TEST 2 – MULTIPLE CHOICE (PROBLEM SOLVING)

41. Kirsten manufacturing provided the following information for last month
Sales P10,000
Variable costs 3,000
Fixed costs 5,000
Operating income P2,000
If sales double next month, what is the projected operating income?
a. P4,000
b. P7,000
c. P9,000
d. P12,000

42. Gametoy manufacturing currently produces 1,000 toys per month. The following per unit data apply for sales to regular customer:
Direct materials P20
Direct manufacturing labor 3
Variable manufacturing overhead 6
Fixed manufacturing overhead 10
Total manufacturing costs P39
The plant has capacity for 3,000 toys and is considering expanding production to 2,000 toys. What is the total cost of producing
2,000 toys?
a. P39,000
b. P78,000
c. P68,000
d. P62,000

43. Shipping costs at Junk Food Imports is a mixed cost with variable and fixed components. Past records indicate total shipping cost
was P18,000 for 16,000 pounds shipped and P22,500 for 22,000 pounds shipped. If the company plans to ship 18,000 pounds next
month, the expected shipping cost is:
a. P18,500
b. P20,400
c. P19,500
d. P24,000

44. Cosco Company has accumulated the following data for the cost of maintenance on its machinery for the last four months:
Month Maintenance Cost Machine Hours
September P26,020 21,000
October P24,600 18,500
November P22,300 15,000
December P25,100 19,000
Assuming Cosco Company uses the high-low method of analysis, the fixed cost of maintenance would be estimated to be:
a. P14,500
b. P5,020
c. P13,000
d. P12,320

45. Refer to Question #44. Assuming Cosco Company uses the high-low method of analysis, if machine hours are budgeted to be
20,000 hours then the budgeted total maintenance cost would be expected to be:
a. P25,400
b. P25,560
c. P23,700
d. P24,720

46. Product A accounts for 75% of a company’s total sales revenue and has a variable cost equal to 60% of its selling price. Product B
accounts for 25% of total sales revenue and has a variable cost equal to 85% of its selling price. What is the breakeven point given
fixed costs of P150,000?
a. P375,000
b. P444,444
c. P500,000
d. P545,455
47. Delta Company has developed a new project that will be marketed for the first time during the next fiscal year. Although the
Marketing Department estimates that 35,000 units could be sold at P36 per unit. Delta’s management has allocated only enough
manufacturing capacity to produce a maximum of 25,000 units of the new product annually. The fixed costs associated with the
new product are budgeted at P450,000 for the year, which includes P60,000 for depreciation on new manufacturing equipment.

Data associated with each unit of product are presented below. Delta is subject to a 40% income tax rate.
Variable Costs
Direct material 7.00
Direct labor 3.50
Manufacturing overhead 4.00
Total variable manufacturing cost 14.50
Selling expenses 1.50
Total variable cost 16.00
The maximum after-tax profit that can be earned by Delta Company from sales of the new product during the next fiscal year is
a. P30,000
b. P50,000
c. P110,000
d. P66,000

48. Refer to Question #47. Delta Company’s management has stipulated that it will not approve the continued manufacture of the new
product after the next fiscal year unless the after-tax profit is at least P75,000 the first year. The unit selling price to achieve this
target profit must be at least
a. P37.00
b. P36.60
c. P34.60
d. P39.00

49. Pacey Manufacturing Company produces two products for which the following data have been tabulated. Fixed manufacturing
cost is applied at a rate of P1.00 per machine hour.
Per unit X Y
Selling price 4.00 3.00
Variable manufacturing cost 2.00 1.50
Fixed manufacturing cost 0.75 0.20
Variable selling cost 1.00 1.00
The sales manager has had a P160,000 increase in the budget allotment for advertising and wants to apply the money to the most
profitable product. The products are not substitutes for one another in the eyes of the company’s customer.

Suppose the sales manager chooses to devote the entire P160,000 to increased advertising for X. The minimum increase in sales
units of X required to offset the increased advertising is
a. 640,000 units
b. 160,000 units
c. 128,000 units
d. 80,000 units

50. Refer to Question #49. Suppose the sales manager chooses to devote the entire P160,000 to increased advertising for Y. The
minimum increase in sales pesos of Y required to offset the increased advertising would be
a. P160,000
b. P320,000
c. P960,000
d. P1,600,000

51. Natt Company uses a standard cost system. Information for raw materials for Product E for the month of October is as follows:
Standard unit price P1.60
Actual purchase price per unit 1.55
Actual quantity purchased 2,000 units
Actual quantity used 1,900 units
Standard quantity allowed for actual production 1,800 units
What is the materials purchase price variance?
a. P90 favorable
b. P90 unfavorable
c. P100 favorable
d. P100 unfavorable
52. Leia’s Company’s direct-labor costs for the month of January were as follows:
Actual direct-labor hours 20,000
Standard direct-labor hours 21,000
Direct-labor rate variance – unfavorable P3,000
Total payroll P126,000
What is Leia’s direct-labor efficiency variance?
a. P6,000 favorable
b. P6,150 favorable
c. P6,300 favorable
d. P6,450 favorable

53. A. Scott Corporation’s direct-labor cost for the month of March were as follows:
Standard direct-labor hours 42,000
Actual direct-labor hours 40,000
Direct-labor rate variance – favorable P8,400
Standard direct-labor rate per hour P6.30
What was A. Scott’s total direct-labor payroll for the month of March?
a. P243,000
b. P244,000
c. P260,000
d. P206,000

54. During March, W. Thatcher Company’s direct material costs for the manufacture of product NH were as follows:
Actual unit purchase price P6.50
Standard quantity allowed for actual production 2,100
Quantity purchased and used for actual production 2,300
Standard unit price P6.25
W. Thatcher’s usage variance for March was?
a. P1,250 unfavorable
b. P1,250 favorable
c. P1,300 unfavorable
d. P1,300 favorable

55. Data on McBeal Company’s direct-labor costs is given below:

Standard direct-labor hours 30,000
Actual direct-labor hours 29,000
Direct-labor usage (efficiency) variance – favorable P4,000
Direct-labor rate variance – favorable P5,800
Total payroll P110,200
What was McBeal’s actual direct-labor rate?
a. P3.60
b. P3.80
c. P4.00
d. P5.80

56. Magic Company manufactures a single product. The following data pertain to the company’s operations last year:
Selling price per unit P24
Variable costs per unit
Production P8
Selling and administrative P2
Fixed costs in total
Production P48,000
Selling and administrative P36,000

At the beginning of the year that was no units in inventory. A total of 12,000 units were produced during the year, and 10,000
units were sold.

Under variable costing, the unit product cost is:

a. P8.00
b. P10.00
c. P12.00
 d. P14.00

57. Refer to Question #56. Under absorption costing, the unit product cost is:
a. P8.00
b. P10.00
c. P12.00
d. P14.00

58. Refer to Question #56. The net income under variable costing would be:
a. P64,000
b. P60,000
c. P56,000
d. P52,000

59. Refer to Question #56. The net income under absorption costing would be:
a. the same as the income under variable costing
b. P8,000 greater than the income under variable costing
c. P12,000 greater than the income under variable costing
d. P8,000 less than the income under variable costing

60. A company has a net income of P85,500 using variable costing and a net income of P90,000 using absorption costing. Total fixed
manufacturing overhead was P150,000, and production was 100,000 units. Between the beginning and the end of the year, the
inventory level:
a. increased by 4,000 units
b. decreased by 4,500 units
c. increased by 3,000 units
d. decreased by 3,000 units

61. Plainfield Company manufactures Part G for use in its production cycle. The costs per unit for 10,000 units for Part G are as
follows:
Direct materials P3
Direct labor 15
Variable overhead 6
Fixed overhead 8
P32
Verona Company has offered to sell Plainfield 10,000 units of Part G for P30 per unit. If Plainfield accepts Verona’s offer, the
released facilities could be used to save P45,000 in relevant costs in the manufacture of Part H. In addition P5 per unit of fixed
overhead applied to Part G would be totally eliminated. What alternative is more desirable and by what amount is it more
desirable?
Alternative Amount
a. Manufacture P10,000
b. Manufacture P15,000
c. Buy P35,000
d. Buy P65,000

62. Relic Corp. manufactures batons. Relic can manufacture 300,000 batons a year at a variable cost of P750,000 and a fixed cost of
P450,000. Based on Relic’s predictions, 240,000 batons will be sold at the regular price of P5.00 each. In addition, a special order
was placed for 60,000 batons to be sold at a 40% discount off the regular price. By what amount would income before taxes be
increased or decreased as a result of the special order?
a. P60,000 decrease
b. P30,000 increase
c. P36,000 increase
d. P180,000 increase

63. Dipper company needs 20,000 of a certain part to use in its production cycle. The following information is available:
Cost to Dipper to make the part
Direct materials P4
Direct labor 16
Variable overhead 18
Fixed overhead applied 10
P48
 Cost to buy the part from the Orion Company P36
If Dipper buys the part from Orion Company instead of making it, Dipper could not use the released facilities in another
manufacturing activity. 60% of the fixed overhead applied will continue regardless of what decision is made.

In deciding whether to make or buy the part, the total relevant costs to make the part are:
a. P560,000
b. P640,000
c. P720,000
d. P840,000

64. Zach Company produces and sells 8,000 units of Product X each year. Each unit of Product X sells for P10 and has a contribution
margin of P6. It is estimated that if Product X is discontinued, P50,000 of the P60,000 in fixed costs charged to Product X could
be eliminated. These data indicate that if Product X is discontinued, overall company operating income should:
a. increase by P2,000 per year
b. decrease by P2,000 per year
c. increase by P38,000 per year
d. decrease by P38,000 per year

65. ADD Realty manages five apartment complexes in its region. Shown below are summary income statements for each apartment
complexes:
Apartment complexes
U V W X Y
Rental income P1,000 P1,210 P2,347 P1,878 P1,065
Expenses 800 1,300 2,600 2,400 1,300
Operating income P200 (P90) (P253) (P522) (P235)

Included in the expenses is P1,200 of common corporate expenses that have been allocated to the apartment complexes based on
rental income. These common corporate expenses would have to be incurred regardless of how many apartment complexes ADD
Realty manages. The apartment complex(es) that ADD Realty should consider dropping is (are):
a. V, W, X, Y
b. W, X, Y
c. X, Y
d. X

66. Shine Co. manufactures laser printers. It has outlined the following overhead cost frivers:
Overhead Cost Overhead Budgeted Level Budgeted
Cost Pool Driver Cost for Cost Driver Overhead Rate
Quality control Inspections P64,800 1,080 P60
Machine repetitions Repetitions 132,000 1,100 120
Accounts receivable Invoices 900 30 30
Other overhead cost Direct labor hours 48,000 4,000 12

Shine Co. had an order for 700 laser printers. Following is a list of production requirements for the order:
Number of inspections 175
Number of repetitions 180
Number of invoices processed 5
Direct labor hours 650

Using activity-based costing, applied factory overhead for the 700 laser printer order based on the number of inspections is
calculated to be:
a. P7,800
b. P10,500
c. P150
d. P21,600

67. Refer to Question #66. Using activity-based costing, applied factory overhead for the 700 laser printer order based on the number
of repetitions is calculated to be:
a. P7,800
b. P10,500
c. P150
d. P21,600
68. Refer to Question #66. Using activity-based costing, applied factory overhead for the 700 laser printer order based on the number
of invoices is calculated to be:
a. P7,800
b. P10,500
c. P150
d. P21,600

69. Refer to Question #66. Using activity-based costing, applied factory overhead for the 700 laser printer order based on direct labor
hours is calculated to be:
a. P7,800
b. P10,500
c. P150
d. P21,600

70. Lilium Company uses activity-based costing to determine unit product costs for external reports. The company has two products:
A and B. The annual production and sales of Product A is 10,000 units and of Product B is 4,000 units. There are three overhead
activity centers, with estimated overhead costs and expected activity as follows:
Activity Center Estimated Overhead Total Product A Product B
Costs Expected Activity Expected Activity Expected Activity
Activity 1 P25,000 250 150 100
Activity 2 P65,000 1,000 800 200
Activity 3 P90,000 3,000 1,000 2,000

The overhead cost per unit of Product A under activity-based costing is closest to:
a. P6.00
b. P9.70
c. P1.50
d. P3.00

71. The January 31, 20x3 statement of financial position of Shelpat Corporation follows:
Cash P8,000
Accounts receivable (net of allowance for uncollectible account of P2,000) 38,000
Inventory 16,000
PPE (net of accumulated depreciation of P60,000) 40,000
Total Assets P102,000

Accounts payable P82,500

Ordinary shares 50,000
Retained earnings (deficit) (30,500)
Total Liabilities and Equity P102,000

Additional information:
 Sales are budgeted as follows: February – P110,000 and March – P120,000.
 Collections are expected to be 60% in the month of sale, 38% the next month, and 2% uncollectible.
 The gross margin is 25% of sales. Purchases each month are 75% of the next month’s projected sales. The purchases are
paid in full the following month.
 Other expenses for each month, paid in cash, are expected to be P16,500. Depreciation each month is P5,000.

What are the budgeted cash collections for February 20x3?

a. P63,800
b. P66,000
c. P101,800
d. P104,000

72. Refer to Question #71. What is the pro-forma income (loss) before income taxes for February 20x3?
a. (P3,700)
b. (P1,500)
c. P3,800
d. P6,000

73. Refer to Question #71. What is the projected balance in accounts payable on February 20x3?
a. P82,500
 b. P86,250
c. P90,000
d. P106,500

74. Reliance Company budgets sales at P2,000,000 and expects a net income before tax of 10% of the sales.

Expenses are estimated as follows:

Selling 15% of sales
Administrative 9% of sales
Finance 1% of sales

Labor is expected to be 40% of the total manufacturing cost. Factory overhead is to be applied at 75% of direct labor cost.

Inventories are to be as follows:

January 1 December 31
Materials 250,000 300,000
Work in process 200,000 320,000
Finished goods 350,000 400,000

Cost of goods sold will be:

a. P500,000
b. P700,000
c. P1,300,000
d. P2,000,000

75. Refer to Question #74. Total manufacturing cost will be:

a. P741,000
b. P882,000
c. P1,029,000
d. P1,470,000