CONSULTA, EUGENESIS A.

Managerial Accounting Mid -term Examination

Answer the following questions.

1. Peter and Senen Co. sell the same product in a competitive industry. Thus, the selling price of
the product for each company is the same. Other data about the two companies are as follows:

Peter Senen
Fixed Costs P50,000 P70,000
Contribution margin ratio 40% 52%

What are the companies’ break event points?

ANSWER:
The companies’ break- even points
Peter Co. - 50,000 / 40% = 50,000 X 100/40 = 125,000
Senen Co. - 70,000 / 52% = 70,000 X 100/52 = 134,615

Data for questions No. 2 through 13

Ethel Corp. produces and sells a single product. The selling price is P25a and the variable cost is P15 per
unit. The corporation’s fixed costs is P100,000 per month. Average monthly sales are 11,000 units.

2. What is the corporation’s contribution margin per unit and as a percent of sales (CMR)?
ANSWER:
Total sales = 11,000 X 25 = 275,000
Variable cost = 11,000 X 15 = 165,000
Contribution = Total sales revenue - variable cost
Contribution = 275,000 - 165,000 = 110,000
Net income = contributions - fixed cost
Net income = 110,000 - 100,000 = 10,000
Contribution per unit = contributions / number of units sold
Contribution per unit = 110,000 / 11,000 = 10
Contribution margin per unit as a percentage of sales = [10/ 25] X 100% = 40%

3. What is the corporation’s break- even point?

ANSWER:
Break-even point = 100,000 / 40% = 100,000 X 100/40 = 250,000

4. If the corporation desires to earn profit of P20, 000 before tax, it must generate sales of how
much?
ANSWER:
Required profit = 20,000
Required contributions = fixed cost + required profit
Required contributions = 100,000 + 20,000 = 120,000
Required sales = required contributions / contributions margin
Required sales = 120,000 / 40% = 120,000 X 100/40 = 300,000

5. If the corporation pays corporate income tax at the rate of 30%, and it desires to earn after-tax
profit of P21, 000, it must generate sales of how much?
ANSWER:
Desired after tax profit = 21,000
Desired before tax profit = 21,000 X 100/ ( 100 - tax rate)
Desired before tax profit = 21,000 X 100/ 70 = 30,000
Required contributions = fixed cost + required before tax profit
Required contributions = 100,000 + 30,000 = 130,000
Required sales = 130,000 / 40% = 130,000 X 100/ 40 = 325,000

6. How much sales in pesos must be generated to earn profit that is 8% of such sales?
ANSWER:
Required profit = 8% on sales
Variable cost is = [15/25] X 100 % = 60% on sales
Contributions = 100 % - 60% = 40% on sales
Out of which profit is 8 % on sale.
Fixed cost = 40% - 8% = 32% on sales
Required sales to earn 8 % profit = [100,000 X/ 100/32] = 312,500
 CONSULTA, EUGENESIS A.

7. How many units must be sold to earn profit of P2 per unit?

ANSWER:
Required Profit per unit = 2
Contributions per unit = 25 X 40% = 10
Fixed cost allocated per unit = 10 - 2 = 8
Number of units sold = total fixed cost / fixed cost per unit = 100,000/ 8 = 12,500 units

8. With average monthly sales of 11,000 units, what is the corporation’s margin of safety?
ANSWER:
Break-even point sales (units) = BEP sales / selling price per unit = 250,000 / 25 = 10,000 units
Margin of safety (units) = actual sales in units - BEP sales in units = 11,000 - 10,000 = 1,000 units
Margin of safety (amount) = 1,000 X 25 = 25,000

9. What is the Corporation Margin of safety ratio and the break-even sales ratio?
ANSWER:
Margin of safety = [25,000 / 275,000] X 100% = 9.09%
Break even sales ratio= [Break even sales / actual sales] X 100 % = [ 250,000/275,000 ] X 100% = 90.91%

10. At the present average monthly sales level of 11,000 units, the corporation’s operating leverage
factor is what?
ANSWER:
Operating leverage factor = [25,000  / 275,000] X 100 % = 9.09%

11. If fixed costs will increase by P20, 000, the Break-even point in units will increase (decrease) by
how much?
ANSWER:
Revised fixed cost = 100,000 + 20,000 = 120,000
Break-even point sales (units) = 120,000/contributions per unit
Break-even point sales (units) = 120,000/10 = 12,000 units (increase by 2,000 units)

12. If variable costs per unit will go up by P5, the peso breakeven sales will increase (decrease) to?
ANSWER:
Revised variable cost = 15 + 5 = 20
Contributions margin = selling price - revised variable cost = 25 - 20 = 5
Contribution margin = [contributions per unit / selling price per unit] X 100 %
Contribution margin = [5/25] X 100 % = 20%
Break even sales = 100,000/ 20% = 100,000 X 100/20 = 500,000 (increase by 250,000)

13. If selling price will increase to P30, the break -even point in units will increase (decrease) by how
much?
ANSWER:
Revised selling price = 30
Revised contributions = 30 - 15 = 15
Required sales in units = fixed cost / revised contributions per unit
Required sales in units = 100,000/ 15 = 6,667 units (decrease by 3,333 units)

14. If sales increase from P800,000 to P900,000, and if the degree of operating leverage is 5, one
could expect profit to increase by how many percent?
ANSWER:
Degree of operating leverage = [change in operating income/change in sales]
5 = change in operating income / 100,000
Change in operating income = 100,000 / 5 = 20,000
When sales was 800,000 then operating profits was = [800,000 X 40%] - 100,000 = 220,000
Now revised operating profits = 220,000 + 20,000 = 240,000
Profit increased percentage = [change in profit / old profit] X 100 %
Profit increased percentage = [20,000/ 220,000] X 100 % = 9.09 %

15. A company has an operating leverage factor of 4. When its sales increased to P500,000, its profit
before tax increased by 100%.Its variable cost ratio is 40%. How much is the company’s fixed
costs?
ANSWER:
Sales = 500,000
Variable cost = 500,000 X 40% = 200,000
Contributions = 500,000 - 200,000 = 300,000
 CONSULTA, EUGENESIS A.

Operating leverage factor = operating income / sales

4 = operating profits / 500,000
Operating profit = 500,000 / 4 = 125,000
So, fixed cost = contributions - operating profits
Fixed cost = 300,000 - 125,000 = 175,000

Data for questions No. 16 through 24

JYD Corporation uses an absorption costing system for internal reporting purposes. At present,
however, it is considering to use the variable costing system.
Following are some data regarding JYD Corporation’s budgeted and actual operations for the
calendar year 2018.

Costs Budgeted Actual

Materials P25,200 P23,400
Labor 18,480 17,160
Variable Factory Overhead 8,400 7,800
Fixed Factory Overhead 10,640 10,000
Variable Selling Expenses 16,800 15,000
Fixed Selling Expenses 14,700 14,700
Variable Administrative Expenses 4,200 3,750
Fixed Administrative Expenses 6,300 6,375
Total P104,720 P98,185

Budgeted Actual
(Units) (Units)
Finished goods inventory beginning 280 280
Production 1,120 1,040
Sales 1,120 1,000

The budgeted costs were computed based on the budgeted production and sales of 1,120 units, the
company’s normal capacity level. The Corporation uses a predetermined factory overhead rate for
applying manufacturing overhead costs to its product. The denominator level used in developing the
predetermined rate is the firm’s normal capacity. Any over or under applied factory overhead cost is
closed to cost of goods sold at the end of the year.

There is no work in process inventories at either the beginning or end of the year. The actual selling
price was the same as the amount planned, P130 per unit.

The previous year’s planned per unit manufacturing costs were the same as the current planned unit
manufacturing cost. The beginning inventory of finished goods for absorption costing purposes was
valued at such per- unit manufacturing cost.

16. What is the standard product costs per unit under Absorption Costing and Variable Costing?
ANSWER:
Total standard product cost under absorption costing
= (total variable cost + total fixed cost) / No. of units produced
= (23400+17160+7800+10000) /1040
= P56.115

Total standard product cost under variable costing

= Total Variable Cost / No. of units produced
= (23400+17160+7800) /1040
= P46.5

17. What are the manufacturing cost variances for Variable Manufacturing Cost and Fixed
Manufacturing cost?
ANSWER:
Variable- P600 Favorable
Fixed- P640 Favorable
 CONSULTA, EUGENESIS A.

18. What is the Corporation’s operating income (loss) under both the absorption and variable
costing methods?
ANSWER:
Absorption costing- P34, 093. 40
Variable costing- P 33, 675

19. What were the values of the company’s actual ending finished goods inventory under the
absorption and variable costing methods?
ANSWER:
Closing stock value under absorption costing- P17,958.40
Variable costing- P14,880

20. What were the Corporation’s total fixed costs expensed this year on both absorption and
variable costing methods?
ANSWER:
Absorption Costing- P30,658.08
Variable Costing- P31,075

21. What was the Corporation’s actual manufacturing contribution margin for the year calculated
on the variable costing basis?
ANSWER:
P83, 500

22. What was the Corporation’s actual contribution margin for the year calculated on the variable
costing method?
ANSWER:
P64,750

23. What were the total variable costs expensed currently by the corporation under the absorption
and variable costing bases?
ANSWER:
Absorption Costing- P27,300
Variable Costing- P26,550

24. The difference between the Corporations’ operating income calculated on the absorption
costing basis and that on the variable costing basis was how much?
ANSWER:
P418.40

SOLUTION:
1) Standard product cost: Absorption costing Variable costing
Direct material 25,200 25,200
Direct labor 18,480 18,480
Variable manufacturing overhead 8,400 8,400
Fixed manufacturing overhead 10,640 -
Total product cost 62,720 52,080
Standard product cost per unit 56 46.5
Total product cost / Units produced P 62,720/1,120units P 52,060/1,120 units

2) Variable manufacturing overhead variance= Budgeted variable manufacturing overhead - Actual

variable manufacturing overhead
= P 8,400 - P 7,800 = P 600 Favorable
Fixed manufacturing overhead variance = Budgeted fixed manufacturing overhead - Actual fixed
manufacturing overhead
= P 10,640 - P 10,000 = P 640 Favorable

5) Fixed overhead expensed under absorption = Actual expense: $10,000 + 14,700 + 6,375 = $31,075
Adjusting fixed overhead rate for opening and closing stock
Add: Opening stock = 280 * 10,640 / 1,120 = $2,660
Less: Closing stock = 320 * 10,000 / 1,040 = $3,076.92
Total fixed expense = $30,658.08
 CONSULTA, EUGENESIS A.

8) Absorption costing total variable cost: Budgeted Variable overhead rate = ($8,400 + 16,800 +
4,200)/1,120 = $29,400/1,120 = $26.25
Variable cost expensed = 1,040 units * 26.25 = 27,300
Less: Over absorption = 750
Variable costing total variable costs = $7,800 + 15,000 + 3,750 = 26,550

9) Difference in operating income = $34,093.4 - $33,675 = $418.4

Data for Questions 25 through 35

Petesy Corporation is preparing its Master Budget for 2019. Budget information is as follows:

Sales Production Cost Operating Expenses

st
2019 1 Quarter P280,000 P192,000 P64,000
2nd Quarter 320,000 200,000 68,000
3rd Quarter 360,000 224,000 72,000
4th Quarter 352,000 200,000 76,000
2020 1st Quarter 320,000 224,000 72,000

The budgeted Finished Goods Inventories are:

2018 March 31 P56,000
June 30 52,000
September 30 60,000
December 31 48,000
The company uses the JIT system on its purchase of materials. It buys materials on cash basis.
Included in the production cost each quarter is P44, 000 in depreciation. The operating expenses
include depreciation of P12,000 per quarter. All production costs and operating expenses, with the
exemption of depreciation are to be paid during the quarter of incurrence.
Collections on sales are planned at 60% during the quarter of sales, the balance during the quarter
following the sale. Dividends of P20,000 is to be paid in June and again in December if covered by
sufficient profits. No dividends will be paid if the net profit is less than P120,000.
Income Tax is equal to 32 of the quarter’s income before tax and is paid in the following quarter.
The Statement of Financial Position as of December 31, 2018 is as follows:
Petesy Corporation
Statement of Financial Position
December 31, 2018
Assets Equities
Cash P76,000 Income tax payable P 12,000
Accounts Receivable 120,000
Inventory 44,000 Share Capital 640,000
Plant and Equipment 580,000 Retained Earnings 168,000
Total 820,000 Total P820,000
 CONSULTA, EUGENESIS A.

25. How much was the actual sales during the last quarter of 2018?
ANSWER:
120,000/40% = 300,000

26. What is the total budgeted cost of goods sold for the year 2019?
ANSWER:
WITH DEPRECIATION- 816,000
WITHOUT DEPRECIATION- 640,000

27. How much dividends will be paid in 2019?

ANSWER:
20,000+20,000 = 40,000

28. What is the total budgeted cash disbursements for production costs and operating expenses for
the year 2019?
ANSWER:
640,000+232,000 = 872,000

29. What is the budgeted cash balance on December 31, 2019?

ANSWER:
OPENING BALANCE IN 2019 76,000
ADD. COLLECTION FROM SALES OF 2018 120,000
ADD. COLLECTION FROM SALES IN 2019 1,171,200
LESS PRODUCTION COST AND OPERATING EXPENCES PAID 872,000
LESS INCOME TAX PAID 61,440+12,000 73,440
LESS DIVIDEND PAID 40,000
NET BUDGETED CASH BALANCE IN 2019 308,320

30. What is the expected balance of accounts receivable as of December 31, 2019?
ANSWER:
352,000 X 40% = 140,800

31. What is the budgeted balance of raw materials inventory as of December 31, 2019?
ANSWER:
P43,920
32. What is the expected balance of Income tax payable as of December 31, 2019?
ANSWER:
P7,680

33. What is the budgeted balance of Retained Earnings as of December 31, 2019?
ANSWER:
168,000+146,880 (PROFIT OF CURRENT YEAR) – 40,000 (DIVIDEND) = 274,880

34. What is the expected balance of the plant and equipment account as of December 31, 2019?
ANSWER:
580,000 – 44,000 x 4 – 12,000 x 4 = 356,000

35. If a budgeted statement of financial position as at December 31, 2019 is to be prepared, total
assets will be how much?
ANSWER:
Cash 308,320
Account receivable 140,800
Inventory 43,920
Plant and equipment    356,000
Total 849,040

Data for Questions 36 through 38

The accountant of JYD Corporation prepared the following cost analysis report on direct labor costs
for the jobs completed during the previous months:
Job Actual Hrs. at Actual Rates Actual Hrs. at Standard Rates Standard Hrs. at Standard Rates
105 P2,270 P2,590 P2,170
110 10,740 10,970 10,500
117 4,730 4,900 4,620
 CONSULTA, EUGENESIS A.

120 13,850 13,600 13,480

Total P31,590 P32,060 P30,770

36. What is the total direct labor variance for the jobs completed?
ANSWER:
P820 unfavorable
37. What is the labor rate variance?
ANSWER:
P470 favorable
38. What is the labor efficiency variance?
ANSWER:
P1,290 unfavorable

Data for Questions 39 through

The following information pertains to Peter Senen Company’s production on a one unit of Product A:
Quantity Price Cost per Unit
Materials-standard 7.5 kgs P0.30/kg P2.25/unit
Labor –standard .6 hr. 10.00/hr. 6.00/unit

During the period, the company produced 15,000 units of Product A. It purchased 140,000 kgs. of
materials at P0.25 per kilo. It incurred direct labor cost of P90,780 at P10.20 per labor hour used. At the
end of the period, the company’s inventory of materials increased by 25,000 kgs. The company
recognizes the material price variance when materials are purchased.
39. How much was the company’s material price variance?
ANSWER:
P7,000 favorable
40. What was the company’s materials quantity variance?
ANSWER:
P750 unfavorable

End of the Examination. Good Luck!