Items 1 to 3 are based on the following information

Balong Co. had the following materials handling cost at three months of
activity levels:
Kilos handled Costs
Month 1 80,000 P160,000
Month 2 60,000 P132,000
Month 3 70,000 P130,000
1. What is the value of the slope of the line at 80,000-kilo level?
a. 1.4 c. 1.4 x number of kilos
b. 1.5 d. 112,000

2. What is the value of the y-intercept at 60,000-kilo level?

a. 0.80 c. P 48,000 per month
b. P 48,000 per kilo d. P48,000 per year

3. What is the estimated cost for handling 500,000 kilos for the next
operating year?
a. P 700,000 c. P 1,276,000
b. P 748,000 d. P 8,976,000

4. The statement “factory overhead is a function of machine hours with

2
coefficient of determination (r ) = 70 percent” is correctly interpreted as
a. 70 percent of total variation of factory overhead is explained by
the regression equation or the change in machine hours while the
remaining 30 percent is accounted for by something other than
machine hours.
b. An r-squared of 0.70 with a regression equation means that
predictions will be accurate 70% of the time.
c. 30 percent of total variation of factory overhead is explained by
the regression equation or the change in machine hours while 70
percent is accounted for by something other than machine hours.
d. 30% percent of overhead cost prediction might show results
outside confidence interval determined by the standard deviation.

5. A retail company determines selling price by marking up variable costs

60%. In addition, the company uses frequent selling price markdowns to
stimulate sales. If the markdowns average 10%, what is the company’s
contribution margin ratio?
a. 27.5% c. 37.5%
b. 30.6% d. 41.7%

6. If a company’s variable cost ratio is 60%, which formula represents the

computation of peso sales that will yield a profit equal to 20% of the
contribution margin when S = sales in pesos and FC = costs?
a. S = F ÷ 1.2 c. S = F ÷ 0.2
b. S = F ÷ 0.32 d. S = F ÷ 0.12

7. The total production cost for 20,000 units was P21,000 and the total
production cost for making 50,000 units was P34,000. Once production exceeds
25,000 units, additional fixed costs of P4,000 were incurred. What is the
full production cost per unit for making 30,000 units?
a. P 0.30 c. P 0.84
b. P 0.68 d. P 0.93

8. Total production cost for Yeye Company are budgeted at P230,000 for
50,000 units of budgeted output and at P280,000 for 60,000 units of budgeted
output. Because of the need for additional facilities, budgeted fixed costs
for 60,000 units are 25% more than the budgeted fixed costs for 50,000
units. How much is Yeye’s budgeted variable cost per unit of output?
a. P 1.60 c. P 3.00
b. P 1.67 d. P 5.00

9. Rafa Inc. has a total of 2,000 rooms in its nationwide chain of motels.
On average, 70% of the rooms are occupied each day. The company’s operating
costs are P21 per occupied room per day at this occupancy level, assuming a
30-day month. This P21 figure contains both variable and fixed cost
elements. During October, the occupancy rate dropped to only 45%. A total of
P792,000 in operating cost was incurred during October. What is the
estimated the variable cost per occupied room per day?
a. P 3.33 c. P 6.00
b. P 4.50 d. P 8.00

10. Andy Company is expecting an increase of fixed costs by P78,750 upon

moving their place of business to the downtown area. Likewise, it is
anticipating that the selling price per unit and the variable expenses will
not change. At present scenario, the sales volume necessary to breakeven
would go up to P975,000. Based on these projections, what would be the total
fixed costs after the increase of P78,750?
a. P 341,250 c. P 183,750
b. P 262,500 d. P 300,000

11. Datol Company has a contribution margin of 20%, a margin of safety ratio
of 33 1/3% and a profit of P5,000. What was Datol Company’s break-even peso
sales?
a. P 15,000 c. P 60,000
b. P 50,000 d. P 75,000

12. The controller of SD Co. prepared the following income statements:

November December
Sales P420,000 P450,000
Cost of sales 226,000 235,000
Gross margin P194,000 P215,000
Selling and administrative expenses 105,000 108,000
Income before taxes P89,000 P107,000
If SD Co. produces a single product, how much peso sales should it generate
to break-even?
a. P 271,667
b. P 228,260
c. P 407,500
d. Cannot be determined from given information

13. At 40,000 units of sales, Rock Corporation had an operating loss of

P3.00 per unit. When sales were 70,000 units, the company had a profit of
P1.20 per unit. What is the number of units to breakeven?
a. 35,000 c. 52,500
b. 45,000 d. 57,647

14. Jill Company has fixed costs of P300,000. It produces two products, X
and Y. Product X has a variable cost percentage equal to 60% of its P10 per
unit selling price. Product Y has a variable cost percentage equal to 70% of
its P30 selling price. For the past several years, sales of product X have
averaged 66.67% of the sales of product Y. That ratio is not expected to
change. What is Jill’s breakeven point in pesos?
a. P 300,000 c. P 857,142
b. P 750,000 d. P 942,857
15. When sales level reaches P100,000 return on sales is 10%. How much is
the margin of safety if the operating leverage at this sales level is 4
times?
a. P 2,500
b. 25,000 units
c. 25% of sales
d. Cannot be determined from the given information.

16. Jack Company sells 50,000 units of a gadget. These were taken from the
company’s records:
Accounts Receivable P129,000 Days sales outstanding 15 days
Contribution margin ratio 49% Profit for the period P485,040
The ending receivables balance is the average balance during the year. Using
a 360-day year and assuming that all sales are made on credit, what is the
company’s even point?
a. P 1,032,000 c. P 2,061,122
b. P 1,320,000 d. P 2,106,122

17. Julie Company, which is subject to 40% income tax, had the following
operating data for the period just ended:
Selling price per unit P60
Variable cost per unit P22
Fixed cost P504,000
Management plans to improve the quality of its sole product by way of
implementing the following changes:
(1) Replacing a component that costs P3.50 with a higher-grade unit that
costs P5.50, and
(2) Acquiring a P180,000 packaging machine. Julie will depreciate the
machine over 10-year period with no estimated salvage value by the straight-
line method of depreciation.
If the company wants to earn after-tax profit of P172,800 in the coming
year, then how many units must it sell?
a. 10,300 units c. 22,500 units
b. 21,316 units d. 27,000 units

Items 18 to 22 are based on the following information

Ginger Co. is involved in selling an exclusive toy in the market. It sold
1,800 units of toys during the current year. The manufacturing capacity of
Ginger’s facilities is 3,000 units of toys. The operating results of Ginger
Co. during the current year show the following:
Sales P900,000
Variable Costs: Manufacturing P315,000
Selling 180,000 495,000
Contribution Margin P405,000
Fixed Costs: Manufacturing P90,000
Selling 112,500
Administration 45,000 247,500
Net income before taxes P157,500
Income tax (40%) (63,000)
Net income after taxes P94,500
18. What is the break-even volume in units of toys for the year?
a. 420 c. 550
b. 495 d. 1,100

19. If the sales volume is estimated to be 2,100 units in the next year, and
if the prices and costs stay at the same levels and amounts next year, the
after-tax income that Ginger can expect for next year is:
a. P 110,250 c. P 184,500
b. P 135,000 d. P 283,500
20. Ginger has a potential foreign customer that has offered to buy 1,500
units at P450 per unit. Assume that all of Ginger’s costs would be at the
same levels and rates as last year. What net income after taxes would Ginger
expect if it took this order and rejected some business from regular
customers so as not to exceed capacity?
a. P 211,500 c. P 256,500
b. P 252,500 d. P 297,500

21. Ginger plans to market its product in a new territory. It estimates that
an advertising and promotion program costing P61,500 annually would need to
be undertaken for the next two to three years. In addition, a P25 per unit
sales commission over and above the current commission to the sales force in
the new territory would be required. How many units would have to be sold in
the new territory to maintain Ginger’s current after-tax income of P94,500?
a. 273.30 c. 1,095.00
b. 307.50 d. 1,545.00

22. Assuming Ginger is expecting that per unit selling price will decline
10% decline next year. Variable costs will increase P40 per ton and the
fixed costs will not change. What sales volume in pesos will be required to
earn an after-tax income of P94,500 next year?
a. P 825,000 c. P 1,350,000
b. P 1,140,000 d. P 1,500,000

Items 23 to 27 are based on the following information

Orange Ski can produce up to 15,000 pairs of cross-country skis of either
the Mountaineering model or Touring model. The sales department assures
management that it can sell between 9,000 and 13,000 pairs (units) of either
product this year. Because the models are very similar, Orange Ski will
produce only one of the two models. The information below was compiled by
the accounting department.
Mountaineering Touring
Selling price per unit P88.00 P80.00
Variable cost per unit P52.80 P52.80
Fixed costs will total P369,600 if the mountaineering model is produced but
will be only P316,800 if the touring model is produced. Orange Ski Company
is subject to a 40% income tax rate.
23. If Orange Ski Company desires an after-tax net income of P24,000, how
many pairs of Touring model skis will the company have to sell?
a. 13,853 c. 12,529
b. 13,118 d. 4,460

24. The total sales revenue at which Orange Ski Company would make the same
profit or loss regardless of the ski model it decided to produce is
a. P 924,000 c. P 686,400
b. P 880,000 d. P 422,400

25. How much would the variable cost per unit of the Touring model have to
change before it had the same breakeven point in units as the Mountaineering
model?
a. P 5.03 decrease c. P 2.97 decrease
b. P 4.53 increase d. P 2.68 increase

26. If the variable cost per unit of Touring skis decrease by 10%, and the
total fixed cost of Touring skis increases by 10%, the new breakeven point
will be
a. 10,730 pairs
b. 12,812 pairs
 c. 13,007 pairs
d. Unchanged from 11,648 pairs because the cost changes are equal
and therefore somewhat offsetting

27. If the Orange Ski Company sales department could guarantee the annual
sale of 12,000 skis of either model, Orange would
a. Produce Touring skis because they have a lower fixed cost
b. Produce only Mountaineering skis because they have a lower
breakeven point
c. Produce Mountaineering skis because that are more profitable
d. Be indifferent as to which is sold because each model has the
same unit variable cost

28. A mail-order confectioner sells fine candy in one-pound boxes. It has

the capacity to produce 600,000 boxes annually but forecasts that it will
produce and sell only 500,000 boxes in the coming year. The costs to
manufacture and distribute the candy are detailed below. The organization
has invested capital of P6.75 million.
Variable cost per pound
Manufacturing P4.85
Packaging 0.35
Distribution 1.80
Total P7.00
Annual fixed costs
Manufacturing overhead P810,000
Marketing and distribution 270,000
What is the selling price per pound that the confectioner should charge for
a one-pound box of candy to obtain a 20% rate of return on invested capital?
a. P 9.70 c. P 11.50
b. P 11.05 d. P 11.86

29. The following information was taken from the first year absorption-based
accounting records of Spain Co.:
Total fixed costs incurred P100,000
Total variable costs incurred 50,000
Total period costs incurred 70,000
Total variable period costs incurred 30,000
Units produced 20,000
Units sold 12,000
Unit sales price P12
If Spain Company had used variable costing in its first year of operations,
how much profit (loss) before income taxes would it have reported?
a. (P 6,000) c. P 26,000
b. P 54,000 d. P 2,000

30. The following data are available for Monte Carlo Corporation:
Direct materials used P22,500
Payroll P30,000
Variable overhead (budgeted and actual) P2 per unit
Fixed overhead (budgeted and actual) P40,000
Units produced 7,500 units
Units sold 7,000 units
Beginning inventory None
Normal capacity 8,000 units
Any capacity variance is closed to cost of sales.
How much is the cost of sales under (1) full costing and (2) direct costing?
a. (1) 98,800 (2) 63,000 c. (1) 103,333 (2) 65,500
b. (1) 100,310 (2) 65,500 d. (1) 100,500 (2) 63,000

31. The following information pertains to Italy Company’s Product A-810:

 Standard costs:
Variable manufacturing P12 per unit
Fixed manufacturing (based on
normal production of 20,000 units) P4 per unit
Variances:
Variable manufacturing-unfavorable P12,000
Capacity P8,000
Other data:
Production 22,000 units
Sales (P25/unit) 16,000 units
Operating costs P64,000
All variances are closed to cost of good sold. What is the company’s profit
under GAAP costing?
a. P 76,000 c. P 44,000
b. P 52,000 d. P 42,000

32. Universal Inc. began operations on January 1. Standard costs were

established in early January assuming a normal production volume of 160,000
units. However, Universal Inc. produced only 140,000 units of product and
sold 100,000 units at a selling price of P180 per unit during the year.
Variable costs amounted to P7,000,000 of which 60% were manufacturing and
40% were selling. Fixed costs totaled P11,200,000, of which 50% were
manufacturing and 50% were selling. Universal Inc. had no raw materials or
work-in-process inventories at December 31. Actual input prices and
quantities per unit of product were equal to standard.
Using absorption costing, what will be the (1) standard cost of goods sold
and (2) overhead volume variance?
a. (1) P 8,200,000 (2) P 800,000 U
b. (1) P 7,200,000 (2) P 800,000 F
c. (1) P 6,500,000 (2) P 700,000 U
d. (1) P 7,000,000 (2) P 700,000 F

33. Indigo Company present the following information:

Sales price per unit P18 per unit
Standard absorption cost rate P12 per unit
Standard variable cost rate P8 per unit
Variable selling expense rate P2 per unit
Fixed selling and administrative expenses P40,000
Fixed manufacturing overhead ????
Last period, 13,000 units were produced. In the current period, 15,000 units
were produced. In each period, 13,000 units were sold. What is the
difference in reported income under absorption costing and variable costing
for the current period?
a. The variable costing income exceeded absorption costing income by
P4,000
b. The variable costing income exceeded absorption costing income by
P6,000
c. The absorption costing income exceeded variable costing income by
P8,000
d. The absorption costing income exceeded variable costing income by
P10,000

Items 34 to 40 are based on the following information

Fuchsia Corporation employs an absorption costing system for internal
reporting purposes; however, the company is considering using variable
costing. Data regarding Fuchsia’s planned and actual operations for the
calendar year are presented below:
Planned Activity Actual Activity
Beginning finished
goods inventory in 35,000 35,0000
 units
Sales in units 140,000 125,000
Production in units 140,000 130,000
The following planned per unit cost figures were based on the estimated
production and sale of 140,000 units for the year. Fuchsia uses a
predetermined manufacturing overhead rate for applying manufacturing
overhead to its product; thus, a combined manufacturing overhead rate of
P9.00 per unit was employed for absorption costing purposes. Any over- or
under-applied manufacturing overhead is closed to the cost of goods sold
account at the end of the reporting year.
Planned Cost
Per Unit Total Incurred Cost
Direct materials P12.00 P1,680,000 P1,560,000
Direct labor 9.00 1,250,000 P1,170,000
Variable manufacturing overhead 4.00 560,000 520,000
Fixed manufacturing overhead 5.00 700,000 715,000
Variable selling expenses 8.00 1,120,000 1,000,000
Fixed selling expenses 7.00 980,000 980,000
Variable administrative expenses 2.00 280,000 250,000
Fixed administrative expenses 3.00 420,000 425,000
Total P50.00 P7,000,000 P6,620,000
The beginning finished goods inventory for absorption costing purposes was
valued at the previous year’s planned unit manufacturing cost, which was the
same as the current planned unit manufacturing cost. There are no work-in-
process inventories at either the beginning or the end of the year. The
planned and actual unit selling price was P70.00 per unit.
34. The value of Fuchsia Corporation’s actual ending finished goods
inventory on the absorption costing basis was
a. P 900,000 c. P 1,000,000
b. P 1,200,000 d. P 1,350,000

35. The value of Fuchsia Corp.’s actual ending finished goods inventory on
the variable costing basis was
a. P 1,400,000 c. P 1,000,000
b. P 1,125,000 d. P 750,000

36. Fuchsia Corporation’s absorption costing income was

a. Higher than variable costing income because actual production
exceeded actual sales
b. Lower than variable costing income because actual production
exceeded actual sales
c. Lower than variable costing income because actual production was
less than the planned production
d. Lower than variable costing income because actual sales were less
than the planned sales.

37. Fuchsia Corporation’s total fixed costs expensed this year on the
absorption costing basis were
a. P 2,120,000 c. P 2,055,000
b. P 2,095,000 d. P 2,030,000

38. Fuchsia Corp.’s manufacturing contribution margin for the year

calculated on the variable costing was
a. P 4,375,000 c. P 4,935,000
b. P 4,910,000 d. P 5,625,000

39. The total variable cost expensed currently by Fuchsia Corporation on the
variable costing basis was
 a. P 4,550,000 c. P 4,375,000
b. P 4,500,000 d. P 4,325,000

40. The difference between Fuchsia Corporation’s income calculated on the

absorption costing basis and calculated on the variable costing basis was
a. P 25,000 c. P 65,000
b. P 40,000 d. P 90,000