay?
Flexible Budgets
Required:
Required:
You have just been hired as the controller of the Eastern Division of Global Manufacturing.
Performance records for last year are incomplete, with only the following data available:
Required:
During the month of October, 6,000 units were produced. Selected cost data
relating to the month's production follow:
There was no beginning inventory of raw materials. The variable overhead rate is
based on direct labor-hours.
Required:
a. For direct materials, compute the price and quantity variances for the
month, and prepare journal entries to record activity for the month.
b. For direct labor, compute the rate and efficiency variances for the
month, and prepare a journal entry to record labor activity for the month.
c. For variable overhead, compute the spending variance for the month, and
prove the efficiency variance given above.
Standard Actual
Cost Cost
Standard: 4.0 yards at P5.40 per yard ...... P21.60
Actual: 4.4 yards at P5.05 per yard ......... P22.22
Direct labor:
Standard: 1.6 hours at P6.75 per hour ....... P10.80
Actual: 1.4 hours at P7.30 per hour ......... P10.22
Variable overhead:
Standard: 1.6 hours at P2.70 per hour ....... P 4.32
Actual: 1.4 hours at P3.25 per hour ......... P 4.55
Total cost per unit ....................... P36.72 P36.99
During this period, the company produced 4,800 units of this product. A
comparison of standard and actual costs for the period on a total cost basis is
given below:
Required:
a. For direct materials, compute the price and quantity variances for the
period and prepare journal entries to record all activity relating to direct
materials for the period.
b. For direct labor, compute the rate and efficiency variances and prepare a
journal entry to record the incurrence of direct labor cost for the period.
c. For variable overhead, compute the spending and efficiency variances.
ABC
Costs:
Wages and salaries ... P540,000
Travel expenses ...... P100,000
Other expenses ....... P140,000
Total .............. P780,000
Required:
Overhead costs:
Production overhead .. P150,000
Office expense ....... P100,000
Total .............. P250,000
The "Other" activity cost pool consists of the costs of idle capacity and organization-
sustaining costs.
Required:
a. Prepare the first-stage allocation of overhead costs to the activity cost pools by
filling in the table below:
Making Job
Awnings Support Other Total
Production overhead ..
Office expense .......
Total ..............
b. Compute the activity rates (i.e., cost per unit of activity) for the Making
Awnings and Job Support activity cost pools by filling in the table below:
Making Job
Awnings Support
Production overhead ..
Office expense .......
Total ..............
c. Prepare an action analysis report in good form of a job that involves making 80
yards of awnings and has direct materials and direct labor cost of P3,000. The
sales revenue from this job is P4,000.
For purposes of this action analysis report, direct materials and direct
labor should be classified as a Green cost; production overhead as a Red cost; and
office expense as a Yellow cost.
Relevant Costing
Required:
Required:
Which products should be processed beyond the split-off point?
Answer:
R J C o
Sales value after further
processing..................... $105,000 $117,000 $57,000
Sales value at split-off......... 76,000 71,000 48,000
Added sales value from processing 29,000 46,000 9,000
Added processing costs........... 26,000 38,000 12,000
Net gain (loss) from further
processing..................... $ 3,000 $ 8,000 $(3,000)
Required:
Which products should be processed beyond the split-off point?
Old New
Machine Machine
Original cost when new ............ $80,000 $85,000
Accumulated depreciation to date .. 32,000 ---
Current salvage value ............. 26,000 ---
Annual operating cost ............. 4,000 3,000
Remaining useful life ............. 4 years 4 years
Required:
Required: