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Meng Company is preparing a flexible budget for next year and requires a breakdown of the factory maintenance

cost into the fixed and variable elements.

The maintenance costs and machine hours (the selected cost driver) for the past six months are as follows:
Maintenance Cost Machine Hours
January P15,500 1,800
February 10,720 1,230
March 15,100 1,740
April 15,840 2,190
May 14,800 1,602
June 10,600 1,590

1. If Meng Company uses the high – low method of analysis, the estimated variable rate of maintenance cost
per machine hour is
a. P7.23 c. P5.46
b. P8.73 d. P5.33

2. The average annual fixed maintenance cost amounts to

a. P4,160 c. P49,920
b. P8,320 d. P 5,120

3. What is the average rate per hour at a level of 1,500 machine hours
a. P5.33 c. P7.23
b. P8.11 d. P5.46
The management of a hotel is interested in the relationship between room cleaning costs and guest-days in its
hotel. Using regression analysis on room cleaning costs and guest-days collected over 12 months, the relationship
was shown graphically as follows:

Room Cleaning Cost







500 1000 1500 2000 2500

4. The estimated monthly fixed room cleaning cost is

a. P25,000 c. P10,000
b. P30,000 d. P0

5. The estimated increase in the room cleaning cost for each additional guest-day is
a. P26.67 c. P60,000
b. P10.00 d. P25,000

6. The cost formula for the room cleaning costs may be expressed as
a. Cost = P25,000 + guest days. c. Cost = P25,000 + P10
b. Cost = P25,000 d. Cost = P25,000 + P10(guest-days)

7. If the relevant range is from 0 to 2,000 guest-days, how much is the total room cleaning cost for 2,200
a. P47,000
b. P22,000
c. P25,000
d. Cannot be determined from the given information
Belle Company produces and sells rattan baskets. The number of units produced and the corresponding total
production cost for six months, which are representatives for the year, are as follows:

Month Units Produced Production Cost

April 500 P4,000
May 700 8,000
June 900 6,000
July 600 7,500
August 800 8,500
September 550 7,250

Based on the given information and using the least squares method of computation, select the best answer for each

8. The cost function derived by the simple least squares method

a. Is linear
b. Is curvilinear
c. Is parabolic
d. Must be tested for minimum and maximum points

9. The monthly production costs can be expressed as

a. y = a + bx c. y = ax + b
b. y = b + ax d. x = a + by

10. Using the least square method, the variable production cost per unit is approximately
a. P5 c. P0.27
b. P10 d. P3.74

11. Using the least square method, the monthly fixed production cost is approximately
a. P1,500 c. P4,350
b. P18,000 d. P52,200

12. If the high-low points methid is used, the results when compared with those under the method of least
squares, are
Variable Cost Per Unit Total Fixed Costs
a. Equal Equal
b. Higher by P1.26 Lower by P2,850
c. Lower by P1.26 Highest by P2,850
d. Higher by P5 Lower by P1,500
Basic Illustration Corp. Produces and sells a single product. The selling price is P25 and the variable costs is P15 per
unit. The corporation’s fixed costs is P100,000 per month. Average monthyl sales is 11,000 units.

13. The corporation;s contribution margin per unit and as a percent of sales (CMR) is
a. P10 per unit; 40% c. 10 units; 40%
b. P40 per unit; 160% d. P10 per unit; 60%

14. The corporation’s break-even point is

a. P10,000 c. 10,000 units of P250,000
b. 250,000 units d. 250,000 units of P10,000

15. If the corporation desires to earn profit of P20,000 before tax, it must generate sales of
a. P12,000 c. 10,000 units or P250,000
b. 300,000 units d. 12,000 units or P300,000

16. If the corporation pays corporate income tax at the rate of 30% and it desires to earn after-tax profit of
P21,000, it mus generate sales of
a. P325,000 or 13,000 units c. 12,040 units or P301,000
b. P13,000 or 325,000 units d. 16,375 units or P409,375

17. How much sales (in peso) must be generated to earn profit that is 8% of such sales?
a. P270,000 c. P208,333.33
b. P312,500 d. P230,000

18. How many units must be sold to earn profit of P2 per unit?
a. 8,333.33 c. 12,500
b. 10,000 d. 312,500

19. With an average monthly sales of 11,000 units, the corporation’s margin of safety is
a. 1,000 units or P25,000 c. 10,000 units or P250,000
b. 11,000 units or P275,000 d. P10,000

20. The margin of safety ration (MSR) and the break0even sales ratio (BESR) are
a. 9%; 91%
b. 40%; 60%
c. 91%; 9%
d. 60%; 40%

21. At the present average monthly sales level of 11,000 units, the corporation’s operating leverage factor
(OLF) is
a. 6 c. 9.09
b. 11 d. 90.9

22. If fixed costs will increase by P20,000 the break-even point in units will increase (decrease) by
a. 12,000 c. 50,000
b. 10,000 d. 2,000

23. If the variable costs per unit will go up by P5 , the peso break-even sales will increase (decrease) to
a. P500,000 c. (P500,000)
b. P250,000 d. (P250,000)

24. If selling price will increase to P30, the break0even point in units will
a. Remain unchaged c. Decreased to 6,666.67
b. Decreased by P166,666.75 d. Decreased by 6,666.67

25. As company’s sales move father from its break-even point, one would expect the degree of operating
leverage to
a. Increase
b. Decrease
c. Remain unchanged
d. Vary in direct proportion to changes in the activity level.

26. If sales increase from P800,000 to P900,000, and if the degree of operating leverage is 5, one would expect
profit to increase by
a. 62.5% c. 5.0%
b. 12.5% d. 2.5%

27. A company has an operating leverage factor of 4. When its sales increase to P500,000, its profit before tax
increased by 100%. Its variable cost ratio is 40%. How much is the company’s fixed costs?
a. P100,000 c. P180,000
b. P240,000 d. P120,000
Following information pertains X Company’s two products:
Digicam Videocam
Break-even point – units 360 240
Selling price P4,500 P14,250
Variable costs 2,250 5,000

28. What is weighted-average contribution margin?

a. P11,500 c. P19.17
b. P 5,050 d. P25,250

29. How much is total fixed costs?

a. P3,030,000 c. P2,010,000
b. P5,040,000 d. P5,050

30. How many units of each product should be sold if the company desires to earn profit before tax of
Digicam Videocam
a. 900 900
b. 360 240
c. 360 540
d. 540 360
A company sells two products, A and B. The sales mix consists of a composite unit of 5 units of A for every 3 units of
B (5:3). Fixed costs amounts to P202,500. The unit contribution margins are P4.80 for A and P10 for B.

31. The number of composite units to break-even is

a. 13,682 c. 30,000
b. 1,710 d. 18,750

32. If the sales mix ratio is changed from 5:3 to 3:5, only one of the following statements is not true, and that
a. The WaUCM will increas to P8.05
b. The BEP will decrease to 25,155.28 composite units
c. Total fixed costs will remain the same
d. The weighted-average UCM will not change

During January 200A, Liquiagan, Inc. produced 1,000 units of Product A with costs as follows:

Materials P 6,000
Labor 3,300
Variable factory overhead 2,500
Fixed factory overhead 1,500
Total manufacturing costs P13,300

Selling and administrative costs incurred during the month were:

Variable selling and administrative P3,000
Fixed selling and administrative 2,000

Selling price per unit P20.00

Liquigan, Inc. uses the JIT system. It does not keep inventories in stock.

33. What amount should be considered product cost for external reporting purposes?
a. P13.30
b. P18.30
c. P11.80
d. P14.80
34. What is the product cost per unit under variable costing?
a. P13.30
b. P18.30
c. P11.80
d. P14.80
35. What is the variable cost per unit for purposes of computing the contribution margin?
a. P13.30
b. P18.30
c. P11.80
d. P14.80
36. Under absorption costing, income for January 200A was
a. P8,200
b. P5,200
c. P6,700
d. P1,700
37. What would be if variable costing were used?
a. Equal to income under absorption costing because that should always be the case
b. Equal to income under absorption costing because the total fixed overhead costs expensed under both
methods are the same
c. An amount greater than that under absorption costing because production is equal to sales
d. An amount less than that under absorption costing because there is no change in inventory
A company produces a single product. Production is done only when orders are received from customers. Thus, no
inventory is kept at the end of the period. For the last period, the following data were available:

Sales P32,000
Materials 7,240
Labor 4,840
Rent (90% factory, 10% office) 2,400
Depreciation (80% factory, 20% office) 2,000
Supervision (2/3 factory, 1/3 office) 1,200
Salesmen’s salaries and commission 1,040
Insurance (60% factory, 40% office) 960
Office supplies 600
Advertising 560

38. If the company uses absorption costing, the cost of goods sold during the period was
a. P18,640
b. P17,216
c. P20,840
d. P12,080

Charlie Corporation’s records for the year 200B show the following data:

Net sales (6,000 units) P21,000

Cost of goods manufactured (7,000 units):
Variable 9,450
Fixed 4,725
Operating expenses:
Variable 1,470
Fixed 2,100

There was no finished goods inventory at the beginning of the period. Neither was there any work-in-
process inventory at the beginning and end of the year.

39. Charlie Corporation’s finished goods inventory costs at the end of 200B under both the absorption and
variable costing methods:
Absorption Costing Variable Costing
a. P1,350 P2,025
b. 2,535 1,560
c. 2,025 1,350
d. 1,560 2,535
40. Charlie Corporation’s operating income figures during the year under both costing methods (absorption
and variable costing) were:
Absorption Costing Variable Costing
a. P 5,280 P 4,605
b. 11,430 8,850
c. 8,850 11,430
d. 4,605 5,280