KERVIN REY G.

JACKSON October 1, 2021

COACCON / Sec. 217 UNITS 2 and 3

I. THEORY QUESTIONS: This will help you indicate the classification of cost.
Instructions:
Answer the following questions and provide the necessary requirements.

DIRECT OR INDIRECT COST (6 points)

Classify the following expenses as direct or indirect:
INDIRECT COST a) factory rental
DIRECT COST b) insurance of machinery used for one product only
INDIRECT COST c) warehouse rental
INDIRECT COST d) insurance of office buildings
INDIRECT COST e) costs of a canteen for employees
INDIRECT COST f) Petrol for delivery vehicles.

II. PROBLEM SOLVING: This will help you develop your analytical capabilities and
judgment.

Instructions:
Read each problem carefully and provide the necessary requirements.

Problem 1. Classify each of the following costs of Bug Company in two ways:
(a) as variable (V) fixed costs (F); (b) as inventoriable costs (I) or period costs
(P): (20 points)

 Example: Direct labor V I

1. Salary of company controller F P
2. Fire insurance on direct materials V I
3. Property taxes on finished goods held for sale V I
4. Direct materials used V I
5. Factory rent F I
6. Sales Commissions V P
7. Overtime premium of machine operators V I
8. Straight-line depreciation of factory
F I
equipment
9. Straight-line depreciation of trucks used for
F P
delivery of sales to customers
10. Salary of factory supervisor F I
KERVIN REY G. JACKSON October 1, 2021
COACCON / Sec. 217 UNITS 2 and 3
Problem 2 (20 points)
The financial statements of BBM Company included these items:

Marketing costs P160,000

Direct labor cost 245,000
Administrative costs 145,000
Direct materials used 285,000
Fixed factory overhead costs 175,000
Variable factory overhead costs 155,000

Compute and show the solutions:

1. Prime cost - 285,000 + 245, 000 = 530,000
2. Conversion cost - 245,000 + 175,000 + 155,000 = 575,000
3. Total inventoriable/product cost - 285,000 + 245,000 +
175,000 + 155,000 = 860,000
4. Total period cost - 160,000 + 145,000 = 305,000

Problem 3 (10 points)

SahBong Corporation estimated its unit costs of producing and selling
12,000 units per month as follows:

Direct materials used P32.00

Direct labor 20.00
Variable manufacturing overhead 15.00
Fixed manufacturing overhead 6.00
Variable marketing costs 3.00
Fixed marketing costs 4.00
Estimated unit cost P80.00

Compute and show the solutions:

1. Total variable costs per month - 840,000
32 + 20 + 15 + 3 = 70 x 12,000 units = 840,000
2. Total fixed costs per month - 120,000
6 + 4 = 10 x 12,000 units = 120,000
KERVIN REY G. JACKSON October 1, 2021
COACCON / Sec. 217 UNITS 2 and 3
Problem 4 (40 points)
Dutertz Ltd recorded the following costs for the past six months:

Month Activity level Total Cost

Units K’000
(000)
1 40 6,586
2 30 5,826
3 36 6,282
4 38 6,396
5 42 6,700
6 33 6,052

Required with SOLUTIONS:

A. Using High-Low Method.
a. Estimate the fixed cost per month - P 3,641.1
b. Estimate the total costs for the following activity levels in a month
75 units - 9,104
90 units - 10,196
SOLUTION:

a) Variable cost per month = (6,700 – 5,826)/(42 – 30) = 72.83

HIGH COSTS LOW COSTS

Total Cost 6,700 5,826
Variable Cost
(42 x 72.83) (3,058.9)
(30 x 72.83) (2,184.9)
Monthly Fixed Cost 3,641.1 3,641.1

b) Variable cost per month 72.83

Activity level x 75 units
5,462.3
Monthly fixed cost + 3,641.1
Total cost 9,103.4 or 9,104

Variable cost per month 72.83

Activity level x 90 units
6,554.7
Monthly fixed cost + 3,641.1
Total cost 10,195.8 or 10,196
 KERVIN REY G. JACKSON October 1, 2021
COACCON / Sec. 217 UNITS 2 and 3
B. Using Least Square Method.
a. Estimate the fixed cost per month - 3,628.01
b. Estimate the total costs for the following activity levels in a month
75 units - 9,132.8
90 units - 10,233.7
SOLUTION:

Month Activity Level (X) Total Cost (Y) XY X2

1 40 6,586 263,440 1,600

2 30 5,826 174,780 900
3 36 6,282 226,152 1,296
4 38 6,396 243,048 1,444
5 42 6,700 281,400 1,764
6 33 6,052 199,716 1,089

∑ XY = ∑ X2 =
n=6 ∑X = 219 ∑Y = 37,842
1,388,536 8,093
FORMULA: FORMULA:

n ∑ xy −¿ ¿ ¿ ∑ y − m∑ x
n
SOLUTION:
SOLUTION:

6(1,388,536)−(219)(37,842) 37,842−(73.3969849246)(219)
6 (8,093)− ¿ ¿ 6
Problem
43,818 21,768.060301512
5 (10
597 6
b - Variable production points)
a - fixed production cost per month
cost per month = 3,628.010050252 or 3,628.01
= 73.3969849246

FORMULA:
FORMULA:
Y = a +Ybx= a + bx
SOLUTION:
SOLUTION:
Y = 3,628.010050252
Y = 3,628.010050252 + 73.3969849246
+ 73.3969849246 (75) (90)
Y = 3,628.010050252 + 6,605.728643214
Y = 3,628.010050252 + 5,504.773869345
Y = 10,233.738693466
Y = 9,132.783919597 or 10,233.7
or 9,132.8
KERVIN REY G. JACKSON October 1, 2021
COACCON / Sec. 217 UNITS 2 and 3
LacSott Company is preparing a flexible budget for the next year and
requires a breakdown of the factory maintenance cost into the fixed and
variable elements.

The maintenance costs and machine hours (the selected cost driver) for the
past six months are as follows:

Maintenance Costs Machine Hours

January P15,500 1,800
February 10,720 1,230
March 15,100 1,740
April 15,840 2,190
May 14,800 1,602
June 10,600 1,590

Required with SOLUTIONS:

Compute the following:

1. Estimated variable rate - P5.33
2. Annual Fixed Costs - P49,920
SOLUTION:

Variable rate per hour = (15,840 – 10,720)/ (2,190 – 1,230) = P5.33

(1,230) was the least number of machine hours but it does not correspond to
the least maintenance cost which is 10,600. In this situation the cost driver or
activity level prevails.

HIGH COSTS LOW COSTS

Total Cost 15,840 10,720
Variable Cost
(2,190 x 5.33) (11,680)
(1,230 x 5.33) (6,560)
Monthly Fixed Cos 4,160 4,160

Average annual fixed maintenance cost (4,160 x 12) = P49,920

Problem 6 (15 points)

KERVIN REY G. JACKSON October 1, 2021
COACCON / Sec. 217 UNITS 2 and 3
MoOng Company produces and sells rattan baskets. The number of
units produced and the corresponding total production costs for six months,
which are representatives for the year, are as follows:

Months Units Produced Production Costs

April 500 P4,000
May 700 8,000
June 900 6,000
July 600 7,500
August 800 8,500
September 550 7,250

Based on the given information and using least-squares method of

computation , select the best answer for each question, where:

Y = total monthly production costs

X = number of units produced per month
a = fixed production cost per moth
b = variable production cost per month
n = number of months
∑ =summation

Required with SOLUTIONS:

Compute the following:
1. Variable cost per unit - 3.74
2. Monthly Fixed Cost per unit - 4,350.5
3. Cost Function - Y = 4,350.5 + 3.74(x)

SOLUTIONS:
KERVIN REY G. JACKSON October 1, 2021
COACCON / Sec. 217 UNITS 2 and 3

Units Production
Months XY X2
Produced Costs

April 500 4,000 2,000,000 250,000

May 700 8,000 5,600,000 490,000
June 900 6,000 5,400,000 810,000
July 600 7,500 4,500,000 360,000
August 800 8,500 6,800,000 640,000
September 550 7,250 3,987,500 302,500

∑ XY = ∑ x2 =
n=6 ∑X = 4,050 ∑Y = 41,250
28,287,500 2,852,500

FORMULA: FORMULA:

n ∑ xy −¿ ¿ ¿ ∑ y − m∑ x
n
SOLUTION:
SOLUTION:

6(28,287,500)−(4,050)(41,250) 41,250 −(3.7 4)( 4,050)

6(2,852,500)−¿ ¿ 6

2,662,500 26 ,103
712,500 6
b - Variable production a - fixed production cost per month
cost per month = 4,350.5
= 3.73684210526

FORMULA:
COST FUNCTION
Y = a + bx
Y = 4,350.5 + 3.74(x)

Problem 7 (15 points)

PacSon Motors Co. makes motorcycles. Management wants to

estimate overhead costs to plan its operations. A recent trade publication
KERVIN REY G. JACKSON October 1, 2021
COACCON / Sec. 217 UNITS 2 and 3
revealed that overhead costs tend to vary with machine hours. To check this,
they collected the following data for the past 12 months.

Months Machine Hours Overhead Costs

1 175 P4,500
2 170 4225
3 160 4,321
4 190 5,250
5 175 4,800
6 200 5,100
7 160 4,450
8 150 4,200
9 210 5,475
10 180 4,760
11 170 4,325
12 145 3,975
Requirements with SOLUTIONS:
1. Use the High-low method to estimate the fixed and variable portion of
overhead costs based on machine hours.
23.077 - Variable Cost per unit
628.8 - Monthly Fixed Cost
2. If the plant is planning to operate at a level of 200 machine hours next
period, what would be the estimated overhead costs?
5,244.2 - Total Overhead Costs
3. Use the method of Least-Squares to estimate the fixed and variable
portion of overhead costs based on machine hours.

b - Variable production cost per month a - fixed production cost

= 22.49 per month
= 708.01
SOLUTION:
Highest Activity Cost 5,475
Lowest Activity Cost 3,975
Difference in Activity Cost 1,500
KERVIN REY G. JACKSON October 1, 2021
COACCON / Sec. 217 UNITS 2 and 3
Highest Activity Unit 210
Lowest Activity Unit 145
Difference in Activity Unit 65

1,500/65 = 23.077 - Variable Cost per unit

HIGH COSTS LOW COSTS

Total Cost 5,475 3,975
Variable Cost
(210 x 23.077) (4,846.2)
(145 x 23.077 ) (3,346.2)
Monthly Fixed Cost 628.8 628.8

Variable Cost per unit - 23.077 x 200 = 4,615.4

Fixed Cost = 628.8
Total Overhead Costs = 5,244.2

where:
Y - total monthly production costs
X - number of units produced per month
a - fixed production cost per moth
b - variable production cost per month
n - number of months
∑ -summation

Months Machine Hours Overhead Costs XY X2

(X) (Y)
1 175 4,500 787,500 30,625
2 170 4,225 718,250 28,900
3 160 4,321 691,360 25,600
4 190 5,250 997,500 36,100
5 175 4,800 840,000 30,625
6 200 5,100 1,020,000 40,000
7 160 4,450 712,000 25,600
8 150 4,200 630,000 22,500
9 210 5,475 1,149,750 44,100
10 180 4,760 856,800 32,400
11 170 4,325 735,250 28,900
12 145 3,975 576,375 21,025
KERVIN REY G. JACKSON October 1, 2021
COACCON / Sec. 217 UNITS 2 and 3
n = 12 ∑x = 2,085 ∑y = 55,381 ∑ xy = 9,714,785 ∑ x2 =
366,375

FORMULA: FORMULA:

n ∑ xy −¿ ¿ ¿ ∑ y − m∑ x
n
SOLUTION:
SOLUTION:

12(9,714,785)−(2,085)(55,381) 55,381−(22.4867579909)(2,085)
12(366,375)−¿ ¿ 12

1,108,035 8,496.1095889735
49,275 12
b - Variable production a - fixed production cost per month
cost per month = 708.01
= 22.49

Problem 8 (12 points)

Given the following facts, complete the requirements below:

KERVIN REY G. JACKSON October 1, 2021
COACCON / Sec. 217 UNITS 2 and 3
Sales price P200 per unit
Fixed costs:
Marketing and administrative 24,000 per period
Manufacturing overhead 30,000 per period
Variable costs:
Marketing and administrative 6 per unit
Manufacturing overhead 9 per unit
Direct labor 30 per unit
Direct Materials 60 per unit
Units produced and sold 1,200 per period

Compute and show the solutions:

1. Variable manufacturing cost per unit = 60 +30 +9 = 99
2. Variable cost per unit = 60 + 30 + 9 + 6 = 105
3. Full manufacturing cost per unit = 60 + 30 + 9 + (30,000/1,200 ) = 124
4. Full cost to make and sell per unit = 124 + 6 + (24,000/ 1200) = 150