CORDILLERA CAREER DEVELOPMENT COLLEGE

College of Accountancy
Buyagan, Poblacion, La Trinidad, Benguet

Acctg 154- Strategic Cost Management

Final Exams
I. A. The Domdale Jan Co. expects the following operating results next month:
Sales P100,000
Operating expenses 90,000
Net operating income 10,000
Average operating assets 50,000
What is the expected return on investment for the month? ( 4 points)

B. Suppose the manager of Domdale Jan Co. is considering investing P2,000 in a state-of-the-art soft-serve
ice cream machine that can dispense a number of different flavors. This new machine would boost sales
by P4,000, but would require additional operating expenses of P1,000. Thus, net operating income
would increase by P3,000 to P13,000. What would be the new Return on Investment? (4 points)

II. Domneil Jan Co. has a valve division that manufactures and sells a standard valve:
Capacity in units 100,000
Selling price to outside customers P 30
Variable costs per unit P16
Fixed cost per unit (based on capacity) P9
The company has a Pump Division that could use this vale in one of its pumps. The Pump Division is
currently purchasing 10,000 valves per year from an overseas supplier at a cost of P29 per valve.

Required: ( 4 points each)

1. Assume that the Valve Division has enough idle capacity to handle all of the Pump Division’s needs. What is
the acceptable range, if any, for the transfer price between the two divisions?
2. Assume that the Valve Division is selling all of the valves that it can produce to outside customers. What is
the acceptable range, if any, for the transfer between the two divisions?
3. Assume again that the Valve Division is selling all the valves that it can produce to outside customers. Also
assume that P3 in variable expenses can be avoided on transfers within the company, due to reduced selling
costs. What is the acceptable range, if any, for the transfer price between the two divisions?

III. Bob Rio Co. keeps careful track of the time to complete customer orders. During the most recent quarter, the
following average times were recorded per order:
Wait time 17 days
Inspection time 0.4 days
Process time 2.0 days
Move time 0.6 days
Queue time 5.0 days

Goods are shipped as soon as production is completed.

Required: (4 points each)
1. Compute the throughput time.
2. Compute the manufacturing cycle efficiency (MCE)
3. What percentage of the production time is spent in non-value- added activities?
4. Compute the delivery cycle time.

IV. Bob Meo Co. Is considering a project that would have a five-year life and require a P2,400,000 investment in
equipment. At the end of 5 years, the project would terminate and the equipment would have no salvage value. The
project would provide net operating income each year as follows:
Sales P 3,200,000
Variable expenses 1,800,000
Contribution margin 1,400,000
Fixed expenses:
Advertising,salaries and other
Fixed out-of-pocket costs P 700,000
Depreciation 300,000
Total Fixed Expenses 1,000,000

Net Operating Income P 400,000

 The company’s discount rate is 12%. Present value factors; end of year 1 is 0.893; yr.2 is 0.797; yr. 3 is 0.712; yr.
4 is 0.636 and yr. 5 is 0.567.

Required: (4 points each)

1. Compute the annual net cash inflow from the project.

2. Compute the project’s net present value. Is the project acceptable.

3. Find the project’s internal rate of return to the nearest whole percent.

4. Compute the project’s payback period.

5. Compute the project’s simple rate of return.

V. Sheila Corporation produces and sells a single product, a wooden hand loom for weaving small items such as scarves.
Selected cost and operating data relating to the product for two years are given below:

Selling price per unit P50

Manufacturing costs:
Variable per unit produced:
Direct materials 11
Direct labor 6
Variable manufacturing overhead 3
Fixed manufacturing overhead per year P120,000
Selling and administrative expenses:
Variable per unit sold P 4
Fixed per year P70,000

Year 1 Year 2
Units in beginning inventory 0 2,000
Units produced during the year 10,000 6,000
Units sold during the year 8,000 8,000
Units in ending inventory 2,000 0
Required:
1. Using Absorption Costing,
A. Compute the Unit product cost in each year (2 pts.)
B. Prepare Income Statement in each year (3 pts.)
2. Using Variable costing,
A. Compute the unit product cost in each year (2 pts.)
B. Prepare Income Statement for each year (3 pts.)
3. Reconcile the difference in operating income for the 2 years. (4 points)

VI. The Jane Company manufactures round, rectangular and octagonal trampolines. Sales and expense data for the
past month follow:
Management is concerned about the continued losses shown by the round trampolines and wants a
recommendation as to whether or not the line should be discontinued. The special equipment used to produce the
trampolines has no resale value. If the round trampoline model is dropped, the line supervisors assigned to the model
would be discharged.
T RA M P O L I N E
Total Round Rectangular Octagonal
Sales P1,000,000 P140,000 P500,000 P360,000
Variable expenses 410,000 60,000 200,000 150,000
Contribution margin 590,000 80,000 300,000 210,000
Fixed Expenses:
Advertising-traceable 216,000 41,000 110,000 65,000
Depreciation of Spec. Equipt. 95,000 20,000 40,000 35,000
Line supervisors’ salaries 19,000 6,000 7,000 6,000
General Factory Overhead* 200,000 28,000 100,000 72,000
Total Fixed Expenses 530,000 95,000 257,000 178,000
Net Operating Income (Loss) P 60,000 P (15,000) P 43,000 P 32,000

*A common fixed cost that is allocated on the basis of sales pesos.

Required:

1. Should production and sale of the round trampolines be discontinued? The company has no other use for the
capacity now being used to produce the round trampolines. Show computations to support your answer.
( 5 points)

2. Recast the above data in a format that would be more useful to management in assessing the profitability of the
various product lines. ( 5 points)

/dbay-an