Republic of the Philippines

City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

Theoretical Analysis: Multiple Choice

Identify the letter of the choice that best completes the statement or answers the question. Show
your solutions if needed.

1. You are given the cost and volume information below:

Volume Cost
1 unit P 15
10 units P 150
100 units P 1,500

What type of a cost is given?

(a) fixed cost
(b) variable cost
(c) step cost
(d) mixed cost
(e) rent cost

2. Matt Company estimated its material handling costs at two activity levels as follows:
Kilos Handled Cost
80,000 P 160,000
60,000 132,000

What is Matt’s estimated cost of handling 75,000 kilos?

(a) P 150,000
(b) P 153,000
(c) P 157,500
(d) P 132,000
(e) P 140,000

Charity Company wants to analyze the behavior 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 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
Advertising 20,000 20,000 25,000 20,000

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

Managerial Accounting. 1st Sem 2021-2022 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

The sales staff are paid monthly salaries plus commission. Advertising expenses are charged
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.

3. In relation to the appropriate cost drivers, how should the company’s selling costs be classified?
Sales Salaries Commissions Shipping Costs Advertising
(a) Variable Variable Variable Variable
(b) Fixed Variable Variable Fixed
(c) Fixed Variable Mixed Fixed
(d) Mixed Variable Mixed Fixed
(e) Mixed Mixed Mixed Mixed

4. Using the mixed cost function, the cost formula for the shipping costs may be expressed as:
(a) y = 10,000 + 0.80x
(b) y = 0.80 + 10,000x
(c) y = 10,000 + 0.80
(d) y = 10,000 + 5,600
(e) y = 0.80 + 5,600 x

5. If the company plans to sell 36,000 units in May and fixed costs will remain at the April level,
the total selling costs for May would be
(a) P 122,600
(b) P 125,500
(c) P 127,800
(d) P 81,000
(e) P 100,000

Maco Corporation’s Research and Development Department was able to develop a new product
– a flashlight powered by solar energy. After reviewing the data prepared by the company’s
controller, Maco’s management is confident that the new product will contribute profit to the
company.

The data prepared by the controller are as follows:

Suggested selling price P 200
Costs: Materials 60
Costs: Parts Fabrication (P10 per hour) 40
Costs: Assembly (P6 per hour) 18
Costs: Variable overhead (P4 per hour) 28
Costs: Fixed Overhead (P3 per hour) 21
Total cost P 167

The total research and development costs incurred to develop the new product amounted to
P200,000. The company is planning to spend half of this amount for promotion and advertising.

The company’s fixed overhead includes rent, equipment depreciation, and salaries of factory
supervisors.

Managerial Accounting. 1st Sem 2021-2022 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

6. For Maco’s new flashlight, total prime costs amount to

(a) P 118
(b) P 167
(c) P 146
(d) P 107
(e) P 100

7. The difference between the flashlight’s suggested selling price of P200 and the total cost of
P167 represents each flashlight’s
(a) gross profit
(b) contribution margin
(c) net profit
(d) operating income
(e) variable cost

8. The total overhead cost of P49 per unit is a

(a) prime cost
(b) variable cost
(c) mixed cost
(d) fixed cost
(e) period cost

9. The total research and development cost of P200,000 incurred to develop the new product is
a(n)
(a) relevant cost
(b) sunk cost
(c) avoidable cost
(d) postponable cost
(e) irrelevant cost

10. The costs included in Maco’s fixed overhead are

(a) prime costs
(b) discretionary costs
(c) committed costs
(d) variable costs
(e) conversion costs

11. The planned spending on promotion and advertising for the flashlight is a
(a) variable cost
(b) discretionary cost
(c) sunk cost
(d) past cost
(e) fixed cost

Managerial Accounting. 1st Sem 2021-2022 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

Problem Solving

Fill in the missing amounts.

A B C
Beginning Balance 40,000 ______ 35,000
Ending Balance 32,000 16,000 ______
Transferred In ______ 8,000 8,000
Transferred Out 61,000 11,000 10,000

TOP Pickups is an up-scale, higher priced, specialty pick-up truck maker based in Binan,
Laguna. The management accountant for TOP Pickups compiled information for various levels
of pick-up truck output:

Pick-up Truck Output 3,000 Trucks 6,000 Trucks 9,000 Trucks

Variable production cost 29,640,000 _________ __________

Fixed production cost _________ 39,200,000 __________
Variable selling cost 4,500,000 __________ __________
Fixed selling cost 13,660,000 13,660,0000 __________
Total costs _________ __________ __________

Selling price per truck 46,000 40,100 35,900

Unit cost 29,000 _________ _________
Profit per truck _________ _________ _________

For the following problems, show your solution and double rule your final answer.

Tsokolate Corp. is a cookie company in Batangas City that produces and sells chocolate chip
cookies with extremely high quality and service. The owner would like to identify the various
costs incurred during each year in order to plan and control the costs in the business. Tsokolate’s
costs are the following (in thousands of pesos):

Utilities for the bakery P 2,100

Paper used in packaging product 90
Salaries and wages in the bakery 19,500
Cookie ingredients 35,000
Bakery labor and fringe benefits 1,300
Administrative costs 1,000
Bakery equipment maintenance 800
Depreciation of bakery plant and equipment 2,000
Uniforms 400
Insurance for the bakery 900
Rent for administration offices 17,200

Managerial Accounting. 1st Sem 2021-2022 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

Advertising 1,900
Boxes, bags, and cups used in the bakery 1,100
Manager’s salary 13,000
Overtime premiums 2,600
Idle time 500

1. What is the total amount of product costs?

2. What is the total amount of period costs?
3. What is the amount of prime costs?
4. What is the amount of conversion costs?

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
Insurance administration building 6,000
Depreciation on factory building 3,000
Salaries of administrative personnel 20,000
Depreciation – delivery equipment 2,000
Overtime pay – factory workers 1,500
Rework cost on defective products 2,500
discovered during quality inspection

5. What is the total amount of product costs?

6. What is the total amount of period costs?
7. What is the amount of prime costs?
8. What is the amount of conversion costs?

Cliff Lawrence owns CL Skating, an ice-skating rink that accommodates 200 people. Cliff
charges P10 per hour to skate. The cost of attendants to staff CL Skating is P100 per day.
Utilities and other fixed costs average P2,000 per month. Recently, the manager of an out-of-
town hockey team approached Cliff concerning renting the rink for a full day of practice on an
upcoming Sunday for the lump sum of P1,000. Attendants would not be needed. CL’s normal
operating hours on Sunday are 10 AM to 7 PM, and the average attendance is 10 skaters per
hour.
9. What is the opportunity cost of accepting the offer?

Managerial Accounting. 1st Sem 2021-2022 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

Zappa, a mechanic, left his P25,000-a-year job at Joe’s Garage to start his own body shop.
Zappa now draws an annual salary of P15,000. Identify his opportunity costs.
10. What is the opportunity cost of Zappa?

Managerial Accounting. 1st Sem 2021-2022 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY