MAS Integration Practice Set 1

Provide the answer in the space provided. Write your solutions on a separate sheet of paper.

1. Nite Corporation has developed the following flexible budget formula for annual indirect labor costs:

Total Cost = P480,000 + P5.00 per machine hour

Operating budgets for the current month are based upon 20,000 machine hours of planned machine time. Indirect
labor costs included in this planning budget are:

2. Harem Company uses an annual cost formula for overhead of P72,000 + P1.60 for each direct labor hour worked. For
the upcoming month Karla plans to manufacture 96,000 units. Each unit requires five minutes of direct labor. Harem
Company’s budgeted overhead for the month is

3. Total production costs for Jordan, Inc. are budgeted at P2,300,000 and P2,800,000 for 50,000 and 60,000 units of
budgeted output, respectively. Because of the need for additional facilities, budgeted fixed costs for 60,000 units are
25 percent more than budgeted fixed costs for 50,000 units. How much is Jordan’s budgeted variable cost per unit of
output?

4. Deakin Company is preparing a flexible budget for the coming year and the following maximum capacity estimates for
Department OZ are available:
Direct labor hours 60,000
Variable factory overhead P150,000
Fixed factory overhead P240,000
Assume that Deakin’s normal capacity is 80% of maximum capacity. What would be the total factory overhead rate,
based on direct labors, in a flexible budget at normal capacity?

5. Irma Company manufactures office furniture. During the most productive month of the year, 3,500 desks were
manufactured at a total cost of P84,400. In its slowest month, the company made 1,100 desks at a cost of P46,000.
Using the high-low method of cost estimation, total fixed costs in August are:

6. Palm, Inc. has a total of 2,000 rooms in its nationwide chain of hotels. On the average, 70 percent of the rooms are
occupied each day. The company’s operating cost is P21 per occupied room per day at this occupancy level, assuming
a 30-day month. This P21 figure contains both variable and fixed cost elements. During October, the occupancy
dropped to only 45 percent. A total of P792,000 in operating costs were incurred during the month.

What would be the expected operating costs, assuming that the occupancy rate increases to 60 percent during
November?

7. The controller of Jema Company has requested a quick estimate of the manufacturing supplies that it needs for the
month of July when the expected production are 470,000 units. Below are the actual data from the prior three months
of operations.
Production in units Manufacturing supplies
March 450,000 P723,060
April 540,000 853,560
May 480,000 766,560
Using these data and the high-low method, what is the reasonable estimate of the cost of manufacturing supplies that
would be needed for July? (Assume that this activity is within the relevant range.)

8. The following activity and cost data that were provided by Hoist Corporation would help in estimating its future
maintenance costs:
Units Maintenance Cost
3 1350 9 P450
7 3710 49 P530
7040 121
11 P640
10500 225
15 P700
Using the least-squares regression method to estimate the cost formula, the expected total cost for an activity level
of 10 units would be closest to:

9. Given the cost formula Y = P17,500 + P4X, at what level of activity will total cost be P42,500?
10. Balsy Company has provided the following data for maintenance cost:
Prior Year Current Year
Machine hours 12,500 15,000
Maintenance cost P27,000 P31,000
The best estimate of the cost formula for maintenance would be:

11. Almond Company wishes to determine the fixed portion of its maintenance expense (a semi-variable expense), as
measured against direct labor hours for the first Malayan three months of the year. The inspection costs are fixed;
however, the adjustments necessitated by errors found during inspection account for the variable portion of the
maintenance costs. Information for the first Malayan quarter is as follows:
Direct Labor Hours Maintenance Costs
January 34,000 P61,000
February 31,000 58,500
March 34,000 61,000
What is the fixed portion of Almond Company’s maintenance expense, rounded to the nearest pesos?

12. Clone Machinery had the following experience regarding power costs:
Month Machine hours Power cost
Jan. 300 P680
Feb. 600 720
Mar. 400 695
Apr. 200 640
Assume that management expects 500 machine hours in May. Using the high-low method, calculate Clone's power
cost using machine hours as the basis for prediction.

13. In the equation Y = P4,000 + P3X; Y is the cost of workers' compensation insurance and X is direct labor hours.
According to this equation, a 100-hour change in total direct labor hours will change the cost of workers compensation
insurance by

14. Using multiple regression, you have identified P12,000 of unit level costs for 3,000 units, P1,000 of product level costs
for 40 products, and P3,500 of customer-level costs for ten customers. The cost of Job 002 which used 800 unit level
activities, 4 product level activities, and one customer-level activities amounts to

15. It takes a worker 10 minutes to assemble a toy. With a learning curve of 70% as production doubles, the average time
(per unit) needed to make 8 units would be

16. The cost to rebuild a race car engine is P1,500, and a buyer offers to buy four engines for P6,000. Assuming a
cumulative learning curve of 90% as production doubles, the incremental cost of the third and fourth items will be

17. At a sales level of P300,000, Jamaica Company's gross margin is P15,000 less than its contribution margin, its net
income is P50,000, and its selling and administrative expenses total P120,000. At this sales level, its contribution
margin would be:

18. The Shepherd Company’s president would like to know the estimated fixed and variable components of a particular
cost. Actual data for this cost for four recent periods appear below.
Activity Cost
Period 1 24 P174
Period 2 25 179
Period 3 20 165
Period 4 22 169
Using the least-squares regression method, what is the cost formula for this cost?
A. Y = P 0.00 + P7.55X C. Y = P103.38 + P3.00X
B. Y = P110.44 + P2.70X D. Y = P113.35 + P0.89X

19. Sams Company. wants to develop a single predetermined overhead rate. The company's expected annual fixed
overhead is P340,000 and its variable overhead cost per machine hour is P2. The company's relevant range is from
200,000 to 600,000 machine hours. Sams Company expects to operate at 425,000 machine hours for the coming year.
The plant's theoretical capacity is 850,000. The predetermined overhead rate per machine hour should be
20. The Overland Company wants to develop a cost estimating equation for its monthly cost of electricity. It has the
following data:
Month Electricity Cost Direct Labor Hours
January P6,750 1,500
April 7,500 1,700
July 8,500 2,000
October 7,250 1,600
Using the high-low method, what is the best equation?

21. During the month of June, Behold Corporation produced 12,000 units and sold them for P20 per unit. Total fixed costs
for the period were P154,000, and the operating profit was P26,000.
Based on the foregoing information, the variable cost per unit for the month of June was

22. Data to be used in applying the high-low method shows the highest cost of P69,000 and the lowest cost of P52,000.
The data shows P148,000 as the highest level of sales and P97,000 as the lowest level. What is the variable cost per
peso sales?

23. The following information is available for maintenance costs:

Month Production Volume Maintenance Costs
June 150,000 P500,000
July 230,000 620,000
August 380,000 800,000
September 120,000 480,000
October 270,000 710,000
Using the least squares, the estimate of the fixed portion of maintenance costs (rounded to thousand pesos) is

24. Tomas Ocampo has just been appointed chairperson of the Accountancy Department of ADEB College. In reviewing
the department’s cost records, Tomas has found the following total cost associated with MAS Part 2 subject over the
last several terms:
Semester/Term Number of Subjects Offered Total Cost
AY2004, First Semester 4 P10,000
AY2004, Second 6 14,000
Semester
AY2004, Summer 2 7,000
AY2005, First Semester 5 13,000
AY2005, Second 3 9,500
Semester
Tomas knows that there are some variable costs, such as amounts paid to student assistants, associated with the
course. He would like to have variable and fixed cost components separated for planning purposes.
Using the least-squares method, what is the variable cost per section of MAS?

25. At a sales level of P300,000, Java Company's gross margin is P15,000 less than its contribution margin, its net income
is P50,000, and its selling and administrative expenses total P120,000. At this sales level, its contribution margin would
be:

Question Nos. 26 and 27 are based on the following information:

SERAL Company is a manufacturing entity whose total factory overhead costs fluctuate considerably from year to year
according to increases and decrease in the number of direct labor hours worked in the plant. Total factory overhead costs
at high and low levels of activity for recent years follow:
Low High
Direct labor hours 50,000 75,000
Total factory overhead costs P14,250,000 P17,625,000

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these
costs at the 50,000-hour level of activity as follows:
Indirect materials (V)5M cost / 50k units = 100 per unit costP 5,000,000
Rent (F) 6,000,000
Maintenance (M) 3,250,000
Total factory overhead costs P14,250,000

V = variable; F = fixed; M = mixed

26. How much of the P17,625,000 factory overhead cost at the high level of activity consist of maintenance cost?

27. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labor
hours?

Question Nos. 28 and 29 will be answered using the following data:

The Bora Hotel’s guest-days of occupancy and custodial supplies expense over the last seven months were:
Month Guest-Days of Occupancy Custodial Supplies Expense
March 40,000 P 75,000
April 65,000 82,500
May 80,000 105,000
June 105,000 120,000
July 120,000 135,000
August 90,000 107,500
September 75,000 97,500

28. Using the high-low method, what is the estimated monthly fixed cost for custodial supplies?

29. Using the high-low method in calculating the cost formula for custodial supplies, what amount of this expense would
you expect to be incurred at an occupancy level of 110,000 guests?

Question Nos. 30 through 32 are based on the following:

St John Hospital contains 450 beds. The average occupancy rate is 80 percent per month. In other words, on average, 80
percent of the hospital’s beds are occupied by patients. At this level of occupancy, the hospital’s operating costs are P32
per occupied bed per day, assuming a 30-day month. This P32 figure contains both variable and fixed cost components.

During the month of June, the hospital’s occupancy rate was only 60 percent. A total of P326,700 in operating cost was
incurred during that month.

30. Using the high-low method, the amount of variable cost per occupied bed per cay is

31. Using the variable cost as determined in number 36, the total fixed operating costs per month are:

32. Assuming an occupancy rate of 75 percent in a particular month, what amount of total operating costs would you
expect the hospital to incur?

Question Nos. 33 through 35 are based on the following:

In the Omara Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were P223,000.
Of this amount, utilities were P48,000 (all variable) and depreciation was P60,000 (all fixed). The balance of the overhead
cost consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were P130,000.

Assume that all of the activity levels mentioned in this problem are within the relevant range.

33. The variable cost for maintenance per machine hour is:

34. The total fixed overhead cost for Omara is:

35. If 110,000 machine hours of activity are projected for the next period, total expected overhead cost would be: