ACC 115/196 Variable costs:

P2 Q2 Cost of goods sold 560,000

ManSci Sales commissions 60,000
Fixed operating costs 180,000
I. Choose the letter of the best answer. If 70% of the fixed operating costs are avoidable, should the Shoe
1. Rio plans to shut down a division with a P 20,000 contribution Department be closed?
margin. Overhead allocated is P 50,000, P5,000 of which cannot A. Yes, Baton Rouge would be better off by ₱46,000.
be eliminated. What is the increase in income by discontinuing the B. Yes, Baton Rouge would be better off by ₱100,000.
division? C. No, Baton Rouge would be worse off by ₱26,000.
a. P 5,000 b. P 20,000 c. P 25,000 d. P 30,000 D. No, Baton Rouge would be worse off by ₱80,000.
2. For decision making, a listing of the relevant costs: 12. In the short run, the shutdown point occurs when:
A. will help the decision maker concentrate on the pertinent data A. Total revenue equals total variable costs
B. Total revenue exceeds total variable costs.
B. will only include future costs
C. Marginal cost equals average total cost.
C. will only include costs that differ among alternatives D. Marginal cost is below average variable cost.
D. All of these answers are correct. 13. Under what condition might a firm continue to produce in the short run
3. A relevant revenue is a revenue that is a(n): even if it is operating below the shutdown point?
A. past revenue C. future revenue A. When total revenue covers variable costs.
B. in-hand revenue D. earned revenue B. When fixed costs are extremely high.
C. When the market price is above average variable cost.
MBR Manufacturing is approached by a European customer to D. When the firm is a price taker in a perfectly competitive market.
fulfill a one-time-only special order for a product similar to one 14. Determining which products should be produced when the plant is
offered to domestic customers. MBR Manufacturing has excess operating at full capacity is referred to as:
capacity. The following per unit data apply for sales to regular a. an outsourcing analysis
b. production scheduling analysis
customers:
c. a product-mix decision
Variable costs:
d. a short-run focus decision
Direct materials P40
Braun’s Brakes manufactures three different product lines, Model
Direct labor 20
X, Model Y, and Model Z. Considerable market demand exists for
Manufacturing support 35
all models. The following per unit data apply:
Marketing costs 15
Model X Model Y ModelZ
Fixed costs:
Selling price $50 $60 $70
Manufacturing support 45
Direct materials 6 6 6
Marketing costs 15
Direct labor
Total costs 170
($12 per hour) 12 12 24
Markup (50%) 85
Variable support costs
Targeted selling price P255
($4 per machine-hour) 4 8 8
4. What is the full cost of the product per unit?
Fixed support costs 10 10 10
A. P110 C. P170
15. Which model has the greatest contribution margin per unit?
B.P255 D. P85
a. X b. Y c.Z d. X and Y
5.What is the contribution margin per unit?
16. Which model has the greatest contribution margin per
A.P85 C. P110
machine-hour? a. X b. Y c.Z d. X and Y
B. P145 D. P255
17. If there is excess capacity, which model is the most profitable
6.For MBR Manufacturing, what is the minimum acceptable price
to produce? a. X b. Y c.Z d. X and Y
of this special order?
18. If there is a machine breakdown, which model is the most
A. P110 C. P145
profitable to produce? a. X b. Y c.Z d. X and Y
B.P170 D. P255 19. How can Lisa Braun encourage her salespeople to promote the more
7. Problems that should be avoided when identifying relevant costs profitable model?
include all of the following EXCEPT: a. Put all sales persons on salary.
A. assuming all variable costs are relevant b. Provide higher sales commissions for higher priced items.
B. assuming all fixed costs are irrelevant c. Provide higher sales commissions for items with the greatest
C. using unit costs that do not separate variable and fixed components contribution margin per constrained resource.
D. using total costs that separate variable and fixed components d. Both b and c are correct.
8. Relevant costs of a make-or-buy decision include all of the folllowing II. True or False ( Shade A if False and B if true)
EXCEPT: 20. When replacing an old machine with a new machine, the purchase
A. fixed salaries that will not be incurred if the part is outsourced price of the new machine is a relevant cost. - t
B. current direct material costs of the part 21. For a particular decision, differential revenues and differential costs
C. special machinery for the part that has no resale value are always relevant.-t
D. material-handling costs that can be eliminated. 22. Relevant revenues and relevant costs are the only information
ABC Company produces three products from a joint process managers need to select among alternatives-f
costing ₱100,000. The following information is available: 23. Fixed costs are irrelevant in decisions about whether a product line
Selling Price Costs to Selling Price After should be dropped-f
Units at Split-off Process Further Further Processing 24. Joint costs are irrelevant in the decision of whether to sell a joint
A 10,000 ₱35 ₱70,000 ₱40 product at the split-off point or process it further and then sell it.-t
25. When a company has a production constraint, total contribution
B 20,000 ₱40 ₱30,000 ₱45
margin will be maximized by emphasizing the products with the highest
C 30,000 ₱20 ₱90,000 ₱25
contribution margin per unit of the constrained resource.-t
9. Which products should be sold without further processing? 26. In a special order situation, any fixed cost associated with the order
A. A only. C. A and B. would be irrelevant.-f
B. B and C. D. C only. 27. Eliminating nonproductive time is particularly important in a
10. Which products should be processed further. bottleneck operation.-t
A. A only. C. A and B. 28. If by dropping a product a firm can avoid more in fixed costs than it
B. B and C. D. C only. loses in contribution margin, then the firm is better off economically if the
product is dropped -t
11. The Shoe Department at the Baton Rouge Department Store is
29. Only the variable costs identified with a product are relevant in a
being considered for closure.
decision concerning whether to eliminate the product -f
The following information relates to shoe activity: 30. When evaluating alternatives using relevant costing, all potential costs
Sales revenue ₱700,000 and benefits are considered, even if they don't differ among options. -f