Cost Behavior

Variable Costs
1. Total production costs for Jordan, Inc. are budgeted at P2,300,000 for 50,000 units of budgeted output and
P2,800,000 for 60,000 units of budgeted output. Because of the need for additional facilities, budgeted fixed
costs for 60,000 units are 25 percent more than budgeted fixed costs for 50,000 units. How much is Jordan’s
budgeted variable cost per unit of output?
A. P 7.50 C. P30.00
B. P16.00 D. P62.50

Y = a +bx
a = Y-bx

( 2300000- 50000 x)*1.25 = (2800000-60000x)

2875000-62500x = 2800000-60000x
62500x-60000x =2.875000-2800000
2500x= 75000
X= 30 pesos

A= Y-BX
A= 2300000- ( 50000 x 30)
A= 23000000-1,500000
A= 800,000

A= Y-BX
A= 2800000- ( 60000 *30)
A= 2800000- 18000000
A= 1000000

15. Total production costs for Carera, Inc. are budgeted at P230,000 for 50,000 units of budgeted output and
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 budgeted fixed costs for P50,000 units. How much is Carera’s budgeted
variable cost per unit of output?
A. P1.60 C. P3.00
B. P1.67 D. P5.00
3. Total production costs for Laguna, Inc. are budgeted at P230,000 for 50,000 units of budgeted output and
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 budgeted fixed costs for 50,000 units. How much is Laguna’s total budgeted
variable cost at 60,000 units?
A. P96,000 C. P180,000
B. P100,200 D. P100,000

16. Mulvey Company derived the following cost relationship from a regression analysis of its monthly manufacturing
overhead cost:
C = P80,000 + P12M
Where C = monthly manufacturing overhead cost
M = machine hours
The standard error of the estimate of the regression is P6,000.
The standard time required to manufacture one six-unit case of Mulvey's angle product is 4 machine hours.
Mulvey applies manufacturing overhead to production on the basis of machine hours and its normal annual
production is 50,000 cases
Mulvey's estimated variable manufacturing overhead cost for a month in which scheduled production is 5,000
cases would be
A. P80,000 C. P240,000
B. P320,000 D. P360,000

50000X 4= 20000

200000 x 12 = 240000

1. Which of the following graphs illustrates the behavior of a total variable cost? (E)
Graph 1 Graph 2

Total units produced Total units produced

Graph 3 Graph 4

Total units produces Total units produced

A. Graph 2 C. Graph 4
B. Graph 3 D. Graph 1
Fixed Costs

9. Parts Company wishes to determine the fixed portion of its maintenance expense (a semi-variable expense), as
measured against direct labor hours for the first three months of the year. The inspection costs are fixed; the
adjustments necessitated by errors found during inspection account for the variable portion of the maintenance
costs. Information for the first quarter is as follows:
Direct Labor Hours Maintenance Costs
January 34,000 P61,000
February 31,000 58,500
March 34,000 61,000
What is the fixed portion of Parts Company’s maintenance expense, rounded to the nearest pesos?
A. P28,330 C. P37,200
B. P32,780 D. P40,800

61000-58500/34000-31000
= 2500/3000
= 0.83

A=Y-Bx
A= 61000 – ( 34000*.83)
A= 61000 – 28220
A = 32780

5. Largo Company wishes to determine the fixed portion of its maintenance expense (a semi-variable expense), as
measured against direct labor hours for the first three months of the year. Information for the first quarter is as
follows:
Direct Labor Hours Maintenance Costs
January 25,000 P210,000
February 30,000 240,000
March 27,000 222,000
What is the fixed portion of Largo Company’s maintenance expense?
A. P60,000 C. P90,000
B. P30,000 D. P120,000

240000-210000/30000-25000
= 30000/5000
=6

A= Y-BX
A= 240000 – (30000* 6)
A= 240000-180000
A= 60000
Total Costs

17. Molds Corporation has developed the following flexible budget formula for annual indirect labor costs:
Total Cost = P300,000 + P5.00 per machine hour
Operating budgets for the current month are based upon 18,000 machine hours of planned machine time.
Indirect labor costs included in this planning budget are:
A. P300,000 C. P 90,000
B. P390,000 D. P115,000

8. Arens Corporation has developed the following flexible budget formula for annual indirect labor costs:
Total Cost = P480,000 + P5.00 per machine hour
Operating budgets for the current month are based upon 20,000 machine hours of planned machine time.
Indirect labor costs included in this planning budget are:
A. P 48,333 C. P100,000
B. P580,000 D. P140,000

Total Cost = (480000/12)+ (5)(20000)

TC= 40000 + 100000
TC= 140000

2. Boy & Millie Company uses an annual cost formula for overhead of P72,000 + P1.60 for each direct labor hour
worked. For the upcoming month Karla plans to manufacture 96,000 units. Each unit requires five minutes of
direct labor. Boy & Millie’s budgeted overhead for the month is
A. P12,800 C. P 84,800
B. P18,800 D. P774,000

DLH = 96000*5
DLH= 480000/60
DLH= 8000

TC= (72000/12)+ ( 1.60* 8000)

TC= 6000+ 12800
TC= 18800

2. Saldua Company uses a monthly cost formula for overhead of P50,000 + P30.00 for each direct labor hour
worked. For the coming year, Saldua plans to manufacture 200,000 units. Each unit requires five minutes of
direct labor. Saldua’s total budgeted overhead for the coming year is
A. P 550,000 C. P1,200,000
B. P1,100,000 D. P 650,000

DLH = 200000*5
DLH= 1000000/60
DLH= 16666.67

TC= (50000*12)+ (30*16667.67)

TC= 600000 + 500000
TC= 1100000
6. The following cost functions were developed for manufacturing overhead costs:
Manufacturing Overhead Costs Cost Function
Electricity P100 + P20 per direct labor hour
Maintenance P200 + P30 per direct labor hour
Supervisors’ salaries P10,000 per month
Indirect materials P16 per direct labor hour
If July production is expected to be 1,000 units requiring 1,500 direct labor hours, estimated manufacturing
overhead costs would be
A. P109,300 C. P76,300
B. P99,000 D. P10,366

Electricity = 100 + ( 20*1500) = 100+30000 = 30100

Maintenance = 200+ (30 *1500) = 200+45000= 45200
Supervisor salaries= 10000
Indirect materials = 16*1500= 24000

7. El Noche, Inc. has a total of 2,000 rooms in its nationwide chain of hotels. On the 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 dropped to only 45%. A total of P792,000 in operating cost was incurred during the
month.
What would be the expected operating costs, assuming that the occupancy rate increases to 60% during
November?
A. P1,056,000 C. P846,000
B. P756,000 D. P829,500

2000*.70= 1400 * (21*30)

= 1400 *630
= 882000

Occupancy Cost
1400 882000
900 792000

882000-792000= 90000
1400-900 = 500
VC per unit = 180 per unit

Y= a+bx
A= Y-bx
A= 792000 – (900*180)
A= 792000 – 162000
A= 630000
Y = a+bx

Y= 630000+ (180)(1200)
Y= 630000 + 216000
Y = 846000