PROBLEM

Number 1 (COSTS AND COST CONCEPTS)

Frank Co.’s total costs of operating five sales offices last year were P500,000, of which
P70,000 represented fixed costs. Frank has determined that total costs are significantly
influenced by the number of sales offices operated. Last year’s costs and number of sales
offices can be used as the bases for predicting annual costs. What would be the budgeted
costs for the coming year if Frank were to operate seven sales offices?
A. 700,000
B. 672,000
C. 614,000
D. 586,000

Numbers 2 and 3 (COSTS AND COST CONCEPTS)

Castelo, Villasin and Barrera is a large, local accounting firm located in Cebu. Belle
Castelo, one of the Firm’s founders, appreciates the success her firm has enjoyed and
wants to give something back to her community. She believes that an inexpensive
accounting services clinic could provide basic accounting services for small businesses
located in the province. She wants to price the services at cost.

Since the clinic is brand new, it has no experience to go on. Belle decided to operate the
clinic for two months before determining how much to charge per hour on an ongoing
basis. As a temporary measure, the clinic adopted an hourly charge of P50, half the
amount charged by Castelo, Villasin and Barrera for professional services.

The accounting services clinic opened on January 1. During January, the clinic had 120
hours of professional service. During February, the activity was 150 hours. Costs for these
two level of activity usage are as follows:

Professional hours 120 hours 150 hours

Salaries:
Senior accountant P2,500 P2,500
Office assistant 1,200 1,200
Internet and software subscriptions 700 850
Consulting by senior partner 1,200 1,500
Depreciation (equipment) 2,400 2,400
Supplies 905 1,100
Administration 500 500
Rent (offices) 2,000 2,000
Utilities 332 365
Total P11,737 P12,415

2. The clinic’s monthly fixed costs amount to

A. 8,600
B. 9,025
C. 425
D. 12,189

3. Apple Baby, the chief paraprofessional of the clinic, has estimated that the clinic will
average 140 professional hours per month. If the clinic is to be operated as a nonprofit
organization, how much will it need to charge per professional hour?
A. 97.81
B. 87.06
C. 82.77
D. 22.60
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Number 4 (COSTS AND COST CONCEPTS)

HSR Computer System designs and develops specialized software for companies and use a
normal costing system. The following data are available for 2018:

Budgeted
Overhead P600,000
Machine hours 24,000
Direct labor hours 75,000

Actual
Units produced 100,000
Overhead P603,500
Prime costs P900,000
Machine hours 25,050
Direct labor hours 75,700

Overhead is applied on the basis of direct labor hours.

What is the unit cost for the year?

A.15.03
B.15.06
C.15.09
D.15.00

Number 5 (ABC SYSTEM)

Hazelnut Company uses activity-based costing. The company produces two products: coats
and hats. The annual production and sales volume of coats is 8,000 units and of hats is 6,000
units. There are three activity cost pools with the following expected activities and estimated
total costs:

Activity Estimated Expected Expected

Cost Pool Cost Activity Activity
Coats Hats Total
Activity 1 P20,000 100 400 500
Activity 2 P37,000 800 200 1,000
Activity 3 P91,200 800 3,000 3,800

Using ABC, the cost per unit of coats is approximately

A. 2.40
B. 3.90
C. 6.60
D.10.59
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Number 6 (ABC SYSTEM)

Elaine Hospital plans to use the activity-based costing to assign hospital indirect costs to the
care of patients. The hospital has identified the following activities and activity rates for the
hospital indirect costs:

Activity Activity Rate

Room and meals P150 per day
Radiology P95 per image
Pharmacy P28 per physician order
Chemistry lab P85 per test
Operating room P550 per operating room hour

The records of two representative patients were analyzed, using the activity rates. The activity
information associated with the two patients are as follows:

Patient 1 Patient 2
Number of days 7 3
Number of images 4 2
Number of physician orders 5 1
Number of tests 6 2
Number of operating room hours 4.5 1

What is the activity cost associated with Patient?

A.1,388
B. 908
C. 1,816
D. 4,555

Number 7 (ABC SYSTEM)

Balat Leather Works, which manufactures saddles and other leather goods, has three
departments. The Assembly Department manufactures various leather products, such as belts,
purses, and saddle bags, using automated production process. The Saddle Department
produces handmade saddles and uses very little machinery. The Tanning Department produces
leather. The tanning process requires little in the way of labor or machinery, but it does
require space and process time. Due to the different production processes in the three
departments, the company uses three different cost drivers for the application of manufacturing
overhead. The cost drivers and overhead rates are as follows:

Cost Driver Predetermined Overhead Rate

Tanning Department Square-feet of leather P3 per square-foot
Assembly Department Machine time P9 per machine hour
Saddle Department Direct-labor time P4 per direct labor hour

The company’s deluxe saddle and accessory set consists of handmade saddle, two saddlebags,
a belt, and a vest, all coordinated to match. The entire set uses 100 square-feet of leather
from the Tanning Department, 3 machine hours in the Assembly Department, and 40 direct-
labor hours in the Saddle Department. The company is processing Job No. 20 consisting of 20
deluxe saddle and accessory sets.

How much is the applied manufacturing overhead in the Assembly Department for Job No. 20?
A. 3,200
B. 540
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C. 6,000
D. 3,000

Number 8 (CVP AND BREAKEVEN ANALYSIS)

Harry Manufacturing incurs annual fixed costs of P250,000 in producing and selling a single
product. Estimated unit sales are 125,000. An after-tax income of P75,000 is desired by
management. The company projects its income tax rate at 40 percent. What is the maximum
amount that Harry can expend for variable costs per unit and still meet its profit objective if the
sales price per unit is estimated at P6?
A.3.37
B.3.59
C.3.00
D.3.70

Number 9 (CVP AND BREAKEVEN ANALYSIS)

For its most recent fiscal year, a firm reported that its contribution margin was equal to 40
percent of sales and that its net income amounted to 10 percent of sales. If its fixed costs for
the year were P60,000, how much was the margin of safety?
A.150,000
B.200,000
C.600,000
D.50,000

Number 10 (CVP AND BREAKEVEN ANALYSIS)

Sam Company manufactures a single product. In the prior year, the company had sales of
P90,000, variable costs of P50,000, and fixed costs of P30,000. Sam expects its cost structure
and sales price per unit to remain the same in the current year, however total sales are
expected to increase by 20 percent. If the current year projections are realized, net income
should exceed the prior year’s net income by:
A. 100 percent
B. 80 percent
C. 20 percent
D. 50 percent

Number 11 (CVP AND BREAKEVEN ANALYSIS)

Antiporda, Inc. sells three products, A, B, and C. The company sells three (3) units of C for
each unit of A and two (2) units of B for each unit of C. Total fixed costs amount to P760,000.
Product A’s contribution margin per unit is P2, Product B’s is 150% of A’s, and Product C’s is
twice as much as B’s. How many units of each product must be sold to break-even?

Product A Product B Product C

A. 2,000 12,000 6,000

B. 20,000 120,000 60,000
C. 29,231 58,462 87,692
D. 69,091 414,546 207,273
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Numbers 12, 13 and 14 (CVP AND BREAKEVEN ANALYSIS)

A company is making plans for next year, using cost-volume-profit analysis as its planning tool.
Next year’s sales data about its product are as follows:
Selling price P60.00
Variable manufacturing costs per unit 22.50
Variable selling and administrative costs 4.50
Fixed operating costs (60% is manufacturing cost) P148,500
Income tax rate 32%

12. How much should sales be next year if the company wants to earn profit after tax of
P22,440, the same amount that it earned last year?
A. 310,800
B. 397,500
C. 330,000
D. 222,000

13. Assume that the company’s management learned that a new technology that will increase
the quality of its product is available. If implemented, its projections for next year will be

changed:

1. The selling price of the product will increase to P75 per unit.
2. Fixed manufacturing costs will increase by 20%.
3. Additional advertising costs will be incurred to promote the higher-quality
product. This will increase fixed non-manufacturing cost by 10%.
4. The improved product will require a new material that will increase direct
materials cost by P4.50

If the new technology is adapted, how much sales should the company make to earn a
pre-tax profit of 10% on sales?
A. 366,130
B. 358,875
C. 253,324
D. 353,897

14. If the sales required in Item #13 is realized, the company will have an operating leverage
factor of
A. 8.53
B. 5.80
C. 7.24
D. 5.50

Number 15 (CVP AND BREAKEVEN ANALYSIS)

Yamyam Company is considering introducing a new product that will require a P250,000
investment of capital. The necessary funds would be raised through a bank loan at an interest
rate of 8%. The fixed operating costs associated with the product would be P122,500 while the
variable cost ratio would be 58%. Assuming a selling price of P15 per unit, determine the
number of units (rounded to the nearest whole unit) Yamyam would have to sell to generate
earnings before interest and taxes (EBIT) of 32% of the amount of capital invested in the new
product.
A.35,318 units
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B.25,575 units
C.32,143 units
D.23,276 units

Numbers 16 and 17 (CVP AND BREAKEVEN ANALYSIS)

Total Cost Unit Cost

Sales (40,000 units) P1,000,000 P25
Raw materials 160,000 4
Direct labor 280,000 7
Factory overhead:
Variable 80,000 2
Fixed 360,000
Selling and general expenses:
Variable 120,000 3
Fixed 225,000

16. How many units does the company need to produce and sell to make a before-tax profit
of 10% of sales?
A. 65,000 units
B. 36,562 units
C. 90,000 units
D. 29,250 units

17. Assuming that the company sells 80,000 units, what is the maximum that can be paid for
an advertising campaign while still breaking even?
A. 135,000
B. 1,015,000
C. 535,000
D. 695,000

Number 18 (CVP AND BREAKEVEN ANALYSIS)

The following information relates to Hera Corporation for last year:

Sales P500,000
Net operating income P25,000
Degree of operating leverage 5

Sales at Hera are expected to be P600,000 next year. Assuming no change in cost structure,
this means that net operating income for next year should be:
A. 30,000
B. 45,000
C.50,000
D.125,000

Number 19 (STANDARD COSTING)

The materials mix variance for a product is P450 unfavorable and the materials yield variance is
P150 unfavorable. This means that
A. The materials price variance is P600 unfavorable.
B. The materials quantity variance is P600 unfavorable
C. The total materials cost variance is definitely P600 unfavorable.
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D. The materials price variance is also unfavorable, but the amount cannot be determined
from the given information.

Number 20 (STANDARD COSTING)

Samson Company uses a standard costing system in the production of its only product. The
84,000 units of raw materials inventory were purchased for P126,000 and 4 units of raw
materials are required to produce one unit of final product. In October, the company produced
14,400 units of product. The standard cost allowed for materials was P72,000, and there was
an unfavorable usage variance of P3,000.

The materials price variance for the units used in October was
A.15,000 unfavorable
B.15,000 favorable
C. 3,000 unfavorable
D. 3,000 favorable

Number 21 (STANDARD COSTING)

The standard direct materials cost to produce a unit of a product is four meters of materials at
P2.50 per meter. During June, 2018, 4,200 meters of materials costing P10,080 were purchased
and used to produce 1,000 units of the product. What was the materials price variance for
June, 2018
A. 480 unfavorable
B. 80 unfavorable
C. 400 favorable
D. 420 favorable

Number 22 (STANDARD COSTING)

Buchoy Company manufactures one product with a standard direct manufacturing labor cost of
four hours at P12.00 per hour. During June, 1,000 units were produced using 4,100 hours at
P12.20 per hour. What was the unfavorable direct labor efficiency variance?
A. 820
B. 400
C. 1,200
D. 1,220
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Numbers 23, 24, 25, 26 and 27 (STANDARD COSTING)

Vhong, Inc. evaluates manufacturing overhead in its factory by using variance analysis. The
following information applies to the month of July:
ACTUAL BUDGETED
Number of units produced 19,000 20,000
Variable overhead costs P4,100 P2 per direct labor hour
Fixed overhead costs P22,000 P20,000
Direct labor hours 2,100 0.1 hour per unit

23. The controllable variance amounts to

A. 2,500 unfavorable
B. 1,000 unfavorable
C. 2,300 unfavorable
D. 2,000 unfavorable

24. Using the three-way variance analysis, the spending variance amounts to
A. 100 favorable
B. 1,900 unfavorable
C. 2,000 unfavorable
D. 2,100 unfavorable

25. The efficiency variance amounts to

A. 400 unfavorable
B. 1,900 unfavorable
C. 400 favorable
D. 1,000 unfavorable

26. The non-controllable variance is

A. 2,300 unfavorable
B. 400 unfavorable
C. 2,000 unfavorable
D. 1,000 unfavorable

27. The fixed overhead efficiency variance is:

A. 400 unfavorable
B. 2,000 unfavorable
C. 400 favorable
D. 0

Number 28 (STANDARD COSTING)

Reyna Co. manufactures one product with a standard direct manufacturing labor cost of four
hours at P12.00 per hour. During June, 1,000 units were produced using 4,100 hours at P12.20
per hour. The unfavorable direct labor efficiency variance was

A. 1,220
B. 1,200
C. 820
D. 400
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Number 29 (STANDARD COSTING)

Tyson Co. uses a standard costing system in connection with the manufacture of a “one size
fits all” article of rubber clothing. Each unit of finished product contains two yards of direct
material. However, a 20% direct material spoilage calculated on input quantities occurs during
the manufacturing process. The cost of the direct material is P3 per yard. The standard direct
material cost per unit of finished product is
A. 4.80
B. 6.00
C. 7.20
D. 7.50

Number 30 (PRODUCT COSTING)

In its first year of operations, Nasty Company had the following costs when it produced
100,000 units and sold 80,000 units of its only product:

Manufacturing costs:
Fixed P180,000
Variable 160,000

Selling and administrative costs:

Fixed 90,000
Variable 40,000

How much higher would Nasty’s net income be if it used full absorption costing instead of
variable costing?
A. 94,000
B. 68,000
C. 36,000
D. 54,000

Number 31 (PRODUCT COSTING)

At the end of Luke Co.’s first year of operations, 1,000 units of inventory remained on hand.
Variable and fixed manufacturing costs per unit were P90 and P20, respectively. If Luke uses
absorption costing rather than variable (direct) costing, the result would be a higher pretax
income of
A. 0
B. 20,000
C. 70,000
D. 90,000