Prelims Quiz 1

TOPIC: COST BEHAVIOR For the next 6 items: For each of the following costs incurred in a manufacturing operation, indicate whether the costs would be fixed or variable and whether they would be period costs or product costs. Two shaded letters per item. Shade: A. Fixed

1. 2. 3. 4. 5. 6.

B.

Variable

C.

Product

D.

Period

Assembly line worker’s wages – B, C Salaries of top executives in the company – A. D Sales commissions - B, D Supplies used in assembly work B, C Straight line depreciation on furniture for sales staff. – A, D Depreciation based on hours the machinery was used in production – B, C

TOPIC: COST BEHAVIOR 7. Instead of having the space rented, the owner decided to use it in business. The forgone rental income is an example of: A. Standard cost B.

Opportunity cost

C.

Differential cost

D.

Sunk cost

TOPIC: COST BEHAVIOR 8. Letty purchased a delivery van worth P800,000. She expected to use the delivery van for 8 years. The P800,000 purchase cost is an example of: A. Differential cost B.

Relevant cost

C.

Standard cost

D.

Sunk cost

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

Relevant cost

C.

Opportunity cost

D.

Sunk cost

TOPIC: COST BEHAVIOR For the next 2 items: Following are costs incurred by Abtina Manufacturing Corporation during the previous month: Direct materials Indirect materials Direct labor Indirect labor Factory utilities Advertising costs Sales commissions Depreciation on administration building Salaries of administrative personnel Depreciation of delivery equipment Overtime pay – factory workers Rework cost on defective products discovered during quality inspection 10. Total product costs:

5,000 2,000 6,000 1,000 4,000 8,000 12,000 3,000 20,000 2,000 1,500 2,500

A.

P 67,000

B.

P 45,000

C.

P 22,000

D.

P 18,000

11. Total period costs: A. P 67,000 B.

P 45,000

C.

P 22,000

D.

P 18,000

Direct materials Indirect materials Direct labor Indirect labor Factory utilities Advertising costs Sales commissions Depreciation on administration building Salaries of administrative personnel Depreciation of delivery equipment Overtime pay – factory workers Rework cost on defective products discovered during quality inspection

Product costs 5,000.00 2,000.00 6,000.00 1,000.00 4,000.00

5,000.00 2,000.00 6,000.00 1,000.00 4,000.00 8,000.00 12,000.00 3,000.00 20,000.00 2,000.00 1,500.00 2,500.00

Period costs

8,000.00 12,000.00 3,000.00 20,000.00 2,000.00 1,500.00 2,500.00 22,000.00

45,000.00

TOPIC: COST BEHAVIOR For the next 3 items: The Awit Company manufactures several different products. Unit costs associated with Product ABC are as follows: Direct materials Direct labor

10

Variable manufacturing overhead

18

Fixed manufacturing overhead

32

Sales commissions (2% of sales) Administrative salaries Total 12. What are the fixed costs per unit associated with Product ABC? A. P 102 B.

P 48

C.

P 52

D.

P 32

13. What are the inventoriable costs per unit associated with Product ABC? A. P 120 B.

P 140

C.

P 50

D.

P 88

14. What are the period costs per unit associated with Product ABC? A. P4 B.

P 16

P 60

4 16 P 140

C.

P 20

D.

P52 Fixed

Direct materials

60

Direct labor

10

Variable manufacturing overhead

18

Fixed manufacturing overhead

32

Sales commissions (2% of sales) Administrative salaries

4 16

16.00

140

48.00

Total

Inventoriable

Period

60.00 10.00 18.00 32.00

32.00 4.00 16.00 20.00

120.00

TOPIC: COST-VOLUME-PROFIT ANALYSIS – PRODUCT MIX For the next 4 items Based on the following information: Iphone Sales price per unit Variable cost per unit Fixed costs Units produced

Ipad

Total

P 70 40 15,700

P 130 80 25000

P 200 120 40,700

2,000

1,000

3,000

15. The weighted contribution margin ratio is: A. 38.46% B.

40.00%

C.

40.74%

D.

42.86%

16. The weighted average contribution margin peso amount is: A. P 17.00 B.

P 20.00

C.

P 36.67

D.

P 80.00

Sales Less: Variable cost Contribution margin x Sales ratio Weighted CM per product Divided by: Weighted Sales Weighted CM ratio

Sales x Sales ratio Weighted Sales 17. The breakeven point in sales is: A. P 94,967 B.

P 99,900

C.

P 101,750

D.

P 105,820

Iphone 70.00 40.00 30.00 2/3 20.00

Ipad 130.00 80.00 50.00 1/3 16.67

70.00 2/3 46.67

130.00 1/3 43.33

Total

36.67 90.00 40.74%

90.00

Total Fixed Cost Divided by: Weighted CM ratio BE units

40,700.00 40.74% 99,900.00

18. The percentage of total sales attributable to Iphone is: A. 2/3 B.

1/3

C.

1/1

D.

None of the above

TOPIC: COST-VOLUME-PROFIT ANALYSIS – MIXED COSTS 19. The following data were collected from the records of the Receiving Department of a company:

Month January February March April May June

Number of Items Received 2,800 2,000 1,190 5,200 4,410 4,016

Receiving and Handling Costs P 17,500 12,500 7,450 32,500 27,600 25,100

The receiving and handling cost is most likely to be a: A. Step cost B.

Variable cost

C.

Fixed cost

D.

Semi-variable cost

Month January February March April May June

Number of Items Received 2,800 2,000 1,190 5,200 4,410 4,016

Receiving and Handling Costs 17,500 12,500 7,450 32,500 27,600 25,100

Per unit 6.25 6.25 6.26 6.25 6.26 6.25

TOPIC: COST-VOLUME-PROFIT ANALYSIS 20. Which of the following statements is not correct? A. All other factors remaining constant, a 10% decrease in the selling price of a given product will have the same effect on profit as a 10% increase in the unit variable cost of such product. B. Other things as they are, a P10,000 decrease in fixed costs will increase operating profit by the same amount. C. A change in the amount of fixed costs will not affect the ratio of variable costs to sales. D.

A change in fixed costs has no effect on the contribution margin.

TOPIC: COST-VOLUME-PROFIT ANALYSIS 21. Escareno Corporation has provided its contribution format income statement for June. The company produces and sells a single product. Sales (8,400 units) Variable expenses Contribution margin Fixed expenses Net operating income

P 764,400 445,200 319,200 250,900 P 68,300

If the company sells 8,200 units, its total contribution margin should be closest to: A. P 301,000 B.

P 311,600

C.

P 319,200

D.

P 66,674

Sales (8,400 units) Variable expenses Contribution margin Fixed expenses Net operating income

764,400.00 445,200.00 319,200.00 250,900.00 68,300.00

Per unit 91.00 53.00 38.00

For 8,200 units 746,200.00 434,600.00 311,600.00

TOPIC: COST-VOLUME-PROFIT ANALYSIS 22. The Bronco Birdfeed Company reported the following information: Sales (400 cases) Variable expenses Contribution margin Fixed expenses Net operating income

P 100,000 60,000 40,000 35,000 P 5,000

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

P 100.00

C.

P 150.00

D.

P 12.50

Sales (400 cases) Variable expenses Contribution margin Fixed expenses Net operating income

100,000.00 60,000.00 40,000.00 35,000.00 1.14

Per unit 250.00 150.00 100.00

TOPIC: COST-VOLUME-PROFIT ANALYSIS For the next 3 items: Meng Company is preparing a flexible budget for next year and requires a breakdown of the factory maintenance cost into fixed and variable elements. The maintenance costs and machine hours (the selected cost driver) for the past six months are as follows: Month January February March April May June

Maintenance costs P 15,500 10,720 15,100 15,840 14,800 10,600

Machine Hours 1,800 1,230 1,740 2,190 1,602 1,590

23. If Meng Company uses the high-low method of analysis, the estimated variable rate of maintenance cost per machine hour is: A. P7.23 B.

P 8.73

C.

P 5.46

D.

P 5.33

24. The average annual fixed maintenance cost amounts to: A. P 4,160 B.

P 8,320

C.

P 4,920

D.

P 5,120

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

P 8.11

C.

P 7.23

D.

P 5.46 Machine hrs Highest Lowest

Difference in Maintenance Divided by Variable cost per unit Maintenance cost highest Variable cost Variable cost per unit x Machine hrs - Highest

Maintenance

2,190.00 (1,230.00)

15,840.00 (10,720.00)

960.00

5,120.00

5,120.00 960.00 5.33

15,840.00 5.33 2,190.00

(11,680.00) 4,160.00

Fixed cost Variable cost per unit X Machine Hours Variable cost Fixed cost Total cost Divided by: Rate per machine hour

5.33 1,500.00 8,000.00 4,160.00 12,160.00 1,500.00 8.11

TOPIC: COST-VOLUME-PROFIT ANALYSIS For the next 3 items: Meng Company decided to use regression in computing for the fixed and variable costs. The computer generated report shows the following: SUMMARY OUTPUT Regression Statistics Multiple R 0.765843978 R Square 0.586516999 Adjusted R Square 0.483146249 Standard Error 1745.032065 Observations 6 ANOVA df Regression Residual Total

Intercept Machine Hours

1 4 5

SS MS F Significance F 17277852.36 17277852.36 5.673916436 0.075824289 12180547.64 3045136.91 29458400

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% 3752.699708 4261.194147 0.880668559 0.428231809 -8078.271923 15583.67134 -8078.271923 15583.67134 5.914480078 2.482990772 2.381998412 0.075824289 -0.979407499 12.80836765 -0.979407499 12.80836765

26. The variable cost per unit amounted to: A. P 3,752.70 B.

P 5.91

C.

P4,261.19

D.

P 2.48

27. The fixed costs amounted to: A. P 3,752.70 B.

P 5.91

C.

P4,261.19

D.

P 2.48

28. If the company used 2,000 machine hours, the estimated maintenance costs amounted to: A. P 8,718.68 B.

P 9,227.18

C.

P 15,581.66

D.

P 16,090.15

Machine hourse X Variable cost Add: Fixed costs Total Maintenance Costs

2,000.00 5.91 11,828.96 3,752.70 15,581.66

TOPIC: COST-VOLUME-PROFIT ANALYSIS 29. Gayne Corporation's contribution margin ratio is 12% and its fixed monthly expenses are P84,000. If the company's sales for a month are P738,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change. A. P 565,440 B.

P 654,000

C.

P 88,560

D.

P 4,560

Sales x CM ratio Contribution margin Less: Fixed costs Net Income

738,000.00 12% 88,560.00 84,000.00 4,560.00

TOPIC: COST-VOLUME-PROFIT ANALYSIS For the next 5 items Mascara Company were able to sell 10,000 products at P20 per unit. The following information is also available: Contribution margin ratio

30%

Margin of safety ratio

25%

Degree of operating leverage Compute for the following: 30. Contribution Margin – P 60,000 31. Net income – P 15,000 32. Fixed costs – P 45,000 33. Break-even sales peso amount – P150,000 34. Net income if sales volume increase by 30% - P 33,000 35. Net income if sales price increase by 30%

4x

Sales Variable costs Contribution margin Fixed costs Net income DOL MOSR Actual sales x 1-MOSR (100%-25%) BE Sales

Actual 200,000.00 (140,000.00) 60,000.00 (45,000.00) 15,000.00 4.00 25% 200,000.00 0.75 150,000.00

Contribution margin Divided by: DOL

60,000.00 4.00

Net income

15,000.00

Contribution margin Less: Net income

60,000.00 (15,000.00)

Fixed costs

45,000.00

Net income X Increase in sales X DOL Increase in net income Add: Current net income

15,000.00 0.30 4.00 18,000.00 15,000.00

Net income after 30% increase in sales

33,000.00

TOPIC: COST-VOLUME-PROFIT ANALYSIS 36. Jilk Inc.'s contribution margin ratio is 58% and its fixed monthly expenses are P36,000. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are P103,000? A. P 23,740 B.

P 59,740

C.

P 67,000

D.

P 7,260