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SCM - Answer Key

BS Accountancy (Polytechnic University of the Philippines)

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Chapter 1 Strategic Cost Management and Management Accounting

Answer Key

TRUE OR FALSE
1 FALSE 16 FALSE 31 TRUE
2 FALSE 17 FALSE 32 FALSE
3 FALSE 18 FALSE 33 FALSE
4 TRUE 19 FALSE 34 TRUE
5 FALSE 20 TRUE 35 TRUE
6 TRUE 21 FALSE 36 TRUE
7 FALSE 22 TRUE 37 TRUE
8 FALSE 23 TRUE 38 TRUE
9 FALSE 24 FALSE 39 FALSE
10 FALSE 25 TRUE 40 TRUE
11 TRUE 26 TRUE 41 TRUE
12 TRUE 27 TRUE 42 TRUE
13 TRUE 28 FALSE 43 TRUE
14 TRUE 29 TRUE 44 FALSE
15 TRUE 30 FALSE 45 TRUE
46 TRUE
47 TRUE
48 FALSE
49 TRUE
50 TRUE

MULTIPLE CHOICE
Strategic Cost Management and Managerial Accounting
1 D 16 A 31 C
2 B 17 B 32 B
3 B 18 B 33 D
4 C 19 B 34 A
5 C 20 A 35 D
6 B 21 A 36 C
7 C 22 D 37 C
8 D 23 A 38 C
9 A 24 C 39 B
10 D 25 D 40 B
11 B 26 C
12 B 27 C
13 C 28 C
14 D 29 B
15 B 30 D

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Management Accounting Information System

1 B 16 A
2 C 17 B
3 D 18 D
4 B 19 B
5 C 20 C
6 B 21 B
7 A 22 A
8 C 23 D
9 B 24 B
10 A 25 B
11 C 26 A
12 A 27 B
13 C 28 D
14 C 29 B
15 A 30 D

PROBLEMS
1.1 SEE TEXT 1.4
1 M
1.2 1.3 2 F
a FA a L 3 F
b FA b S 4 M
c MA c S 5 M
d MA d L 6 F
e FA e L 7 M
f FA f L 8 F
9 M
10 F

1.5 This problem can form the basis of an introductory discussion of the entire field of management accounting:

in addition, the following basic distinctions of financial accounting and management accounting

1 The focus of management accounting is on helping internal users to make better decisions, whereas the
focus of financial accounting is on helping external users to make better decisions. Management accounting
helps in making a host of decisions, including pricing, product choices, investments in equipment, making
or buying goods and services, and manager rewards.

2 GAAP affect both internal and external accounting. However, change in internal accounting is not
inhibited by GAAP. For example, if an organization wants to account for assets on the basis of replacement
costs for internal purposes, no outside agency can prohibit such accounting. This means the company
may set up several sets of records to suit to every reports the management may need for specific purpose

3 Budgets, the formal expressions of management plans, are a major feature of management accounting,
whereas they are not as prominent in financial accounting. Budgets are major devices for compelling and
disciplining management planning.

4 An important use of management accounting information is evaluation of performance, which often takes the
form of comparison of actual resulfs against budgets, providing incentive and feedback to improve future
decisions.

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Chapter 2 Cost Concept, Classification and Behavior

Answer Key
I TRUE OR FALSE

1 FALSE 11 FALSE 21 TRUE

2 TRUE 12 TRUE 22 TRUE
3 TRUE 13 FALSE 23 FALSE
4 FALSE 14 FALSE 24 TRUE
5 TRUE 15 FALSE 25 FALSE
6 TRUE 16 FALSE 26 TRUE
7 TRUE 17 TRUE 27 TRUE
8 TRUE 18 TRUE 28 TRUE
9 TRUE 19 TRUE 29 TRUE
10 TRUE 20 TRUE 30 TRUE

II Multiple Choice

1 B 16 D 31 C
2 D 17 C 32 C
3 D 18 C 33 B
4 NO ANSWER 19 D 34 A
5 B 20 C 35 D
6 D 21 C
7 C 22 C
8 B 23 B
9 C 24 A
10 A 25 D
11 C 26 D
12 B 27 C
13 D 28 B
14 C 29 A
15 D 30 A

NOTE: NO 4 ANSWER SHOULD BE NO, NO AND YES, RESPECTIVELY

Problems

2.1 1 TC = P9,000 + 0.5x

2 P26,500
3 Cannot be determined (Outside the relevant range)

2.2 1 P153,750
2 Cannot be determined (Outside the relevant range)

2.3 1 P148,750
2 P190,750

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Chapter 3 Product Costing

Answer Key

I TRUE OR FALSE
1 TRUE 11 FALSE 21 FALSE
2 TRUE 12 TRUE 22 TRUE
3 FALSE 13 FALSE 23 TRUE
4 TRUE 14 TRUE 24 FALSE
5 TRUE 15 TRUE 25 FALSE
6 FALSE 16 TRUE
7 TRUE 17 FALSE
8 FALSE 18 TRUE
9 FALSE 19 FALSE
10 TRUE 20 TRUE

II MULTIPLE CHOICE QUESTIONS

1 D 11 B 21 A
2 D 12 B 22 D
3 A 13 C 23 A
4 C 14 A 24 B
5 D 15 B 25 D
6 B 16 C
7 D 17 C
8 A 18 A
9 B 19 D
10 A 20 C

III MULTIPLE CHOICE PROBLEMS

1 C P26.00 P10 + P6 + P2 +(P480,000 / 60,000) = 26.00

2 B P18.00 P10 + P6 + P2 = 18.00

3 C P1,300,000 P26 X 50,000 units 1,300,000.00

4 A P180,000 produced 60,000 units

sold 50,000 units
ending inventory 10,000 units x P18.00 cost per unit 180,000.00

5 B P80,000 produced 60,000 units

sold 50,000 units
ending inventory 10,000 units x P8.00 cost per unit 80,000.00
Factory overhed per unit = P480,000 / 60,000 units = P8.00

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6 B P14,000 y2007 y2008 y2009

beginning 0 - 4.00
+ units produced 20 20 20.00
- units sold -20 -16 -24
= ending inventory 0 4 0
Sales 16 units at P11,000 176,000.00
cost of sales :
variable cost 6,000.00
fixed overhead P30,000 / 20 units 1,500.00
7,500.00
units sold 16 120,000.00
gross profit 56,000.00
Less, operating expenses:
variable selling & administrative P125 x 16 = 2,000.00
fixed selling and administrative 40,000.00 42,000.00
Net income 14,000.00

7 C P41,000 Sales 24 units at P11,000 264,000.00

cost of sales :
variable cost 6,000.00
fixed overhead P30,000 / 20 units 1,500.00
7,500.00
units sold 24 180,000.00
gross profit 84,000.00
Less, operating expenses:
variable selling & administrative P125 x 24 = 3,000.00
fixed selling and administrative 40,000.00 43,000.00
Net income 41,000.00

8 A P8,000 Sales 16 units at P11,000 176,000.00

variable costs
cost of sales 6,000.00
selling & administrative 125.00
6,125.00
units sold 16 98,000.00
contribution margin 78,000.00
Less, fixed costs:
factory overhead 30,000.00
selling and administrative costs 40,000.00 70,000.00
Net income 8,000.00

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9 D P47,000 Sales 24 units at P11,000 264,000.00

variable costs
cost of sales 6,000.00
selling & administrative 125.00
6,125.00
units sold 24 147,000.00
contribution margin 117,000.00
Less, fixed costs:
factory overhead 30,000.00
selling and administrative costs 40,000.00 70,000.00
Net income 47,000.00

Production
10 D P17 & P16 under 40,000 under 50,000
variable cost per unit 12.00 12.00
fixed cost per unit
at 40,000 = P200,000 / 40,000 5.00
at 50,000 = P200,000 / 50,000 4.00
total cost per unit 17.00 16.00

11 D P12 & P12 only variable manufacturing costs

Production
12 B P390,000 & P430,000 under 40,000 under 50,000
Sales 40,000 units 1,200,000.00 1,200,000.00
total costs of sales 680,000.00 640,000.00
gross profit 520,000.00 560,000.00
Less Expenses variable selling P2 per unit 80,000.00 80,000.00
fixed selling & administrative 50,000.00 50,000.00
total expenses 130,000.00 130,000.00
net income 390,000.00 430,000.00

Production
13 A P390,000 & P390,000 under 40,000 under 50,000
Sales 40,000 units 1,200,000.00 1,200,000.00
variable costs: Cost of sales 480,000.00 480,000.00
Selling & administrative 80,000.00 80,000.00
560,000.00 560,000.00
contribution margin 640,000.00 640,000.00
less, Fixed expenses Manufacturing 200,000.00 200,000.00
Selling & administrative 50,000.00 50,000.00
total expenses 250,000.00 250,000.00
net income 390,000.00 390,000.00

14 A refer to number 12

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15 B Note There was no inventory at January 1, 2007.

P200 decrease Variable costing (P6 x 100 ) 600.00
Absorption costing ( P8 x 100) 800.00
difference (200.00)

16 C P19.00 Cost per unit under AC P5 + P 6 + P1 + (P21000/ 3000) = P19.00

17 A P3,600 Net income per AC 7,800.00

Fixed Factory OH in EI (2,000 x [P18,500 /6,000]) (4,200.00)
Net income per VC 3,600.00

18 B P4,000 loss Net income per AC 2,000.00

Less, Fixed Factory OH in EI [2,000 x (P18,000/6000)] (6,000.00)
Net loss per VC (4,000.00)
OR
Sales 40,000.00
Variable cost of sales (4000 x P5.00) 20,000.00
Variable Selling Expenses 4,000.00
Total variable costs 24,000.00
CM 16,000.00
Fixed costs manufacturing costs 18,000.00
Fixed selling 2,000.00
Total fixed costs 20,000.00
Net loss (4,000.00)

19 B P4,000 Net income per VC 2,000.00

Add, Fixed FOH in EI [1,000 x (P12,000/6,000)] 2,000.00
Net income per AC 4,000.00
OR
Sales 65,000.00
Cost of sales
Production - variable 5,000 x P7 35,000.00
Production - fixed (P12,000 / 6,000) x 5,000 10,000.00
Total variable costs 45,000.00
Gross Profit 20,000.00
Expenses: Fixed selling 6,000.00
Variable 10,000.00 16,000.00
Net loss 4,000.00

20 B P16.00 P4.00 + P2.00 + P10.00 = 16.00

21 A P10.00 Cost per unit = [P4 + P2 + (P10 x 40%)] = 10.00

22 D (P2,000) Net income per AC 6,000.00

Less, Fixed FOH in EI 2,000 x P4.00 (8,000.00)
Net income (loss) per VC (2,000.00)

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23 A P36,000 Fixed cost expensed:

From COGS6,000 x P4.00 24,000.00
From sellinP18,000 x 2/3 12,000.00

24 A P2,400 greater Variable Absorption

Costing Costing
Sales (300 x P50) 15,000.00 15,000.00
Less, Cost of goods sold
Variable costs (300 x P10) 3,000.00 3,000.00
Fixed FOH (P6,000/500) x P300 - 3,600.00
Total 3,000.00 6,600.00
CM/GP 12,000.00 8,400.00

Less, Fixed Costs/Operating Exp.

Manufacturing fixed costs 6,000.00 -
Variable selling 2,000.00 2,000.00
Fixed selling 4,500.00 4,500.00
Total 12,500.00 6,500.00
Net income (500.00) 1,900.00
Net income per AC 1,900.00
Net loss per VC (500.00)
Net income per AC greater than Net income per VC 2,400.00

25 B P2,000 Ending inventory 200 x P10.00 = 2,000.00

26 C P20,000 Net income per VC 10,000.00

Add, Fixed FOH in ending inventory (P22 -P12) x 1,000 10,000.00
Net income per AC 20,000.00

27 D P20,000 Production 12,500

Sold 10,000
Ending Inventory 2,500 x P8.00 per unit 20,000.00

28 D P25,000 Units in ending inventory 2,500

Cost per unit P8.00 + (P25,000/ 12,500) = P10 x 2,500 = 25,000.00

29 B P117,500 Cost of sales 10,000 x P8.00 = 80,000.00

Selling & Administrative expense 12,500 x P3.00 = 37,500.00
117,500.00

30 A P35,000 Cost of sales 10,000 x (P25,000 / 12,500) = 20,000.00

Selling and Administrative expense 15,000.00
35,000.00

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PROBLEMS
3.1 1 Using absorption costing
Direct material 30.00
Direct labor 12.00
Variable overhead 3.00
Fixed overhead (P108,000 / 12,000) 9.00
Total Production 54.00

Absorption Costing Income statement

Sales (10,000 x P110 ) 1,100,000.00
Less, Cost of Sales (10,000 x P54 ) 540,000.00
Gross Profit 560,000.00
Less, Operating Expenses:
Selling & Administrative - Fixed 200,000.00
Selling & Administrative - Variable 40,000.00 240,000.00
Net income 320,000.00

2 Using variable costing

Direct material 30.00
Direct labor 12.00
Variable overhead 3.00
Total Production 45.00

Variable Costing Income statement

Sales (10,000 x P110 ) 1,100,000.00
Less, Variable costs:
Manufacturing costs 10,000 x P45 450,000.00
Selling & Administrative 10,000 x P4 40,000.00 490,000.00
Contribution margin 610,000.00
Less, Fixed costs:
Manufacturing costs 108,000.00
Selling & Administrative 200,000.00 308,000.00
Net income 302,000.00

3 Difference in net income

Per absorption costing 320,000.00
Per variable costing 302,000.00
Difference (2,000 EI x P9 Fixed FFOH) 18,000.00
a When production exceeds sales ( P > S ), net income per AC is greater than
net income per VC as there are Fixed FOH that are inventoried.

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3.2 1 Cost per unit under Absorption costing (P90 + [ P450,000 / 20,000 units] ) = P112.50
Sales 17,000 x P200 3,400,000.00
Less, Cost of slaes 17,000 x P112.50 1,912,500.00
Gross Profit 1,487,500.00
Less, Expenses:
Variable selling & adm 17,000 x P22 374,000.00
Fixed selling & adm 500,000.00 874,000.00
Net income 613,500.00

2 Inventory at end 3,000 x P112.50 337,500.00

3.3 Variable costing method Production at

30,000 cans 50,000 cans
Sales ( 30,000 at P15. per unit) 450,000.00 450,000.00
Less Variable costs - Production 30,000 x P7 210,000.00 210,000.00
Contribution margin 240,000.00 240,000.00
Less Fixed costs
Production 150,000.00 150,000.00
Selling & Administrative 25,000.00 25,000.00
175,000.00 175,000.00
Net income 65,000.00 65,000.00

3.4 Net income per Absorption costing 62,000.00

- FOH in EI [(P45,000 - P41,000) x (P225,000 / 45,000)] 20,000.00
Net income per Variable costing 42,000.00

3.5
Sales 2,000,000.00
Less, Variable costs:
Cost of sales [P1,500,000 - (250,000 x P3.00)] 750,000.00
Operating expenses 125,000.00 875,000.00
Contribution margin 1,125,000.00
Less, Fixed costs:
Manufacturing costs(P1,500,000 - P750,000) 750,000.00
Operating expenses 100,000.00 850,000.00
Net income 275,000.00

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3.6 1 ABSORPTION COSTING METHOD

Sales 174,000.00
Less, Cost of sales
Direct materials 44,000.00
Direct labor 36,000.00
Factory overhead 56,000.00
Total manufacturing costs 136,000.00
Less, cost of inventory for 2,000 units
(P136,000 / 16,500) x 2,000 units 16,484.85 119,515.15
Gross Profit 54,484.85
Less, V
Operating expenses
Selling and marketing expenses 20,000.00
General & Administrative expenses 12,000.00 32,000.00
Net income 22,484.85

2 VARIABLE COSTING METHOD

Sales 174,000.00
Less, Variable costs of sales
Direct materials 44,000.00
Direct labor 36,000.00
Factory overhead 16,000.00
Total manufacturing costs 96,000.00
Less, cost of inventory for 2,000 units
(P96,000 / 16,500) x 2,000 units 11,636.36 84,363.64
Manufacturing contribution margin 89,636.36
Less, Variable operating expenses:
Selling and marketing expenses 10,000.00
General & Administrative expenses 2,000.00 12,000.00
Final Contribution margin 77,636.36
Less, Fixed costs:
Factory overhead 40,000.00
Selling and marketing expenses 10,000.00
General & Administrative expenses 10,000.00 60,000.00
Net income 17,636.36
3 Net income per Variable costing 17,636.36
+ Fixed FOH in ending inventory 2,000 x (P40,000 /16,500) 4,848.48
= Net income per absorption costing 22,484.84

The difference is due to the treatment in the Fixed FOH. The full amount of P40,000 was charged to the
revenues under variable costing while only P35,151.52 (P40,000 /16,500 x 14,500) was charged to the
revenues under the absorption costing. (P40,000 - P35,151.52)

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3.7 Variable Absorption

Costing Costing
Direct materials 3.00 3.00
Direct labor 2.00 2.00
Variable overhead 1.00 1.00
Fixed overhead (P30,000 /100,000) - 3.00
Total cost per unit 6.00 9.00
Ending inventory in units 25,000 25,000
1 Cost of ending inventory 150,000.00 225,000.00
Sales in units 75,000 75,000
2 Cost of sales 450,000.00 675,000.00
Sales 2,100,000.00 2,100,000.00
Less, Cost of sales 450,000.00 675,000.00
Fixed factory overhead 300,000.00 -
Selling & Administrative -variable 75,000.00 75,000.00
Selling & Administrative -fixed 160,000.00 160,000.00
Total 985,000.00 910,000.00
3 Net income 1,115,000.00 1,190,000.00

3.8 Variable Absorption

Costing Costing
Direct materials 80,000.00 80,000.00
Direct labor 100,000.00 100,000.00
Factory overhead - variable 72,000.00 72,000.00
Factory overhead - fixed - 60,000.00
Total cost 252,000.00 312,000.00
Units produced 12,000 12,000
1 cost per unit 21.00 26.00
Units sold 10,000 10,000
2 Cost of goods sold 210,000.00 260,000.00
Net income per variable costing 40,000.00
- Fixed factory overhead in beginning inventory (P60,000/12,000) x 2,000 (10,000.00)
+ Fixed factory overhead in ending inventory (2,000 + 12,000 - 10,000) x P5.00 20,000.00
Net income per absorption costing 50,000.00

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3.9
1 Absorption costing method Year 1 Year 2
Sales 260,000.00 460,000.00
Less Cost of Sales
Beginning inventory - 70,000.00
Add, Current costs:
Variable Manufacturing costs at P7.50 150,000.00 135,000.00
Fixed costs 50,000.00 54,000.00
Add, Current costs 200,000.00 189,000.00
Total Available for sale 200,000.00 259,000.00
Less, Ending inventory * 70,000.00 21,000.00 **
Cost of sales 130,000.00 238,000.00
Gross profit 130,000.00 222,000.00
Selling and administrative expense 45,000.00 75,000.00
Net income 85,000.00 147,000.00
* 7,000 x (P200,000/20,000) = P70,000
** 2,000 x (P189,000/18,000) = P21,000

2 Variable costing method

Sales 260,000.00 460,000.00
Less, Variable costs
Cost of sales
Beginning inventory - 52,500.00
Current costs 150,000.00 135,000.00
Available for sale 150,000.00 187,500.00
Ending inventory * 52,500.00 15,000.00 **
Cost of sales 97,500.00 172,500.00
Variable expenses (P45,000 x 40%) 18,000.00 30,000.00 (P75,000 x 40%)
Total variable costs 115,500.00 202,500.00
Contribution margin 144,500.00 257,500.00
Less, Fixed costs
Factory overhead 50,000.00 54,000.00
Selling and Administrative (P45,000 x 60%) 27,000.00 45,000.00 (P75,000 x 60%)
Total fixed costs 77,000.00 99,000.00
Net income 67,500.00 158,500.00
* 7,000 x (P150,000/20,000) = P52,500
** 2,000 x (P135,000/18,000) = P15,000

3 Difference in Net income

Net income per absorption costing 85,000.00 147,000.00
Net income per variable costing 67,500.00 158,500.00
Difference 17,500.00 (11,500.00)

Fixed factory overhead in Ending inventory

Per absorption costing 70,000.00 21,000.00
Per variable costing 52,500.00 15,000.00
17,500.00 6,000.00
Fixed factory overhead in Beginning inventory
Per absorption costing - 70,000.00
Per variable costing - 52,500.00
- 17,500.00
Total Difference 17,500.00 (11,500.00)

OR
Net income per Absorption costing 85,000.00 147,000.00
+ Fixed factory overhead in beg. Inventory
Y1 -
Y2 7000 x P2.50 17,500.00
- Fixed factory overhead in end. Inventory
Y1 7000 x P2.50 (17,500.00)
Y2 2000 x P3.00 (6,000.00)
Net income per Variable costing 67,500.00 158,500.00

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3.10 1 Variable costing method Year 1 Year 2

Sales (14,000 @ P45) (16,000 @ P45) 630,000.00 720,000.00
Less Variable costs
Cost of goods sold
Beginning inventory, at std., P25 - 75,000.00
Current costs at std., at P25 425,000.00 350,000.00
Total 425,000.00 425,000.00
Ending inventory, at std. P25 75,000.00 25,000.00
Variable cost of goods sold 350,000.00 400,000.00
Variable selling and Adm., Expenses - -
Total Variable costs 350,000.00 400,000.00
Contribution Margin 280,000.00 320,000.00

Less, Fixed Costs:

Factory overhead 120,000.00 120,000.00
Selling & Administrative Expenses - -
Total Fixed costs 120,000.00 120,000.00
Operating income 160,000.00 200,000.00

2 Absorption cosing method

Sales (14,000 @ P45) (16,000 @ P45) 630,000.00 720,000.00
Less Cost of goods sold
Beginning inventory, at std., P33* - 99,000.00
Current costs at std., at P33 561,000.00 462,000.00
Total 561,000.00 561,000.00
Ending inventory, at std. P33 99,000.00 33,000.00
Variable cost of goods sold 462,000.00 528,000.00
Gross Profit at standard 168,000.00 192,000.00
Production volume variance - Fav (Unfav)** 16,000.00 (8,000.00)
Gross Profit at Actual 184,000.00 184,000.00
Less Operating Expenses:
Selling & Administrative Expenses - -
Operating income 184,000.00 184,000.00

* Standard costs : Variable costs 25.00

Fixed costs (P120,000 / 15,000) 8.00
33.00
** Production volume variance:
Year 1 17,000 - 15,000 x P8 16,000.00 Favorable
Year 2 14,000 - 15,000 x P8 8,000.00 Unfavorable

3 Reconciliation of net income Year 1 Year 2 total

Net income per variable costing 160,000.00 200,000.00 360,000.00
Fixed factory overhead costs in:
Beginning inventory
Y 1 0 -
Y2 3000 x P8 (24,000.00)
Ending inventory
Y1 3000 x P8 24,000.00
Y2 1000 x P8 8,000.00 8,000.00
Net income per absorption costing 184,000.00 184,000.00 368,000.00

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3.11
1 Standard costs Variable Absorption
Costing Costing
Direct materials 3.00 3.00
Direct labor 6.00 6.00
Variable overhead 1.00 1.00
Fixed overhead - 1.10
10.00 11.10
2 Units so * Sales (20,000 + 110,000 - 12,000 ) 118,000.00 118,000.00
Cost of goods sold 1,180,000.00 1,309,800.00
Less, Prod. volume variance (100,000 - 110,000 ) x P1.10 - (11,000.00) Fav.
Cost of goods sold at actual 1,180,000.00 1,298,800.00

3.12
Direct materials and direct labor 500,000.00
Factory overhead 100,000.00
Total Manufacturing costs 600,000.00
Units produced 1,000.00
Cost per unit 600.00
Ending finished goods in units 200.00
Cost of ending finished goods 120,000.00

3.13
No. 1 No. 2
Fixed manufacturing costs 44,000.00 -
Variable manufacturing costs 12,000.00 12,000.00
Direct materials 30,000.00 30,000.00
Direct labor 24,000.00 24,000.00
Total costs a 110,000.00 66,000.00
Units produced b 2,200 2,200
cost per unit ( a / b) c 50.00 30.00
Units of ending inventory d 300.00 300.00
cost of ending inventory (c x d) e 15,000.00 9,000.00

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3.14
a Absorption costing
Sales 256,000.00
Less, cost of goods sold
Beginning inventory -
Current Production 160,000.00
Available for sale 160,000.00
Ending inventory 2,000 x P16 (32,000.00) 128,000.00
Gross Profit 128,000.00
Less Expenses 80,000.00
Net income 48,000.00

b Variable costing
Sales 256,000.00
Less, Cost of goods sold
Variable manufacturing costs 96,000.00
Less, Ending inventory 2,000 x P9.60 (19,200.00) 76,800.00
Contribution Margin 179,200.00
Less, Fixed costs:
Manufacturing costs 64,000.00
Selling & Administrative Expenses 80,000.00 144,000.00
Net income 35,200.00
OR
Net income per absorption costing 48,000.00
Fixed factory overhead in Ending inventory (P6.40 x 2,000) (12,800.00)
Net income per variable costing 35,200.00

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Chapter 4 Cost Volume Profit Analysis

Answer Key

I TRUE OR FALSE
1 TRUE 11 TRUE 21 FALSE
2 FALSE 12 FALSE 22 TRUE
3 TRUE 13 FALSE 23 TRUE
4 TRUE 14 FALSE 24 TRUE
5 TRUE 15 TRUE 25 TRUE
6 FALSE 16 FALSE
7 TRUE 17 TRUE
8 FALSE 18 FALSE
9 TRUE 19 FALSE
10 FALSE 20 FALSE

II MULTIPLE CHOICE THEORY

1 C 13 B 25 D
2 B 14 B 26 C
3 D 15 B 27 C
4 A 16 A 28 B
5 B 17 D 29 B
6 D 18 C 30 A
7 A 19 D
8 A 20 B
9 B 21 B
10 C 22 B
11 B 23 D
12 C 24 C

III MULTIPLE CHOICE PROBLEMS

1 C 6,200 units fixed costs P74,400 / P12 = 6,200.00

2 D P6,000 Sales 40,000.00

x CMR (100% - 30% ) 0.70
Contribution margin 28,000.00
- Advertising expense 22,000.00
= Increase in net income 6,000.00

3 A 62.50% Selling price per unit 200.00

Variable cost per unit 75.00
CM per unit 125.00
CMR = (SP / CM) 62.5%

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4 B P540.00 CM / unit = P60,000 - P24,000 = P36,000 / 2,000 units 18.00

increase in units sold 30.00
Increase in contribution margin 540.00

5 B P350,000 CMR = Total CM / Total Sales

Total Sales = P150,000 / .30 = 500,000.00
Variable cost ( at VCR of 70% = P500,000 x .70) 350,000.00

6 A P60,000 (SP per unit - VC per unit ) X = FC + Profit

(P10 - P8)X = P80,000 + P40,000 = P2X = P120,000 = P60,000

7 C P450,000 CM = FC + Target income

CM = P100,000 + P80,000 = P180,000
Total sales = CM / CMR = P180,000 / 40% = 450,000.00

8 D P160,000 CM - FC = Target income = P240,000 - P80,000 = 160,000.00

9 A P550,000 Sales - Variable Cost - Fixed Cost = Net income

S - VCR -FCR = NI 100% - 60% - P200,000 = P20,000
40% x = P220,000 P220,000 / .40 = 550,000.00

10 D 70% SP - VC = CM CMR = CM / S
P20 - P6 = P14 P14 / P20 = 0.70

11 A P700 CMR = (P20 - P6) / P20 = 70%

CMR x increase in sales = P1,000 x 70% = 700.00

12 B it decreases about 12 units

BEP in units before decrease = P4,200 / (P20 - P6 ) = 300
BEP in units after decrease = P4,200 / (P20 - P5.40* ) = 288
Decrease in number of units in BEP 12
* New VC = P6 x .90 = P5.40 P20-5.40 = P14.60

13 A P5,000 increase CM = P50 increase in sales = 100 units

Increase in profit = 1,00 x P50 = 5,000.00

14 A P71.25 Increase in Profit = CMR x Sales = 75% x P95 = 71.25

15 D P8,000 Monthly Contribution margin = 2,000 x P10 20,000.00

Monthly expenses 12,000.00
Monthly profit 8,000.00

16 A P43.50 (BEP units x SP) - VC - FC = 0

2,000 X - P55,000 - P32,000 = 0
X = P87,000 / 2,000 = 43.50

17 A 2,200 cats Total fund 32,000.00

Total fixed costs 10,000.00
Total Contribution margin 22,000.00
Variable cost to capture per cat 10.00
total cats that can be captured 2,200.00

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18 C P8.00 P60 - P40 - (P60 x 20%) = P8 8.00

19 C 13.33% P8 / P60 = 13.33% 0.1333

20 D 15,000 units P120,000 / P8 = 15,000.00

21 C 18,000 units CM per unit x Total Sales in units = FC + Target net income
P8X = P120,000 + P24,000 = X = P144,000 = 18,000

22 C 26,000 units CM per unit x Total Sales in units = FC + Target net income
P8X = P160,000 + P48,000 = X = P208,000 = 26,000
FC now is now P160,000 as units needed is more than 20,000

23 B 32,000 units Sales 100.0% 1,920,768

Variable cost ratio 86.7% 1,664,730
CMR 13.3% 256,038
Target net income 5.0% 96,038
Fixed cost ratio 8.3% 160,000.00

OR
P60x -P52x - P120,000 = .05(P60)x
P60x -P52x - P120,000 = P3.00x
P60x - P52x -P3x = P120,000
X = P120,000/ P5.00
24,000 since its more than 20,000 , FC is P160,000
P60x -P52x - P160,000 = .05(P60)x
P60x -P52x - P160,000 = P3.00x
P60x - P52x -P3x = P160,000
X = P160,000/ P5.00
32,000 units

24 C P0.50 CM = P200 / 400 0.50

25 C P16,000 Sales 50,000.00 x 1.2 x 1.2 72,000.00

Variable costs 25,000.00 x 1.2 x 1.2 36,000.00
Contribution margin 25,000.00 36,000.00
Fixed costs 20,000.00 20,000.00
Net income 5,000.00 16,000.00
To use the Operating Leverage factor, OLF for Feb. must be computed first.

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26 A Sales increase by 10%, net income will increase by 20%

OLF x Increase in sales = 2 x 10% = 20%

27 D P6.25 Sales = Fixed costs + Variable cost + Profit

200,000x = P400,000 + 200,000x (60%) + P100,000
200,000x = P400,000 +120,000x + P100,000
200,000x - 120,000x = P400,000 + P100,000
80,000x = P500,000
X = P500,000 / 80,000 = 6.25

28 D P5.00 per unit S - VC - FC = Target net income

Sales = P20,000 + 10,000(P2.00) +P10,000
Sales = P20,000 + 20,000 +P10,000 Sales = P50,000
SP per unit = P50,000 / 10,000 = 5.00

29 A P1,120 audio video

CM 800.00 1,600.00
Sales mix 0.60 0.40
weighted average cm 480.00 640.00 1,120.00

30 C 200 units Fixed costs / wcm = P224,000 / P1,120 = 200

31 C 120 units BEP units is 200 ; audio sales mix is 60% = 200 x .60 = 120

32 C P224,000 At BEP, CM is equal to FC, therefore , CM = 224,000.00

33 C P27 Chip A Chip B

Sales price 40.00 55.00
Variable cost 20.00 25.00
Contribution margin 20.00 30.00
Sales mix 0.30 0.70
WACM 6.00 21.00 27.00

34 A 24,000 units Sales mix of pops = (40,000 units sales / [ 40,000 + 60,000] = 40%
FC = P1,800,000 WCM = P30 per unit
BEP in units = P1,800,000 / P30 per unit = 60,000
Sales mix of pops = 0.40
BEP in units of Pops 24,000.00

35 C P1,200,000
Expected sales in units 40000 + 60,000 = 100,000.00
WACM per unit 30.00
Total WACM 3,000,000.00
Total fixed costs 1,800,000.00
Expected net income 1,200,000.00

36 A 44% Sour salad Sweet salad

sales mix 60% 40%
CMR 40% 50%
WACM 24% 20% 44%

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37 D P5,500,000 FC = P2,420,000 / 44% = 5,500,000.00

38 D P3,300,000 Total sales = P5,500,000 x Sales mix 60% = 3,300,000.00

39 A 15% Sales 500,000.00

Variable cost 425,000.00
Contribution margin 75,000.00
CMR = CM / Sales P75,000 / P500,000 = 0.15

40 C 6 DOL Sales 500,000.00

Variable cost 200,000.00
Contribution margin 300,000.00
Fixed cost 250,000.00
Net income 50,000.00
DOL = CM / NI 6.00

PROBLEMS
4.1 sales mix CM / unit WACM BEP in units
tapa 0.15 120.00 18.00 12,750.00
tocino 0.60 60.00 36.00 51,000.00
hotdog 0.25 40.00 10.00 21,250.00
1.00 220.00 64.00 85,000.00

Combined units = FC / WACM = P5,440,000 / P64 = 85,000.00

4.2 1 sales mix CMR WACM BEP in units

Accounting 0.60 0.30 0.18 13,500,000.00
Tax 0.40 0.45 0.18 9,000,000.00
1.00 0.36 22,500,000.00

Combined units = FC / WACM = P8,100,000 / .36 = 22,500,000.00

2 Fixed costs 8,100,000.00

Desired net income 1,800,000.00
Total CM required 9,900,000.00
WACM rate 0.36
Total sales required 27,500,000.00
x % of sales mix of tax 0.40
Total sales for tax 11,000,000.00

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4.3 total sales sales mix total CM CMR WACM BEP in units
Chips 800,000.00 0.80 320,000.00 0.40 0.32 480,000.00
Crackers 200,000.00 0.20 60,000.00 0.30 0.06 120,000.00
1,000,000.00 1.00 0.38 600,000.00

Combined units = FC / WACM = P228,000 / .38 = 600,000.00

4.4 1 Eight Nine

Contribution margin 350,000.00 560,000.00
Net income 150,000.00 150,000.00
DOL = CM / NI 2.33 3.73
CMR 0.50 0.80

2 Eight Nine
Sales P700,000 x .80 560,000.00 P700,000 x .80 560,000.00
CMR 0.50 0.80
Contribution margin 280,000.00 448,000.00
Fixed cost 200,000.00 410,000.00
Net income 80,000.00 38,000.00

using the percentage change and the degree of operating leverage, net income are:

Decrease in sales 0.20 0.20

Degree of operating leverage 2.33 3.73
Percentage decrease in net income 0.47 0.75
Net income before the decrease 150,000.00 150,000.00
New net income = (NI x 1 - % change in NI) 80,100.00 38,100.00
difference of P100 is due to rounding off

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Investment A Investment B
4.5 Contribution margin 400,000.00 750,000.00
Net income 200,000.00 200,000.00
DOL = CM / NI 2.00 3.75
1 decrease in sales by 10%
Decrease in sales 0.10 0.10
Degree of operating leverage 2.00 3.75
Percentage decrease in net income 0.20 0.38
Net income before the decrease 200,000.00 200,000.00
New net income = (NI x 1 - % change in NI) 160,000.00 125,000.00
to check
Old net income 200,000.00 200,000.00
Percentage decrease in net income 0.200 0.375
Decrease in net income 40,000.00 75,000.00
New net income 160,000.00 125,000.00

1 increase sales by 20%

Increase in sales 0.20 0.20
Degree of operating leverage 2.00 3.75
Percentage increase in net income 0.40 0.75
Net income before the increase 200,000.00 200,000.00
New net income = (NI x 1 + % change in NI) 280,000.00 350,000.00
to check
Old net income 200,000.00 200,000.00
Percentage increase in net income 0.400 0.750
Increase in net income 80,000.00 150,000.00
New net income 280,000.00 350,000.00

4.6
1 FILMS REFRESHMENTS TOTALS
Revenue from admissions 1,500.00 180.00 1,680.00
Variable costs (P1,500 * 50% = P750.00) 750.00 108.00 858.00
Contribution margins 750.00 72.00 822.00
Fixed costs:
Auditorium 220.00
Labor 290.00 510.00
Operating income 312.00
Refreshments revenue = P1,500 x 12% = 180.00
Refreshments variable cost = P180 x 60% = 108.00

2 FILMS REFRESHMENTS TOTALS

Revenue from admissions 900.00 108.00 1,008.00
Variable costs (P900*50% =P450 min is P500.) 500.00 64.80 564.80
Contribution margins 400.00 43.20 443.20
Fixed costs:
Auditorium 220.00
Labor 290.00 510.00
Operating income (66.80)
Refreshments revenue = P900 x 12% = 108.00
Refreshments variable cost = P108 x 60% = 64.80

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4.7
1 Let T be the amount of additional fixed costs for advertising
(1,100,000 x P13 ) + P300,000 - .30(1,100,000 x P13) - P6,000,000 + T ) = 0
P14,300,000 + P300,000 - P4,290,000 - P6,000,000 + T = 0
T = P14,300,000 +P300,000 - P4,290,000 - P6,000,000 -0
T = 4,310,000.00

2 Let S be the total number of seats sold

P13S + P300,000 - .30(P13)S - P8,000,000 = P500,000
P13S + P300,000 - P3.90S - P8,000,000 = P500,000
P9.10S = P500,000 - P300,000 +P8,000,000
S = 8,200,000 / 9.10 901,099 seats

4.8
1 Average revenue per person P3.00 + 3(P1.50) = P7.50
Total revenue, 200 at P7.50 = 1,500.00
Rent expense 600.00
Total available for prizes and operating income 900.00
The club could award P900 and breakeven.

2 number of persons attended at 100 at 200 at 300

Total revenues at P7.50 750.00 1,500.00 2,250.00
Less, fixed costs and prizes (P600 + P900) 1,500.00 1,500.00 1,500.00
Operating income (loss) (750.00) - 750.00
Note how "leverage" works. Being highly leveraged means having relatively high fixed costs. In this case, there
are no variable costs. Therefore, the revenue is the same as the contribution margin. As volume departs from
the breakeven point, operating incofme is affected at a significant rate of P7.50 per person.

3 number of persons attended at 100 at 200 at 300

Total revenues at P7.50 750.00 1,500.00 2,250.00
Less, variable costs P2 per person 200.00 400.00 600.00
Contribution margin 550.00 1,100.00 1,650.00
Less, fixed costs and prizes (P200 + P900) 1,100.00 1,100.00 1,100.00
Operating income (loss) (550.00) - 550.00
Note that the risk now is lower because of less leverage. Fixed costs are less, and some of the risk has been
shifted to the hotel. Note also that lower risk brings lower rewards and lower punishments. The income and
losses are P550 instead of P750 as in the No. 2.

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4.9
1 Let N be the number of persons helped
P900,000 - P5,000N - P290,000 = 0
P5,000 N = P900,000 - 290,000
N = P610,000 / P5,000 122 persons

2 Let N be the number of persons helped

Revenue now is P900,000 x .85 = 765,000.00
P765,000 - P5,000N - P290,000 = 0
P5,000 N = P765,000 - 290,000
N = P475,000 / P5,000 95 persons
Percentage decrease (122 - 95 ) / 122 0.221 or 22.10%

3 Let P be the amount of supplement per person helped

Revenue now is P900,000 x .85 = 765,000.00
P765,000 - 122P - P290,000 = 0
122P = P765,000 - 290,000
P = P475,000 / 122 3,893 per person
Percentage decrease (P5,000 - P3,893) / P5,000 0.221 22.10%

4.10
1 Total variable costs: economy regular super
Popcorn cost per box 0.13 0.13 0.13
cost of each box 0.08 0.08 0.08
other variable costs per box 0.22 0.14 0.05
0.43 0.35 0.26

Let N be the volume in boxes that would earn same profit

P8,000 + P.43N = P11,200 +P.35N
P.08N = P11,200 - P8,000
N = P3,200 / .08 40,000 boxes

2 As volume increase, the bigger capacity models would generate more profits.
Let us compare regular and super models:
Let N be the volume in boxes that would earn same profit
P20,200 + P.26N = P11,200 +P.35N
P.09N = P20,200 - P11,200
N = P9,000 / .09 100,000 boxes

Therefore, the decision rule could be shown below:

Abticipated Annual Sales between model to use
- to 40,000 economy
40,000 to 100,000 regular
100,000 and above super
The decision rule places volume well within the capacity of each model.

3 No, management cannot use the theater capacity or average boxes sold because the number of seats per
theater does not indicate the number of patarons attending nor the popcorn-buying habits in different
geographic locations. Each theater may have a different "boxes sold per seat" average with significant
variations. The decision rule does not take into account variations in demand that could affect the model choice.

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4.11
1 Present breakeven point Total fixed costs 200,000.00 4,000 units
Unit CM (P100 - P50 )

present variable cost per unit NI = Sales - Total Fixed costs - Total variable costs
P50,000 = P100(5,000) - P200,000 -VC(5,000)
P50,000 = P500,000 - P200,000 -VC(5,000)
VC(5,000) = P500,000 -P200,000 - P50,000
VC = P250,000 / 5,000 units
VC per unit = 50.00

2 Net income if change is effected NI = Sales - Total Fixed costs - Total variable costs
NI = P95(7,000) - P250,000 - P40(7,000)
NI = P665,000 - P250,000 - P280,000
NI = 135,000.00

Based on the new computation, net income will increase to P135,000; the company must
make the change.

3 Degree of operating leverage before DOL = CM / NI

CM 5,000 ( P100 - P50) 250,000.00 5
NI [5,000 (P100 - P50)] - P200,000 50,000.00

Degree of operating leverage before DOL = CM / NI

CM 7,000 ( P95 - P40) 385,000.00 2.85
NI [7,000 (P95 - P40)] - P250,000 135,000.00

This indicates that operating incofme will be less sensitive to changes in sales if the production
process is changed; thus the change would reduce risks. However, the change would increase
the breakeven point. Still, with lower sales price, it might be easier to achieve the higher new BEP.

4 Yes there is a change in BEP. Higher BEP

New breakeven point Total fixed costs 250,000.00 4,545 units
Unit CM (P95 - P40 )

4.12
1 Selling price - Variable costs = Contribution margin
P1,000 - [P450 + (P1,000 x 5%)] = P1,000 - (P450 + P50) = 500.00

2 At less than 12,000 cameras

BEP (P3,500,000 + P1,000,000) / P500 9,000
At more that 12,000 cameras
BEP (P6,000,000 + P1,000,000) / P500 14,000

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At 12,000 at 14,400
3 Sales new sp (P1,000 x .90 = P900) 12,000,000.00 12,960,000.00
Less, Variable costs:
cost of sales 5,400,000.00 6,480,000.00
Selling costs at 5% 600,000.00 648,000.00
Total variable costs 6,000,000.00 7,128,000.00
Contribution margin 6,000,000.00 5,832,000.00
Less, Fixed costs 4,500,000.00 7,000,000.00
Net income (Loss) 1,500,000.00 (1,168,000.00)
No, the company should not reduce the selling price because it will incur a net loss

4.13
weighted (cu x sm) BEP in sales
Products unit cm sales mix ave. cm BEP in units Total CM
A 4.00 5 20.00 3,500 14,000.00
B 10.00 1 10.00 700 7,000.00
30.00 21,000.00
Combined units = Fixed costs / WACM
Combined units = P21,000 / P30 = 700 times

4.14 selling Total

Products price units CMR CM
Alf 4.00 100,000 30% 120,000.00
Tarf 3.00 200,000 20% 120,000.00
Total contribution margin 240,000.00
Desired net income 160,000.00
Required Fixed costs 80,000.00

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4.15 old new

1 Selling price per unit 3.10 3.10
Unit variable costs 2.10 1.10
Unit contribution margin 1.00 2.00
Units sold 600,000 600,000
Total Contribution margin 600,000.00 1,200,000.00
Less, Fixed costs 585,000.00 1,140,000.00
Budgeted profit 15,000.00 60,000.00

2 Budgeted breakeven point:

Fixed costs 585,000.00 1,140,000.00
Divided by the CM per unit 1.00 2.00
Break even point in units 585,000.00 570,000.00

3 A fall in volume will be more devastating under the new system because the high fixed costs will not be
affected by the fall in volume.
Unit contribution margin 1.00 2.00
Units sold 500,000 500,000
Total Contribution margin 500,000.00 1,000,000.00
Less, Fixed costs 585,000.00 1,140,000.00
Budgeted profit (loss) (85,000.00) (140,000.00)

4 Unit contribution margin 1.00 2.00

Units sold 700,000 700,000
Total Contribution margin 700,000.00 1,400,000.00
Less, Fixed costs 585,000.00 1,140,000.00
Budgeted profit (loss) 115,000.00 260,000.00

5 Changes in volume affect profits in the new process ( a high fixed cost, low variable cost set up) more than
they affect profits in the old process. Therefore, profits in the old are more stable and less risky. The higher
risk new process promises greater rewards when conditions are favorable, but the opposite if unfavorable.

4.16 Product A Product B

1 Fixed costs a 450,000.00 50,000.00
Contribution margin b 7.50 15.00
Break even point (a / b) 60,000 3,333
2 P35x = P50,000 + P20x + (P35 x .20)x
P35x = P50,000 + P20x + P7.00x
P35x -P20x - P7.00x = P50,000 7.00
X = P50,000 / P8.00 = 6,250 units

3 90,000x = P450,000 +90,000(P7.50)

90,000x = P450000 + P675,000
X = P1,125,000 / 90,000 = 12.50 per unit

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4.17 Cost
present Structure
1 Sales 500,000.00 1.00
Variable expenses 300,000.00 0.60
Contribution margin 200,000.00 0.40
Fixed costs 150,000.00 0.30
Net income 50,000.00 0.10

2 P500,000 x 15% = P75,000 x 40% = P20,000

OR
P200,000 x 85% = P170,000 - P150,000 = P20,000

3 Operating leverage factor P200,000 / P50,000 = 4 times

4 Net income increase 4 x 5% = 20% 20%

5 present 5 (a) 5 (b )
Sales 500,000.00 600,000.00 500,000.00
Variable expenses 300,000.00 360,000.00 600,000.00
Contribution margin 200,000.00 240,000.00 (100,000.00)
Fixed costs 150,000.00 195,000.00 125,000.00
Net income 50,000.00 45,000.00 (225,000.00)

4.18 weighted (cu x sm) BEP in sales

1 Products unit cm sales mix ave. cm BEP in units Total CM
P. 3.00 3 9.00 120,000 360,000.00
B. 6.00 1 6.00 40,000 240,000.00
15.00 160,000 600,000.00
Combined units = Fixed costs / WACM
Combined units = P600,000 / P15 = 40,000 times

weighted (cu x sm) BEP in sales

2 Products unit cm sales mix ave. cm BEP in units Total CM
P. 3.00 1 3.00 40,000 120,000.00
B 6.00 2 12.00 80,000 480,000.00
15.00 600,000.00
Combined units = Fixed costs / WACM = P600,000 / P15 = 40,000 times

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No. 5
3 weighted (cu x sm) BEP in sales
Products unit cm sales mix ave. cm BEP in units Total CM
P. 3.00 1 3.00 73,334 220,002.00
B 6.00 2 12.00 146,668 880,008.00
15.00 1,100,010.00
Combined units = ( Fixed costs + Desired Profit ) / WACM
Combined units = (P600,000 + P500,000) / P15 = 73,334 times
4 WACM = P15.00
5 total CM 1,100,010.00

4.19
1 BEP = P10,000 / (P20 - P15) 2,000 units 40,000.00
Sales at 3,000 units 3,000 units 60,000.00
Margin of safety 1,000 20,000.00

Sales at 4,000 units 4,000 80,000.00

Margin of safety 2,000 40,000.00
3 at 3,000 units at 4,000 units
Sales 60,000.00 80,000.00
Less, Variable costs 45,000.00 60,000.00
Contribution margin 15,000.00 20,000.00
Less, Fixed costs 10,000.00 10,000.00
Net income 5,000.00 10,000.00

2 Operating leverage factor (cm / ni) 3 2

4 Margin of safety = increases

Operating leverage factor = decreases

4.20
Sales (P10 x 1.15) x (100,000 x 1.10) 1,265,000.00
Less, Variable costs 110,000 x (P600,000/100,000) 660,000.00
Contribution margin 605,000.00
Less, Fixed costs 400,000.00
Net income 205,000.00

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Chapter 5 Activity Based Costing and Service Costs Allocation

Answer Key

I TRUE OR FALSE
1 TRUE 11 TRUE 22 TRUE 33 TRUE
2 TRUE 12 TRUE 23 FALSE 34 TRUE
3 TRUE 13 FALSE 24 FALSE 35 FALSE
4 TRUE 14 TRUE 25 TRUE 36 TRUE
5 TRUE 15 TRUE 26 TRUE 37 FALSE
6 TRUE 16 FALSE 27 FALSE 38 TRUE
7 FALSE 17 TRUE 28 FALSE 39 FALSE
8 FALSE 18 TRUE 29 TRUE 40 TRUE
9 TRUE 19 FALSE 30 TRUE
10 FALSE 20 TRUE 31 TRUE
11 TRUE 21 TRUE 32 FALSE

II MULTIPLE CHOICE QUESTIONS

1 A 11 D 21 A
2 C 12 D 22 D
3 B 13 A 23 D
4 C 14 C 24 B
5 B 15 C 25 C
6 B 16 D 26 D
7 B 17 B 27 A
8 A 18 B 28 C
9 C 19 D 29 B
10 B 20 B 30 D

III MULTIPLE CHOICE PROBLEMS

1 C P2,000
2 A P100.00
3 B P300
4 D P970.00
5 C P410.00

solutions:
1 Machine set ups (P1,600,000 / 800 set ups ) = P2,000 per set up

2 Model A
*Cost Driver Actual cost Cost
Activity rate driver units allocated
Purchasing materials 20.00 1,200 24,000.00
Machine Set ups 2,000.00 14 28,000.00
Inspections 100.00 200 20,000.00
Running Machines 30.00 1,600 48,000.00
Total overhead costs allocated to model A 120,000.00
Overhead cost per unit ( P120,000 / 1,200 units) 100.00
* Cost driver rate computations

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estimated OH Estimated no. of

Activity Costs cost driver units cost driver rate
Purchasing materials 400,000.00 20,000 frames 20.00 per frame
Machine set ups 1,600,000.00 800 set ups 2,000.00 per set up
Inspections 800,000.00 8,000 hours 100.00 per hour
Running Machines 1,200,000.00 40,000 hours 30.00 per hour

3 Model B
*Cost Driver Actual cost Cost
Activity rate driver units allocated
Purchasing materials 20.00 400 8,000.00
Machine Set ups 2,000.00 48 96,000.00
Inspections 100.00 400 40,000.00
Running Machines 30.00 1,200 36,000.00
Total overhead costs allocated to model A 180,000.00
Overhead cost per unit ( P180,000 / 400 units) 450.00
under traditional P120.00 x 250% 300.00

4 MODEL A MODEL B
ACTIVITY BASED COSTING
Direct materials 200.00 400.00
Direct labor 60.00 120.00
Overhead 100.00 450.00
TOTAL COST PER UNIT 360.00 970.00

5 TRADITIONAL COSTING
Direct materials 200.00 400.00
Direct labor 60.00 120.00
Overhead 150.00 300.00
TOTAL COST PER UNIT 410.00 820.00

6 A P24,000
7 B P96,000
8 C P544,000
9 D P396,000
SOLUTIONS: Quality
control Maintenance Cutting Finishing
Direct departmental costs 120,000.00 180,000.00 400,000.00 240,000.00
Allocation of support costs:
Quality Control Dept.: (120,000.00)
#6 Cutting = (4,000 / 20,000 ) x P120,000 = 24,000.00
#7 Fnishing = (16,000 / 20,000 ) x P120,000 = 96,000.00
Maintenance Dept.: (180,000.00)
Cutting = (40,000 / 60,000 ) x P120,000 = 120,000.00
Finishing = (20,000 / 60,000 ) x P120,000 = 60,000.00
#8 544,000.00 396,000.00
#9

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10 D P167,500 QC = 7,000 / 28,000 x P350,000 = 87,500.00

Maint = 12,000 / 30,000 x P200,000 = 80,000.00
Total allocated to Assembly Dept. 167,500.00

11 D P15.65 Direct Costs 400,000.00

Add, Allocated costs from:
QC = 21,000 / 28,000 x P350,000 = 262,500.00
MNT = 18,000 / 30,000 x P200,000 = 120,000.00 382,500.00
Total costs to Machining Department 782,500.00
Total machine hours 50,000
Cost per machine hour 15.65

12 C P12.00 P300,000 / 25,000 hours = 12.00 per hour

13 B P108,000 QC Maintenance Machining Assembly

Direct costs 350,000.00 200,000.00 400,000.00 300,000.00
Allocated costs
QC (350,000.00) 70,000.00 210,000.00 70,000.00
Maintenance (270,000.00) 162,000.00 108,000.00
- - 772,000.00 478,000.00

Quality Control Dept Costs Allocation:

MNT = 7,000/35,000 x P350,000 = 70,000.00
Machining = 21,000 / 35,000 x P350,000 = 210,000.00
Assembly = 7,000/35,000 x P350,000 = 70,000.00

Maintenance Dept Costs = P200,000 + P70,000 = P270,000

Machining = 18,000 / 30,000 x P270,000 = 162,000.00
Assembly = 12,000/30,000 x P270,000 = 108,000.00
Note: no need to present the entire solution, this just to present the format. Computation can be
done directly to get the P108,000 after allocating costs of QC to Maintenance Dept.

14 D P421,053 rounded off

Formula = QC = P350,000 + .25 MNT
MNT = P200,000 + .20 QC
Solve for QC:, Let X as the MNT
X = P350,000 + .25 MNT
X = P350,000 + .25 (P200,000 + .20X)
X = P350,000 + P50,000 + .05X
X - .05X = P400,000
X = P400,000 / .95 = P421,052.63

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15 A P1,200,000 Total Costs activities Cost per item

16 D P2,000,000 Set up costs 800,000.00 1,000 800.00
17 C P1,664,000 Machining 1,800,000.00 50,000 36.00
18 B P1,536,000 Inspecting 600,000.00 1,500 400.00
Total costs 3,200,000.00
Total DLH 40,000
Cost per hour 80.00
Mini A hours 15,000
#15 Cost allocated to Mnin A 1,200,000.00

# 16 (P3,200,000 / 40,000 ) x 25,000 hours = 2,000,000.00

#17 & # 18
Activities Costs allocated
cost per item Mini A Maxi B Mini A Maxi B
(a) (b) ( c ) ( a x b) ( a x c)
Set up costs 800.00 600 400 480,000.00 320,000.00
Machining 36.00 24000 26,000 864,000.00 936,000.00
Inspecting 400.00 800 700 320,000.00 280,000.00
Total costs 1,664,000.00 1,536,000.00
# 17 # 18

19 A P32,000 (P160,000 / 5,000 hours ) x 1,000 hours = 32,000.00

20 D P39,000 Activity Total costs total activities Cost per unit activities by P1 Product One
Set up 10,000.00 40 250.00 20 5,000.00
Machining 110,000.00 5,000 22.00 1000 22,000.00
Packing 40,000.00 500 80.00 150 12,000.00
39,000.00

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PROBLEMS
5.1 Estimated Estimated number of Cost driver
activity OH costs cost drivers units rate
1 materials handling 400,000.00 50,000 kilos 8.00 per kilo
production set ups 900,000.00 300 run 3,000.00 per run
quality inspections 800,000.00 4,000 hours 200.00 per hour
machine depreciation 400,000.00 20,000 hours 20.00 per hour
total estimated overhead 2,500,000.00

2 MODEL A
cost Actual Cost Cost driver
Activity driver rate driver units rate
materials handling 8.00 900 kilos 7,200.00
production set ups 3,000.00 9 run 27,000.00
quality inspections 200.00 80 hours 16,000.00
machine depreciation 20.00 280 hours 5,600.00
Total Overhead costs allocated to Model A 55,800.00
Overhead cost per unit P55,800 / 450 units ) = P124

MODEL B
cost Actual Cost Cost driver
Activity driver rate driver units rate
materials handling 8.00 3,200 kilos 25,600.00
production set ups 3,000.00 15 run 45,000.00
quality inspections 200.00 120 hours 24,000.00
machine depreciation 20.00 505 hours 10,100.00
Total Overhead costs allocated to Model A 104,700.00
Overhead cost per unit ( P104,700 / 800 units ) = P130.875

3 ACTIVITY BASED COSTING

MODEL A MODEL B
Direct materials 400.00 600.00
Direct labor 90.00 150.00
Overhead 125.00 130.88
Total cost per unit 615.00 880.88

4 TRADITIONAL COSTING
Direct materials 400.00 600.00
Direct labor 90.00 150.00
Overhead (100% of direct labor cost) 90.00 150.00
Total cost per unit 580.00 900.00

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5.2
Cost function
1 Purchase oders 50,000.00 / 100 500.00 per order

2 Machine set ups 120,000.00 / 200 600.00 per set up

Electricity 30,000.00 / 100000 0.30 per kw

3 cost drivers JO # 1
Purchase orders 20 orders at P500 10,000.00
Machine set ups 40 set ups at P600 24,000.00
Electricity 1,000 kw at P.30 300.00
Total cost assigned to JO # 1 34,300.00

4 cost drivers JO # 2
Purchase orders 30 orders at P500 15,000.00
Machine set ups 40 set ups at P600 24,000.00
Electricity 2,000 kw at P.30 600.00
Total cost assigned to JO # 1 39,600.00
Number of units produced 4,000
Total support cost per unit produced 9.90

5.3
1 Direct materials P60,000 / 2000 30.00
Direct labor P30,000 / 2000 15.00
Support costs * P1,200,000 / 100,000 = P12.00 per hour 12.00
57.00
2 Direct materials 30.00
Direct labor 15.00
Support costs * 17.40
62.40
* Electricity P200,000 / 40,000 = P5 x 2,000 = 10,000.00
Machine set ups P600,000 / 1,500 = P400 x 50 = 20,000.00
Materials moves P160,000 / 40,000 = P4.00 x 200 = 800.00
Quality Inspections P240,000 / 30,000 = P8.00 x 500 = 4,000.00
34,800.00
number of units produced 2,000
Total support costs per unit 17.40

5.4
1
annual quantiy of
traceable annual cost Cost driver
Activity Centers Cost Drivers costs driver activity per unit
Quality number of pcs. Scrapped 8,000,000.00 100,000 80.00
Production scheduling number of set ups 500,000.00 5,000 100.00
Set up number of set ups 6,000,000.00 5,000 1,200.00
Shipping number of items shipped 3,000,000.00 60,000 50.00
Shipping administration number of shipments 500,000.00 10,000 50.00
Production number of machine hours 15,000,000.00 100,000 150.00
TOTALS 33,000,000.00

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number of cost
driver used per Cost driver
Activity Centers part per unit
Quality 1,200 96,000.00
Production scheduling 40 4,000.00
Set up 40 48,000.00
Shipping 100 5,000.00
Shipping administration 50 2,500.00
Production 150 22,500.00
TOTALS support costs 178,000.00
Add Direct materials 500,000.00
Direct labor 100,000.00
Total cost of production 778,000.00
Number of units produced 20,000
Cost per unit 38.90
Selling price per unit 75.00
Gross margin 36.10
Gross margin percentage 48.13%

2 Under the traditional costing system, unit cost per part is P50 as compared to the total
cost per unit of P38.90 under the ABC method.
ABC is more accurate costing method and thus the management may use this
costing method to all of its products.

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5.5
Fabrication = P80,000 x (200 / 500) = 32,000.00

Assemby = P80,000 x (300 / 500) = 48,000.00

5.6 To the Professors:

Please correct the problem. Insert the following phrase after the word "First" ..
First, the costs of the Personnel Department allocated based on the number of employees. Next, the costs of the
Inspection deparment are allocated on….
This means that allocation should be made firest to the Personnel department and not the Inspection department.
It cannot be Inspection first as Inspection Dept does not serve Personnel.
Thank you.
Personnel Inpection Cutting Finishing
Direct costs 160,000.00 100,000.00 160,000.00 60,000.00
Allocated costs:
Personnel (a) (160,000.00) 20,000.00 80,000.00 60,000.00
Inspection (b) (120,000.00) 64,000.00 56,000.00
- - 304,000.00 176,000.00
(a) Personnel Dept costs = P160,000
Inspection = P160,000 x 20/160 = 20,000.00
Cutting = P160,000 x 80/160 = 80,000.00
Finishing = P160,000 x 60/160 = 60,000.00

(b) Inspection Dept costs = P120,000

Cutting = P120,000 x 3,200/ 6,000 = 64,000.00
Finishing = P120,000 x 2,800/ 6,000 = 56,000.00

5.7
1 Direct method Nursing Laboratory
Direct costs 8,000,000.00 800,000.00
Administration = N= P1,200,000 x (40,000/50,000) = 960,000.00
L= P1,200,000 x (10,000/50,000) = 240,000.00
Maintenance = N= P400,000 x (60,000/75,000) = 320,000.00
L= P400,000 x (15,000/75,000) = 80,000.00
Total allocated costs 1,280,000.00 320,000.00
Total costs 9,280,000.00 1,120,000.00

2 Step-down method
Maintenance Administration Nursing Laboratory
Direct costs 400,000.00 1,200,000.00 8,000,000.00 800,000.00
Allocated costs:
Maintenance (a) (400,000.00) 25,000.00 300,000.00 75,000.00
Administration (b) (1,225,000.00) 980,000.00 245,000.00
Total allocated costs 1,280,000.00 320,000.00
- - 9,280,000.00 1,120,000.00
(a) Maintenance costs = P400,000
Administration = P400,000 x 5,000/ 80,000 = 25,000.00
Nursing = P400,000 x 60,000/80,000 = 300,000.00
Laboratory = P400,000 x 15,000/80,000 = 75,000.00

(b) Administration costs = P1,225,000

Nursing = P1,225,000 x 40,000/50,000 = 980,000.00
Laboratory = P1,225,000 x 10,000/50,000 = 245,000.00

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3 Reciprocal method
Administration = P1,200,000 + (5,000 / 80,000) = P1,200,000 +.625 MNT
Maintenance = P400,000 + (10,000 / 60,000) = P400,000 + .1667 ADM
Solve for Maintenance firs and Let X = ADM
X = P400,000 + .1667 ADM
X = P400,000 + .1667 (P1,200,000 + .0625X)
X = P400,000 + P200,040 + .010418X
X - .010418 = P600,040
X = P600,040 / .989582 = P606,357 Maintenance costs

Solve for Administration

X = P1,200,000 + .0625 (P606,357)
X = P1,200,000 + P37,897 = P1,237,897 Administration costs
Maintenance Administration Nursing Laboratory
Direct costs 400,000.00 1,200,000.00 8,000,000.00 800,000.00
Allocated costs:
206,357.00 37,897.00
(606,357.00) (1,237,897.00)
Nursing (a) 454,767.75 113,691.94
Laboratory (b) 825,264.67 206,316.17
Total allocated costs - - 1,280,032.42 320,008.10
- - 9,280,032.42 1,120,008.10
(a) Maintenance costs = P606,357
Nursing = P606,357 x 60,000/80,000 = 454,767.75
Laboratory = P606,357 x 15,000/80,000 = 113,691.94

(b) Administration costs = P1,237,897

Nursing = P1,237,897 x 40,000 / 60,000 = 825,264.67
Laboratory = P1,237,897 x 10,000 / 60,000 = 206,316.17

5.8 Total Total Cost driver

Costs Activities per activity
Cutting 900,000.00 24,000 37.50 per labor hour
Stitching 8,000,000.00 320,000 25.00 per machine hour
Inspection 2,800,000.00 160,000 17.50 per labor hour
Packing 672,000.00 64,000 10.50 per finished goods unit

5.90 Total Total Overhead

Costs Activities rate
Materials handling 70,000.00 1,000 70.00
Machine setup 54,000.00 500 108.00
Quality inspection 54,000.00 600 90.00

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5.10 a Single overhead rate

(P32,000 + P54,000) / (2,600 + 2,400) = 17.20 per labor hour
Dining chairs = 2,600 x P17.20 = 44,720.00
Tables = 2,400 x P17.20 = 41,280.00
86,000.00
b ABC Method
Machine setup P32,000 / (200 + 600) = 40.00 per setup
Inspections P54,000 / (250 + 500) = 72.00 per inspection

Dining Chairs Tables

Machining setups
Dining chair = 200 x P40.00 8,000.00
Table = 600 x P40.00 24,000.00
Inspection
Dining chair = 250 x P72.00 18,000.00
Table = 500 x P72.00 36,000.00
Total costs 26,000.00 60,000.00

c The use of ABC resulted in the allocation of less costs to Dining chairs and more costs to Tables.
This will affect pricing decisions as well.

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Chapter 6 Standard Costing

Answer Key

I TRUE OR FALSE
1 FALSE 11 TRUE 21 TRUE 31 FALSE
2 TRUE 12 TRUE 22 TRUE 32 FALSE
3 TRUE 13 FALSE 23 FALSE 33 TRUE
4 TRUE 14 TRUE 24 TRUE 34 TRUE
5 FALSE 15 FALSE 25 FALSE 35 TRUE
6 TRUE 16 FALSE 26 FALSE 36 TRUE
7 FALSE 17 TRUE 27 FALSE 37 TRUE
8 FALSE 18 TRUE 28 TRUE 38 FALSE
9 TRUE 19 TRUE 29 FALSE 39 FALSE
10 FALSE 20 FALSE 30 TRUE 40 FALSE

II MULTIPLE CHOICE QUESTIONS

1 C 11 C 21 A 31 D
2 C 12 D 22 D 32 B
3 NO #3 13 C 23 D 33 C
4 A 14 B 24 C 34 D
5 A 15 C 25 B 35 C
6 B 16 A 26 C
7 A 17 B 27 A
8 D 18 A 28 A
9 C 19 C 29 C
10 B 20 B 30 C

III MULTIPLE CHOICE PROBLEMS

1 A P3,200 FAV (AQ - SQ ) X SP = [ 11,200 - (6,000 x 2)] x P4 = (3,200.00) favorable

2 B P6,400 FAV Actual direct labor cost 51,200.00

Std. allowed at Std rate = 2,400 x 2 hrs x P12 = 57,600.00
Total direct labor variance (6,400.00) favorable

3 B P400 FAV Actual cost (AR x AH) 19,600.00

Stabdard cost at actual hours = SR x AH = P5 x 4,000 = 20,000.00
Rate variance favorable (400.00) favorable

4 C P19 / dlh Actual cost = AR x AH

* ? X 8,400 hrs = 159,600.00

Standard cost at actual hours = SR x AH

P18 x 8,400 = 151,200.00 +
Direct labor rate variance - unfavorable 8,400.00

*P159,600 / 8,400 hours = P19 per direct labor hour

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5 B P2,000 Let X as the overhead variance

P4,000 + 2X + X = P10,000
3X = P6,000
X = P6,000 / 3 = 2,000.00

6 B (AP - SP ) X AQ

7 C (AQ - SQ ) X SP

8 D P6.00 P900 / 150 = 6.00

9 B P.40 P6,000 / 15,000 = 0.40

10 D P11.00 Actual price 9.00

Favorable variance per unit = P80,000 / 40,000 units = 2.00
Standard price per unt 11.00

11 C P150 F Materials price variance - fav 600.00

Materials quantity variance - unfav (450.00)
Total materials variance - fav 150.00

12 B P1,200 U MPV = (AP - SP) X AQ = (P6 - P6.60 ) x 2,000 = 1,200.00

13 A P1,200 U MQV = (AQ - SQ ) x SP = (2,000 - 1,800) x P6.00 = 1,200.00

14 A P2,400 U MPV = (AP - SP) X AQ = (P6 - P6.60 ) x 2,000 = 1,200.00

MQV = (AQ - SQ ) x SP = (2,000 - 1,800) x P6.00 = 1,200.00
TOTAL VARIANCE - UNFAVORABLE 2,400.00

15 B P420 FAV MPV = (AP - SP) x SQ = [(P10,080 / 4,200) - P2.50] X 4,200

= (P2.40 - P2.50) x 4,200 = 420.00
16 A 14,000 hours Standard hours allowed = actual production x std. hours per unit
actual units = 4,000
Standard hours per unit 3.5 hours 14,000

17 A P4,500 unf Standard price P100,000 / 50,000 = P2.00

P10,000 fav MPV (P2.10 - P2.00) x 45,000 = P4,500 unf
MQV = (50,000 - 45,000) x P2.00 = P10,000 fav

18 D P121,800 P5.80 x 21,000 = P121,800 121,800.00

19 A P195,000 SOHR = P1.00 + P4.00 = P5.00 x 39,000 = P195,000

20 D P12,000 FOH 90% activity = 24,000 x P6.50 = 156,000.00

underabsorbed FOH Applied - 90% =24,000 x P6.00 = 144,000.00
Underabsorbed FOH 12,000.00

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21 C P20,700 unf Actual labor rate P241,500/34,500 7.00

Std. Labor rate P3,200 / (35,000 -34,500) 6.40
Difference 0.60
Actual direct labor hours 34,500
Direct labor rate variance 20,700

22 A P1,250 unf M U V (2,300 - 2,100) x P6.25 1,250.00

23 D P87,000 FOH Applied P42,000 + P30,000 72,000

Add Underapplied FOH 15,000
Actual FOH 87,000
24 B P1,100 favorable MPV = (AP - SP) x AQ =
= (P1.20 - P1.25) x 22,000 units = 1,100.00 Fav.

25 B P6.00 Direct materials standard cost per unit = 2 lbs x P3.00 = 6.00

26 A P1,680 U Labor rate variance = (AR - SR ) x AH

= (P24.40 - P24 ) X 4,200 = 1,680.00 Unf.

27 D materials quantity variance is a responsibility of the production department.

28 A 120,000 lbs MQV = (AQ - SQ ) x SP

P30,000 = [ AQ - (10 x 10,000 units)] x P1.50
P30,000 = (AQ - 100,000) x P1.50 = AQ = P180,000 / P1.50 = 120,000.00 lbs

29 D P6,000 U LEV = (AH - SH) X SR

= (6,300 - [3 x 2,000]) x P20 = (6,300 - 6,000) x P20 = 6,000.00 Unfav

30 A P3,000 UF Actual overhead P220,000.00

Budgeted OH based on Standard: 1,000.00 unf
Fixed Overhead P75,000.00
VOH applied = 24,000 x P6.00 144,000.00 219,000.00
3,000.00 unf
Applied overhead = 24,000 x P9.00 = 216,000
TOTAL VARIANCE 4,000.00 unf

31 C P520 unfav MQV = (AQ- SQ) x SP

= (6,400 - [1000 x P6.00]) x P1.30 = (6,400 - 6,000) x P1.30 = 520.00 Unfav

32 D P6,000 unf Actual Factory OH 230,000.00

BOH at std. Hours:
Fixed 64,000.00
VOH 32,000 x P5.00 160,000.00 224,000.00
Budget variance 6,000.00 unf

33 C 11,120 Std. Direct labor hours 10,000

add Unfav. labor hours usage (P4,200 / P3.75) 1,120
Actual hours 11,120

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34 B P3.45 Standard purchase price per unit 3.60

less Difference (P240 / 1,600) fav 0.15
Actual purchase price per unit 3.45

35 B P6,000 fav Actual FOH (P73,000 + P17,000) 90,000.00

FOH applied (P2.50 + P0.50 ) x 32,000 96,000.00
Total FOH variance (6,000.00) fav.

36 B P2,000 fav Actual price (P40,000 / 20,000) = P2.00

Materials price variance (P2.00 - P2.10) x 20,000 = 2,000.00

37 D P6,000 unf Actual Overhead 86,000.00

Std. Overhead applied 80,000.00
Total overhead variance 6,000.00 unf

38 A 1,400 Std. Hours allowed 1,500

less favorable labor efficiency variance in houP600/P6.00 100
Actual hours 1,400

CORRECTION FOR PROBLEM RELATED TO MC # 39 TO 47

Fixed overhead per hour, base on 11,990 hours instead of 11,900 hours.

39 A P7,950 U Actual Variable OH P29,950.00

40 C P2,200 U Budgeted overhead based on actual input P7,950 spending variance - unf
P2.50 x 8,800 22,000.00
Applied Variable OH rate at standard quantity
of input based on actual output P2,200.00 efficiency variance - fav
P2.50 x (4,400 x 2.20 hrs.) = 24,200.00

41 B P6,330 U Actual Fixed factory overhead P42,300.00

42 A P6,930 U Budgeted Fixed overhead - lumpsum P6,330 fixed spending variance - unf
11,990 budgeted hours at P3.00 35,970.00
Appli ed Fixed factory overhead P6,930 fixed volume variance - unf
P3.00 x (4,400 x 2.2 hours) 29,040.00

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43 D P14,280 U Actual Factory OH P72.250.00

44 B P2,200 U Budgeted overhead based on actual input
45 C P6,930 U Budgeted Fixed overhead - lumpsum
11,990 budgeted hours at P3.00 35,970.00 P14,280 spending variance - unf
Variable overhead at actual hours
P2.50 x 8,800 hours 22,000.00
Total budgeted OH 57,970.00

Budgeted Overhead based on Standard input allowed

Budgeted Fixed overhead - lumpsum
11,990 budgeted hours at P3.00 35,970.00 P2,200 efficiency variance - fav
Variable Overhead based on std allowed
P2.50 x (4,400 x 2.2 hours) 24,200.00
60,170.00
Appli ed Fixed factory overhead P6,930 fixed volume variance - unf
(P2.50 + P3.00) x (4,400 x 2.2 hours) 53,240.00

46 D P12,080 U Actual Factory OH P72.250.00

47 C P6,930 U Budgeted Overhead based on Standard input allowed
Budgeted Fixed overhead - lumpsum
11,990 budgeted hours at P3.00 35,970.00 P12,080 controllable(budget)
Variable Overhead based on std allowed variance - unf
P2.50 x (4,400 x 2.2 hours) 24,200.00
60,170.00
Appli ed Fixed factory overhead P6,930 fixed volume variance - unf
(P2.50 + P3.00) x (4,400 x 2.2 hours) 53,240.00

PROBLEMS

6.1
Actual overhead 196,000.00
Applied overhead = 40,000 hours at P5 per dlh 200,000.00
Total variance - favorable (4,000.00)

6.2
a Raw Materials Inventory 12,000.00
Materials Price Variance 300.00
Accounts Payable 11,700.00

b Work in Process Inventory ( 5,800 x P2*) 11,600.00

Materials Quantity Variance 400.00
Raw Materials Inventory (5,600 x P2) 11,200.00

*P12,000 /6,000 units = P2.00

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6.3
Ingredients per 100 amount Standard Standard Standard Standard
gallon per gallon waste usage Price Cost
Lime CU drink 1,960 oz 19.60 2.00% 20.00 0.1500 3.00
Granulated sugar 40 lbs 0.40 20.00% 0.50 0.6000 0.30
Blackberry fruit 63 pcs 0.63 10.00% 0.70 0.8000 0.56
Protein tablets 100 tablets 1.00 0.00% 1.00 0.9000 0.90
Water 4,000 oz 40.00 0.00% 40.00 0.0025 0.10
Standard cost per gallon 4.86

a .98X = 19.60 ounces of cu drink = X = 20.00

b .80X = 40 pounds 0f sugar = X = 0.50
c .90X = .63 blackberry fruit = X = 0.70

6.4
Actual cost (AP x AQ) 32,800 x P9.50 = 311,600.00
P16,400 MPV Fa
Adjusted cost (SP x AQ) 32,800 x P10.00 = 328,000.00
P8,000 MQV Un
Standard cost ( SP x SQ) 32,000 x P10 = 320,000.00
TOTAL VARIANCE = 8,400.00

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6.5
Case 1 Case 2 Case 3 Case 4
Units produced 800.00 750.00 240.00 1,500.00
standard hours per unit 3.00 0.80 2.00 3.00
standard hours allowed 2,400.00 600.00 480.00 4,500.00
standard rate per hour 7.00 10.40 9.50 6.00
actual hours worked 2,330.00 675.00 456.00 4,875.00
actual labor cost 15,844.00 5,940.00 4,560.00 26,812.50
labor rate variance P466 F P1,080 F P228 U P2,437.5 F
labor efficiency variance P490 F P780 U P228 U P2,250 U

Case 1
Standard hours allowed 800 x 3 = 2,400
LRV = AQ (AP - SP) P466 = 2,300(AP - P7.00)
- 466 = 2,330AP - 16,100 = 2,330AP = 16,310 - 466
16,100.00 AP = (16,310 - 466) /2,330 AP = 15,844.00
LEV = SP (AQ - SQ) P7.00 (2,330 - 2,400) 490.00 Fav

Case 2
Units produced 600 / .80 750.00
Standard Price
LEV = SP (AQ - SQ) 780 = SP(600 - 675) 780 = 75SP 10.40

Actual cost
LRV = AQ(AP-SP) -P1,080 = 675(AP-P10.40)
-P1,080 = 675AP - P7,020
675AP = P7,020 - 1,080
675AP = P5,940 5,940.00
P5,940/675 = P8.80
Case 3
Standard hours allowed = 480 / 240 = 2 hours 2 hours
Actual hours worked
LRV = AQ(AP-SP) AQ[(4,560/AQ) - SP]
P228 = AQ(P4,560 / AQ) - P9.50
P228 = AQ4,560 / AQ - P9.50
P228 = P4,560 - P9.50 AQ 5,940.00
P228 - P4,560 = P9.50AQ = P8.80
4,332.00 = P9.50AQ AQ 456.00
Labor efficiency variance
LEV = SP (AQ - SQ)
P9.50(456 - 480) P9.50 x -24 (228.00) P228 F
Case 4
Standard hours per unit 4,500 / 1,500 = 3 hours 3 hours
Actual labor rate = P26,812.5 / 4,875 hours 5.50 per hour
Standard hours allowed
LEV = SP(AQ-SQ)
P2,250 = P6(4,875 - SQ)
P2,250 = P29,250 - P6SQ
- P27,000 = -P6SQ
SQ P27,000 / P 6 4,500.00 4,500 hours
Labor rate variance
LRV = AQ(AP - SP) 4,875(P5.50 - P6.00) 4,875 x P.50 2,437.50

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6.6
actual
results at flexible sales (static)
actual budgets flexible activity master
prices variances budget variances budget

physical units 80,000.00 72,000.00

sales 806,400.00 6,400.00 f 800,000.00 8,000.00 f 720,000.00
less variable costs 496,000.00 16,000.00 u 480,000.00 48,000.00 u 432,000.00
equals contribution margine 310,400.00 (9,600.00) 320,000.00 (40,000.00) 288,000.00
less fixed costs 200,000.00 8,000.00 u 192,000.00 - 192,000.00
equals operating income 110,400.00 (17,600.00) 128,000.00 (40,000.00) f 96,000.00

1 sales activity variance on physical units 80,000- 72,000 = 8,000.00

2 flexible budget in sales P720,000 / 72,000 = P10. per unit P10 x 80,000 800,000.00
3 Actual sales P800,000 + P6,400 favorable variance 806,400.00
4 contribution margin at actual P806,400- 496,000 310,400.00
5 Actual fixed costs P192,000 + 8,000 unfavorable variance 200,000.00
6 Operating income P310,400-200,000 110,400.00
7 variable costs at budget as per No. 2
P480,000 / 800,000 = .60; P720,000 x .60 432,000.00

Sales were 8,000 units higher than originally budgeted. This higher sales volume should have been produced an
operating income of P128,000 (up from P96,000 by P80,000 (1-.6) = P32,000). However, only P110,400 was
achieved. Sales prices were higher by P6,400, but costs exceeded the flexible budget by P16,000 + P8,000 = P24,000

Actual operating income 110,400.00

Variances:
Sales prices favorable 6,400.00
sales volume favorable 32,000.00
variable costs unfavorable (16,000.00)
fixed costs unfavorable (8,000.00) 14,400.00 f
Master budgeted operating income 96,000.00

6.7
1 P3.00 The variable overhead rate is P.60, obtained by dividing P27,000 by 45,000 hrs
P27,000 / 45,000 P.60 / dl rate P.20 = 3.00

2 50,250 hrs Actual costs, P140,700 / (P3 - P.20) = 50,250 hrs

3 P10,050 f 50,250 actual hors x P.20 = P10,050

4 P145,650 Usage variance was P5,100 unfavorable. Therefore, excess hours must have been
P5,100 / P3.00 = 1,700 hours
Standard hours allowed must be 50,250 - 1,700 = 48,550
Flexible budget = 48,550 x P3.00 = P145,650

5 P470 u Flexible budget = 48,550 x P.60 = P29,130

Total Variance = P30,750 - P29,130 = P1,620 u
Rate variance = P1,620 - P1,150 = Efficiency variance of P470 unfavorable

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6.8
A B C D E
( ) = FAV; UNF flexible budget
based on
actual costs flexible standard inputs
incurred budget allowed for total
actual inputs actual inputs actual outputs variance
x actual (A - C) at budgeted (C - E) achieved x ( B + D)
prices PV prices QV budgeted prices

direct materias 3400 lbs x P.90 3400lbs x P1.00 3400lbs x P1.00

= = =
3,060.00 (340.00) 3,400.00 400.00 3,000.00 60.00

direct labor 5500hrs x P3.80 5500hrs x P4.00 5000 hrs x P4.00

= = =
20,900.00 (1,100.00) 22,000.00 2,000.00 20,000.00 900.00

Variable overhead 5500 hrs x P.8636 5500 hrs x P.80 5000 hrs x P.80
= = =
4,749.80 349.80 4,400.00 400.00 4,000.00 749.80

6.9 A B C D
initial allowance required unit standard
mix for quantity cost material costs
reduction ( a / b) (c x d)

NYT 24 KG 0.80 30.00 1.50 45.00

SYNX 19.2 LTR 0.80 24.00 2.10 50.40
MYX 10 KG 1.00 10.00 2.80 28.00
Standard material cost -- 10 liter container 123.40
instead of being divided by the .8, the first two items could be multiplied by 1.25 to obtaine the same.

6.10
a DMQV = (AQ x SP) - (SQ x SP) = ( 63,000 x P6) - (62,000 x P6) = 6,000.00 Unfav

b Total DLV = (AH x AR) - SH x SR) = (46,000 x P16.50) - (46,500 x P16) = 15,000.00 Unfav

c Total DLQV = (AH x SR) - (SH x SR) = (46,000 x P16) - (46,500 x P16) = (8,000.00) fav

d DMPV = (AQ x AP) - (AQ x SP) = (63,000 x P5.60) - (63,000 x P6) = (25,200.00) fav

e Total Overhead Variance = Actual overhead - Applied overhead

Actual overhead = P155,000 + P205,000 = 360,000.00
Applied overhead = 46,500 x P8.00 = 372,000.00
Total overhead variance (12,000.00) fav

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6.11
1 Standard Quantity allowed 1,200 / 3 yards 400.00 yards
2 Standard direct labor hours allowed 1,200 x 2 hours 2,400.00 hours
3 Material price variance
AQ = SQ + (MQV / SP)
AQ = 400 yards + (P594 unf / P8) 400 + 74.25 = 474.25 yards
4 Labor efficiency variance
SP x (AQ - SQ) P7.00 x [2,520 hours - (1,200 x 2 hours)]
P7.00 x (2,520 hours - 2,400 hours) 840.00 unf
5 Standard prime cost to produce one box
Direct materials 1/3 sq yard per box at P8.00 per yard 2.67
Direct labor 2 hours at P7.00 per hour 14.00
Total 16.67
6 Actual cost to produce one box
Direct materials P4,767.18 / 1,200 boxes 3.97
Direct labor * (2,520 x P6.75) / 1,200 boxes 14.18
Total cost 18.15
Actual labor rate
SP - (LRV/AQ) P7.00 - (P630/2,520)
P7.00 - P.25 = P6.75

6.12
1 Two Variance method
Actual factory overhead (P10,730 + P29,950) 40,680.00
Budget Allowance based on standard
VOH P3 x (7,600 hours x .30 min) 11,400.00
FOH at lumpsum 32,000.00 43,400.00
Budget variance (2,720.00) fav
Applied factory overhead
VOH P3 x (7,600 hours x .30 min) 11,400.00
FOH P8 x (7,600 hours x .30 min) 30,400.00 41,800.00
Volume variance 1,600.00 unf
Total variance (1,120.00) (1,120.00) fav
2 Three variance method
Actual factory overhead (P10,730 + P29,950) 40,680.00
Budget Allowance based on actual
VOH P3 x 3,700 actual hours 11,100.00
FOH at lumpsum 32,000.00 43,100.00
Spending Variance (2,420.00) fav
Budget Allowance based on standard
VOH P3 x (7,600 hrs x .30 min) 11,400.00
FOH at lumpsum 32,000.00 43,400.00
Efficiency variance (300.00) fav
Applied factory overhead
VOH P3 x (7,600 hrs x .30 min) 11,400.00
FOH P8 x (7,600 hrs x .30 min) 30,400.00 41,800.00
Volume variance 1,600.00 unf
Total variance (1,120.00) (1,120.00) fav

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3 Four variance method

a. For Variable Overhead
Actual factory overhead 10,730.00
Budgeted allowance based on actual hours
P3.00 x 3,700 hours 11,100.00
Spending variance (370.00) fav
Applied factory overhead P3 x 3,800 11,400.00
(300.00) fav
Total variance (670.00) (670.00) fav

a. For Fixed Overhead

Actual factory overhead 29,950.00
Budgeted allowance at lumpsum 32,000.00
Spending variance (2,050.00) fav
Applied factory overhead P8 x 3,800 30,400.00
1,600.00 fav
Total variance (450.00) (450.00) fav
GRAND TOTAL VARIANCE (for variable and fixed) (1,120.00) (1,120.00) fav
6.13 OH rate Variable P540,000 / 120,000 = P4.50 per direct labor hour
Fixed P118,800 / 6,600 = P18.00 per machine hour
Four variance method
a. For Variable Overhead
Actual factory overhead 42,350.00
Budgeted allowance based on actual hours
P4.50 x 9,800 hours 44,100.00
Spending variance (1,750.00) fav
Applied factory overhead P4.50 x 9,910 44,595.00
(495.00) fav
Total variance (2,245.00) (2,245.00) fav

a. For Fixed Overhead

Actual factory overhead 10,500.00

Budgeted allowance at lumpsum (P118,800/12 months) 9,900.00

Spending variance 600.00 unf

Applied factory overhead P18.00 x 480 8,640.00

1,260.00 unf
Total variance 1,860.00 1,860.00 unf
GRAND TOTAL VARIANCE (for variable and fixed) (385.00) (385.00) fav

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Journal entries:
Variable Factory Overhead Control 42,350.00
Fixed Factory Overhead Control 10,500.00
Cash/Accounts Payable or any appropriate accounts 52,850.00

Work in Process Inventory 53,235.00

Applied Variable Factory Overhead 44,595.00
Applied Fixed Factory Overhead 8,640.00

Variable Factory Overhead Control 2,245.00

Variable Overhead Spending Variance 1,750.00
Variable Overhead Efficiency Variance 495.00

Fixed Overhead Spending Variance 600.00

Fixed Overhead Volume Variance 1,260.00
Fixed Factory Overhead Control 1,860.00

6.14
Standard quantity 18,000 x 12 oz = 216,000.00 / 16 oz = 13, 500 lbs
Standard mix Peas 6,750.00 0.50
Nuts 6,750.00 0.50
13,500.00 1.00
Actual mix Peas 7,473.00 0.53
Nuts 6,617.00 0.47
14,090.00 1.00
Actual cost of Peas 7,473 x P2.90 21,671.70
Actual cost of Nuts 6,617 x P 4.25 28,122.25
Computation of variances:
Total actual data quantity, prices and mix (AQ X AP X AM)
Peas 14,090 x P2.90 x 7,473/14,090 21,671.70
Nuts 14,090 x P4.25 x 6,617/14,090 28,122.25 49,793.95
PV -unf 906.95
Total actual data quantity, std prices and actual mix (AQ X SP X AM)
Peas 14,090 x P3.00 x 7,473/14,090 22,419.00
Nuts 14,090 x P4.00 x 6,617/14,090 26,468.00 48,887.00

Total actual data quantity, std prices and std mix (AQ X SP X SM) MV - fav (428.00)
Peas 14,090 x P3.00 x 6,750/13,500 21,135.00
Nuts 14,090 x P4.00 x 6,750/13,500 28,180.00 49,315.00

Total standard data quantity, prices and mix (SQ X SP X SM) YV - unf 2,065.00
Peas 13,500 x P3.00 x 6,750/13,500 20,250.00
Nuts 13,500 x P4.00 x 6,750/13,500 27,000.00 47,250.00
TOTAL VARIANCES unfav. 2,543.95 2,543.95

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6.15

Computation of variances:
Total actual data quantity, prices and mix (AQ X AP X AM)
Engineers 2,000 x P42.50 x 1,000/2,000 42,500.00
Draftsman 2,000 x P21.00 x 1,000/2,000 21,000.00 63,500.00
LRV -unf 3,500.00
Total actual data quantity, std prices and actual mix (AQ X SP X AM)
Engineers 2,000 x P40.00 x 1,000/2,000 40,000.00
Draftsman 2,000 x P21.00 x 1,000/2,000 20,000.00 60,000.00

Total actual data quantity, std prices and std mix (AQ X SP X SM) LMV - unf 5,000.00
Engineers 2,000 x P40.00 x 750/2,000 30,000.00
Draftsman 2,000 x P21.00 x 1,250/2,000 25,000.00 55,000.00

Total standard data quantity, prices and mix (SQ X SP X SM) LYV - -
Engineers 2,000 x P40.00 x 750/2,000 30,000.00
Draftsman 2,000 x P21.00 x 1,250/2,000 25,000.00 55,000.00

TOTAL VARIANCES unfav. 8,500.00 8,500.00

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Chapter 7 Financial Planning

TRUE OR FALSE
1 TRUE 11 FALSE 21 FALSE
2 TRUE 12 TRUE 22 TRUE
3 FALSE 13 TRUE 23 FALSE
4 FALSE 14 TRUE 24 FALSE
5 FALSE 15 TRUE 25 FALSE
6 FALSE 16 FALSE 26 TRUE
7 TRUE 17 TRUE 27 TRUE
8 FALSE 18 TRUE 28 FALSE
9 FALSE 19 TRUE 29 TRUE
10 TRUE 20 TRUE 30 FALSE

MULTIPLE CHOICE QUESTIONS

1 D 8 A 15 D 22 B
2 B 9 D 16 D 23 C
3 D 10 A 17 C 24 D
4 A 11 C 18 A 25 C
5 B 12 C 19 B 26 D
6 B 13 D 20 D
7 D 14 A 21 D

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12 A P1,632,000

6 C 408,000 lbs 13 C P1,767,200

MULTIPLE CHOICE PROBLEMS
1 D P140.000

2 B

14 A P14,250

7 C P15,000
3 C 9,000 units

15 B P4,600
8 B P163,800

1
2 16 D P4,400
3

4 B 4,250 units 17 C P16,290

9 C P148.600

18 B 500 lbs

10 A P1,090,000

19 B 700 lbs

20 C 2,100 lbs
5 D 25,700 units 11 D P100,000
21 A 2,400 lbs

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28 A 105,000 units
21 A P801,400

22 B P433,800
29 A P60,500

23 D P120,000
30 B P7,100
24 D P660,000

31 C P21,100

25 C P690,000
32 D P14,000

33 A P2,900

26 A borrow P32,000
34 C 13,838

35 D 450,000 units
27 C 44,000 units

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Chapter 8 Differential Cost Analysis

Answer Key

True or False

1 TRUE 21 FALSE
2 FALSE 22 TRUE
3 FALSE 23 TRUE
4 TRUE 24 FALSE
5 TRUE 25 FALSE
6 FALSE 26 TRUE
7 TRUE 27 FALSE
8 FALSE 28 TRUE
9 TRUE 29 TRUE
10 FALSE 30 TRUE
11 TRUE 31 FALSE
12 FALSE 32 FALSE
13 FALSE 33 TRUE
14 FALSE 34 FALSE
15 FALSE 35 TRUE
16 FALSE 36 TRUE
17 TRUE 37 TRUE
18 TRUE 38 FALSE
19 TRUE 39 TRUE
20 TRUE 40 FALSE

MC Questions

1 A 23 A 38 B
2 B 24 B 39 B
3 C 25 D 40 D
4 B 26 B 41 A
4 B 27 B 42 C
5 C 28 A 43 B
6 A 29 C 44 C
7 B 30 C 45 A
8 A 31 A
9 B 32 D
10 D 33 B
11 C 34 D
NO ANSWER. ALL OF THEM ARE
20 D 35 RELEVANT
21 A 36 D
22 B 37 B

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MC PROBLEMS

1 d Cost to make 11.00

Cost to buy 9.00
incremental costs or differential cost 2.00

2 b P10,000 Relevant costs 10,000 x P8 80,000.00

Cost to buy10,000 x P7 70,000.00
10,000.00

3 b P16 P11 + P5 = 16.00

4 d make, savings of P10,000

Cost to make:
Variable costs 11.00
Avoidable costs 5.00 16.00
Cost to buy 18.00
Net savings to make (2.00)

5 d P275,000 Avoidable costs: Variable costs 230,000.00

Fixed costs (P150,000 x 30%) 45,000.00
275,000.00

6 c P280,000 decrease Sales 600,000.00

Variable costs 320,000.00
CM lost 280,000.00

7 b P12.00 equal to variable costs of P12.00

8 a Selling price if assembled 71.00

Selling price if sell as is 55.00
Incremental selling price 16.00
Assembling costs 17.00
Net decrease if assembled (1.00)

9 a P5.00 CM per unit 15.00

Required machine hours per unit 3.00
CM per machine hour 5.00

10 a Scrap Selling price if repackaged P2.50 x 10,000 25,000.00

Less, repackaged costs 15,000.00
Net increase in income 10,000.00
Scrapped, P1.10 x 10,000 11,000.00
Net advantage to scrap (1,000.00)

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11 d P8,000 Special order price 18.00

Incremental cost 14.00
Incremental cm 4.00
Number of units 2,000
Total increase in cm 8,000.00

12 d P13,000 Selling price 1,000 x P55 55,000.00

Variable cost 1,000 x P42 42,000.00
Incremental profit 13,000.00

13 a P32,000 Variable cost 29,000.00

Fixed costs avoided 4,000.00
Relevant cost 33,000.00
lower cost than relevant cost must be P32,000

14 b P32,000 Variable cost 29,000.00

CM increase 4,000.00
Relevant cost 33,000.00
lower cost than relevant cost must be P32,000

15 a process Selling price 4,000 x P12 48,000.00

further Further processing costs 4,000.00
Better off by 44,000.00

16 c P30,000 5,000 x P6.00 = 30,000.00

17 a P2,000 increase Special order price 15.00

Variable costs P12 + P1 13.00
Increase in CM 2.00
number of units 1,000
2,000.00

18 c P5,000; P1,500; P7,000

19 b CM lost 100,000.00
Avoidable fixed costs P120,000 x 40% 48,000.00
Net CM lost 52,000.00

20 c P30,000 dec. Contribution margin lost 50,000.00

Fixed costs avoided P60,000 - 40,000 = 20,000.00
Net decrease in profit 30,000.00

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21 a P3,000 gain Cost to buy 10.00

Cost to make:
Variable cost 7.50
Fixed costs avoided P6 x 2/3 4.00 11.50
Net advantage to buy 1.50
number of units 2,000
Net gain to purchase the parts outside 3,000.00

22 a X x y z
CM 30.00 25.00 25.00
Direct labor hours 2 hours 2 hours 1 hour
CM per direct labor hour 15.00 12.50 25.00
Machine hours 2 hours 1 hour 1 hour
CM per machine hour 15.00 25.00 25.00

23 c Z

24 c Z alone

25 d Both Y and Z

26 b 60% of fixed costs

27 a remain relevant costs to make

variable costs 5,000 x P5 25,000.00
Fixed cost avoided 2.50 x 5,000 x 40% 5,000.00
30,000.00
relevant costs to buy P6 x 5,000 30,000.00
relevant costs are the same

28 c P27.5 Direct materials 15.00

direct labor 10.00
overhead 2.50
27.50

29 a P8 Relevant costs to make 40,000.00

Total number of units 5,000
Cost per unit 8.00

30 c yes Relevant costs to make

Direct materials 36,000.00
direct labor 27,000.00
variable overhead 18,000.00
additional fixed costs 3,000.00
84,000.00
Relevant costs to buy
P33 x 3,000 99,000.00

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Chapter 9 Responsibility Accounting

Answer Key

TRUE OR FALSE

1 FALSE 11 FALSE 21 TRUE 31 TRUE

2 TRUE 12 TRUE 22 TRUE 32 TRUE
3 TRUE 13 FALSE 23 TRUE 33 FALSE
4 FALSE 14 FALSE 24 TRUE 34 TRUE
5 TRUE 15 TRUE 25 FALSE 35 FALSE
6 FALSE 16 FALSE 26 TRUE 36 TRUE
7 TRUE 17 FALSE 27 TRUE 37 FALSE
8 TRUE 18 FALSE 28 TRUE 38 FALSE
9 FALSE 19 FALSE 29 FALSE 39 FALSE
10 TRUE 20 TRUE 30 FALSE 40 TRUE

MC QUESTIONS

1 C 21 D 41 D
2 D 22 C 42 C
3 C 23 C 43 A
4 C 24 C 44 C
5 C 25 A 45 A
6 B 26 B 46 B
7 C 27 B 47 B
8 B 28 B 48 A
9 A 29 D 49 C
10 D 30 A 50 C
11 A 31 A
12 B 32 C
13 C 33 B
14 A 34 B
15 B 35 D
16 B 36 C
17 C 37 B
18 B 38 A
19 D 39 A
20 A 40 C

MC PROBLEMS
1 b 12.50% Present ROI = P250,000 / P2,000,000 = 12.5%

2 b P250,000 Variable (P200,000 / 40,000 dlh) x 38,000 dlh = 190,000.00

Add, fixed costs 60,000.00
250,000.00

3 a 4% P80,000 / P2,000,000 = 0.04

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4 d P265,000 Variable cost = 20,000 x P12 = 240,000.00

Fixed costs 25,000.00
Total manufacturing costs 265,000.00

5 b ROI = P100,000 - P86,000 = P14,000 / P200,000 = 7%

6 b P60,000 P100,000 - P40,000 = P60,000

7 a
8 c P88,500 VC (P45,000 + P4,000 + P21,000) / 20,000 x 21,000 hrs = P88,500 73,500.00
FC 15,000.00
Total costs 88,500.00

9 c P16,000 dlh Total flexible budget 120,000.00

less, fixed overhead 40,000.00
Variable overhead at actual 80,000.00
direct labor rate per hour 5.00
Direct labor hours used 16,000.00

10 b net unfavorable of P10,000

11 b net unfavorable of P40,000

12 a P450,000 ROI = Controllable margin / investments

10% = P45,000 / X = P45,000 / 10% = P450,000

13 c P16,000 Controllable margin 80,000.00

Less, desired rate of retun = P800,000 x 8% = 64,000.00
Residual Income 16,000.00

14 d P40,000 P400,000 - P60,000 = P40,000

15 a 30% CM = P100,000 + P20,000 = 120,000.00

Less Direct fixed costs 60,000.00
Controllable margin 60,000.00
Total average operating assets 200,000.00
ROI = P60,000 / P200,000 = 0.30

16 a Division a 26.9% > 12%

CM Assets ROI limit
17 b A 40,000.00 500,000.00 0.08 8% accepted
B 30,000.00 450,000.00 0.07 8% rejected
C 32,000.00 375,000.00 0.09 8% accepted
D 40,000.00 425000 0.09 8% accepted

18 c decrease of 3.3% PresentROI P62,000 / P200,000 = 0.31

Project's ROI P10,000 / P60,000 = 0.17
New ROI with new project
(P62,000 + P10,000) / (P200,000 + P60,000) = 0.28
(.31 - .28) = 3.3 decrease 0.0331

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19 d 30% P 90,000 / P300,000 = 30%

20 b (P90,000 - P50,000) / P300,000 = 13.33%

21 c decrease of 3.5% Present ROI = P46,000 / P210,000 = 21.90% 0.2190

New ROI = P46,000 / P250,000 = 18.40% 0.1840
decrease in roi (0.0350)
no change in CM as sales increased bt P10,000 and depreciation increased also by P10,000

22 b P21,000 Controllable margin 125,000.00

Less, Desired return (P1,300,000 x 8%) 104,000.00
Residual income 21,000.00

23 a Project's ROI = P100,000 - P60,000 - P40,000 = 0

New ROI = P200,000 / (P2,200,000 + P150,000) = 8.5% 0.0851
present ROI is 25%

24 d P600 Net income 3,600.00

Desired minimum return P30,000 x 10% - 3,000.00
Residual income 600.00

25 c 12% ROI P3,600 / P30,000 0.12

26 b P150,000 Sales 10,000,000.00

Cost of goods sold 7,000,000.00
Gross profit 3,000,000.00
Less, Expenses 50% of gross income 1,500,000.00
Net income 1,500,000.00
Desired minimum return P15,000,000 x 9% 1,350,000.00
Residual income 150,000.00

27 a 10% ROI P1,500,000 / P15,000,000 0.10

28 c P40 osh kosh

Contribution margin (sales x cmr) 60.00 67.50
less, segment margin 40.00 27.50
Fixed costs deducted 20.00 40.00
Total fixed costs 100.00
less fixed costs to osh and kosh 60.00
Fixed costs as common costs 40.00

29 b P9,000 and P24,000 Aii Bii

Contribution margin 12,000.00 28,000.00
Fixed costs 3,000.00 4,000.00
Segment margin 9,000.00 24,000.00

30 b P400 Sales 20 x P100 2,000.00

Less, Variable costs (20 x P100 x .40) 800.00
Contribution margin 1,200.00
Fixed costs:
Ove (P1500 x 1/3) 500.00
Selling (P1,000 x 30%) 300.00 800.00
Segment margin 400.00

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Chapter 10 Transfer Pricing

Answer Key

TRUE OR FALSE

1 TRUE 11 FALSE 21 FALSE

2 FALSE 12 TRUE 22 FALSE
3 TRUE 13 FALSE 23 TRUE
4 FALSE 14 FALSE 24 TRUE
5 TRUE 15 TRUE 25 FALSE
6 TRUE 16 TRUE
7 FALSE 17 TRUE
8 FALSE 18 TRUE
9 FALSE 19 TRUE
10 FALSE 20 TRUE

MULTIPLE CHOICE QUESTIONS

1 D 9 A
2 D 10 A
3 D 11 C
4 C 12 D
5 B 13 C
6 C 14 D
7 D 15 D
8 D

III MULTIPLE CHOICE PROBLEMS

1 d P140 at full capacity use market price
Full capacity = P60 + (P140 - P60) = 140.00

2 b P60 idle capacity, so TP is equal to outlay cost only

3 b P40 only at variable cost

4 d P100 VC + CM = P40 + (P100- P40) = 100.00

5 b because with idle capacity

6 a P25. at full capacity, TP at market price

7 d If has unused capacity of 150,000 units (300,000 - 150,000) that can be sold externally.
Since the fixed cost will not increase if additional units are produced and sold, Hubcap only
needs to cover its incremental cost of P5 per unit.

8 a P5 Since Hubcup division can sell its entire output at P10 to outsiders, there is no benefit
to selling internally (to assembly division) at a lesser price unless cost savings
from making such an internal sale outweigh the reduced price.
Assembly is offering to buy 150,000 units (half the output) at P1.00 less
than division can get outside. This could decrease Hubcap's contribution
margin by P150,000 (150,000 x P1.00). To offset this, assembly would have
to be able to avoid P150,000 of other costs.

9 a P10 If Hubcap can sell its entire output to outsiders at a price of P10, it cannot sell any unit
interenally lesser than P10. Therefore, the minimum acceptable price is P10

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10 b P65 Variable cost is P65. Equal to variable cost since there is excess capacity.
Direct labor cost 250,000.00
Direct material cost 200,000.00
Variable overhead (2/3) 200,000.00
Total variable costs 650,000.00
Total units produced 10,000.00
Total variable cost per unit 65.00

11 a

12 d P23.00 Variable cost 6.00

Fixed cost 6.00
Further processing cost 6.00
Selling 5.00
23.00

13 b P(2.00) Selling price 21.00

Total cost 23.00
loss (2.00)

14 b P40,000 Total sales 10,000 x P21 210,000.00

Less: Variable cost 10,000 x P6 60,000.00
Further processing cost 10,000 x P6 60,000.00
Selling cost 10,000 x P5 50,000.00
170,000.00
Total contribution margin to the company 40,000.00

15 c P20 only at variablecost if the quantity to be transferred is 4,000

16 b P45 equal to the purchase price paid by the computer division, paying at P45

17 d TP is between the P35 and P40 = the profit of the company as a whole will be the same

18 d 4,000 x P40 = P80,000

19 c P20,000 decrease the company profit will decrease by the CM lost if P5.00 (P50 - 45) = P20,000

20 d with idle capacity

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Chapter 11 Balance Scorecards & Non-Financial Measures in Performance Evaluation

Answer Key

TRUE OR FALSE

1 TRUE 11 FALSE
2 FALSE 12 TRUE
3 TRUE 13 FALSE
4 TRUE 14 TRUE
5 TRUE 15 FALSE
6 TRUE 16 TRUE
7 TRUE 17 TRUE
8 FALSE 18 FALSE
9 TRUE 19 FALSE
10 FALSE 20 FALSE

MULTIPLE CHOICE QUESTIONS

1 C 21 B
2 A 22 D
3 D 23 D
4 C 24 B
5 A 25 A
6 B 26 C
7 D 27 A
8 D 28 D
9 C 29 B
10 C 30 B
11 C 31 A
12 B 32 D
13 A 33 D
14 C 34 C
15 B 35 A
16 A 36 B
17 D 37 D
18 A 38 B
19 B 39 D
20 D 40 B

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Chapter 12 Balance Scorecards & Non-Financial Measures in Performance Evaluation

Answer Key

I TRUE OR FALSE
1 FALSE 6 FALSE
2 TRUE 7 TRUE
3 TRUE 8 FALSE
4 FALSE 9 FALSE
5 TRUE 10 TRUE

II MULTIPLE CHOICE QUESTIONS

1 D 6 C 11 C
2 B 7 B 12 D
3 C 8 C 13 C
4 D 9 C 14 B
5 D 10 C 15 D

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III MULTIPLE CHOICE PROBLEMS

1 b 24% P48 / P200 = 24% 24%

2 a P186 Total cost 150.00

Desired ROI 36.00
186.00

3 d 30% P120 / P400 = 30%

4 d P520 Total cost 400.00

Desired ROI 120.00
520.00

5 d P70 P250,000 / 5,000 = P50 + P 20 = 70.00

6 a P64 P160 x 40% = 64.00

7 d P308 Labor cost 2 x P70 = 140.00

Materials 120.00
Loading charge ( P120 x .40 ) = 48.00
308.00

8 b P130 Selling price 160.00

Less, Desired profit (30.00)
Target/desired cost 130.00

9 d 200% P100 / P50 = 200%

10 b P150 Desired ROI P1,000,000 x 10% 100,000.00

Number of units 1,000
Profit per crate 100.00
Cost per crate 50.00
Desired selling price 150.00

11 d 33.30% P20 / P60.00 = 33%

12 b 50% Desired Profit per unit + Variable & Fixed Gen & Adm. Exp
Mark up % =
Total Manufacturing Cost

Absorption = P7.50 + P4 + P6 = 50%

Cost % P20 + P15

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13 b P22.55 Full cost per unit P20 + (P250,000 / 500,000) = 20.50

Add, Mark up P20.50 x 10% 2.05
22.55

14 c P22.37 Full cost per unit P20 + (P250,000 / 700,000) = 20.33

Add, mP20.33 x 10% 2.03
22.37

15 b P6.20 Unit selling price = [(10,000 x P5) + (20% x P60,000)] / 10,000 units
= P62,000 / 10,000 units 6.20

16 d P7.15 Full cost per unit (P1.00+ P1.20+ P.80+ P.50+ P1.50+ P.90) 5.90
Add, mark up on conversion costs:
(P1.20 + P.80 + P.50 ) x 50% 1.25
Unit selling price 7.15

17 b P7.30 Full cost per unit 5.90

Add, Mark up on full production costs:
(P1.00 + P1.20 + P.80 + P.50) x 40% 1.40
Unit selling price 7.30

18 a P7.25 Full cost per unit 5.90

Add, Mark up on variable production costs:
(P1.00 + P1.20 + P.80 ) x 45% 1.35
Unit selling price 7.25

19 c P7.67 Full cost per unit 5.90

Add, Mark up on fP5.90 x 30% 1.77
Unit selling price 7.67

20 d P7.48 Full cost per unit 5.90

Add, Mark up on variable costs:
(P1.00 + P1.20 + P.80 + P1.50 ) x 35% 1.58
Unit selling price 7.48

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