106 Cost Accounting Problem 4 ’s total fi Green Meadows makes three types portable coolers. \ Sass or cach pe Cost P!,080,000. Selling prices, variable costs, and sales ps of cooler follow: MODEL SELLING VARIABLE Pune PRICE cost Mone X100 P 8,800 P 7,600 ie X950 14,800 12,000 50% C 800 24,000 20,000 20% |.What is the company’s break-even point in units and pesos? 2.1f the company has a target of IM how many units of each type of cooler must be sold Problem 5 Alonzo owns a barber where he employs five barbers and pays each a base rate of 2,000 per month. One of the barbers act as the manager and receives an extra P3,000 per month. In addition to the base rate, each barber is paid a commission of P20 per haircut. A barber can do an average of 6 haircuts a day. The barber shop is open 24 days a month. Other costs incurred are as follows: Advertising P 1,000 per month Rent 4,000 per month Barber supplies 400 per month Utilities 1,750 per month and 25 per haircut Magazines / 250 per month Cleaning Supplies 15 per haircut Currently Alonzo charges P100 per haircut Required 1.Compute the break-even point ns a) number of haircut: 2.In March, 1400 haircuts were given, Compute the net 3.Alonzo wants a net income of P25,000, compute the must be given 4.1f Alonzo wants a net income of P40,000, an ; | much must be the amount charged per haircut 41,500 haircuts were given, how 's snd in (b) total pesos Income © number of haircuts thatvy Chapter 4 Cost Volume Profit Analysis 107 Problem 6 Guiller Company’s projected profit for the coming year follows TOTAL PER UNIT Sales P2,480,000 — P.20.00 Variable costs 1,488,000 12.00 Contribution margin 992,000 Pb. 8.00 Fixed cost 626,400 Operating income P 365,600 Required 1,Compute the break-even point in units 2.Compute the break-even point in pesos 3.Compute the contribution margin ratio 4.Using the projected sales for the coming year, compute the margin of safety and - margin of safety ratio. Problem 7 Statement of Comprehensive Income for Brooklyn Company for the current year is Sales P 750,000 Variable cost 600,000 Contribution margin 150,000 Fixed cost 100,000 Operating income P _50,000 Required 1.Compute the break-even point 2.Compute the margin of safety 3.Compute the margin of safety ratio 4.Compute the degree of operating leverage — ; . S.Suppose the company experiences a 30% increase in revenues, compute for the percentage change in profits108 Cost Accounting MULTIPLE CHOICE - THEORIES i . 1. The systematic examination of the relationship among selling prices, volume of sales and production costs and profits is called a, contribution margin analysis b. cost-volume-profit analysis c. budgetary analysis d, gross profit analysis 2. CVP analysis allows management to determine the relative profitability of a product by a. determining potential bottlenecks in the production process : b. determining the contribution margin per unit and projected profits at different levels of production. a ¢. assigning costs to a product in a manner. that maximizes the contribution margin d. keeping fixed costs in an absolute minimum 3. The most important information derived from a breakeven chart is the a, amount of sales needed to cover the variable cost b. amount of sales needed to cover the fixed cost c. relationship among revenues, variable costs, fixed costs at different levels of activity. , “d. volume or output level at which the enterprise breaks even 4, Companies with a high degree of operating leverage a, will have a more significant shift in income as sales volume b. have fewer fixed costs’ c. have low contribution margin ratios d, are less dependent on volume to add profits changes 5.A company’s break-even point would be increased bu a. an increase in fixed costs b, a decrease in contribution margin ratio c. a decrease in selling price d. a decrease in variable cost per unitChapter 4 Cost Volume Profit Analysis 109 6. If the variable cost per unit decreases while selling price decreases, the new variable Cost ratio in relation to the old variable cost ratio will be a. higher b. lower c. the same d. not enough information provided CVP analysis is a simple but powerful tool to assist management at different stages of the decision making process, Which of the following does not ; ‘represent a primary of the CVP model> a. Ability to compute the break even point b. Ability to find target sales volume c. Aids in evaluating tax planning alternatives 4. Aids in determining optimal pricing policies 8. A decrease in the margin of safety would be caused by a.an increase in total fixed cost b.in increase in total actual sales c.a decrease in variable cost per unit d.a decrease in the selling price per unit 1.8. Ifthe fixed cost for a product decrease and the variable cost (as a percentage of peso sales) decrease, what will be the effect on the contribution margin ratio and the break-even point respectively Contribution margin ratio Break-even point a. Deceased Increased b. Increased Decreased c, Decreased “Decreased d. Increased Increased 10. If the sales mix shifts toward the higher contribution margin products, what would happen to the break-even point a. decreases b. increases ¢. remains constant d. requires additional information110 Cost Accounting MULTIPLE CHOICE - PROBLEMS The Avengers Company is trying to do cost volume profit analysis with the following information for the month of August Sales rte Total Fixed cost 7 Total variable costs =} 960,009 Unit price 40 I. The operating income of the Avengers Company is a. P160,000 b. P190,000 ce. P240,000 d. P440,000 2.What is the break-even point in units? a. 14,000 units b. 25,000 units c. 28,000 units d. 35,000 units 3.If the company desires a profit of P80,000, how many must be sold? a. 30,000 units b, 35,000 units c. 36,000 units d, 45,000 units 4.The margin of safety is a. P100,000 b. P200,000 c. P300,000 d. P400,000 ‘The Orange Company plans to sell a new product. The s be P 150 per unit. The company is able to produce 15 marketing manager feels that a more realistic level of Variable cost is estimated at P70 per unit. Total fi; elling price is expected to 2000 units but the company’s sales would be 12,000 units. xed costs will be P 900,000Chapter 4 Cost Volume Profit Analysis i 5.The break-even sales a. 10,000 units b, 11,250 units c. 16,000 units d. 18,000 units 6. How much is the income a. P (87,500) ° b. P122,500 c. P300,000 d. P330,000 (loss) if the company sells all the units it can produce 7. If the company desires to earn P400,000 before tax at full capacity, what selling price must be charged a. P 80.00 b.P 90.00 c.P 95.00 d. P100.00 Donna Company manufactures and sells two products: Product A and Product B. The two products have the following characteristics . Product A Product B Selling price per unit P 50.00 P30.00 Sales revenue 750,000 900,000 Variable cost per unit 30.00 24.00 Total fixed cost for the company was P320,000 but increase to P400,000 at production levels over 100,000. Selling price and variable cost per unit are the same at all production levels 8.Assuming a constant product mix, what is the break-even in units? a, 10,000 units b. 16,000 units ¢, 25,000 units 4. 30,000 unitsCost Accounting 112 . it product mi: 9.For the company to eam a profit of P400,000, assuming constant PFOSNS! mis, how many units must be sold a, 25,000 units b. 37,500 units ¢. $0,000 units 4. 75,000 units The following costs have ben estimated based otal SON ao Direct materials P 300,000 ne Direct labor 250,000 100 Manufacturing overhead 250,000 a Selling and administrative 150,000 30 10. What selling price will result in a 40% contribution margin. a. P33.25 : b. P3958 ©. P52.78 d, P60.00 1 . What selling price will yield a projected income of PS0,000? a. P35.20 b. P36.94 c. P4180 d, P42.25 Happy Face Company has fixed cost of P500,000 per year, variable cost of P30 per unit, and a selling price of PSO per unit, 12. At a production level of 30,000 units, how much is the a. P 50,000 b. P 100,000 c. P 150,000 d. P 200,000 Operating income? 13. The break-even sales in units a. 10,000 uits b. 25,000 units c. 27,500 units d, 30,000 unitsChapter 4 Cost Volume Profit Analysis 113 14, The number of units the company must sell to earn an income of P100,000? a. 10,000 units b. 25,000 units c. 27,500 units d. 30,000 units Alexis Company Operated at normal capacity during the current year producing 50,000 of. its single Product... Sales totaled 40,000 units at a selling price of P20 per unit. Variable manufacturing cost were P& per unit and variable selling and administrative were P 4 per unit, Fixed cost were incurred uniformly throughout the year and amounted to P188,000 for manufacturing and P64,000 for.P64,000 for selling and administrative. 15.The break-even point in pesos is a. P 420,000 b. P 470,000 c.P 630,000 d. P 732,000 The Presley Company manufactures two products, Product X and Product Y.. The following are projections for the coming year, Product X Product Y Sales P 100,000 P 112,500 Sales in units 10,000 7,500 Expenses Fixed P 20,000 P 24,000 Variable 60,000 75,000 Projected profit 20.000 14,000 16.Assuming that the facilities are not jointly used, the breakeven output (in units)for Product X would be a. 8,000 b. 7,000 c. 6,000 d. 5,000Cost Accounting 114 unit. The variable cost is The Power Company sells its product at P15.00 pet inted to P45,000 ° les amou P9.00 per unit. Total fixed cost is P12,000. Current sal 17.1f sales decrease by 500 units, by how much would fixed expenses have to be reduced to maintain the current net income? a. P7,500 b. P6,000 ¢. P3,000 4. P2000 18.At a break-even point of 400 units, the variable costs 400 and the anced costs were P200. What will the 401* unit sold contribute to profit before tax? a.Po ’ b. PO.60. c. P1.00 d. P1530 The statement of comprehensive income for Blanche Company for the current year is presented below Sales P 400,000 Variable costs 125,000 Contribution margin 275,000 Fixed costs 200,000 Income before tax P 75,000 19.What is the degree of operating leverage of Blanche Company a.3.67 b.1.45 c. 5.33 d. 1.67 The following information pertains to Ellery Company. 1,000,000, break even sales - P700,000, budgeted oer weet sales — 600,000. ed contribution margin ~ 20.The margin of safety for the Ellery Company is a. P300,000 b. P400.000 c. P500,000 d, P600,000,ee Chapter a ae a ee JOB ORDER COSTING LEARNING OBJECTIVES Upon completion of this chapter, you should be able to Define job order costing and identify the types ©! most to use this system. ‘© Demonstrate the mechanics of a job order costing system. ; Differentiate among the forms used in the purchase and issuance - of Pnterials such as a purchase requisition, a purchase order, @ receiving report, and a materials requisition. . «Distinguish between the periodic and perpetual cost accumulation systems used to account for materials issued to production and for ending materials inventory. : «Prepare a job order cost sheet f industries that would be The job order cost procedure keeps the costs of various jobs or contracts separate during their manufacture or construction. The method is applicable to job order work in factories, workshops, and repair shops as well as to work by builders, construction engineers, shipbuilders, and printers. The cost unit is the job, the work order, or the contract; and the records will show the cost of each. The method presupposes the possibility of physically identifying the jobs produced and of charging each with its own cost. A variation of the job order cost method is that of costing orders by lots. A lot is the quantity of product that can conveniently and economically be produced and costed. For example, in the shoe manufacturing industry, a contract is divided into lots, each lot being from 100 to 250 pairs of one size and style of shoe. The costs are then accumulated for each lot. In job order costing, each job is an accounting unit to which materials, labor, and factory overhead costs are assigned by means of job order numbers. The cost f each order produced for a given customer or the cost of each lot to be pla ai stock is recorded on a summary sheet called a job order cost sheet, or merel ra cosh sheet, This mater sheet is designed to collect the costs of material: labo : a factory overhead applicable to a specific job Sen