1.

Relevant cost analysis Answer: D

a. Takes all variable and fixed costs in account to analyze decision alternatives.
b. Considers only variable costs as they change with each decision alternatives.
c. Considers the change in reported net income for each alternative to arrive at
the optimum decision for the company.
d. Considers all variable and fixed costs as they change with each decision
alternatives

2. The relevance of a particular cost to a decision is determined by the Answer: C

a. Size of the cost

b. Riskiness of the decision
c. Potential effect on the decision
d. Accuracy and verifiability of the cost

3. Which of the following is most relevant to a manufacturing equipment Answer: C

replacement decision?

a. A lump-sum write-off amount from the disposal of the old equipment

b. Carrying amount of the old equipment
c. Disposal price of the old equipment
d. All of the above are irrelevant

FOR ITEMS 4 AND 5

Management accountants are frequently asked to analyze various decision
situations including the following:
i. Joint production costs incurred, to be considered in a sell-at-split versus
a process-further decision
ii. The cost proposed annually for the plant service for the grounds at
corporate headquarters
iii. The cost of a special device that is necessary if a special order is accepted
iv. The cost of obsolete inventory acquired several years ago, to be considered
in a keep-versus-disposal decision
v. The costs of alternative uses of plant space, to be considered in a make-or-
buy decision

4. The costs described in situations i and iv are Answer: B

a. Prime Costs
b. Sunk Costs
c. Relevant Costs
d. None of the above

5. The costs described in situations iii and v are Answer: C

a. Prime Costs
b. Sunk Costs
c. Relevant Costs
d. None of the above
FOR ITEM# 6
ABC Co. manufactures components for use in producing one of its finished
products. When 12,000 units are produced, the full cost per unit is Php35,
with breakdown as follows:

Direct Materials 5.00

Direct Labor 15.00
Variable Overhead 10.00
Fixed Overhead 5.00

XYZ Co. has offered to sell 12,000 components to ABC for Php37 each. If ABC
accepts the offer, some of the facilities currently being used to manufacture
the components can be rented as warehouse space for Php40,000. However,
Php3.00 of the fixed overhead currently applied to each component would
have to be covered by ABC's other products.

6. What is the differential cost to ABC of purchasing the components from XYZ?

a. 8,000 c. 24,000
b. 20,000 d. 44,000

FOR ITEM# 7
Red Corner has considerable excess manufacturing capacity. A special order's
cost sheet includes the following applied manufacturing overhead costs:

Fixed Costs 21,000.00

Variable Costs 33,000.00

The fixed costs include a normal Php3,700 allocation for in-house design costs,
although no in-house design will be done. Instead, the job will require the use
of external designers costing Php7,750.

7. What is the total amount of the minimum acceptable price for the job?

a. 40,750 c. 36,750
b. 36,700 d. 58,050

FOR ITEM# 8
Toystory Company has 7,000 obsolete toys carried in inventory at a manufacturing
cost of Php6 per unit. If the toys are reworked for Php2 per unit, they could be sold
for Php3 per unit. If the toys are scrapped, they could be sold for Php1.85 per unit.
8. Which alternative is more desirable and how much is the advantage of that alternative?

a. Rework, Php36,050 c. Rework, Php8,050

b. Scrap, Php5,950 d. Scrap, Php47,950

FOR ITEMS# 9 AND 10

Data concerning the four product lines of the ABCD Co. are given below:

Product Lines
A B C D
Unit Selling Price 12.00 7.00 7.00 20.00
Unit Variable Cost 4.00 3.00 4.00 15.00
Hours required per unit 4.00 4.00 2.00 2.00
Market limits in units 4,000.00 5,000.00 8,000.00 4,000.00

Total fixed costs is Php50,000 and the total hours available is 40,000

9. Based on this data, the best product combination is:

a. 16,000 units of D, 16,000 units of A, and 8,000 units of B

b. 16,000 units of D, 16,000 units of A, and 8,000 units of C
c. 4,000 units of D, 4,000 units of A, 5,000 units of B, and 8,000 units of C
d. 4,000 units of D, 4,000 units of A, and 8,000 units of C

10. Assuming there were no market limitations on any of these products, the best
product combination would be:

a. 16,000 units of A
b. 16,000 units of D
c. 16,000 units of D, 16,000 units of A, and 8,000 units of B
d. 16,000 units of D, 16,000 units of A, and 8,000 units of C
Direct Materials 5.00 60,000.00
Direct Labor 15.00 180,000.00
Variable Overhead 10.00 120,000.00
Fixed Overhead 2.00 24,000.00
Purchase Cost 444,000.00
Less: Opportunity Cost - 40,000.00
384,000.00 404,000.00
20,000.00

Variable Costs 33,000.00

External designer's cost 7,750.00
40,750.00
Selling price after rework 21,000.00
Cost of rework 14,000.00
Relevant cost of rework 7,000.00
Relevant cost of scrap 12,950.00
Advantage of scrap alternative 5,950.00

A B C D
Unit Selling Price 12.00 7.00 7.00 20.00
Unit Variable Cost 4.00 3.00 4.00 15.00
Contribution Margin 8.00 4.00 3.00 5.00
Hours required per unit 4.00 4.00 2.00 2.00
Contribution Margin per hour 2.00 1.00 1.50 2.50
Market limits in units 4,000.00 5,000.00 8,000.00 4,000.00

Hours required for market limits 16,000.00 - 16,000.00 8,000.00 40,000.00

Market limits in units 4,000.00 - 8,000.00 4,000.00

if no market limits, total hours available would be alloted to product D

Available hours 40,000.00

Hours required per unit of product D 2.00
Total Number of units of Product D 20,000.00