CHAPTER 2

Answer Key
TRUE OR FALSE
1. F
2. F
3. T
4. F
5. F
6. F
7. T
8. T
9. F
10. T
11. T
12. F
13. T
14. T
15. T
16. F
17. F
18. T
19. T
20. T
21. T
22. T
23. F
24. F
25. T
26. F
27. F
28. T
29. T
30. T
31. T
32. F
33. T
34. F
35. F
36. T
37. T
38. F
39. T
40. T
41. T
42. T
43. T
44. F
45. F
46. T
47. F
48. F
49. F
50. T
51. T
52. F
53. F
54. F
55. T
56. F
57. F
58. F
59. T
60. F
61. T
62. T
63. F
64. T
65. T
66. F
67. F
68. T
69. T
70. T
71. F
72. T
73.
Multiple Choice
1. B
2. C
3. B
4. D
5. C
6. D
7. D
8. C
9. B
10. E
11. C
12. D
13. C
14. A
15. B
16. D
17. D
18. D
19. B
20. B
21. C
22. C
23. A
24. D
25. B
26. A
27. C
28. B
29. B
30. C
31. B
32. B
33. C
34. D
35. B/A/C
36. A
37. D
38. B
39. B/A/B
40. A
41. A
42. B
43. A
44. D
45. C
 46. C/B/A
47. D
48. B/C/A
49. C/D/D/C
50. D
51. B
52. D
53. D
54. D
55. A
56. B
57. B
58. C
59. B
60. A/A
61. C/B/C
62. C
63. B
64. C
65. B
66. B
67. C
68. D
69. D
70. A
71. B
72. A/B/D/C
73. B

Straight Problems
Problem 1
Answer
1. P, V
2. PC, F
3. P, V
4. PC,F
5. PC,V
6. P,F
7. PC,V
8. P,V
9. P,F

Problem 2
Answers
a. FOH
b. DM
c. DL
d. DM
e. DM
f. DM
g. FOH
h. FOH
i. FOH
j. FOH
k. FOH
l. FOH
Problem 3
Behavior Period Cost Product Cost
Cost Variable Fixed Selling Admin Direct Indirect
1 Advertising costs x x
2 Bad debts expense x x
3 Billing costs x x x
Boxes used for packaging finished
4 goods x x
5 Cloth used in T-shirt x x
6 Depreciation of delivery equipment x x
7 Depreciation of executive cars x x
8 Factory supplies x x
Fringe benefits of assembly line
9 workers x x
10 Fringe benefits of office employees x x
11 Ink used in textbooks x x
Insurance of finished goods
12 warehouses x x
13 Lubricants used for machines x x
Microchips ships used in producing
14 cellphones x x
15 Office supplies x x
16 Presidents life insurance x x
17 Property taxes of factory building x x
18 Salesman commissions x x
19 Shipping costs on merchandise sold x x
20 Supervisor's salary, factory x x
21 Wages of front desk officer x x
22 Wages of laborers x x
Wages of workers in the assembly
23 department x x
Wood used in the production of
24 cabinets x x
25 Glue used in the production of tables x x
26 Lease of office building x x
Insurance on a building used in
27 producing cars x x
28 Lease of factory equipment x x

Problem 4
Answer
a. Period
b. Product, DM
c. Product, FOH
d. Product, FOH
e. Period
f. Period
g. Product, FOH
h. Product FOH
i. Period
 j. Product FOH
k. Product FOH
l. Period
m. Product DL

Problem 5

Costs Fixed Variable Mixed Period Product

1 Buttons, P20,000
Consulting fee of P500,000 paid to industry
2 specialist for marketing advice.
3 Depreciation of office equipment, P10,000
4 Dye, P200,000
Electricity costs of P.50 per kilowatt-hour of
5 factory building
6 Fabric, P1,500,000
Insurance premiums on office property, plant
7 and equipment, P30,000 per year
8 Office Janitor salary, P4,000 per month
Leather for patches identifying the brand on
9 individual pieces of apparel, P40,000
Legal fees paid to attorneys in defense of the
company in patent infringement suit, P10,000
10 per month plus P200 per hour.
11 Office building property tax, P15,000 per year
12 Office supplies, P5,000
13 Property taxes on factory building, P25,000
Rent on factory plant equipment, P20,000 per
14 month
15 Rental costs of showroom P80,000 per month
16 Salary of designers, P300,000 per month
17 Salary of human resource manager, P20,000
18 Salary of production supervisor, P18,000
Salesperson's salary, P50,000 plus 5%
19 commission on the total sales
Straight line depreciation of sewing machines,
20 P100,000
21 Thread used, P150,000
22 Wages of sewing machine operators
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x

Problem 6
Answer
A. marginal
B. Sunk
C. Opportunity
D. Differential
E. Out of pocket
Problem 7
Product Cost Period Cost
Direct Direct Factory
Costs Materials Labor Overhead Selling Administrative
1 Advertising costs x
Depreciation of furniture and fixtures
2 in the factory building x
Depreciation of sales person
3 automobile x
4 Factory supervisor's salary x
Lubricants used for maintenance of
5 factory machines x
Materials used for packaging
6 products for shipment to customers x
7 Rent on factory equipment’s x
Rental on corporate jet used by the
8 company board of directors x
Salaries of finished goods warehouse
9 personnel x
Supplies used by factory workers at
10 the end of the shift x
11 The wages of the front desk employee x
Utilities expenses incurred in the
12 factory x
Workers' fringe benefits on factory
13 employees x

Problem 8
Answer
1. e,f
2. a,c,i
3. b,c,i
4. b,d,i
5. a,c,h
6. g

Problem 9
Answer
1. a, d, e, k
2. a, d, e, k
3. j
4. a, c, e
5. d,e,k
6. e,k
7. a,c,e,k
8. b,d,e,k
9. h
10. a;d;e (may have some control);j
11. i

Problem 10
Cost Behavior
Cost Variable Fixed Product Period
1 Advertising expense of the company x x
2 Depreciation of branch furniture and fixtures x x
3 Freight costs from branch to customers x x
 4 Freight costs from factory warehouse to branch x x
5 Hamburger and hotdog buns used by Jollibee x x
6 Humburger patties and hotdogs x x
7 Insurance of factory employees x x
8 Insurance of office employees x x
9 Rental of branch building x x
10 Salary of plant supervisor x x

Problem 11
Classify the following overheads as factory, administrative and selling.
1. Packing expenses (S)
2. Salary of office managers (A)
3. Factory machine lubricants (FOH)
4. Factory printing and stationaries (FOH)
5. Bad debts (A)
6. Advertising expenses (S)
7. Salary of foremen (FOH)
8. Factory employee fringe benefits (SSS, Philhealth and HDMF) (FOH)
9. Office printing and stationaries (A)
10. Salary of sales clerks (S)
11. Factory rent (FOH)
12. Cost of catalogs and price lists (S)
13. Depreciation of office furniture (A)
14. Office electric bill (A)
15. Salary of legal adviser (A)
16. Commissions of salesmen (S)
17. Municipal taxes of office buildings (A)
18. Freight carriage outwards (S)
19. Audit fees (A)
20. Advertising expenses (S)
21. Expenses of sending sample inventory (S)
22. Factory telephone expenses (FOH)
23. Depreciation expense of delivery vans (S)
24. Salary of storekeeper (S)
25. Salary of dispatchers (S)
26. Cost of normal idle time (FOH)
27. Repair of delivery equipment’s (S)
28. Travelling and entertainment expenses (S)
29. Postage and stamps (A)
30. Market research expenses (S)
31. Cost of samples (S)

Problem 12
Answer
1. V 5,5
2. M 3, 4
3. F
4. M 2.4, 2.2
5. F
6. M 3, 2.7
7. V 7,7
Problem 13
Behavior Product Period
Direct Direct
Cost Variable Fixed Materials Labor FOH Selling Admin Opportunity Sunk
Rental income,
foregone, P50,000
1 per month x
Direct materials
cost of P 100 per
2 unit x x
Rental cost of small
warehouse,
3 P10,000 per month x x
Rental cost of
equipment,
4 P15,000 per month x x
Direct labor cost,
5 P15 per hour x x
Depreciation of
space, P5,000 per
6 month x x x
Advertising cost,
7 P150,000 per year x x
Production
Supervior's salary
8 P25,000 per month x x
Electicity of
machines, P2 per
9 unit x x
Shipping cost, P4
10 per unit x x
Earnings on
investments
11 P20,000 per year x

Problem 14
PRODUCT COST PERIOD COST
Direct Direct Factory
Cost Material Labor Overhead Selling Administrative
1 Cost of TV advertisement x
2 Costs of hogs for meat processor x
3 Depreciation of factory equipment x
Entertainment expenses for sales
4 representatives x
5 Executive bonus for VP of marketing x
6 Factory Operating supplies x
7 First aid supplies for factory workers x
8 General maintenance supplies x
Hard drives for a microcomputer
9 manufacturer x
Health insurance premiums paid for
10 factory workers x
11 Lumber used by furniture manufacturer x
12 Ink used print books a
 Maintenance and repair costs for factory
13 equipment x
Packaging supplies for product sold.
These are very small portion of the total
14 cost of the product. x
15 Paper used by commercial printer x
Paper used by computer department in
16 processing various reports x
Protective glasses for factory machine
17 operators x
18 Salary of hotel office manager x
19 Salary of quality control supervisor x
20 Sales commissions x
21 Tires for an automobile manufacturer x
22 Wages of company controller's secretary x
23 Wages of hotel maids x
Wages of machine operators on the
24 production line x
25 Factory janitorial supplies x
26 Property taxes on factory plant x
27 Interest expense on debt x
28 Steel plate used in automobile x
29 Vice President of finance salary x
30 Audit fee x
31 Sales incentives fees to dealers x
32 Utility cost of office buildings x
33 Wages of sewing machine operators x
34 Chief Financial Officer's salary x
35 Factory supervisors' salary x
36 Leather used to make baseball gloves x
Cost of endorsement from a professional
37 basketball player x
38 Ink used to print books x

Problem 15
Answer:
1. Cost C’s fixed portion will total the same amount, P700,000 (1.75 x 400,000), both 400,000 hours and
280,000 hours. Thus, the variable portion of C at 280,000 hours will be P2,296,000 (2,996,000 –
700,000)
2. The variable portion of cost C is P8.20 per hour (2,296,000 / 280,000 hours). Cost C will therefore total
P3,324,000 ((320,000 hours x 8.20) + P700,000))
3. At 320,000 hours, Cost A equal P4,640,000 (P5,220,000 / 360,000 hours) x 320,000)
Total cost @320,000 hours 16,324,000 – VC 4,640,000 – Mixed 3,324,000 (Fx 700,000 + VC 8.2 x
320,000) = Fixed cost (B) 8,360,000

Problem 16
Answer
1. C
2. E
3. B
 4. D
5. F
6. A
7. A

Problem 17
Answer
Requirement A
a. 18,000
b. 9,600
c. 18,000
d. 14,400
e. 27,600
f. 32,400
g. 22.50
h. 18
i. 15
j. 12
k. 12
l. 12
m. 34.5
n. 30
o. 27
Requirement B
Sales (50 x 480) = 24,000 – VC 5,760 (12 x 480)- FC 18,000 = 240

Problem 18
Answer
1. P0.40 and P360,000
(520,000 – 488,000)/ (400,000 – 320,000) = 32,000/80,000 = P0.40
FC = 520,000 – (P0.40 x 400,000) = P360,000

2. Sales (240,000 x P5) – COGS (3 x 240,000) = GP 480,000 – OPEX ((VC P.40 x 240,000) + FC 360,000))
= P24,000

Problem 19
Answer
Units produced 800,000 960,000 1,200,000
Total production costs
Total variable costs 320,000 384,000 480,000
Total fixed costs 480,000 480,000 480,000
Total costs 800,000 864,000 960,000

Total cost per unit

Variable cost per unit 0.40 0.40 0.40
Fixed cost per unit 0.60 0.50 0.40
Total cost per unit 1.00 0.90 0.80

Problem 20
Answer Same 120,000
Problem 21
Answer
Units Produced
60 units 80 units 100 units
Total Costs:
Variable costs P120 160 200
Fixed costs 600 600 P600
Total Costs 720 P760 800
Per unit Costs:
Variable Costs 2 2 2
Fixed Costs 10 7.5 6

2. Total fixed cost and variable cost per unit

3. Total variable costs and total costs
4. Fixed costs per unit
5. Y = 600 + 2X
6. P750

Problem 22
Answer
Cups of Coffee Sold
50,000 52,500 55,000
Fixed Cost 200,000 200,000 200,000
Variable cost 1,000,000 1,050,000 1,100,000
Total cost 1,200,000 1,250,000 1,300,000
Cost per cup of coffee 24.00 23.81 23.64

Problem 23
Answer
a.
Level of Activity
180,000 270,000
Total factory overhead cost 522,000 738,000
Utility cost (.80 per MHR)* 144,000 216,000
Supervisor salary 63,000 63,000
Maintenance cost 315,000 459,000

*144,000 / 180,000 = P0.80

2.
VC per unit = 459,000 - 315,000
270,000 - 180,000

VC per unit
= 144,000
90,000

VC per unit
= 1.60

459,000 = a + 1.60 (270,000)

 459,000 = a + 432,000
a = 27,000

3. y = 90,000 + 2.40x
Variable cost per MHR Fixed cost
Maintenance Cost 1.60 27,000
Utility cost 0.80
Supervisor Salary 63,000
Total 2.40 90,000

4.
Fixed cost 90,000
Variable cost (225,000 x 2.40) 540,000
Total overhead cost 630,000

Problem 24
Answer
1.
VC per unit = 4,485,000 - 3,412,500
117,650 - 52,650

VC per unit = 1,072,500

65,000

VC per unit = 16.50

Total Fixed cost 4,485,000 = a + 117,650 (16.50)

4,485,000 = a + 1,941,225
Total Fixed cost = 2,543,775

2. Total cost = 2,543,775 + P16.50 (80,000) = 3,863,775

Problem 25
Answers
1. P300
2. 9,500 x 12
3. Y = P9,500 + 300x
4. P15,500

Problem 26
Answer
1. 453
2. Y = 75+.54x
3. Y=375+1.19x
4. Y =375+1.19x
5. 613
1.
June 700
April 400 hrs hrs
Supplies (variable) 260
Salaries (fixed) 300
Utilities (mixed) 291
Total overhead costs 851 1,208

4.
Hours (X) Total cost (Y) X*Y X2
Mar 500 970 485,000 250,000
April 400 851 340,400 160,000
May 600 1,089 653,400 360,000
June 700 1,208 845,600 490,000
Sum 2,200 4,118 2,324,400 1,260,000

Problem 27
Answer
1. High low method
VC/ unit = P28,000 - P19,000
6,000 - 2,250

VC/ unit = P9,000

3,750

VC/ unit = P2.40

Fixed cost P28,000 = a + 2.40 (6,000)

Fixed cost= 28,000 = a + 14,400
Fixed cost= 13,600

2. Least Square Analysis

X Y XY X²
Period Units Produced Total Cost
1 2,250 19,000 42,750,000 5,062,500
2 5,500 26,000 143,000,000 30,250,000
3 6,000 28,000 168,000,000 36,000,000
4 2,750 20,000 55,000,000 7,562,500
5 4,500 23,500 105,750,000 20,250,000
6 5,250 26,000 136,500,000 27,562,500
7 3,750 22,000 82,500,000 14,062,500
8 2,500 20,500 51,250,000 6,250,000
9 5,750 26,000 149,500,000 33,062,500
10 3,000 21,500 64,500,000 9,000,000
 11 4,250 24,000 102,000,000 18,062,500
12 5,000 25,000 125,000,000 25,000,000
13 3,250 22,000 71,500,000 10,562,500
14 4,750 24,000 114,000,000 22,562,500
15 4,000 23,000 92,000,000 16,000,000
Total 62,500 350,500 1,503,250,000 281,250,000

(1) 350,500 = 15a + 62,500b

(2) 1,503,250,000 = 62,500a + 281,250,000b

(1) 4,167 (350,500 = 15a + 62,500b)

(2) 1,503,250,000 = 62,500a + 281,250,000b

(1) 1,460,533,500 = 62,500a + 260,437,500

(2) 1,503,250,000 = 62,500a + 281,250,000b
42,716,500 = 20,812,500b

b= 2.05

Fixed cost 350,500 = 15a + 2.05 (62,500)

Fixed cost 350,500 + 15a + 134,375
Fixed cost 222,375 = 15a
Fixed cost 14,825

3. Scattergraph
The total fixed cost is P14,200. The variable cost per unit will be computed as:
P23,000 = P14,200 + 4,000b
P9,000 = 4,000b
B = P2.25

Problem 28
Answer: (21,600 – P4,320) / (1,200 – 240) = 17,280/ 960 = P18 x 800 = P14,400

Problem 29
Answer
1.
Cost of good manufactured 336,000 514,000
Add: Work in process, ending 30,000 42,000
Total 366,000 556,000
Less: Work in process, beg 18,000 64,000
Direct materials cost 72,000 108,000
Direct labor cost 120,000 180,000
Manufacturing overhead cost, total 156,000 204,000

2. (204,000 – 156,000) / (18,000 – 12,000) = VC per unit P8.00 x 18,000 – (204,000) = FC 60,000
Y = 60,000 + 8x
3. 14,000 x 8 + 60,000 = FOH 172,000 + DM 84,000 (6 x 14,000) + DL 140,000 (10 x 14,000) =
396,000
Problem 30
Answer
1 Overhead = P5,000 + P10(H) + P900(S) + 20(P)
2. Overhead = P5,000 + P10(400) + P900(30) + 20(150) = P5,000 + P4,000 + P 27,000 + P3,000 = 39,000
3. 30 set ups x 40% = 12 set ups x 900 = 10,800 savings.

Problem 31
Answer
a. VC/u = (5,731,200 – 4,377,600) ÷ (84,000 – 60,000)
VC/u = 1,353,600/ 24,000
VC/u = 56.40

FC = 7,731,200 – 56.40 (84,000)

FC = 993,600
Cost function is Y = 993,600 + 56.40x
b. Y = 996,600 + 56.40 (72,000) = 5,054,400

Problem 32
Answer
1.
7,728 - 4,560 = 3,168 = 1.80
3,960 - 2,200 1,760

7,728 = a + 1.80 (3,960)

7,728 = a + 7,128
a = 600

2. Y = 600 + 1.8x
Y = 600 + 1.8(3,000)
Y = 6,000

3.
Eq. 1 66,128 = 11a + 32,033b
Eq. 2 197,770,070 = 32,033a + 96,472,597b

Eq. 1 2,912.09 (66,128 = 11a + 32,033b)

Eq. 2 197,770,070 = 32,033a + 96,472,597b

Eq. 1 192,570,687.50 = 32,033a + 93,282,979b

Eq. 2 197,770,070 = 32,033a + 96,472,597b

5,199,382.50 = 3,189,618b

b = 1.63

66,128 = 11a + 32,033 (1.63)

66,128 = 11a + 52,213.79
66,128 - 52,213.79 = 11a
11

a = 1,265
 Y X XY X²
Month Overhead Machine hours
January 5,030 2,730 13,731,900 7,452,900
February - -
March 7,210 3,403 24,535,630 11,580,409
April 4,560 2,200 10,032,000 4,840,000
May 6,880 3,411 23,467,680 11,634,921
June 6,520 2,586 16,860,720 6,687,396
July 6,230 3,364 20,957,720 11,316,496
August 5,570 2,411 13,429,270 5,812,921
September 7,728 3,960 30,602,880 15,681,600
October 5,810 2,897 16,831,570 8,392,609
November 4,580 2,207 10,108,060 4,870,849
December 6,010 2,864 17,212,640 8,202,496
66,128 32,033 197,770,070 96,472,597

4. Y = 1,265 + 1.63x
Y = 1,265 + 1.63(3,000)
Y = 6,155

Problem 33
(13.6 x 36,000) + 85,000 = 574,000

Problem 34
Req. 1
1. Variable
2. Variable
3. Fixed
4. Semi vriable
5. Fixed
Req. 2
Supervision 46,000
Fixed Utilities 18,000
Insurance and Taxes 12,800
Total Fixed 76,800

Meat 6.50
Labor 4.50
Variable Utilities 0.70
Total Variable 11.70

Y = 76,800 +11.70x

Problem 35:
A.
231,000 - 199,500 = 14 per ton
6,500 - 4,250
Total cost of 6,500 tons = 231,000 – (14 x 6,500) = 140,000 fixed cost.
(4,375 x 14) + 140,000 = 201,250
B.
Semi- variable cost 201,250
Variable cost (4,375 tons x P325) 1,421,875
Fixed cost (4,200,000 annual / 12 months) 350,000
Total 1,973,125

Problem 36
A. Cost C's fixed portion will total the same amount, P350,000 (200,000 hours P1.75), at both 200,000
hours and 140,000 hours. Thus, the variable portion of C at 140,000 hours will be P1,148,000
(P1,498,000 - P350,000).

B. The variable portion of Cost C is P8.20 per hour (P1,148,000 140,000 hours). Cost C will therefore
total P1,662,000 [(160,000 hours P8.20) + P350,000].

C. At 160,000 hours, Cost A equals P2,320,000 [(P2,610,000 180,000 hours) 160,000 hours.
Thus:
Total cost (A + B + C) 8,162,000
Less Cost of A 2,320,000
Cost of C 1,662,000 3,982,000
Cost of B 4,180,000