Chapters 1 3

Chapter 1
Introduction to Cost Management
CLASSROOM DISCUSSION
1-1 True or False
1. True
2. True
3. False
4. False
5. True
6. False
7. False
8. False
9. True
10. True
11. True
12. True
13. False
14. False
15. False
1-2 True or False

1. True
2. False
3. False
4. True
5. False
6. True
7. False
8. True
9. True
10. False
1-3 Multiple Choice (Theories)

1. C
2. C
3. C
4. B
5. C
6. B
7. A
1
8. D
9. D
10. D
11. B
12. B
13. A
14. D
15. B
16. B
17. B
18. A
19. D
20. B
21. A
22. B
23. B
24. B
25. C
26. E
27. A
28. C
29. D
30. A
SELF-TEST QUESTIONS (QUIZZER)

1. C
2. D
3. A
4. C
5. B
6. C
7. C
8. B
9. C
10. C

1. D
2. B
3. C
4. B
5. B
2
6. C
7. D
8. B
9. E
10. A

1. D
2. E
3. B
4. B
5. C
6. C
7. C
8. A
9. E
10. A
3
Chapter 2
Cost Behavior and Cost Classification
PART 1: CLASSROOM DISCUSSION
2-1 True or False
1. False 6. True
2. False 7. True
3. True 8. True
4. False 9. False
5. False 10. False
2-2 True or False
1. True 6. False
2. True 7. True
3. True 8. False
4. False 9. False
5. True 10. False
2-3 Straight Problem Exercises
1. DEIZL CORP.
Requirement (a):
Product Cost Period Costs
Cost Items
DM DL FOH AC SC
Sales salaries 65,000
Cost of clay used in
125,000
production
Wages paid to the
workers who paint the 80,000
figurines
Factory depreciation 40,000
Salary of the corporate
30,000
receptionist
Depreciation of office
building 50,000
Supervision in the
50,000
factory
Utilities cost (40%
16,000 24,000
attributable to factory)
Depreciation of
equipment and vehicle 37,500 12,500
(3/4 to factory)
Marketing cost 45,000
Incoming inspection cost 20,000
Outgoing inspection cost 10,000
Freight cost of materials
15,000
used
1
Freight cost to
20,000
customers
Packaging materials 12,000
Other administrative
30,000
costs
Abnormal production
losses 32,000
Insurance cost on
properties (60% for 24,000 16,000
factory)
Indirect labor on factory 35,000
Rent on sales building 65,000
Total 140,000 80,000 234,500 182,000 217,500

Total Product Costs (P140,000 + P80,000 + P234,500) = P454,500
Total Period Costs (P182,000 + P217,500) = P399,500
Requirement (b):
Direct materials used P140,000
Direct labor 80,000
Total prime cost P220,000
Direct labor P80,000
Factory overhead 234,500
Total conversion cost P314,500
Requirement (c):
Product costs expensed (P454,500 x 90/100) P409,050
Period costs expensed 399,500
Total amount expensed in the income statement P808,550
2. DIANA ROSE FAMOUS BREADS
Requirement (a):
Since the cost object is units of production, then direct materials and
direct labor are only classified as direct costs, the indirect product costs
are classified as factory overhead.
Yeast (DM) P120,000
Flour (DM) 50,000
Packaging materials – traceable to
each finished output (DM) 30,000
Finishing department hourly laborers (DL) 80,000
Baking department hourly laborers (DL) 40,000
Mixing department hourly laborers (DL) 35,000
Total direct costs P355,000
Requirement (b):
Since the cost object is mixing department, then anything directly
associated with the Mixing Department will be a direct cost.
2
Managerial salaries – mixing department P55,000
Mixing department hourly laborers 35,000
Maintenance supplies – (40% x P50,000) 20,000
Depreciation on mixing machines 70,000
3. PJ CORP.
Requirement (a):
Variable cost per unit: P390,240 ÷ 9,000 hours = P43.36 per hour
Total variable cost = 9,300 × P43.36 = P403,248
Requirement (b):
Average fixed cost per unit = Total fixed costs ÷ total units
Average fixed cost per unit = P368,280 ÷ 9,300 = P39.60
4. CZARINA CORP.
Requirement (a):
Cost A: Fixed (same total amount at each level of activity)
Cost B: Variable (constant per-hour figures)
Cost C: Semivariable (changing total and per-hour figures)
Requirement (b):
Cost A: P220,000 ÷ (200,000 hours x 90%) = P1.22
Cost B: (200,000 hours x 40%) x P5.40 = P432,000
Requirement (c):
High-low method for Cost C since it is a mixed cost:
Variable cost per hour: ((P665,000 – P340,000) ÷ [(200,000 x 90%) -
(200,000 x 40%)] = P3.25 per hour
Total fixed costs:
Highest Lowest
Total cost P665,000 P340,000
Total variable cost:
(P3.25 x 180,000 hours) 585,000
(P3.25 x 80,000 hours) 260,000
Total fixed cost P80,000 P80,000
Total costs:
Cost A P220,000
Cost B (P5.40 x 200,000 hours x 75%) 810,000
Cost C:
Variable portion (P3.25 x 200,000 hours x 75%) 487,500
Fixed portion 80,000
Total amount P1,597,500
3
Requirement (d):
Variable cost per hour: P5.40 + P3.25 = P8.65
Fixed cost: P220,000 + P80,000 = P300,000
Equation: Y = P300,000 + P8.65X
where Y = total cost and X = number of hours
5. DIN CORP.
Requirement (a):
Variable cost = Change in cost ÷ Change in activity
= (P2,200 – P1,480) ÷ (3,000 – 1,800) = P0.60
NOTE: The highest and lowest total costs are ignored.
Requirement (b):
Fixed cost element = Total cost − Variable cost element
= P2,200 − (P0.60 × 3,000) = P400
Thus, the cost formula is Y = P400 + P0.60x
Requirement (c):
The cost equation is inappropriate since the activity level is outside
relevant range of 100 machine hours to 3,500 machine hours.
Requirement (d):
The requirement is asking for the next “QUARTER’s” total electrical cost.
To address such, we need to convert the cost equation into:
Y = P1,200 + P0.60x
Y = P1,200 + (P0.60 x 8,000 machine hours)
Y = P1,200 + P4,800
Y = P6,000
6. RIA CORP.
The modified cost formula is Y = P36,000 + P4.30x, where x = direct
labor hours worked.
The number of direct labor hours for the upcoming quarter is 27,000
units x 10/60 equals 4,500 hours.
Thus the total cost is computed as:
Y = P36,000 + (P4.30 x 4,500 direct labor hours)
Y = P36,000 + P19,350
Y = P55,350
7. JOVAN MANUFACTURING CORP.
Variable component of cost of goods sold:
Variable cost = Change in costs/Change in units
Variable cost = (P1,420,000 – P1,100,000)/(140,000 − 100,000)
Variable cost = P8.00
4
Fixed component of cost of goods sold:
High volume: P1,420,000 – (P8.00 × 140,000) = P300,000
Low volume: P1,100,000 – (P8.00 × 100,000) = P300,000
Variable component of selling and administrative expenses:
Variable cost = (P380,000 – P300,000)/(140,000 − 100,000)
Variable cost = P2.00
Fixed component of selling and administrative expenses:
High volume: P380,000 – (P2.00 × 140,000) = P100,000
Low volume: P300,000 – (P2.00 × 100,000) = P100,000
Total variable cost per unit:
P8.00 + P2.00 = P10.00
Total fixed cost:
P300,000 + P100,000 = P400,000
8. DOREN FANCY HOTELS
Days’ Occupancy:
70% -- 4,000 x 30 days x 0.7 84,000
45% -- 4,000 x 30 days x 0.45 54,000
Total cost at 70% capacity (P15 x 84,000) 1,260,000
Total cost at 45% capacity 1,080,000
Variable cost per occupied room per day:
= (P1,260,000 – P1,080,000) ÷ (84,000 – 54,000)
= P180,000 ÷ 30,000
= P6.00 per occupied room per day
Total fixed costs:
High volume: P1,260,000 - (P6.00 x 84,000) = P756,000
Low volume: P1,080,000 - (P6.00 x 54,000) = P756,000
The cost equation is Y = P756,000 + P6.00x
The total cost at 60% capacity next month is:
Y = P756,000 + (P6.00 x 4,000 rooms x 60% x 30 days)
Y = P756,00 + P432,000
Y = P1,188,000
9. JESSA CORP.
Requirement (a):
slope = P24.08 per unit; intercept = P5,709 per month
Requirement (b):
Y = (P5,709 x 12) + (P24.08 x 1,440 units)
Y = P103,183.20
5
10. LENN INC.
Before applying the high-low method, it is a must first to determine the
cost driver to be used since there are two cost drivers under
consideration. The proper cost driver to be used is the one with the
highest coefficient of determination (r2), thus machine hours.
Variable maintenance cost = Change in cost ÷ Change in activity

= (P125,000 – P90,000) ÷ (30,000 − 20,000) = P3.50
Fixed cost element of maintenance cost = Total cost − Variable cost

element
= P125,000 − (P3.50 × 30,000) = P20,000

1. A
2. B
3. D
4. B
5. C
6. A
7. A
8. D
9. D
10. A
11. D
12. B
13. C
14. B
15. C
16. C
17. C
18. C
19. A
20. C
21. C
22. A
23. C
24. D
25. D
26. D
27. C
28. D
29. E
30. A
6
PART 2: SELF-TEST (QUIZZERS)
1. D
2. B
3. C
4. D
5. B
6. D
7. A
8. A
9. C
10. C
11. D
12. E
13. C
14. D
15. D
16. C
17. E
18. C
19. D
20. B
21. B
22. D
23. C
24. A
25. A
26. D
27. B
28. D
29. D
30. C
2-6 Multiple Choice (Problems)

1. D
Selling expenses P16,000
Administrative expenses 21,000
Total P37,000
2. B
TREES DEPARTMENT sales commissions– NARRA STORE P 4,000
TREES DEPARTMENT cost of sales– NARRA STORE 37,000
TREES DEPARTMENT manager’s salary– NARRA STORE 4,000
3. A
Corporate headquarters building lease P 77,000
7
Corporate legal office salaries 59,000
Central warehouse lease cost 16,000
Total costs which are NOT direct P152,000
4. D
P452,500 ÷ 25,000 calls = P18.10 per call; P18.10 per call × 23,900 calls
= P432,590
5. D P452,500 ÷ 25,000 calls = P18.10 per call (average)
6. B (P8.50 x 2,500) = P21,250
7. D
Fixed Cost Portion Variable Cost Portion Total Cost
Electricity (variable cost = P20 × 1,500) P100 P30,000 P30,100
Maintenance (variable cost = P30 × 1,500) P200 P45,000 45,200
Supervisors’ salaries 10,000 10,000
Indirect materials (variable cost = P16 × 1,500) 24,000 24,000
Total cost P109,300
8. D
Product Cost Period Cost
Plastic materials used P500,000
Salary of assembly and finishing department workers 160,000
Paint and minor materials used 40,000
Salary of the security guard of the factory 80,000
Salary of the driver of the delivery truck 45,000
Corporate asset’s depreciation (60% used in the factory) 72,000 48,000
Rental expense (70% for administrative building) 45,000 105,000
Utilities expense (30% for factory) 27,000 63,000
Total P924,000 P261,000
Amount expensed:
Product cost (P924,000 x 75%) P693,000
Period cost 261,000
Total P954,000
9. B
Depreciation expensed in the income statement:
Factory (72,000 x 75%) P54,000
Administrative building 48,000
Total P102,000
Total depreciation incurred ÷ 120,000
Percentage 85%
10. B
Direct materials P40,000
Direct labor (P40,000 ÷ 4) 10,000
Overhead (P10,000 ÷ 50% x 50%) 10,000
Total manufacturing costs P60,000
11. D
Y = (P60,000 / 3) + (P2.50 x 20,000 x 0.30)
Y = P35,000
12. D
= (P54,767 − P53,843) ÷ (3,669 − 3,572) = P9.53
Fixed cost element = Total cost − Variable cost element
= P54,767 − (P9.53 × 3,669) = P19,801
8
Therefore, the cost formula for total maintenance cost is P19,801 per
period plus P9.53 per machine-hour, or Y = P19,801 + P9.53X
13. C
Variable cost per hour: Change in cost ÷ Change in activity
= (P8,500 – P6,750) ÷ (2,000 DLHrs. – 1,500 DLHrs.) = P3.50 per hour
Total fixed costs: [P8,500 – (2,000 DLHrs. x 3.50)] = P1,500
Cost equation: Y = P1,500 + P3.50x
14. B
Variable cost per unit= Change in cost ÷ Change in activity
= [(40,000 units. x P13.75) – (20,000 units. x P20.00)] ÷ (40,000 units. –
20,000 units.)] = P7.50
Total fixed costs: [(40,000 units x P13.75) – (40,000 units x P7.50)] =
P250,000
15. A
Variable manufacturing overhead cost = Change in cost ÷ Change in
activity
= (P122,700 − P102,000) ÷ (3,000 – 2,000) = P20.70
Total variable manufacturing cost per unit
= Direct materials + Direct labor + Manufacturing overhead
= P36.10 + P48.00 + P20.70 = P104.80
16. C
P21,000 = a + b (20,000 units)
P34,00 = a + 4,000 + b (50,000 units)
First thing to do is to eliminate “a”, in order to compute “b”:

P21,000 = a + b (20,000 units)
P30,000 = a + b (50,000 units)
P9,000 = 30,000 b
b= 0.30 per unit
To compute “a”, substitute it to the first equation

P21,000 = a + (0.30 x 20,000)
a = P15,000 (25,000 units and below)
a = P19,000 (more than 25,000 units)
Since the planned production exceeds 25,000 units, the cost formula to
be used is Y = P19,000 + 0.30x
Y = P19,000 + (P0.30 x 35,000 units)
Y = P29,500
Cost per unit: (P29,500 / 35,000 units) = P0.84 per unit
17. D
P21,000 = a + b (20,000 units)
P34,00 = a + 4,000 + b (50,000 units)
9
First thing to do is to eliminate “a”, in order to compute “b”:
P21,000 = a + b (20,000 units)
P30,000 = a + b (50,000 units)
P9,000 = 30,000 b
b= 0.30 per unit
To compute “a”, substitute it to the first equation

P21,000 = a + (0.30 x 20,000)
a = P15,000 (25,000 units and below)
a = P19,000 (more than 25,000 units)
Since the planned production exceeds 25,000 units, the cost formula to
be used is Y = P19,000 + 0.30x
Y = P19,000 + (P0.30 x 30,000 units)
Y = P28,000
18. E
Monthly fixed fee: [P360 – (7,000 copies x P0.04) = P80;
Quarter fixed fee: P80 x 3 = P240
19. B
The solution using Microsoft Excel functions is: slope = P7.37 per
machine-hour; intercept = P65,670 per month
20. A
Before applying the high-low method, it is a must first to determine the
cost driver to be used since there are two cost drivers under
consideration. The proper cost driver to be used is the one with the
highest coefficient of determination (r2), thus direct labor hours.

= (P150,000 – P120,000) ÷ (30,000 − 15,000) = P2.00
Fixed cost element of maintenance cost = Total cost − Variable cost
element
= P150,000 − (P2.00 × 30,000) = P90,000 per month
Quarterly fixed production costs: P90,000 x 3 = P270,000
21. A
The solution using Microsoft Excel functions is: slope = P1.56 per
machine-hour
The solution using Microsoft Excel functions is: intercept = P561 per
month
22. E
The activity level is outside relevant range.
23. B
Y = (P561 x 3) + (P1.56 x 610 hours)
Y = P2,634.60
10
24. C
Slope represents the variable rate. Intercept represents total fixed cost
25. A
b = [(105,000 x 11.4) – ( 70,000 x 13.4)] ÷ (105,000 – 70,000)
b = P7.40
a = 938,00 – (70,000 x 7.40)
a = 420,000
x = 420 + (80,000 x 7.40)
y = 1,012,000
11
Chapter 3
Cost-Volume-Profit (CVP) Analysis
3-1 True or False
1. True
2. True
3. False
4. True
5. False
6. True
7. True
8. True
9. False
10. True
3-2 True or False
1. True
2. True
3. True
4. False
5. False
6. True
7. True
8. False
9. False
10. False
1. ANGELA CORP.
(a) Activity Base - 10 (f) Profit Area - 5
(b) Breakeven Point - 3 (g) Loss Area - 4
(c) Peso Amount - 9 (h) Variable Cost Area - 6
(d) Total Fixed Cost Line - 8 (i) Revenue Line - 1
(e) Total Cost Line - 2 (j) Fixed Cost Area - 7
2. ANJO BEERS INC.
CASE 1
(a) Total CM: (P300,000 + P250,000) = P550,000
(b) UCM: (P550,000 ÷ 22,000 units) = P25 per unit
(c) VC per unit: (P40 – P25) = P15 per unit
(d) CMR: (P25 ÷ P40) = 62.50%
1
CASE 2
(a) Income: (P250,000 x 10%) = P25,000
(b) Total CM: (P25,000 + P75,000) = P100,000
(c) Sales in units or Quantity sold: [(P250,000 – P100,000) ÷ P12]
= 12,500 units
(d) UCM: (P100,000 ÷ 12,500 units) = P8 per unit
3. APRIL CORP.
(a) CM ratio: (P400,000 ÷ P1,200,000) = 33.33%
(b) Selling price: (P1,200,000 ÷ 20,000 units) = P60 per unit
Variable cost per unit: (P800,000 ÷ 20,000 units) = P40 per
unit
UCM: (P60 – P40) = P20
BEP (units): (P300,000 ÷ P20 per unit) = 15,000 units
(c) Change in OI = Change in CM
Increase in operating income: (100 units x P20 UCM) =
P2,000
(d) Sales in units to attain target profit: [(P125,000 + P300,000) ÷
P20 per unit] = 21,250 units
(e) Break-even sales: (P60 per unit × 15,000 units) = P900,000
Margin of safety in dollars = Sales − Break-even sales
= (P1,200,000 − P900,000) = P300,000
(f) DOL: (P400,000 ÷ P100,000) = 4.0
(g) % Change in income: (4 x 25%) = 100%
4. ROSE CORP.
(a) BEP (units): (P45,000 ÷ P6) = 7,500 units
(b) Required units: [(P90,000 + 45,000) ÷ P6] = 22,500 units
(c) Before-tax income: (P84,000 ÷ 70%) = P120,000
Required units: [(P120,000 + 45,000) ÷ P6] = 27,500 units
(d) Required sales: [P45,000 ÷ (40% - 30%)] = P450,000
(e) Before-tax income percentage: (15.40% ÷ 70%) = 22%
Required sales: [P45,000 ÷ (40% - 22%)] = P250,000
Required units: (P250,000 ÷ P15) = 16,667 units
(f) Before-tax income: (P56,000 ÷ 70%) = P80,000
Required selling price: [(P80,000 + P45,000 + P180,000) ÷
20,000 units] = P15.25 per unit
(g) Before-tax income percentage: (26.60% ÷ 70%) = 38%
Required sales: [(P45,000 + P180,000) ÷ (100% - 38%)] =
P362,903
Required selling price: (P362,903 ÷ 20,000 units) = P18.15
per unit
2
5. JOLINA CORP.
(a) CMR = Change in OI ÷ Change in Sales
CMR: (P240,000 ÷ P500,000) = 48%
(b) Total Fixed Cost: [(P1,500,000 x 48%) – P140,000] =
P580,000.
Total Fixed Cost: [(P1,000,000 x 48%) + P140,000] =
P580,000.
(c) BES: (P580,000 ÷ 48%) = P1,208,333
6. CHRISTIAN COMPANY
(a) Income @ P720,000 sales: (P720,000 x 10%) = P72,000
Income @ P1,200,000 sales: (P1,200,000 x 20%) = P240,000
CMR: (P168,000 ÷ P480,000) = 35%
(b) Total Fixed Cost: [(P720,000 x 35%) – P72,000] = P180,000.
Total Fixed Cost: [(P1,200,000 x 35%) – P240,000] =
P180,000.
(c) BES: (P180,000 ÷ 35%) = P514,286
7. KIANA CORP,
(a) Increase by P750 (P55,750 – P55,000)
Selling Price (P15.00 – 0.50) P14.50
Variable Cost per Unit (9.00)
UCM P5.50
Sales Volume (15,000 units x 110%) 16,500 units
Total CM P90,750
Total Fixed Cost (35,000)
Net operating income P55,750
(b) Decrease by P33,750 (P55,000 – P21,250)
Selling Price (P15.00 – 1.00) P14.00
UCM P5.00
Total CM P71,250
Total Fixed Cost (P35,000 + P15,000) (50,000)
(c) Increase by P19,000 (P74,000 – P55,000)
Selling Price P15.00
UCM P6.00
Total CM P144,000
Total Fixed Cost (P35,000 x 2) (70,000)
3
(d) Increase by P10,800 (P65,800 – P55,000)
Selling Price (P15.00 + 1.50) P16.50
Variable Cost per Unit (P9.00 + P1.00) (10.00)
UCM P6.50
Total CM P85,800
Total Fixed Cost (P35,000 – P15,000) (20,000)
8. GAB CORPORATION
(a) BEP (units): 60,000 units (20,000 units + 40,000 units)
@20,000 units & Below @more than 20,000 units
SP P18 P18
VC (8) (12)
UCM P10 P6
Total Fixed Costs P200,000 P240,000
BEP 20,000 units 40,000 units
(b) Required units: 65,000 units (20,000 units + 45,000 units)
@20,000 units & Below @more than 20,000 units
SP P18 P18
VC (8) (12)
UCM P10 P6
Total Fixed Costs P200,000 P240,000
Operating Income - 30,000
Required Units 20,000 units 45,000 units
9. ZHAIRA CORP.
(a) BEP (Alternative 1): (P225,000 ÷ P60) = 3,750 units
BEP (Alternative 2): (P250,000 ÷ P80) = 3,125 units
Alternative 1 Alternative 2
SP P200 P200
VC (140) (120)
UCM P60 P80
Total FC P225,000 P250,000
(b) Point of Indifference [(P250,000 – P225,000) ÷ (P80 – P60)] =
1,250 units
10. GLYDEL COMPANY
(a) Sales Mix: (3/5 or 60% for Manual); (2/5 or 40% for
Automatic)
WAUCM: (P300 x 60%) + (P500 x 40%) = P380 per unit
Total BEP (units): (P1,900,000 ÷ P380) = 5,000 units
BEP (Manual): (5,000 units x 60%) = 3,000 units
BEP (Automatic): (5,000 units x 40%) = 2,000 units
4
(b) WASP: (P420 x 60%) + (P650 x 40%) = P512
WACMR: (P380 ÷ P512) = 74.22%
TOTAL BES: (P1,900,000 ÷ 74.22%) = P2,560,000
BES (Manual): (3,000 units x P420) = P1,260,000
BES (Automatic): (2,000 units x P650) = P1,300,000
(c) Before-tax income: (P532,000 ÷ 70%) = P760,000
Total required units: [(P1,900,000 + P760,000) ÷ P380] =
7,000 units
Required units (Manual): (7,000 units x 60%) = 4,200 units
Required units (Automatic): (7,000 units x 40%) = 2,800
units
(d) Required sales: [P1,900,000 ÷ (74.22% - 10%)] = P2,958,637
Required units: (P2,958,637 ÷ P512) = 5,779 units
Required units (Manual): (5,779 units x 60%) = 3,467 units
Required units (Automatic): (5,779 units x 40%) = 2,312
units
(e) Composite UCM: (P300 x 3) + (P500 x 2) = P1,900
Composite BEP: (P1,900,000 ÷ P1,900) = 1,000 units
1. B
2. C
3. D
4. C
5. B
6. D
7. B
8. A
9. A
10. D
11. C
12. D
13. D
14. A
15. E
16. B
17. D
18. C
19. C
20. D
21. C
22. D
23. A
24. D
25. D
5
26. A
27. B
28. B
29. D
30. B
PART 2: SELF-TEST QUESTIONS (QUIZZERS)

1. C
2. D
3. C
4. D
5. C
6. C
7. A
8. B
9. C
10. C
11. A
12. B
13. D
14. D
15. D
16. A
17. D
18. A
19. A
20. C
21. C
22. B
23. B
24. B
25. D

1. B
Total CM: (P36,000 x 1.50) = P54,000
UCM: (P54,000 ÷ 2,250 units) = P24 per unit
BEP in units: (P36,000 ÷ P24 per unit) = 1,500 units
2. A
Breakeven Sales: (P400,000 units x P1.50) = P600,000
Total Fixed Cost: (P600,000 x 20%) = P120,000
3. C
DOL: (P450,000 ÷ P150,000) = 3.00
6
4. B
CMR: (P450,000 ÷ P600,000) = 75%
Breakeven Sales: (P300,000 ÷ 75%) = P400,000
5. C
MOS %: (P150,000 ÷ P450,000) = 33.33%
MOS in total: (P600,000 x 33.33%) = P200,000
6. C
Since the cost and price structure didn’t change despite the change
in sales level, this means (1) the change in sales is due to change in
sales volume and (2) the degree of operating leverage is constant.
Therefore, the percentage change and amount of change in

operating income is computed as:
% change in OI: (25% x 3.00) = 75%
Change in operating income: (P150,000 x 75%) = P112,500
New operating income at new sales level: (P150,000 + P112,500) =
P262,500
7. C
CMR: (P5 ÷ P20) = 25%
Old total FC:
Total CM (P88,000 x 25%) P22,000
Total FC (SQUEEZE) (18,800)
Operating income (P2,400 ÷ 75%) 3,200
New CMR: [(P20 – P14) / P20] = 30%

New BEP: [(P18,800 + P6,000) ÷ 30%] = P82,660
8. C
Total CM (WORKBACK) P375,000
Total FC (250,000)
Unit SP P6.00
Unit VC (SQUEEZE) (3.00)
UCM (P275,000 ÷ 125,000 units) P3.00
9. B
Total CM (P90,000 – P50,000) P40,000
Total FC (30,000)
DOL: (P40,000 ÷ P10,000) = 4.00

Since the cost and price structure is the same, DOL is constant.
Thus the percentage change in income can be computed as:
% change in income: (20% x 4) = 80%
7
10. C
To simply the requirement of the question, it is asking for the
increase in sales to cover the increase in fixed cost without
changing its target net income. So we need to compute first the
original target net income of the entity with a sales of P1,000,000
Total CM (P1,000,000 x 30%) P300,000

Total FC (200,000)
Using the new information:

Total CM (SQUEEZE) P330,000
Total FC (230,000)
New sales: (P330,000 ÷ 30%) = P1,100,000

Increase in sales: (P1,100,000 – P1,000,000) = P100,000
11. D
If we will use the fixed cost of P800,000, the number of units to be
sold to achieve a profit of P500,000 is outside the range of 500,000
units. Please see the following computation:
[(P500,000 + P800,000) ÷ (P12 x 20%)] = 541,667 units
Thus, we will use the fixed cost of P1,200,000 to compute the

number of units to be sold to achieve a profit of P500,000:
[(P500,000 + P1,200,000) ÷ (P12 x 20%)] = 708,333 units
Required sales: (708,333 units x P12) = P8,500,000
12. C
CMR = Change in operating income ÷ Change in sales
@ P360,000 sales @ P600,000 sales
Operating income P36,000 P120,000
CMR: (P120,000 – P36,000) ÷ (P600,000 – P360,000)] = 35%
Breakeven Sales: (P90,300 ÷ 35%) = P258,000
13. C
Total CM: (P150,000 + P250,000) = P400,000
MOS %: (P150,000 ÷ P400,000) = 37.5%
MOS in total: [(P312,500 ÷ 62.5%) x 37.5%] = P187,500
14. B
UCM: (P480,000 ÷ 120,000 units) = P4.00 per unit
Unit VC: (P40 – P4) = P36 per unit
15. C
Variable component of cost of goods sold:
Variable cost = (P502,800 − P419,000)/(6,000 − 5,000)
Variable cost = P83.80 per unit
8
Variable component of selling and administrative expenses:
Variable cost = (P202,200 − P186,500)/(6,000 − 5,000)
Variable cost = P15.70 per unit
Total CM; [(P127.20 – P83.80 – P15.70) x 5,300 units] = P146,810

16. B
CMR: [(P200 – P58) / P200] = 71%
ANNUAL Breakeven Sales: [(P407,540 x 12 months) / 71%] =
P6,888,000
17. A
6,000 units 6,140 units
Sales
(6,000 units, 6,140 units × P130) P780,000 P798,200
Variable expenses
(P780,000, P798,200 × 60%) 468,000 478,920
Contribution margin 312,000 319,280
Fixed expenses 263,000 268,000
Net operating income P 49,000 P 51,280
Increase in net operating income: P51,280 - P49,000 = P2,280

18. A
Sales
(6,000 units × P140, 6,150 units × P140) P840,000 P861,000
Variable expenses
(6,000 units × P42, 6,150 units × P42) 252,000 258,300
Increase in net operating income: P98,700 − P98,000 = P700

19. A
Sales
(6,000 units × P140, 6,300 units × P140) P840,000 P882,000
Variable expenses
(6,000 units × P42, 6,300 units × P47) 252,000 296,100
Decrease in net operating income: P98,000 − P95,900 = P2,100
9
20. A
Sales
(6,000 units × P140, 6,100 units × P140) P840,000 P854,000
Variable expenses
(6,000 units × P42, 6,100 units × P53) 252,000 323,300
Increase in net operating income: P98,700 − P98,000 = P700

21. B
Overall CM ratio = Total contribution margin/Total sales
= P36,000/P50,000 = 0.72
Break-even point in total sales dollars = Fixed expenses/Overall CM
ratio
= P32,710/0.72 = P45,431 (rounded)
22. A
WAUCM: (P9 x 2/5) + (P12 x 3/5) = P10.80
WASP: (P12 x 2/5)) + (P28 x 3/5) = P21.60
WACMR: (P10.80 ÷ P21.60) = 50%
Total sales to earn 10% OI: [P600,000 ÷ (50% - 10%)] =

P1,500,000
Total units sales to earn 10% OI: (P1,500,000 ÷ P21.60) = 69,444
units
Breakdown of total units:

DELUXE: (69,444 units x 2/5) = 27,778 units
SUPREME: (69,444 units x 3/5) = 41,667 units
23. A
WAUCM: (P9 x 2/5) + (P12 x 3/5) = P10.80
WASP: (P12 x 2/5)) + (P28 x 3/5) = P21.60
WACMR: (P10.80 ÷ P21.60) = 50%
Total Breakeven Sales: (P600,000 ÷ 50%) = P1,200,000
Total breakeven units: (P1,200,000 ÷ P21.60) = 55,556 units
Breakdown of breakeven units and breakeven sales:
DELUXE: (55,556 units x 2/5) = 22,222 units x P12 = P266,667
SUPREME: (55,556 units x 3/5) = 33,333 units x P28 = P933,333
24. D
Ratio: 3:1:6 for a total of 10
Thus the sales mix is 3/10 for Red; 1/10 for Blue; 6/10 for White
WAUCM: (P1.70 x 30%) + (P2.90 x 10%) + (P2.00 x 60%) = P2.00
10
BEP: (P720,000 ÷ P2.00) = 360,000 units
Breakdown of BEP in units:
RED: (360,000 units x 30%) = 108,000 units
BLUE: (360,000 units x 10%) = 36,000 units
WHITE: (360,000 units x 60%) = 216,000 units
25. B
CMR
Product L (P6,000 / P30,000) 20%
Product E1 (P20,000 / P60,000) 33.33%
Product E2 (P5,000 / P10,000) 50%
Sales mix (pesos)

Product L (P30,000 / P100,000) 30%
Product E1 (P60,000 / P100,000) 60%
Product E2 (P10,000 / P100,000) 10%
WACMR: (20% x 30%) + (33.33% x 60%) + (50% x 10%) = 31%

Total breakeven sales: (P18,600 ÷ 31%) = P60,000
Breakdown of BES:
Product L: (P60,000 x 30%) = P18,000
Product E1: (P60,000 x 60%) = P36,000
Product E2: (P60,000 x 10%) = P6,000
26. D
Total CM (WORKBACK) P55,000
Total FC (P10,000 + P30,000) (40,000)
Operating income (20,000 units x P0.75) 15,000
Total variable cost per unit:

Manufacturing: [(P50,000 + P40,000 + P20,000) ÷ 20,000 units] =
P5.50 per unit
Non-manufacturing 20% of sales
Selling price per unit: [(P55,000 ÷ 20,000) + P5.50] ÷ 80% =

P10.32 per unit
27. A
DOL is 4
Margin of Safety is ¼; BEP is 3/4
BES: (3/4 x P500,000) = P375,000
28. B
BES: [(35,000 units - 21,000 units) x P50 selling price = P700,000
CMR = ∆ OI ÷ ∆ Sales (210,000 ÷ 1,050,000) = 20%
11
29. B
Before tax ROS (15% / 60%) = 25% (NOTE: Tax rate is 40%)
Total VC P540,000
Total FC 150,000
Total cost P690,000
Total sales: (P690,000 ÷ 75%) = P920,000

Selling price: (P920,000 ÷ 45,000 units) = P20.44 per unit
30. B
WAUCM based on composite rate: (P2.50 x 2) + (P1.20 x 5) =
P11.00
BEP in composite units: (P49,500 ÷ P11) = 4,500 units
12
Chapter 4
Standard Costing & Variance Analysis
4-1 True or False
1. True
2. True
3. False
4. False
5. False
6. True
7. False
8. False
9. False
10. False
4-2 True or False
1. True
2. True
3. True
4. False
5. True
6. False
7. False
8. True
9. False
10. True
1. TADEO MANUFACTURING CORP.
Direct Material Standards: (a)
Standard price [(P150 x 98%) + 13.40 + P1.60] P162
Standard quantity per unit (3.724 ÷ 98% ÷ 95%) x4
Standard direct material cost per unit P648
Direct Labor Standards: (b)
Standard rate (P127 + P23) P150
Standard hour per unit [(3.02 + 0.30 + 0.10) ÷ 95%] + x 3.60
Standard direct labor cost per unit P540
1
2. BONGALOS INC.
(a)
(b)
3. (WORKING BACK EXERCISES)

CASE A
CASE B
2
CASE C
CASE D
4. GRECIA COMPANY
(a) Material Variances
AQ x AP Total
Wheat 18,000 kilos x P0.22 P3,960
Chickpeas 14,000 kilos x P0.11 1,540
Corn 10,000 kilos x P0.04 400
Total (AQ x AP) 42,000 kilos P5,900
AQ x SP Total
Wheat 18,000 kilos x P0.20 P3,600
Chickpeas 14,000 kilos x P0.10 1,400
Corn 10,000 kilos x P0.05 500
Total (AQ x AP) 42,000 kilos P5,500
*Weighted Ave. Standard Price: (P8.00 ÷ 60) = P0.1333

** (P8.00 ÷ 1 x 600) = P4,800
3
(b) Labor Variances
AH x SR Total
Skilled Labor 1,600 hours x P70 P112,000
Unskilled Labor 1,500 hours x P50 75,000
Total (AQ x AP) 3,100 hours P187,000
*Weighted Ave. Standard Rate: (P310.00 ÷ 5) = P62

** (P310.00 ÷ 1 x 600) = P186,000
5. DUMALE COMPANY
TWO-WAY ANALYSIS
Actual Overhead 700,000
BASH (Budget allowed for standard hours): 100,000 UF
Budgeted Fixed Overhead 200,000
Variable Overhead (80,000 x P5) 400,000 600,000
Standard Overhead (80,000 x P7) 560,000 40,000 UF
Actual production 40,000 units

Std. hours per unit x2
Standard hours 80,000 machine hours
Standard VOH cost per unit P10

Std. hours per unit ÷2
Standard VOH rate P5 per machine hour
Standard FOH rate
(P200,000 ÷ 100,000 hours) 2 per machine hours
Total standard overhead rate P7 per machine hour
NOTE: Normal capacity of 50,000 units shall be converted into
machine hours in computing standard rates.
Actual Overhead 700,000

BAAH (Budget allowed for actual hours) 80,000 UF
BASH (Budget allowed for standard hours):
20,000 UF
Standard Overhead (80,000 x P7) 560,000 40,000 UF
4
Fixed Overhead:
Actual Fixed Overhead 240,000
Budgeted Fixed Overhead 40,000 UF
(100,000 hours x P2) 200,000
40,000 UF
Applied Fixed Overhead (80,000 hours x P2) 160,000
6. JC CORP.
(a) 1,000 x 0.40 x P4 = P1,600
(b) P2,100 - P1,600 = P500 unfavorable
(c) P2,100 - (376 x P4) = P596 unfavorable
(d) P1,504 - P1,600 = P96 favorable
(e) P12,400 - P1,600 = P10,800
(f) P10,800 - P500 favorable = P10,300
7. CARANTO COMPANY
5
Fixed Overhead: (d)
Actual Fixed Overhead (P340,000 – P230,000) 110,000
Budgeted Fixed Overhead 10,000 F
(30,000 units x 2 hours per unit x P2) 120,000
6,400 UF
Applied Fixed Overhead (56,800 hours x P2) 113,600
Direct labor efficiency variance P8,000 F

Variable overhead efficiency variance 3,200 F
Total conversion cost efficiency variance (e) P11,200 F
8. (WORKING BACK EXERCISES)

1.
(a) $2.00 per pound, $8.00 per unit of product.
Actual material cost (from 3) $62,000
Plus favorable material price variance (from 6) 2,000
Standard material cost for the
32,000 pounds purchased $64,000
Divided by the number of pounds
purchased (from 3) 32,000
Equals standard cost per pound $ 2.00
Times the number of pounds in each
finished unit (from 1a) 4
Equals standard material cost per pound $ 8.00
(b) 0.50 hours
Standard labor cost per unit (from 1b) $ 6.00
Divided by standard cost per hour (from 1b) $12.00
Equals standard number of hours per finished unit 0.50
(c) $4.00 per unit
Standard rate per hour, given $8.00
Times number of hours per unit
(from 1b, computed above) 0.50
Equals standard variable overhead per unit $4.00
4. $62,400
Number of pounds of material used, given 31,200
Times standard material cost per pounds
(from 1a above) $2
Equals material used at standard cost $62,400
5. 4,100 hours
Total actual labor cost $47,200
Plus favorable labor rate variance (from 8) 2,000
Budgeted labor cost for actual hours $49,200
Divided by standard labor rate per hour $12
Equals actual labor hours 4,100
6
7. $1,600 favorable
Material used, at standard rates
(computed in 4 above) $62,400
Standard use, 8,000 x 4 pounds per unit
x $2 per pound 64,000
Favorable material use variance $ 1,600
9. $1,200 unfavorable (100 hours x $12)

Standard number of hours required to produce 8,000 units
8,000 units x 0.50 hours per unit (computed in 1b) 4,000
Actual hours worked (computed in 5) 4,100
Hours over standard 100
11. $800 unfavorable

Hours over standard (from 9) 100
Times standard variable overhead cost per hour
(from 1c) $8
Equals favorable variance overhead efficiency variance $800
12. $31,300
Standard variable overhead at standard rates
8,000 units x $4 per unit (computed in 1c) $32,000
Plus unfavorable efficiency variance (from 11) 800
Budget for actual hours, = 4,100 x $8 32,800
Less favorable spending variance (from 10) 1,500
Actual overhead $31,300
A shorter solution is to go immediately to budgeted variable
overhead for 4,100 hours, $32,800 (4,100 x $8) and subtract the
$1,500 favorable budget variance.
7
1. A
2. A
3. A
4. D
5. D
6. C
7. A
8. B
9. A
10. C
11. D
12. D
13. C
14. C
15. C
16. B
17. D
18. A
19. D
20. C
21. B
22. C
23. C
24. C
25. C
1. D
2. B
3. B
4. E
5. C
6. B
7. B
8. C
9. C
10. A
11. C
12. D
13. B
14. D
15. B
16. B
17. D
8
18. B
19. D
20. B
21. A
22. D
23. D
24. B
25. B
1. A
Material Price Variance: [P23,000 – (11,800 lbs. x P2)] = P600F
2. D
Material Quantity Variance: [(11,800 lbs. x P2) – (980 units x 12 x
P2)] = P80U
3. D
Fixed overhead spending variance (50,000 - 60,000) P10,000 F
Variable overhead spending variance
(65,000) – (18,000 x 1.50) (38,000 UF)
Variable overhead efficiency variance
(18,000 x 1.50) – (10,000 x 4 x 1.50) 33,000 F
Budget variance P5,000 F
4. C
Fixed overhead spending variance (50,000 - 60,000) P10,000 F
Variable overhead spending variance
(65,000) – (18,000 x 1.50) (38,000 UF)
Total spending variance P28,000 UF
5. C
The materials purchase price variance equals the quantity
purchased multiplied by the difference between the actual price
and the standard price, or P135 unfavorable [(P.75 - P.72) x 4,500
lbs.]. The variance is unfavorable when the actual price exceeds the
standard price.
6. D
Actual quantity purchased x standard price
(10,000 lbs. x P3) P30,000
Material price variance 300 UF
Cost of materials purchased P30,300
7. A
Given that the company produced 12,000 units with a total
standard cost for materials of P60,000, the standard cost must be
P5.00 (P60,000 ÷ 12,000 units) per unit of finished product.
Because each unit of finished product requires two units of raw
materials, the standard unit cost for raw materials must be P2.50.
8. A
P5.10 x [7,800 - (2,000 x 4)] = P1,020 F
9
9. D
[(P22,145 + P220 + P3,735) ÷ P1.50 ÷ 15] = 1,160 units
10. C
Standard hours per unit (500 hours ÷ 250 units) 2 hours per unit
Standard hours allowed (300 units x 2 hours per unit) 600 hours
11. A
The hourly wage per worker is P15.00 (P600 ÷ 40 hours). The
direct labor cost per hour is P18.00 [P15.00 x (1.0 + benefits equal
to 20% of wages)]. Consequently, the standard direct labor cost per
unit is P54 (P18 x 3 hours).
12. B
Variance in hours (2,000/5) 400 hours ACTUAL HOURS (SH +
VARIANCE) [(4K units x 3) + 400] = 12,400 hrs.
13. B
Standard rate [(P4,500 ÷ (8,000 hrs. – 7,500 hrs.)] = P9.00 per hour
DL rate variance [(P67,000 – (8,000 x 9.00)] = P5,000 favorable
14. B
[(48,363) - (28,200 gallons x 1.5875)] = 3,596 UF
15. A
[(28,200 gallons x 1.5875) – (43,656)] = 1,111 UF
16. C
[(32,500) – (3,250 hours x 10.33)] = 1,083 F
17. A
[(3,250 hours x 10.33) – (31,000)] = 2,583 UF
18. B
MATERIAL X [(2.50-2.00) X 25,000]; MATERIAL Y [(0.90-1.00) X
20,000] = 10,500 UF
19. B
(AQ x SP) – (AQ x WASP) [(70,000 – (45,000 X 1.60)] = 2,000 F
20. A
(AQ X WASP) - (TOTAL STD. COST / ACTUAL YIELD X STD. YIELD)
(72,000 – 64,000) = 8,000 UF
21. D
STANDARD PRICE PER QTY = [((240x95%)+(100/50)]/20/4 =
2.875; STANDARD QTY. PER UNIT = (9.2/92%x(6/5) = 12;
STANDARD COST PER UNIT (2.875 X 12) = P34.5
22. C
(90,000* lbs. / 2) = 45,000 units *(30,000/3**) + 80,000 **(6 per
unit/ 2 lbs.)
23. A
[P314,000 – (80,000 pieces x P4)] = P6,000 F
24. B
Labor efficiency variance [5,900 – (3,900 units x 1.50)] x P6] 300 U
VOH efficiency variance [18,900 – (3,900 units x 4.8)] x P2.50] 450 U
Total 750 U
10
25. D
Volume variance: [19,000 – (3,900 units x 4.8)] x P3] = P840 U
26. A
(2 ÷ 80%) x P3 = P7.50
27. C
Actual OH (P22,000 + P4,000) P26,000
BASH: [P20,000 + (19,000 units x 0.10 x P2)] 23,800
Controllable Variance P2,200 UF
28. B
Actual OH (P22,000 + P4,000) P26,000
BAAH: [P20,000 + (2,100 hours x P2)] 24,200
Controllable Variance P1,800 UF
29. A
BAAH: [P20,000 + (2,100 hours x P2)] 24,200
BASH: [P20,000 + (19,000 units x 0.10 x P2)] 23,800
Spending variance P400 UF
30. D
Standard FOH rate [P22,000 ÷ (20,000 units x 0.10)] P11 per hour
Budgeted FOH P22,000
Applied FOH (19,000 units x 0.10 x P11) 20,900
Volume variance P1,100 UF
31. C
P544 = 6,800 × (Actual price − P0.85)
Actual price = P0.93
32. A
Labor rate variance = Actual hours × (Actual rate − Standard rate)
−P8,400 = 40,000 × (Actual rate − P6.30)
Actual rate = P6.09
Direct labor payroll = Actual rate × Actual hours
= P6.09 × 40,000 = P243,600
33. A
Variable overhead spending variance = (Actual hours × Actual rate)
– (Actual hours × Standard rate)
= P649,400 − (34,000 × P18)
= P37,400 unfavorable
34. D
Variable overhead spending variance = (Actual hours × Actual rate)
– (Actual hours × Standard rate)
-P600 = P25,500 − (5,800 × Standard rate)
Standard rate = (P25,500 + P600) ÷ 5,800 = P4.50
Variable overhead efficiency variance = Standard rate × (Actual
hours − Standard hours)
P2,475 = P4.50 × (5,800 − Standard hours)
Standard hours = 5,250
11
35. D
The variable delivery expense should total P166,400 given sales of
52,000 units (P160,000 ÷ 50,000 units = P3.20 per unit). Thus, the
variance is P3,400 (P166,400 - P163,000). It is favorable since the
actual cost is less than that budgeted.
12
Chapter 5
Product Costing
5-1 True or False
1. False
2. True
3. True
4. False
5. False
6. False
7. True
8. True
9. False
10. False
5-2 True or False
1. True
2. False
3. False
4. True
5. True
6. False
7. True
8. False
9. False
10. False
1. SHIELA CORP.
Absorption Variable
Product Period Product Period
(a)  
(b)  
(c)  
(d)  
(e)  
(f)  
(g)  
(h)  
(i)  
(j)  
1
2. RUTH CORP.
(a)
Variable Absorption
Direct materials (per unit) P15 P15
Direct labor (P80,000 ÷ 10,000 units) 8 8
Variable manufacturing overhead
(P140,000 ÷ 10,000 units) 14 14
Fixed manufacturing overhead
(P170,000 ÷ 10,000 units) - 17
Total unit product cost P37 P54
(b)
Cost of goods sold – variable costing (8,750 units x P37) P323,750
Cost of goods sold – absorption costing
(8,750 units x P54) P472,500
(c)
Cost of ending inventory – variable costing
(1,250 units x P37) P46,250
Cost of ending inventory – variable costing
(1,250 units x P54) P67,500
(d)
Variable Absorption
Sales (8,750 units x P150) P1,312,500 P1,312,500
Cost of goods sold (323,750) (472,500)
Gross profit P988,750 P840,000
Period Costs:
Selling and administrative costs (215,000) (215,000)
Fixed manufacturing overhead (170,000) -
Net income P603,750 P625,000
The difference in net income of P21,250 is attributable to the fixed

manufacturing cost that forms part as cost of ending inventory
which is (1,250 units x P17 = P21,250).
(e)
Unit product cost – throughput costing P15 per unit
Ending inventory in units x 1,250 units
Cost of ending inventory P18,750
Sales (8,750 units x P150) P1,312,500

Cost of goods sold (8,750 units x P15) (131,250)
Throughput margin 1,181,250
Period costs:
2
Selling and administrative costs (215,000)
Direct labor (80,000)
Variable manufacturing overhead (140,000)
Fixed manufacturing overhead (170,000)
Net income P576,250
3. YARUN COMPANY
(a) & (c)
VARIABLE COSTING
Sales (70,000 x 3.00) P210,000
VC (SQUEEZE) 126,000
CM 84,000
FC (63,500 + 10,500) 73,500
OI 10,500
NOTE: VARIABLE COST PER UNIT (P126,000 ÷ 70,000) = 1.80

(Variable PC = 1.45); (Variable S&A = 0.35)
ABSORPTION COSTING
Sales (70,000 x 3.00) P210,000
COGS [70,000 x (1.45 + 0.84*)] 160,300
Gross profit 49,700
OPEX [(70,000 x 0.35) + 10,500)] 35,000
OI 14,700
*(P63,000 ÷ 75,000 units) = P0.84 per unit
(b)
Ending inventory in units (75,000 units – 70,000 units) 5,000 units
Unit product cost – absorption costing x 2.29 per unit
Cost of ending inventory – absorption costing P11,450
4. MELJO CORP.
Variable manufacturing costs per unit
[(P500,000 + P600,000 + P300,000) ÷ 3,500 units] P400 per unit
Standard fixed manufacturing costs per unit
(P400,000 ÷ 4,000 units) P100 per unit
Cost of goods sold – variable costing

(2,500 units x P400) P1,000,000
Standard cost of goods sold – absorption costing

(2,500 units x P500) P1,250,000
Volume variance - unfavorable
[(4,000 units – 3,500 units) x P100] 50,000
Cost of goods sold P1,300,000
3
Absorption Costing
Sales (2,500 units x 750) P1,875,000
Cost of sales (2,500 units x 500) (1,250,000)
Gross Profit 625,000
Operating expense
Selling expense (200,000 + 50,000) (250,000)
Administrative expense (90,000 + 250,000) (340,000)
Net income before variance 35,000
Volume variance (50,000)
Net loss after variance (15,000)
Variable Costing
Sales (2,500 units x 750) P1,875,000
Cost of sales (2,500 units x 400) (1,000,000)
Gross Profit 875,000
Period Costs:
Fixed manufacturing costs (400,000)
Selling expense (200,000 + 50,000) (250,000)
Administrative expense (90,000 + 250,000) (340,000)
Net loss (P115,000)
5. JADE COMPANY
(a)
Variable costing - 2021
Sales (14,000 units x P45) P630,000
Cost of sales:
Beginning inventory -
Production Costs (P25 x 17,000 units) 425,000
Ending inventory (P25 x 3,000 units) (75,000) (350,000)
Gross profit P280,000
Period Costs:
Fixed manufacturing cost 120,000
Variable selling (P630,000 x 10%) 63,000
Fixed selling 65,000 (248,000)
Net income 32,000
Absorption costing – 2021

Sales (14,000 units x P45) P630,000
Cost of sales:
Beginning inventory -
Production Costs
[(P25 x 17,000 units) + P120,000] 545,000
Period Costs:
4
Net income 56,000
Variable costing - 2022

Sales (16,000 units x P45) P720,000
Cost of sales:
Beginning inventory 75,000
Production Costs (P25 x 14,000 units) 350,000
Period Costs:
Fixed manufacturing cost 120,000
Net income 63,000
Absorption costing – 2022

Sales (16,000 units x P45) P720,000
Cost of sales:
Beginning inventory 99,000
Production Costs
[(P25 x 14,000 units) + P120,000] 470,000
Period Costs:
Net income 47,000
(b)
2021 2022
Net income – absorption costing P56,000 P47,000
Fixed manufacturing costs in:
Beginning inventory (3,000 units x P8) 24,000
Ending inventory (3,000 units x P8) 24,000
(1,000 units x P8) . (8,000)
Net income – variable costing P32,000 P63,000
6. CLYDE CORP.
(a)
Standard variable manufacturing cost per unit
(P960,000 ÷ 20,000 units) P48
Actual production x 22,000 units
Standard cost P1,056,000
5
Actual variable manufacturing cost (1,060,000)
Total variable manufacturing cost variances P4,000 – unfavorable
Actual fixed manufacturing cost P720,000

Budgeted fixed manufacturing cost 640,000
Spending variance P80,000 unfavorable
Budgeted fixed manufacturing cost P640,000

Standard fixed manufacturing cost (P32 x 22,000 units) 704,000
Volume variance P64,000 favorable
Variable costing
Sales (21,000 units x P150) P3,150,000
Standard cost of goods sold (21,000 units x P48) (1,008,000)
Standard gross profit 2,142,000
Period costs:
Fixed manufacturing cost (P720,000)
Non-manufacturing costs (P840,000 + P480,000) (1,320,000)
Net income - standard P102,000
Variable manufacturing cost variances - unfavorable (4,000)
Net income P98,000
Absorption costing
Sales (21,000 units x P150) P3,150,000
Standard cost of goods sold (21,000 units x P80) (1,680,000)
Standard gross profit 1,470,000
Period costs:
Non-manufacturing costs (P840,000 + P480,000) (1,320,000)
Net income - standard P150,000
Fixed manufacturing cost variances - unfavorable (16,000)
Variable manufacturing cost variances - unfavorable (4,000)
Net income P130,000
7. DANE MARK CORP.

OPERATING INCOME (ABSORPTION COSTING) P70,000
VOLUME VARIANCE (UF) (2,000 UNITS X 4) (8,000)
NET INCOME (ABSORPTION COSTING) 62,000
STD. FC ON E.I (2,500 units x 4) (10,000)
NET INCOME (VARIABLE COSTING) 52,000
6
1. D
2. C
3. B
4. A
5. E
6. A
7. C
8. C
9. D
10. A
11. D
12. C
13. B
14. D
15. D
16. C
17. B
18. B
19. C
20. B
1. D
2. D
3. D
4. B
5. B
6. D
7. A
8. D
9. A
10. D
11. B
12. A
13. A
14. A
15. C
16. C
17. A
18. D
19. B
20. A
7
1. C
Total period costs incurred P70,000
Total variable period costs incurred (30,000)
Total fixed period costs incurred* P40,000
Variable manufacturing cost (P50,000 – P30,000) P20,000

Fixed manufacturing cost (P100,000 – P40,000*) 60,000
Total manufacturing costs incurred P80,000
Units produced ÷ 20,000 units
Unit product costs under absorption costing P4 per unit
Units sold x 12,000 units
Cost of goods sold under absorption costing P48,000
2. D
Sales (12,000 units x P12) P144,000
Cost of goods sold (12,000 units x P1 per unit) (12,000)
Gross profit – variable costing P132,000
Period cost (P70,000 + P60,000) (130,000)
Net income – variable costing P2,000
Note: The total period cost includes P60,000 fixed manufacturing
costs.
3. C
CVP analysis is best suited for variable costing. Hence, an increase
in contribution margin will result to an increase in net income since
total fixed costs is constant. The increase in CM is computed as
increase in units sales x UCM.
Variable manufacturing cost per unit

(P20,000 ÷ 20,000 units) P1.00
Variable period cost per unit (P30,000 ÷ 12,000 units) 2.50
Total variable cost per unit P3.50
Increase in total contribution margin

[1 unit x (P12 – P3.50)] P8.50
4. A
Since there is an increase in inventory levels during the year, this
means that production is greater than sales. Hence, absorption
costing net income is higher than variable costing net income. The
difference in net income is computed as: (8,000 units x P10 per unit
= P88,000).
5. B
Direct labor 240,000
Variable factory overhead 280,000
Total product costs under variable costing P700,000
8
Unit product cost – variable costing P35 per unit
Units in ending inventory 1,600 units
Cost of ending inventory – variable costing P56,000
6. D
Variable factory overhead 280,000
Fixed factory overhead 100,000
Total product costs under variable costing P800,000
Unit product cost – variable costing P40 per unit
Sales [(20,000 units – 1,600 units) x P80] P1,472,000

OPEX (180,000)
Net income – absorption costing P556,000
7. B
Absorption Variable
Variable production cost P43 P43
Fixed production cost
(P145,000 ÷ 5,000 units) 29 -
Unit product cost P72 P43
Units in ending inventory 200 units 200 units
Cost of ending inventory P14,400 P8,600
Difference in ending inventory (P14,400 – P8,600) P5,800
8. B
Cost of goods sold – absorption costing
(4,800 units x P72) P345,600
9. B
Absorption costing net income P30,000
Fixed production cost in ending inventory
[(P100,000 ÷ 8,000 units) x 3,000 units] (37,500)
Variable costing net income (P7,500)
10. D
Under absorption costing:
Sales (5,000 units x P40) P200,000
Cost of goods sold (5,000 units x P21.50) (107,500)
Gross profit 92,500
OPEX (SQUEEZE) (62,500)
Net income P30,000
11. B
Ending inventory in units 3,000 units
Unit product cost – variable costing
9
(P3 + P5 + P1) P9 per unit
12. A
Direct materials used P 512,500
Variable manufacturing overhead 400,000
Total P1,487,500
Unit produced ÷ 170,000 units
Unit product cost – variable costing P8.75 per unit
Ending inventory in units (170,000 – 150,000) 20,000 units
13. D
Selling and administrative expenses:
Variable (1,500 units x P9) P13,500
Fixed 28,500
Fixed factory overhead 7,200
Total period costs – variable costing P49,200
14. A
Difference in net income P4,400
Fixed overhead per unit ÷ 1 per unit
Difference in inventory levels 4,400 units
Since absorption costing net income is lower than variable costing

net income, production is lower than sales. If sales is 8,000 units,
then production is 3,600 units (8,000 units – 4,400 units).
15. A
Per unit costs – absorption costing:
Variable manufacturing (P7,000,000 x 60%) ÷ 140,000 units P30
Fixed manufacturing (P11,200,000 x 50%) ÷ 160,000 units 35
Total P65
Units sold 100,000 units
Cost of goods sold – absorption costing P6,500,000
16. C
Based on the given choices, the incorrect statement is letter C. The
maximum amount of fixed production costs that this firm could
deduct using absorption costs in 2020 is P116,000.
17. B
Variable production costs P 50 per unit
Standard fixed production overhead per unit
(P200,000 ÷ 20,000 units) 10 per unit
Total per unit cost under absorption costing P60 per unit
Standard gross profit [(P125 – P60) x 16,000 units] P1,040,000

Fixed selling and administrative overhead (80,000)
Standard net income P960,000
10
Volume variance – unfavorable
[(20,000 units – 19,000 units) x P10] (10,000)
Net income – absorption costing P950,000
18. C
Difference in net income P12,000
Fixed overhead per unit ÷ 5 per unit
Difference in inventory levels 2,400 units
Since variable costing net income is higher than absorption costing,

the beginning inventory is higher than ending inventory. Hence, the
beginning inventory is: (30,000 units + 2,400 units = 32,400
units).
19. B
Sales (14,000 units x P150) P2,100,000
Gross margin 1,540,000
Period costs:
Selling and administrative expenses (320,000)
Fixed manufacturing costs (20,000 units x P50) (1,000,000)
Net income – variable costing P220,000
20. C
Sales (14,000 units x P150) P2,100,000
Throughput margin 1,764,000
Period costs:
Selling and administrative expenses (320,000)
Other variable manufacturing costs
(P18,000 units x P16) (288,000)
Fixed manufacturing costs (20,000 units x P50) (1,000,000)
Net income – throughput costing P156,000
11
Chapter 6
Comprehensive Budgeting
6-1 True or False
1. False
2. False
3. True
4. False
5. True
6. False
7. True
8. True
9. True
10. False
6-2 True or False
1. False
2. False
3. False
4. True
5. False
6. True
7. True
8. False
9. False
10. True
1. KARMINA CORP.
(a)
Economic Condition Budgeted Unit Sales
Strong (150,000 units x 30%) 45,000 units
Fair (100,000 units x 60%) 60,000 units
Weak (60,000units x 10%) 6,000 units
Total 111,000 units
(b)
Budgeted sales in units 111,000
Unit selling price x P250
Budgeted gross sales P27,750,000
Allowance for doubtful accounts
(P27,750,000 x 2%) (555,000)
Budgeted net sales P27,195,000
1
2. MISAKI COMPANY
July August September
Beginning Inventory **19,080 18,360 19,620
Purchases (SQUEEZE) 62,880 62,460 64,680
Cost of Sales (60% of Budgeted Sales) (63,600) (61,200) (65,400)
Ending Inventory (30% of M1 COGS) 18,360 19,620 *18,900
*(P105,000 x 60% x 30%)
**(P63,600 x 30%)
Total purchases for the third quarter

(P62,880 + P62,460 + P64,680) 190,020
3. CHARLES CORP.
(a) Production Budget
July August September October
Beginning Inventory **48,000 84,000 60,000 72,000
Production (SQUEEZE) 276,000 396,000 312,000 336,000
Sales (240,000) (420,000) (300,000) (360,000)
Ending Inventory (20% M1) 84,000 60,000 72,000 *48,000
*(240,000 x 20%)
**(240,000 x 20%)
(b) Purchases Budget

Beginning Inventory **248,400 356,400 280,800
Purchases (SQUEEZE) 936,000 1,112,400 957,600
Usage (Production x 3) (828,000) (1,188,000) (936,000)
Ending Inventory (30% M1) 356,400 280,800 *302,400
*[(336,000 x 3) x 30%]
**(828,000 x 30%)
Total cost of purchases:

(no. of small chips x P5 per chip) P4,680,000 P5,562,000 P4,788,000
(c) Direct Labor Budget

Direct labor hours
(Production x 0.50 per unit) 138,000 198,000 156,000
Direct labor cost
(DL Hrs. x P7 per hr.) P966,000 P1,386,000 P1,092,000
(c) Overhead Budget

Applied overhead
(Direct labor hours x P3 per hour) P414,000 P594,000 P468,000
2
4. LEE CORPORATION
(1) Merchandise Purchases Budget
November December
Cost of goods sold P312,000 P288,000
From November COGS (60%) P187,200

From December COGS (40%); (60%) 115,200 P172,800
From January COGS (40% x P340k x 80%) 108,800
Total purchases P302,400 P281,600
(2) Cash Receipts Budget

November December
Sales P390,000 P360,000
Accounts receivable P 77,000

November sales (85%); (10%) 331,500 P 39,000
December sales (85%) . 306,000
Total cash collections P408,500 P345,000
(3) Cash Disbursements Budget

November December
Accounts payable P320,000
Payments for purchases P302,400
Payments for operating expenses
(5% of sales less P2,000 depreciation) 17,500 16,000
Payments for salaries 10,000 10,000
Total cash disbursements P347,500 P328,400
5. ANNE CORP.
(a) Cash Receipts Budget
Credit sales P400,000 P500,000 P580,000
20% month of sale (M0) P80,000 P100,000 P116,000
70% 1 month after sale (M1) 280,000 350,000
8% 2 months after sale (M2) 32,000
Cash sales 220,000 250,000 280,000
Total cash receipts P778,000
Alternative Solution:
July credit sales (P 400,000 x 8%) P 32,000
August credit sales (P 500,000 x 70%) 350,000
September credit sales (P 580,000 x 20%) 116,000
September cash sales 280,000
September collections P 778,000
3
(b) Cash Disbursements Budget - September
August purchases P 105,000
September purchases (P 250,000 x 25%) 62,500
September payments to suppliers P 167,500
Payments for operating expenses 80,000
Payments for dividends 40,000
Total cash disbursements P287,500
(c) Cash Budget - September

Total cash receipts (a) P778,000
Total cash disbursements (b) 287,500
Net increase in cash 490,500
Beginning balance 80,000
Ending balance of cash P570,500
Minimum cash balance (25,000)
Amount available for investment P545,500
6. ARIEL COMPANY
(a) Budgeted Income Statement – June 2023
Sales P800,000
Cost of goods sold:
Materials used P200,000
Wages 140,000
Depreciation 24,000
Insurance 4,000
Maintenance 28,000
Utilities 16,000 (412,000)
Operating expenses:
Selling expenses P60,000
Office salaries 80,000 (140,000)
Net income P248,000
(b) Budgeted Balance Sheet – As of June 30, 2023

Assets: Liabilities and Owners’ Equity:
Cash P 56,000 Accounts payable P 40,000
Accounts receivable 100,000 Bonds payable 160,000
Inventories 180,000 Capital stock 400,000
Equipment, net 240,000 Retained earnings* 376,000
Buildings, net 400,000
Total P976,000 Total P976,000
*P976,000 – (P40,000 + P160,000 + P400,000) = P376,000
4
7. ESTEBAN CORP.
Receivable at December 31, 2022 P 31,000
Collected on January sales (P50,000 x 20%) 10,000
Total cash receipts – January 2023 (1) P 41,000
February 2023 Sales P60,000

March 2023 Sales 70,000
Total P130,000
Cost rate 60%
Ending inventory – January 2023 (2) P78,000
January cost of sales, P50,000 x 60% P 30,000

Required ending inventory, requirement 2 78,000
Total requirements 108,000
Beginning inventory, given (59,000)
Purchases – January 2023 (3) P 49,000
Sales, given P 50,000

Cost of sales (60%) (30,000)
Gross profit 20,000
Other variable costs (20%) (10,000)
Contribution margin 10,000
Fixed costs, given (6,000)
Income before taxes 4,000
Taxes, at 25% (1,000)
Net income (4) P 3,000
Receipts from sales, requirement 1 P 41,000

Disbursements:
December purchases
(accounts payable at 12/31) P 9,000
January purchases
(80% of requirement 3) 39,200
Variable cost for January
(20% of January sales) 10,000
January fixed costs, cash only 5,000
Taxes on December income
(liability at 12/31) 8,000 71,200
Net decrease in cash (30,200)
Balance, 12/31 (given in balance sheet) 33,000
Balance – January 31, 2023 (5) P 2,800
(6) (P60,000 x 80%) = P48,000

(7) [P102,000 (3 x P1,000)] = P99,000
5
March cost of sales (60% x P70,000) P 42,000
Inventory 3/31 [60% x (P66,000 + P65,000)] 78,600
Required 120,600
Inventory 2/28 [60% x (P70,000 + P66,000)] (81,600)
Purchases P 39,000
Accounts payable – March 31, 2023 (8)

(P39,000 x 20%) P7,800
Retained earnings, 12/31 P 28,000

Budgeted net income (requirement 4) 3,000
Total 31,000
Dividend (1,200)
Budgeted retained earnings, 1/31/2023 (9) P 29,800
Sales P 70,000
Cost of sales at 60% (42,000)
Gross profit 28,000
Other variable costs at 20% (14,000)
Fixed costs (6,000)
Income before taxes – March 2023 P 8,000
Income taxes at 25% (10) P 2,000
1. C
2. D
3. C
4. B
5. B
6. C
7. D
8. D
9. A
10. D
11. C
12. A
13. E
14. A
15. A
16. C
17. B
18. D
19. C
20. C
6
1. C
2. C
3. A
4. B
5. D
6. D
7. D
8. C
9. D
10. D
11. D
12. B
13. B
14. A
15. D
16. B
17. C
18. B
19. B
20. D
1. D
Units produced = Ending inventory + Units sold − Beginning
inventory
30,000 + 270,000 − 20,000 = 280,000
2. B
Materials purchased = Ending inventory + Materials to be used −
Beginning inventory = 40,000 + (280,000 × 7) − 50,000
40,000 + 1,960,000 − 50,000 = 1,950,000
3. A
Variable overhead rate P9.50
Fixed overhead rate (P130,980 ÷ 7,400 DL hours) 17.70
Total overhead rate P27.20
4. B
April sales (P300,000 × 60%) P180,000
March sales (P240,000 × 35%) 84,000
Total collections during April P264,000
5. D
December sales (P60,000 x 30%) P18,000
November sales (P80,000 x 60%) 48,000
October sales (P70,000 x 10%) 7,000
Total collections during December P73,000
7
6. C
May purchases (P160,000 x 5%) P8,000
June purchase (P250,000 x 70%) 175,000
Accounts payable as of June 30 P183,000
7. B
April manufacturing costs paid on April
[(P156,800 – P28,800) x ¾) P96,000
8. A
April manufacturing costs paid on May
[(P156,800 – P28,800) x ¼ P32,000
May manufacturing costs paid on May
[(P195,200 – P28,800) x ¾ 124,800
Total payments made on May P156,800
9. D
May manufacturing costs paid on May
[(P195,200 – P28,800) x ¼ P41,600
June manufacturing costs paid on June
[(P217,600 – P28,800) x ¾ 141,600
Total payments made on June P183,200
10. B
April sales (P150,000 × 60%) P 90,000
March sales (P130,000 × 30%) 39,000
February sales (P100,000 × 8%) 8,000
Expected cash collections P137,000
11. D
Expected cash disbursements for April for inventory purchases =
March inventory purchases × (100% − discount percentage for
paying by end of month)
= P90,000 × (100% − 3%) = P90,000 × 97% = P87,300
12. B
Expected cash disbursements during April for selling and
administrative expenses = Total selling and administrative
expenses − Depreciation
= P38,000 − P8,000 = P30,000
13. A
Expected cash balance = Beginning cash balance + Total cash
receipts − Expected cash disbursements for inventory purchases −
Expected cash disbursements for selling and administrative
expenses
P35,000 + P137,000 − P87,300 − P30,000 = P54,700
8
14. C
FINISHED GOODS:
APRIL MAY JUNE
Beg. Inventory 40,000 30,000 25,500
Production (SQUEEZE) 80,000 95,500 95,500
Sales (90,000) (100,000) (85,000)
End. Inv. (30% M1) 30,000 25,500 36,000
15. A
RAW MATERIALS
APRIL MAY JUNE
Beg. Inventory 45,000 57,300 57,300
Usage (Prod. X 3) (240,000) (286,500) (286,500)
End. Inv. (20% M1) 57,300 57,300 66,600
16. A
January February March
Beg. Inventory 45,000 37,800 50,400
Cost of sales (70%) (70,000) (63,000) (84,000)
End. Inv. (60% M1) 37,800 50,400 33,600
17. A
CASH BUDGET
Cash Receipts:
Credit Sales P100,000 P90,000 P120,000
40% M0 40,000 36,000 48,000
60% M1 40,000 60,000 54,000
Total cash receipts 80,000 96,000 102,000
Cash Disbursements
Credit Purchases 62,800 75,600 67,200
55% M0 34,540 41,580 36,960
45% M1 40,000 28,260 34,020
Cash payments on purch. 74,540 69,840 70,980
Total fixed costs (100% M0) 7,000 7,000 7,000
Total cash disbursements 81,540 76,840 77,980
Net movement in cash (1,540) 19,160 24,020
Beginning balance 35,000 33,460 52,620
Ending balance P33,460 P52,620 P76,640
Cash P76,640
Accounts receivable (P120,000 X 60%) 72,000
Inventory 33,600
Plant, net (P50,000 – (P3,000 X 3)) 41,000
Total assets P223,240
9
18. C
May Sales (25,000 x 15%) P3,750
June Sales (35,000 x 40%) 14,000
Accounts receivables as of June 30 P17,750
19. D
Cash Balance, January 1 P 88,000
Cash from accounts receivables
November and December Sales 35,000
January Sales (P120,000 x 50%) 60,000 P 95,000
Payment for purchases (P72,000 x 97%) (P 69,840)
Expenses (P24,000 – P5,000) (P 19,000)
Cash balance, January 31 P 94,160
20. D
Sale of December P 23,000
Sale of January (P120,000 x 30%) 36,000
Sale of February (110,000 x 50%) 55,000
Total P114,000
21. B
Payment for Purchases of January
(P78,000 x 97%) P75,660
Expenses (P24,200 - P5,000) 19,200
Total P94,860
22. B
Total cash collections P57,000
Deductions collections on September
sales (P80,000 x 0.6) 48,000
Collections applicable to July and August sales P 9,000
Credit sales in July: P9,000÷ 2 ÷ 15% P30,000

23. C
Budgeted production 190 units
DL hour per unit x 0.50
Total direct labor hours 95 DL hours
Direct labor cost per hour P15
Total direct labor cost P1,425
24. A
Beginning Inventory 56,000 42,000 50,400
Cost of Sales 140,000 105,000 126,000
End. Inv. (40% M1) 42,000 50,400 61,600
10
25. B

Credit Sales 200,000 150,000 180,000
40% M0 80,000 60,000 72,000
50% M1 - 100,000 75,000
Collections 42,000 50,400 61,600
11
Chapter 7
Relevant Costing
7-1 True or False
1. False
2. False
3. True
4. True
5. False
6. True
7. False
8. True
9. True
10. False
7-2 True or False
1. True
2. False
3. False
4. False
5. True
6. True
7. True
8. False
9. True
10. True
1. RODRIGUEZ TRANSPORT CORP.
(1) Relevant Costs - items (d), (f) and (g)
(2) Opportunity Costs – item (g)
(3) Sunk Costs – (a)
(4) Factors to be considered in the decision A.K.A. Relevant items
– items (b) (d), (f) and (g)
2. CATHERINE CORP.
Relevant costs to make:
Variable manufacturing costs (10,000 units x P15) P150,000
Avoidable fixed overhead (10,000 units x P2) 20,000
Opportunity cost 30,000
Total relevant costs to make P170,000
Relevant costs to buy (purchase price)
(10,000 units x P19) 190,000
Savings if part is made (a) P20,000
1
(b) The indifference price is the purchase price that is equal to the
relevant costs to make. Hence, it is computed as follows:
Number of units to be purchased ÷ 10,000 units
Indifference price P17 per unit
(c) The indifference point in units is computed as: [(Differential
fixed OH + opportunity costs) ÷ (Purchase price – unit variable
manufacturing costs)]
= [(P20,000 + P30,000) ÷ (P19 – P15)]
= 12,500 units
(d)
Indifference price P17
Target savings per unit (3)
Net purchase price P14
3. OBISPO CORP.
(a) Taroy Guillermo DHVSU
Variable manufacturing costs (4,000 units x P10) P40,000
Material handling costs (4,000 units x P0.40) 1,600
Avoidable fixed overhead (4,000 units x P3) 12,000
Depreciation expense – new equipment
(P100,000 ÷ 5 years) 20,000
Relevant costs to buy:
Purchase price (4,000 units x P25) P100,000
Freight cost (4,000 units x P5) 20,000
Material handling costs (4,000 units x P2.50) 10,000
Total relevant costs to buy P130,000
Savings if part is bought (P133,600 – P130,000) P3,600
(b)
Indifference point = [(Avoidable fixed costs + Opportunity Costs) ÷
(Variable costs to buy – Variable costs to make)]
Indifference point: [(P12,000 + P20,000 + P60,000) ÷ (P32.50 –
P10.40)] = 4,163 units
4. MABALACAD CORP.
(a)
Variable manufacturing costs per unit of special order: (P980,000 x
75% ÷ 25,000 units) = P29.40
Variable non-manufacturing costs per unit of special order:
[(P170,000 x 70% ÷ 25,000 units) + P2.84] = P7.60
2
Incremental sales (4,000 units x P40) P160,000
Incremental variable costs (4,000 units x P37) (148,000)
Incremental profit P12,000
The company should accept the special order.
(b)
Regular selling price (P1,250,000 ÷ 25,000 units) P50.00
Variable cost per unit of regular sales (P37 – P2.84) (34.16)
Unit contribution margin P15.84
Incremental variable costs (4,000 units x P37) (148,000)
Opportunity costs (2,000 units x P15.84) (31,680)
Incremental profit P(19,680)
The company should reject the special order.
5. PADRE CORP.
(a)
Incremental sales (3,000 units x P40.60) P121,800
Incremental variable costs (3,000 units x P30.45) (91,350)
Incremental fixed costs (10,000)
(b)
Regular sales (40,000 units x P45.80) P1,832,000
Variable costs (40,000 units x P30.95) (1,238,000)
Contribution margin (40,000 units x P14.85) 594,000
Total fixed costs (40,000 units x P11.15) (446,000)
Regular net income P148,000
Incremental profit – special order 20,450
Total net income after accepting the order P168,450
(c)
Incremental profit -
(d)
Regular net income P148,000
Total net income after accepting the order P179,350
3
(e)
6. CLYDE COMPANY
Trust Hope
Sales P200,000 P150,000
Variable costs:
COGS (80% of total amount) (60,000) (80,000)
OPEX (30% of total amount) (30,000) (18,000)
Contribution margin P110,000 P52,000
Direct fixed costs (P15,000 + P15,000) (30,000)
Segment margin P22,000
Segment margin of HOPE P(22,000)
Decrease in sales volume of Trust (P110,000 x 10%) (11,000)
Overall decrease P(33,000)
7. ADRA COMPANY
(a)
Contribution margin - Product Y P300,000
Direct fixed costs
[P400,000 – (P600,000 x 100,000/250,000)] (160,000)
Decrease in overall profit
(segment margin of Product Y) P(140,000)
Total net income before dropping Product Y 250,000
Overall profit after dropping Product Y P110,000
(b)
Segment margin of Product Y P(140,000)
Decrease in sales of Product X (P1,050,000 x 10%) (105,000)
Decrease in overall profit P(245,000)
Total net income before dropping Product Y 250,000
Overall profit after dropping Product Y P5,000
4
(c)
Decrease in sales of Product X (P1,050,000 x 13.33%) 140,000
Decrease in overall profit -
(d)
Segment margin of Product Z
[(P750,000 x 40%) – P85,000] 215,000
Decrease in overall profit P75,000
8. MAGSIPOC MANUFACTURING CORP.

Product EY
Incremental sales [50,000 lbs. x (P12 – P6)] P300,000
Incremental costs: [(50,000 lbs. x P5) + P70,000] (320,000)
Incremental profit P (20,000)
Decision: Sell as is
Product BI
Decision: Process further
Product SI
Decision: Process further
9. LOIS COMPANY
Incremental sales [(400 units x P300) – P90,000] P30,000
Incremental costs: (Rework cost) (26,000)
10. HAMDAG CORP.

(a)
Operate Shutdown
Sales (20,000 units x 3 x 30% x P300) P5,400,000
Variable costs (18,000 units x P160) (2,880,000)
Contribution margin 2,520,000 -
Fixed costs (P1,600,000 x 3) (4,800,000)
(P1,000,000 x 3) + P148,000 . (3,148,000)
Operating loss (P2,280,000) (P3,168,000)
5
(b)
Shutdown point: [(P4,800,000 – P3,148,000) ÷ P140] = 11,800
units
11. YASMEEN CORP.
(a)
Napkin Tissue
Market demand 150,000 units 300,000 units
Machine hours per unit x 1.00 x 0.50
Total machine hours required 150,000 150,000
(b)
Napkin Tissue
UCM P1.00 P0.75
Machine hours per unit ÷ 1.00 ÷ 0.50
CM per scarce resource P1.00 P1.50
(2) (1)
Allocated machine hours 50,000 150,000
Units produced 50,000 units 300,000 units
UCM x P1.00 x P0.75
Total CM P50,000 P225,000
Combined CM = P275,000
(c)
Napkin Tissue
Allocated machine hours - 150,000
Units produced - 400,000 units
UCM x P1.00 x P0.75
Total CM - P300,000
12. BONAYON CORP.
(a)
A B C
Selling price per unit P143.00 P175.80 P166.00
Direct materials (49.80) (51.40) (53.20)
Direct labor (26.60) (34.20) (31.40)
Variable overhead (5.00) (5.60) (6.20)
Variable selling cost (4.60) (3.80) (7.60)
Unit contribution margin P57.00 P80.80 P67.60
Mixing minutes per unit ÷ 5.00 ÷ 3.40 ÷ 3.20
CM per scarce resource P11.40 P23.76 P21.13
(3) (1) (2)
Allocated mixing minutes 3,600 20,400 19,200
Units produced 720 6,000 6,000
(b) The company should be willing to pay up to the contribution
margin per minute for the marginal job, which is P11.40.
6
13. CAMACHO CORP.
(a)
B12
MAKE BUY
VMC P8.25 Price P11.25
Net benefit per scarce resource (P3.00 / 2.50) = P1.20
B18
MAKE BUY
Net benefit per scarce resource (P3.00 / 3) = P1.00

(b)
B12 B18
Machine hours 20,000 21,000
Units produced 8,000 7,000
Units purchased - 4,000
(c)
B12
MAKE BUY
Net benefit per scarce resource (P3.00 / 2.50) = P1.20
B18
MAKE BUY
Net benefit per scarce resource (P4.50 / 3) = P1.50

B12 B18
Units purchased 4,800 -
14. PABELONIA COMPANY
(a)
Incremental costs:
Variable costs (40,000 units x P10,85) (434,000)
7
(b) The relevant cost only is P0.60, the variable selling cost per
unit.
(c)
Avoidable fixed costs:
[(120,000 units x P2.50 x 40%)
+ (120,000 units x P1.75 x 20%)] P162,000
Unit contribution margin ÷ 7.00
Shutdown point 23,143 units
(d)
Variable manufacturing costs
(120,000 units x P8.40) P1,008,000
Avoidable fixed overhead
(120,000 units x P2.50 x 75%) 225,000
Avoidable variable selling costs
(120,000 units x P0.60 x 1/3) 24,000
Total relevant costs to make P1,357,000
Relevant costs to buy (purchase price)
(120,000 units x P10) 1,200,000
Savings if part is bought P157,000
1. C
2. D
3. B
4. A
5. C
6. B
7. A
8. D
9. C
10. C
11. B
12. D
13. A
14. C
15. D
16. B
17. D
18. C
19. D
20. B
8
1. D
2. D
3. D
4. D
5. C
6. B
7. A
8. C
9. A
10. B
11. D
12. D
13. D
14. D
15. C
16. B
17. D
18. B
19. D
20. B
1. C
Relevant cost to make:
Variable manufacturing cost (12,000 units x P57) P684,000
Avoidable fixed manufacturing cost
(P32 x 25% x 12,000 units) 96,000
Total P780,000
Relevant cost to buy:
Savings from buying the part P60,000
2. C
(P5 x 40% x 10,000 units) 20,000
Total P200,000
9
3. D
(P6 x 2/3 x 10,000 units) 40,000
Total P410,000
4. A
Variable manufacturing cost
(P140,000 + P60,000 + P40,000) P240,000
Avoidable fixed manufacturing cost (P80,000 x 30%) 24,000
Opportunity costs 60,000
Total P324,000
5. C
Total relevant cost to make P324,000
Number of parts ÷ 6,000 units
Minimum price P54 per part
6. D
Avoidable fixed overhead P24,000
Opportunity costs 60,000
Total P84,000
Difference in UCM (P48 - P40*) ÷8
Indifference point (units) 10,500 units
*(240,000 / 6,000 units) P40
7. B
Variable manufacturing cost
[(P2,000 + P15,000 + P10,000) x 10 units] P270,000
[(P30,000 x 2/3 x 60%) x 10 units] 120,000
Material handling costs (P400 x 10 units) 4,000
Total P394,000

Purchase price (10 units x P30,000) P300,000
Material handling costs (P30,000 x 20% x 10 units) 60,000
Total P360,000
10
8. A
Total relevant cost to buy P360,000
Target overall savings 60,000
Target relevant cost to make P420,000
Total relevant costs to make (394,000)
Target rent income P26,000
9. D
Incremental costs:
Variable cost (3,000 units x P60.90) (182,700)
10. C
Variable cost (3,000 units x P60.90) P182,700
Incremental fixed costs 5,000
Total incremental costs P187,700
Units of special order ÷ 3,000 units
Minimum selling price P62.57
11. A
Incremental costs:
12. D
Variable cost (8,000 units x P60.90) 487,200
Incremental fixed costs 5,000
Opportunity costs (3,000 units x P29.70) 89,100
Total incremental costs 581,300
Units of special order ÷ 8,000 units
13. A
Incremental sales (400 units x P1.70) P680
Incremental costs:
Variable cost (400 units x P1.50) (600)
Opportunity costs (160 units x P0.50) (80)
14. C
Incremental costs:
11
15. A
Incremental sales (100 units x P58) P5,800
Incremental costs:
Variable cost (100 units x P30) (3,000)
Opportunity costs (100 units x P25) (2,500)
Incremental profit P300
16. A
Variable cost (1,000 units x P415) (415,000)
17. B
Contribution margin – East (P490,000 – P171,500) P318,500
Direct fixed costs – East (P225,000 – P20,000) (205,000)
Segment margin - East P113,500
Segment margin – East P(113,500)
Decrease in sales volume of West
[(P375,000 – P112,500) x 20%] (52,500)
Decrease in overall profit P(166,000)
18. C
Decrease in sales volume of West
[(P375,000 – P112,500) x 43.24%] 113,500
Decrease in overall profit P-
19. D
Segment margin – North
[(P800,000 x 30%) – P80,000] 160,000
Increase in overall profit P46,500
Old net loss (P12,500 – P44,000) (31,500)
New net income P15,000
20. B
Old CM of Product E (700 units x P0.75) P525
New CM of Product E (1,100 units x P0.40) (440)
Decrease in CM of Product E P(85)
Increase in profit due to dropped CM of Product F
(P0.10 x 400 units) 40
Decrease in overall profit P(45)
21. C
Contribution margin (P830,000 – P390,000) P440,000
Direct fixed manufacturing expenses (111,000)
Direct fixed selling and administrative expenses (103,000)
Since the segment margin is positive, dropping the segment will
decrease overall profit.
12
22. C
Revenues P104,000
Cost of goods sold (64,000)
Direct fixed costs (P6,000 + P8,000) (14,000)
The segment is NOT a potential candidate for elimination since
the company will lose P26,000 of income if this segment is
eliminated.
23. B
Incremental Incremental Incremental
Sales Costs Profit
A P50,000 P60,000 P(10,000)
B 45,000 60,000 (15,000)
C 100,000 80,000 P20,000
Products A and B should not be processed further.
24. C
Incremental Sales – Product A
[5,000 pounds x (P25 – P20)] P25,000
Further processing costs (20,000)
Incremental profit – Product A P5,000
Incremental Sales – Product B

[10,000 pounds x (P16 – P15)] P10,000
Further processing costs (20,000)
Incremental profit – Product A P(10,000)
25. C
Incremental Sales – Product Y
[70,000 units x (P5.80 – P2.60)] P224,000
Further processing costs (70,000 units x P2.30) (161,000)
Incremental profit – Product A P63,000
26. B
Incremental Sales – Product Y
[70,000 units x P2.30] P161,000
Further processing costs (70,000 units x P2.30) (161,000)
Incremental profit – Product A -
Final sales value P5.80

Increase in selling price (2.30)
Selling at split-off point P3.50
27. C
The only relevant costs is the further processing costs of
P110,000.
13
28. A
Incremental Sales [P35,000 – P10,500] P24,500
Rework costs (30,000)
Incremental profit (loss) P(5,500)
29. D
(Difference in fixed costs + Shut down costs) / UCM
(P4,000 + 5,000) / 12 = 750 units
UCM to operate (P12 x 2,000 units x 2 x 20%) P9,600

Total fixed costs (P180,000 x 2/12) (30,000)
Operating loss P20,400
Unavoidable manufacturing fixed costs

(P120,000 x 2/12 x 50%) P10,000
Unavoidable non-manufacturing fixed costs
(P60,000 x 2/12 x 40%) 6,000
Shutdown costs 5,000
Total operating loss at shutdown P21,000
30. D
Shutdown point 750 units
Units to operate (24,000 units x 2/12 x 20%) (800 units)
Difference in units 50 units
UCM x P12
Net advantage of operating P600
UCM to operate (P12 x 2,000 units x 2 x 20%) P9,600

Total fixed costs (P180,000 x 2/12) (30,000)
Operating loss P20,400
Unavoidable manufacturing fixed costs

(P120,000 x 2/12 x 50%) P10,000
Unavoidable non-manufacturing fixed costs
(P60,000 x 2/12 x 40%) 6,000
Shutdown costs 5,000
Total operating loss at shutdown P21,000
31. A
Shutdown point 750 units
Units to operate (1,500 units x 2 x 20%) (600 units)
Difference in units 150 units
UCM x P12
Net advantage of shutting down P1,800
14
32. A
Regular Standard Deluxe
UCM 10 24 45
÷ SR per unit 1 3 5
CM per SR 10 8 9
(1) (3) (2)
Hours 9,000 - -
Units 9,000 - -
CM P90,000 P0 P0
33. B
Regular Standard Deluxe
UCM 10 24 45
÷ SR per unit 1 3 5
CM per SR 10 8 9
(1) (3) (2)
Hours 1,200 1,800 6,000
Units 1,200 600 1,200
CM P12,000 P14,400 P54,000
34. B
Product X Product Y
UCM P50 P64
÷ SR per unit 5 8
CM per SR P10 P8
Hours 20,000 5,000
Units 4,000 625
CM P200,000 P40,000
35. A
VD JT SM
Selling price per unit P344.85 P415.40 P119.32
Variable cost per unit 270.18 310.88 91.96
Contribution margin per unit P 74.67 P104.52 P 27.36
Time on the constraint (minutes) 5.70 6.70 1.90
Contribution margin per unit
of the constrained resource P13.10 P15.60 P14.40
Ranking 3 1 2
36. B
The company should be willing to pay up to P13.10 per minute to
obtain more of the constrained resource because this is the value
to the company of using this constrained resource to make more
of product VD. By assumption, the other products will already
have been produced up to demand.
15
37. D
Product X Product Y
Labor hours 12,000 15,000
Units 6,000 5,000
38. C
(P6.50 x 5/15) + (P7.50 x 10/15) = P7.17
39. A
Blender
MAKE BUY
VMC 16 Price 20
Net benefit per scarce resource (4.00 / 1) = P4.00

Electric Mixers
MAKE BUY
VMC 32 Price 38
Net benefit per scarce resource (6.00 / 2) = 3.00
Blender Electric Mixers

Units purchased - 13,000
40. C
Blender
MAKE BUY
VMC 16 Price 20
Net benefit per scarce resource (4.00 / 1) = P4.00

Electric Mixers
MAKE BUY
VMC 27 Price 38
Net benefit per scarce resource (11.00 / 2) = 5.50
Blender Electric Mixers

Machine hours - 50,000
Units produced - 25,000
Units purchased 20,000 3,000
16
Chapter 8
Product Pricing & Gross Profit Variance
Analysis
8-1 True or False
1. True
2. True
3. False
4. False
5. True
6. False
7. False
8. True
9. False
10. True
11. True
12. True
13. True
14. False
15. True
1. DOMINGO CORP.
Direct material P24.00
Direct labor 6.00
Variable overhead 3.00
Fixed overhead 1.50
Fixed selling and administrative expense 1.00
Variable selling and administrative expense 1.25
Full cost per unit P36.75
(a)
Direct labor 6.00
Prime cost P30.00
Mark-up percentage 25%
Mark-up 7.50
Full cost per unit 36.75
Selling price P44.25
1
(b)
Direct labor P6.00
Fixed overhead 1.50
Conversion costs P10.50
Mark-up 7.35
(c)
Direct labor 6.00
Fixed overhead 1.50
Full production cost P34.50
Mark-up 6.90
(d)
Direct labor 6.00
Variable production costs P33.00
Mark-up 7.26
(e)
Direct labor 6.00
Fixed overhead 1.50
Mark-up 7.35
2
(f)
Direct labor 6.00
Variable costs P34.25
Mark-up 8.22
(g)
Direct labor 6.00
Shipping costs 0.20
Fixed costs per unit (P10,000 ÷ 10,000 units) 1.00
Minimum price (Differential costs) P34.20
2. EMMA MANUFACTURING CORP.

Desired profit (P3,000,000 x 15%) P450,000
Expected units ÷ 30,000 units
Desired profit margin P15 per unit

Direct labor 7.50
Fixed overhead 2.00
(a)
Desired profit margin P15.00
Mark-up P17.50
Cost base (Absorption costs) ÷ 22.00
Mark-up ratio 79.55%
Absorption costs P22.00

Mark-up 17.50
3
(b)
Fixed overhead 2.00
Mark-up P18.50
Cost base (Variable costs) ÷ 21.00
Variable costs P21.00

Mark-up 18.50
(c)
Desired profit margin = mark-up P15.00
Cost base (full costs) ÷ 24.50
Full costs P24.50

Mark-up 15.00
(d)
Fixed overhead 2.00
Mark-up P19.50
Cost base (variable production costs) ÷ 20.00
Variable production costs P20.00

Mark-up 19.50
3. TRINIDAD CORP.
(a)
Technician salaries, wages and other fringe benefits
(P300,000 ÷ 10,000 hours) P30.00
Other repair costs , except for parts-related costs
(P100,000 ÷ 10,000 hours) 10.00
Ordering, handling and storing costs of parts 15.56
Standard time and material loading charge P55.56
4
Labor cost per hour, except part-related P40.00
Invoice percentage [(100/140) – 20%] ÷ 51.43%
Total invoice price P77.78
Mark-up ÷ 140%
Invoice cost P55.56
Labor invoice cost (40.00)
Material invoice cost P15.56
(b)
Standard time and materials cost (P55.56 x 4 hrs) P222.24
Parts 600.00
Amount to be billed P822.24
4. ESCALA CORP.
Total whole-life cost per unit
(P2,800,000 ÷ 80,000 units) P 35.00
Mark-up percentage x 120%
Unit selling price P 42.00
5. NGINA CORP.
2- way Analysis
Increase in sales:
Price factor [(P10.50 – P10.00) x 44,000 units P22,000 F
Volume factor [(44,000 units – 40,000 units) x P10] 40,000 F
Net sales variance P62,000 F
Increase in cost of goods sold:
Cost factor [(P6.00 – P5.70) x 44,000 units P13,200 F
Volume factor [(44,000 units – 40,000 units) x P6] 24,000 UF
Net COGS variance P10,800 UF
Net increase in gross profit (P62,000 – P10,800) P51,200
3- way Analysis
Increase in sales
Price factor [(P10.50 – P10.00) x 40,000 units P20,000 F
Volume factor [(44,000 units – 40,000 units) x P10] 40,000 F
Volume-price factor (4,000 units x P0.50) 2,000 F
Net sales variance P62,000 F
Increase in COGS
Cost factor [(P6.00 – P5.70) x 40,000 units P12,000 F
Volume factor [(44,000 units – 40,000 units) x P6] 24,000 UF
Volume-cost factor (4,000 units x P0.30) 1,200 F
Net COGS variance P10,800 F
Net increase in gross profit (P62,000 – P10,800) P51,200
5
6. ASUNCION CORP.
Sales variances:
Sales this year P 1,170,000
Sales this year at unit prices last year
(P1,170,000 ÷ 90%) (1,300,000)
Sales price variance P130,000 UF
Sales this year at unit prices last year

(P1,170,000 ÷ 90%) P1,300,000
Sales last year (1,000,000)
Sales quantity variance P300,000 F
COGS variances:
COGS this year at unit cost last year
(P700,000 x 130%) P910,000
COGS last year (700,000)
Cost quantity variance P210,000 UF
COGS this year P955,500

COGS this year at unit cost last year
(P700,000 x 130%) (910,000)
Cost price variance P45,500 UF
Gross profit variance P85,500 UF
NOTE: The quantity variance percentage is computed by dividing

the sales quantity variance of P300,000 F by the amount of sales
last year which is P1,000,000.
7. GARCIA CORP.
(a)
Sales this year P6,000,000
Sales this year at selling price last year
(P4,000,000 x 105%) (4,200,000)
Sales price variance P1,800,000 F
SPV rate: (P1,800,00 F ÷ P4,200,000) = 4.29% F
(b)
Sales this year at selling price last year
(P4,000,000 x 105%) P 4,200,000
Less: Sales last year (4,000,000)
Sales quantity variance P 200,000 F
6
(c)
Variable cost this year P4,000,000
Variable cost at unit variable cost last year
(P3 million x 105%) (3,150,000)
Variable cost price variance P 850,000 UF
(d)
Variable cost at unit variable cost last year
(P3 million x 105%) P 3,150,000
Variable cost last year (3,000,000)
Cost last year P150,000 UF
8. MEDINA CORP.
Sales
AQ x AP = P440,000 Sales Price Variance = P56,000
favorable
AQ x SP = P384,000
SQ x SP = P340,000 Sales Quantity Variance = P44,000
favorable
AQ x AP = P440,000
AQ x SP = P384,000
AQ x WASP = P374,000 Sales Mix Variance = P10,000 favorable
SQ x SP = P340,000 Sales Yield Variance = P34,000
favorable
COGS
AQ x AP = P346,000 Cost Price Variance = P28,000
unfavorable
AQ x SP = P318,000
SQ x SP = P282,500 Cost Quantity Variance = P35,500
unfavorable
AQ x AP = P346,000
AQ x SP = P318,000
AQ x WASP = P310,750 Cost Mix Variance = P7,250
unfavorable
SQ x SP = P282,500 Cost Yield Variance = P28,250
unfavorable
AQ = Quantity sold this year

AP = Price or cost price this year
SQ = Quantity sold last year
SP = Price or cost price last year
7
1. A
2. D
3. D
4. D
5. C
6. B
7. D
8. D
9. A
10. C
1. E
2. D
3. D
4. D
5. D
6. D
7. C
8. D
9. C
10. D
11. C
12. C
13. C
14. D
15. A
8
1. C
Direct materials P3.00
Direct labor 3.60
Variable indirect cost 2.40
Fixed indirect cost 1.50
Variable selling and administrative costs 4.50
Fixed selling and administrative costs 2.70
Direct labor P 3.60

Total conversion cost P7.50
Mark-up P 3.00
2. A
Direct materials P 3.00
Direct labor 3.60
Full production costs P10.50
Mark-up P 5.25
3. D
Direct labor 1.20
Variable production cost P3.00
Mark-up P1.35
4. B
Direct labor 1.20
Prime cost P2.20
Mark-up P1.32
9
5. A
Direct labor 3.60
Variable selling and administrative costs 4.50
Variable cost P13.50
Mark-up P4.73
6. D
Full cost P17.70
Mark-up P5.31
7. B
Total standard costs per unit P39.00
Budgeted fixed administrative and selling
expense per unit (P450,000 ÷ 300,000 units) 1.50
Target return per unit [(P1.6M x 30%) ÷ 300,000 units] 1.60
Expected selling price P42.10
8. C
Total standard costs per unit P39.00
Budgeted fixed administrative and selling
expense per unit (P450,000 ÷ 300,000 units) 1.50
Target return per unit [(P1.6M x 30%) ÷ 300,000 units] 1.60
Expected net selling price P42.10
Expected gross selling price (P42.10 ÷ 97%) P43.40
9. A
Variable cost per unit (P39.00 – P2.00) P37.00
Incremental fixed costs per unit (P5,000 ÷ 10,000 units) 0.50
10. B
Variable manufacturing costs P50,000
Variable selling and administrative costs 25,000
Fixed manufacturing costs 200,000
Fixed selling and administrative costs 150,000
Total cost P425,000
Planned production and sales ÷ 5,000 pairs
Total cost per unit P85.00
10
11. C
Target return (P2,125,000 x 30%) P637,500
Planned production and sales ÷ 5,000 pairs
Target return per unit P127.50
12. B
Total cost per unit P85.00
Target return per unit 127.50
Target selling price P212.50
13. A
Target return per unit P127.50
Total cost per unit ÷ 85.00
14. A
Target profit per unit [(P4M x 25%) ÷ 5,000 units] P200.00
Variable selling and admin expense per unit 25.00
Fixed selling and admin expense per unit
(P375,000 ÷ 5,000 units) 75.00
Target mark-up P300.00
Cost base (P200 + P120 + P80 + P100*) ÷ 500.00
Mark-up percentage 60.00%
*Fixed overhead cost per unit (P500,000 ÷ 5,000 units) P100
15. B
(P375,000 ÷ 5,000 units) 75.00
Fixed overhead cost per unit (P500,000 ÷ 5,000 units) 100.00
Cost base (P200 + P120 + P80 + P25) ÷ 425.00
16. C
Full cost per unit
(P200 + P120 + P80 + P100 + P25 + P75) ÷ 600.00
17. D
Fixed overhead cost per unit (P500,000 ÷ 5,000 units) 100.00
Variable selling and admin expense per unit 25.00
(P375,000 ÷ 5,000 units) 75.00
Cost base (P200 + P120 + P80) ÷ 400.00
11
18. C
Total whole-life cost per unit
(P5,600,000 ÷ 160,000 units) P35.00
Mark-up based on cost x 130%
Unit selling price P45.50
19. D
Hourly labor rate for repairs
Technicians' wages and benefits (P500,000 ÷ 10,000) P50.00
Overhead costs
Office manager's salary and benefits
(P112,000÷10,000) 11.20
Other overhead (P48,000 ÷ 10,000) 4.80
Total per hour charge P66.00
Profit margin 64.00
Rate charged per hour of labor P130.00
20. B
Overhead costs [(P72,000 + P18,000) ÷ 500,000] 18%
Other overhead costs (P135,000 ÷ 500,000) 27%
Total loading charge at cost 45%
Profit margin 50%
Material loading charge 95%
21. B
Labor charges (20 hours x P130) P2,600
Material charges:
Cost of parts and materials 8,000
Material loading charge (95% × P8,000) 7,600
Total price of labor and materials P18,200
22. D
Sales this year P800,000
Sales this year at USP last year (P800,000 ÷ 90%) (888,889)
Sales price variance P88,889
23. B
Sales this year at USP last year (P792,000 x 105%) P831,600
Sales last year (792,000)
Sales quantity variance 39,600 F
COGS this year at UC last year (P464,000 x 105%) P487,200

COGS last year (464,000)
COGS quantity variance P23,200 UF
Net quantity variance (P39,600 – P23,200) P16,400 F

24. C
Difference in sales quantity (6,000 – 5,000) 1,000 units
Budgeted UC (P120,000 ÷ 6,000 units) x P20 per unit
Net quantity variance P20,000 UF
12
25. D
Actual selling price (P235,000 ÷ 5,000 units) P47
Budgeted selling price (P300,000 ÷ 6,000 units) 50
Difference in selling price P3
Actual units sold x 5,000
Sales price variance P15,000 UF
26. A
Actual variable cost P145,000
Budgeted variable cost (flexible budget)
[(P180,000 ÷ 6,000 units) x 5,000 units] 150,000
Variable cost flexible budget variance 5,000 F
27. D
Actual fixed cost P84,000
Budgeted fixed cost 80,000
Fixed cost variance P4,000 UF
28. C
Budgeted sales 1.4 million units
Actual sales 1.2 million units
Difference in sales quantity 200,000 units
UCM (P20 x 30%) x P6 per unit
Contribution margin sales quantity variance P1,200,000 UF
29. A
Sardines [(P10 – P8) x 12,000 units] P24,000 F
Tuna [(P6 – P4) x 20,000 units] 40,000 F
Sales price variance P64,000 F
30. D
Sardines [(P9 – P6) x 12,000 units] P36,000 UF
Tuna [(P5 – P3) x 20,000 units] 40,000 UF
Cost price variance P76,000 UF
31. B
Gross profit this year at UGP last year:
Sardines (12,000 units x P2) P24,000
Tuna (20,000 units x P1) 20,000
Total P44,000
Gross profit this year at average UGP last year
(32,000 units x P1.50) 48,000
Sales mix variance P4,000 UF
32. C
Gross profit this year at average UGP last year
(32,000 units x P1.50) P48,000
Gross profit last year 24,000
Sales volume or quantity variance P24,000 F
13
33. A
Actual sales P1,056,000
Less actual units at budgeted sales price
(9,600 units x [P800.000 + 8,000]) 960,000
Sales price variance P96,000 F
34. B
Actual units at budgeted sales P960,000
Less budgeted sales 800,000
Sales volume variance P160,000 F
35. C
Actual cost of sales P556,800
Less actual units at budgeted cost price
(9,600 units x [P480.000 + 8,000]) 576,000
Cost price variance P 19,200 F
14
Chapter 9
Performance Evaluation
9-1 True or False
1. True
2. False
3. False
4. False
5. True
6. True
7. True
8. True
9. True
10. False
9-2 True or False
1. True
2. False
3. True
4. False
5. True
6. True
7. False
8. True
9. True
10. False
1. IDENTIFICATION OF RESPONSIBILITY CENTERS
(a) Cost Center
(b) Cost Center
(c) Profit Center
(d) Profit Center
(e) Revenue Center
(f) Investment Center
(g) Revenue Center
(h) Investment Center
1
2. CAPINPIN COMPANY
(a)
Total MM NL SL
Sales P 550 P250 P200 P100
Less: Variable costs (112.5) (50) (37.5) (25)
Segment contribution margin 437.5 200 162.5 75
Less: Controllable fixed costs (217.5) (100) (80) (37.5)
Controllable profit margin 220 100 82.5 37.5
Less: Non-controllable fixed costs (130) (57.5) (50) (22.5)
Segment profit margin 90 42.5 32.5 15
Less: Common fixed costs (25)
Income before taxes 65
Less: Income tax expense (37.5)
Net income P 27.5
(b) Controllable profit margin
(c) Segment profit margin
3. EVANGELISTA RETAIL INC.
Total A B
Sales P200,000 P80,000 P120,000
Variable costs (128,000) (56,000) (72,000)
Contribution margin 72,000 24,000 48,000
Direct fixed costs (41,000) (13,000) (28,000)
Segment margin 31,000 11,000 20,000
Common fixed costs (16,000)
Net income 15,000
4. JHEMA COMPANY
ROI = Segment margin ÷ Average operating assets
Segment margin: (P420,000 – P10,000 – P20,000) = P390,000
Average plant assets: (P1,500,000 + P2,000,000) ÷ 2 = P1,750,000
Average current assets:
[(P190,000 – P40,000) + (P300,000 – P50,000)] ÷ 2 = P200,000
Total average operating assets: (P1,750,000 + P200,000) =
P1,950,000
ROI: (P390,000 ÷ P1,950,000) = 20%
4. JHENEFIR COMPANY
Segment profit (P6,000,000 – P5,500,000) P500,000
Minimum required income (P2,500,000 x 15%) (375,000)
Residual income P125,000
NOTE: The average industry rate may be considered in setting the
minimum required rate of return but not considered in
computing residual income. Also, the amount of segment profit
for residual income computation should be before-tax.
2
6. KENNEDY COMPANY
(a) ROI for B: 46.4% (P580,000/P1,250,000)
(b) RI for A: P20,000 [P120,000 - (P400,000 x 20%)]
(c) RI for B: P350,000 [P580,000 + P80,000 - 20% x (P1,250,000
+ P300,000)]
(d) ROI for A: 32% [P120,000/P800,000 = 15% ROS + 1% =
16%, turnover = 2 (P800,000/P400,000), so 16% x 2 = 32%]
(e) ROI for A: 45% [P800,000/400,000 = 2 times + 1 = 3 times x
ROS of 15% (P120,000/P800,000) = 45%]
7. DILLA CORPORATION
(a)
(1) (P200,000 x 1.6) = P320,000
(2) (P35,000 ÷ P200,000) = 17.5%
(3) (P35,000 ÷ P320,000) = 10.9%
(4) (P284,375 x 16%) = P45,500
(5) (P45,500 ÷ P455,000) = 10%
(6) (P455,000 ÷ P284,375) = 1.6
(7) (P525,000 ÷ 1.2) = P437,500
(8) (P73,500 ÷ P437,500) = 16.8%
(9) (P73,500 ÷ P525,000) = 14%
(10) (P800,000 x 13.0%) = P104,000
(11) (P800,000 ÷ 2.5) = P320,000
(12) (P104,000 ÷ P320,000) = 32.5%
(13) (P250,000 x 2.0) = P500,000
(14) (P500,000 x 16%) = P80,000
(15) (16% x 2.0) = 32%
(b) Division U
(c) Division U
8. (WORKING BACK PROBLEMS)

(A) Income = P60 P400 sales x 15% margin
Investment = P200 P60 income/30% ROI
Turnover = 2 times P400 sales/P200 investment, or
30% ROI/15% margin
RI = P20 P60 income - (20% x P200
investment)
(B) Sales = P900 P300 investment x 3 turnovers

Income = P72 P900 sales x 8% margin
ROI = 24% P72 income/P300 investment, or
8% margin x 3 turnovers
RI = P12 P72 income - (20% x P300
investment)
3
(C) Margin = 6% P42 income/P700 sales
Investment = P100 P42 income - P22 RI = P20 income
needed for 20% ROI; dividing P20
by 20% gives P100
Turnover = 7 P700 sales/P100 investment
ROI = 42% P42 income/P100 investment, or
6% margin x 7 turnovers
(D) Margin = 10% 40% ROI/4 times turnover
Sales = P1,000 P100 income/10% margin
Investment = P250 P1,000 sales/4 times turnover
RI = P50 P100 income - (20% minimum ROI
x P250 investment)
9. AMIER CORP.
Operating income after tax (P4,000,000 x 65%) P2,600,000
WACC (P18,000,000* x 10%) 1,800,000
EVA P800,000
Total assets (P3,000,000 + P17,000,000) P20,000,000
Total current liabilities (2,000,000)
Total long-term liabilities and equity* P18,000,000
10. DIANE INDUSTRIAL CORP.
(a)
Maximum transfer price P7.40
Incremental variable costs per unit (P3 + P1.20) P4.20
Minimum transfer price 5.70
(b)
Incremental sales (P1,800 units x P6.50) P11,700
Incremental profit P 1,440
(c)
Decrease in cost = Increase in profit
[(P7.40 – P6.50) x 1,800 units] P1,620
(d)
Total impact of the transfer pricing transaction
(P1,440 + P1,620) P3,060
4
(e)
Maximum transfer price P7.40
Incremental variable costs per unit (P3 + P1.20) P4.20
Opportunity costs per unit
[(1,000 units x P5) ÷ 3,000 units] 1.67
Minimum transfer price P6.77
Incremental sales (P3,000 units x P6.50) P19,500
Opportunity costs (1,000 units x P5) (5,000)
Incremental profit – DIVISION X P(800)
Incremental profit – DIVISION Y
[(P7.40 – P6.50) x 3,000 units] P1,620
Total effect on DIANE’s income P 820
11. SPURS CORP.
(a) Decreases P45,000 [5,000 units x (P45 outside price - P36
variable cost)
(b) No change
(c) P60,000 increase (P285,000 added revenue from outsiders -
P225,000 paid to the outsider by B)
12. PEPITO COMPANY
(a) Financial
(b) Internal operations
(c) Learning and growth
(d) Customer
(e) Internal operations
(f) Customer
(g) Learning and growth
13. OMPAD CORPORATION
(a)
Inspection time 0.2 days
Process time 1.3 days
Move time 0.8 days
Queue time 6.9 days
Throughput time 9.2 days
(b)
Processing time (value-adding time) 1.3 days
Throughput time ÷ 9.2 days
Manufacturing cycle efficiency (MCE) 0.14
5
(c)
Wait time 3.7 days
Move time 0.8 days
Queue time 6.9 days
Delivery cycle time 12.9 days
14. ALFIE CORPORATION

(a) (7,000 units ÷ 28,000 kgs) = 0.25
(b) (6,000 units ÷ 11,000 hrs.) = 0.545
(c) (6,000 units ÷ 1.43 million) = 0.004
15. MARS CORP.

(a) Defective units = 6,000,000 - 4,800,000 = 1,200,000
(b) MCE = 600 / 800 = 75%
(c) Process productivity = 6,000,000 / 600 = 10,000 units per
hour
(d) Process quality yield = 4,800,000 / 6,000,000 = 80%
(e) Throughput = 10,000 x 75% x 80% = 6,000 units per hour
1. D
2. B
3. B
4. C
5. A
6. C
7. D
8. D
9. B
10. A
11. D
12. D
13. D
14. A
15. B
16. B
17. D
18. D
19. B
20. B
6
1. A
2. D
3. C
4. D
5. A
6. E
7. C
8. C
9. C
10. B
11. B
12. C
13. A
14. C
15. B
16. A
17. D
18. B
19. B
20. A
1. A
Receiving clerk’s wages P75,000
Employee benefits cost (P75,000 x 30%) 22,500
Total product & controllable costs P97,500
NOTE: The warehouse supervisor salary is a product cost but not

a controllable cost to the warehouse supervisor. Shipping clerk’s
wages are controllable cost to the warehouse supervisor but not
product costs.
2. A
Total O E
Sales 200,000 P150,000 P50,000
Variable cost (120,000) (105,000) (15,000)
Contribution margin 80,000 45,000 35,000
Direct fixed cost (55,000) (36,000) (19,000)
Segment margin P25,000 P9,000
3. B
Contribution margin P700,000
NOTE: The manager does not have control over his salary. The
other fixed costs are also uncontrollable by the manager.
7
4. A
Contribution Margin P200,000
Direct Fixed Costs (125,000)
Allocated Fixed costs (25,000)
Operating income P50,000
5. C
ROI (P50,000 / 10%) P500,000
6. D
Operating income (P5M – 3.5M – P100,000) P1,400,000
Average assets [(P6,000,000 + P8,000,000) ÷ 2] ÷ 7,000,000
Return on investment 20%
7. D
Operating income P1,400,000
Minimum income (P7,000,000 x 16%) (1,120,000)
8. B
Contribution margin (P30/unit x 20,000 units) 600,000
Direct fixed costs (P400,000 x 40%) (160,000)
Segment margin 440,000
Residual income (120,000)
Minimum income 320,000
Minimum required rate of return ÷ 20%
Average investment P1,600,000
ROI (P440,00/P1,600,00) 27.50%
9. B
Average assets [(P22M + P18M) ÷ 2] P20,000,0000
Asset turnover x 2.50
Sales P50,000,000
10. C
Target operating profit (P750,000 x 22%) P165,000
Fixed costs 200,000
Contribution margin P365,000
Unit contribution margin (P50 – P30) ÷ 20
Target sales volume 18,250 units
11. B
New asset base (P800,000 – P200,000) ÷ 600,000
New ROI 16.67%
12. C
Sales (P100,000 ÷ 20%) P500,000
New asset base ÷ 600,000
New asset turnover 0.83 times
8
13. B
Target residual income P45,000
Minimum income (P750,000 x 12%) 90,000
Operating income 135,000
Total fixed expenses 200,000
Unit contribution margin (P50 – P30) ÷ 20
Target sales volume 16,750 units
14. A
Operating profit P5,000,000
Minimum income (P20,000,000 x 15%) (3,000,000)
Economic value added P2,000,000
15. C
Minimum income (P200,000 x 12%) 24,000
Operating income P60,000
Investment ÷ P200,000
ROI 30%
16. C
Profit after-tax (P1,500,000 x 70%) P1,050,000
Minimum income [(P1M + 3.5M – 0.5M) x 22.5%] 900,000
Economic value added (EVA) P150,000
17. D
ROI 20%
Required return (18%)
Residual income percentage 2%
Average operating assets x P1,500,000
Bonus (P30,000 x 50%) P15,000
18. A
Assume that
Investment turnover 1 time
Profit margin x 50%
ROI 50%
Then, by applying the scenario:
Investment turnover (1 time x 80%) 0.80 times
Profit margin (50% x 130%) 65%
New ROI 52%
Percentage increase in ROI [(52% - 50%) / 50%] 4%
19. B
Profit margin – Year 2 (36% ÷ 3) 12%
Profit margin – Year 1 (12% ÷ 150%) 8%
Operating income – Year 1 (8% x P3,200,000) P256,000
9
20. B
ROI – Year 1 12%
Profit margin – Year 1 ÷ 8%
Asset turnover – Year 1 1.50 times
21. B
Operating income – Year 2 P360,000
Profit margin – Year 2 ÷ 12%
Sales – Year 2 P3,000,000
22. A
Sales – Year 2 P3,000,000
Asset turnover – Year 2 ÷ 3 times
Operating assets – Year 2 P1,000,000
23. D
Capital / Investment (P400,000 ÷ 4 times) P100,000
Net income P40,000

Minimum income (P100,000 x 10%) (10,000)
24. A
Sales P800,000
Asset turnover (30% ÷ 15%) ÷ 2 times
Average operating assets P400,000
25. C
Residual income [(30% - 20%) x P400,000] P40,000
26. A
MOBA DIVISION (P50-P35) X 2K units P30,000 increase
SENTINEL DIVISION (40K-12K) (28,000 decrease)
Net effect to GAMER INC. 2,000 increase
27. C
MOBA DIVISION (P50-P35) X 2K units P30,000 increase
SENTINEL DIVISION (40K-12K) (28,000 decrease)
(30k-12k) 18,000 increase
Net effect to GAMER INC. 20,000 increase
28. C
Variable cost per unit P16.00
Opportunity cost per unit
[(2,000 units x P8) ÷ 10,000 units] 1.60
29. C
Minimum transfer price = market price P25
Negotiated transfer price (24)
Loss per unit P1
Units x 5,000
Loss for the company as a whole P5,000
10
30. C
[(15,000 units x P0.85) ÷ 25,000 units] 0.51
Increase in profit of BLESSED DIVISION

[(P1.50 – P1.45) x 25,000 units] P1,250
Decrease in profit of HAPPY DIVISION
[(P1.50 – P1.41) x 25,000 units] (2,250)
31. B
Increase in profit of ELAINE DIVISION
[(P20 – P18) x 10,000 units] P20,000
Decrease in profit of KAYE DIVISION
[(P20 – P11) x 10,000 units] (90,000)
32. B
[(15,000 units x P35) ÷ 30,000 units] 17.50
Incremental costs per unit P82.50
Increase in profit of Division C

[(P90 – 87) x 30,000 units] P90,000
Increase in profit of Division P
[(P87 – 82.50) x 30,000 units] 135,000
Increase in overall profit P225,000
33. A
Queue time 5.0 days
Move time 2.5 days
Throughput time 12 days
MCE (3.0 days ÷ 12 days) 25%
34. D
Throughput time 12 days
Wait time 10 days
Delivery cycle time 22 days
35. C
Good units produced 200,000
Units started in production ÷ 250,000
Process quality yield 80%
11
36. B
Throughput per hour
(200,000 units / 400 hours) 500 units per hour
37. D
Process productivity
(250,000 units / 300 hours) 833 units per hour
38. A
Total loans (output) (3 officers x 5 loans per day) 15 loans
Labor hours (3 officers x 8 hrs. per day) ÷ 24 hours
Labor productivity 0.625 loans per hour
39. C
Total loans (output) (3 officers x 5 loans per day) 15 loans
Total cost (P820 + P500) ÷ P1,320
Total productivity 0.0113 loans per peso
40. B
Process time 1.6
Inspection time 0.4
Move time 2.1
Queue time 8.8
Throughput time 12.9
12
Chapter 10
Activity-based Costing (ABC)
10-1 True or False
1. True
2. False
3. False
4. False
5. False
6. True
7. False
8. True
9. False
10. False
10-2 True or False
1. True
2. True
3. True
4. False
5. True
6. False
7. True
8. False
9. False
10. False
1. CAREBEAR CORP.
(a) Unit-level
(b) Facility-level
(c) Product-level
(d) Batch-level
(e) Facility-level
(f) Batch-level
(g) Unit-level
(h) Product-level
(i) Facility-level
(j) Batch-level
1
2. BEAR NA BEAR INC.
(a) Non-value adding
(b) Non-value adding
(c) Non-value adding
(d) Non-value adding
(e) Non-value adding
(f) Value-adding
(g) Value-adding
(h) Value-adding
(i) Value-adding
3. KJNP COMPANY
(a)
Ordering and receiving P110,000
Machine set-up 297,000
Machining 1,000,000
Assembly 1,200,000
Inspection 300,000
Total overhead costs P2,907,000
Total estimated machine hours ÷ 250,000 hours
Predetermined overhead rate P11.628 per hour
Overhead costs assigned per product:

Product Be (P11.628 x 150,000 hours) 1,744,200
Product Ar (P11.628 x 100,000 hours) 1,162,800
Product Be Product Ar
Direct material cost per unit P3.50 P2.75
Direct labor cost per unit 1.60 1.15
Overhead costs per unit:
(P1,744,200 ÷ 700,000 units) 2.49
(P1,162,800 ÷ 200,000 units) . 5.81
Total cost per unit P7.59 P9.71
Selling price P20.00 P15.00

Total cost per unit (7.59) (9.71)
Gross profit per unit P 12.41 P5.29
(b)
Ordering and receiving P66,000 P44,000
(P110,000 x 6/10) (P110,000 x 4/10)
2
Machine set-up 165,000 132,000
(P297,000 x 5/9) (P297,000 x 4/9)
Machining 600,000 400,000
(P1M x 150/250) (P1M x 100/250)
Assembly 720,000 480,000
(P1.2M x 1.2/2) (P1.2M x 0.8/2)
Inspection 165,000 135,000
(P300K x 55/100) (P300K x 45/100)
Total Overhead costs P1,716,000 P1,191,000
Direct material cost per unit P3.50 P2.75
Direct labor cost per unit 1.60 1.15
Overhead costs per unit:
(P1,716,000 ÷ 700,000 units) 2.45
(P1,191,000 ÷ 200,000 units) . 5.96
Total cost per unit P7.55 P9.86

Total cost per unit (7.55) (9.86)
Gross profit per unit P 12.45 P5.14
4. KGA MANUFACTURING CORP.

(a)
Traditional Costing
Predetermined overhead rate: P1,147,650 ÷ 35,000 DLHs = P32.79
per DLH
Regular Premium
Overhead costs assigned 114,765 1,032,885
Units produced ÷ 35,000 ÷ 15,000
Manufacturing overhead cost per unit P3.28 P68.86
Direct materials per unit 29.20 47.40
Direct labor per unit 1.10 23.10
Total manufacturing cost per unit P33.58 P139.36
(b)
Activity rate
Assembling products (P140,000 ÷ 35,000 DLHs) P4 per DLH
Preparing batches (P241,150 ÷ 1,855 batches) P130 per batch
Axial milling (P766,500 ÷ 2,555 MHs) P300 per MH
3
Regular Premium
Assembling products P14,000 P126,000
(P4 x 3,500) (P4 x 31,500)
Preparing batches 72,800 168,350
(P130 x 560) (P130 x 1,295)
Axial milling 462,000 304,500
(P300 x 1,540) (P300 x 1,015)
Total Overhead costs P548,800 P598,850
Units produced ÷ 35,000 ÷ 15,000
Overhead cost per unit P15.68 P39.92
Direct materials per unit 29.20 47.40
Direct labor per unit 1.10 23.10
Total manufacturing cost per unitP45.98 P110.42
5. GONZALES CORP.
(a) Traditional Costing
Maintenance P100,000
Materials handling 20,000
Set-ups 125,000
Inspection 155,000
Total overhead cost P400,000
Budgeted direct labor hours ÷ 100,000
Predetermined overhead rate P4 per DL hour
Direct labor 10,000
Overhead applied (P4 x 1,000 hours) 4,000
Total cost of proposed job P21,500
Bid price P27,950
(b) Activity-based Costing
Activity rate
Maintenance (P100,000 ÷ 10,000 hours) P10 per machine hour
Materials handling (P20,000 ÷ 800) P25 per move
Set-ups (P125,000 ÷ 1,250) P100 per set-up
Inspection (P155,000 ÷ 2,500) P62 per inspection
Direct labor 10,000
Overhead applied:
Maintenance (P10 x 150) 1,500
Materials handling (P25 x 6) 150
Set-ups (P100 x 1) 100
Inspection (P62 x 5) 310
Total cost of proposed job P19,560
4
Bid price P25,428
6. BEAR BANK
(a) Traditional Costing
Total labor hours: Application processing (2,000 x 9 = 18,000)
+ underwriting (8,000) + closure (4,000) = 30,000
Average rate per hour: P1,290,000 ÷ 30,000 = P43 per hour

Application no. 1234: (9 + 2.5) x P43 = P494.50
Application no. 5678: (9 + 2.5) x P43 = P494.50
(b) Activity-based Costing

Cost pool rates:
Application processing: P450,000 ÷ 2,000 = P225 per
application
Loan underwriting: P400,000 ÷ 8,000 = P50 per underwriting
hour
Loan closure: P440,000 ÷ 4,000 = P110 per legal hour
Application no. 1234: Application (P225) + underwriting (1.75

x P50 = P87.50) + closure (0.75 x P110 = P82.5) = P395
Application no. 5678: Application (P225) + underwriting (1.0
x P50 = P50) + closure (1.5 x P110 = P165) = P440
7. KGA & KJNP CONSULTANCT

All three parts can be answered using a first-stage allocation of
costs.
Working On Business
Engagements Development Other Total
Wages and salaries P372,000 P 62,000 P186,000 P620,000
Travel expenses 70,000 56,000 14,000 140,000
Other expenses 42,000 30,000 48,000 120,000
Total P484,000 P148,000 P248,000 P880,000
5
1. C
2. B
3. D
4. A
5. B
6. D
7. C
8. A
9. D
10. A
11. A
12. B
13. C
14. D
15. C
1. D
2. A
3. B
4. A
5. B
6. C
7. A
8. A
9. C
10. C
11. B
12. D
13. B
14. D
15. C
1. A
Predetermined OH rate
(P400,000 ÷ 2,000 DL hrs.) P200 per DLH
OH cost allocated to Product X
(P200 x 600 DL hrs.) P120,000
2. D
(P400,000 ÷ 2,000 DL hrs.) P200 per DLH
(P200 x 1,400 DL hrs.) P280,000
6
3. B
OH Cost Allocated
Pool 1 (P80,000 x 600/2,000) P24,000
Pool 2 (P140,000 x 30/80) 52,500
Pool 3 (P180,000 x 1,500/2,500) 108,000
Total P184,500
4. C
OH Cost Allocated
Pool 1 (P80,000 x 1,400/2,000) P56,000
Pool 2 (P140,000 x 50/80) 87,500
Pool 3 (P180,000 x 1,000/2,500) 72,000
Total P215,500
5. B
(P3,000,000 ÷ 25,000 DL hrs.) P120 per DLH
(P120 x 10,000 DL hrs.) P1,200,000
6. C
(P3,000,000 ÷ 25,000 DL hrs.) P120 per DLH
(P120 x 15,000 DL hrs.) P1,800,000
7. A
OH Cost Allocated
Machining (P2,000,000 x 10,000/40,000) P500,000
Assembling (P1,000,000 x 90,000/250,000) 360,000
Total P860,000
8. D
OH Cost Allocated
Machining (P2,000,000 x 30,000/40,000) P1,500,000
Assembling (P1,000,000 x 160,000/250,000) 640,000
Total P2,140,000
9. B
Consumption Ratio
Model Q (100/500) 20%
Model R (150/500) 30%
Model S (250/500) 50%
10. B
Set-up costs (P90,000 x 100/500) P18,000
Shipping costs (P140,000 x 200/700) 40,000
Engineering costs (P180,000 x 15/30) 90,000
Total OH cost allocated to Model A P148,000
Units produced ÷ 2,000
Overhead cost per unit P74.00
7
11. C
Total OH cost allocated to Model A
(P410,000 x 4,000/10,000) P164,000
Overhead cost per unit P82.00
12. D
OH Cost Assigned
NORMAL (P800,000 x 40,000/50,000) P640,000
TOP-OF-THE-LINE (P800,000 x 10,000/50,000) 160,000
13. A
NORMAL TOP-OF-THE-LINE
Quality control P60,000 P240,000
(300k/500 x 100) (300k/500 x 400)
Machine set-ups 160,000 240,000
(400k/200 x 80) (400k/200 x 120)
Others 80,000 20,000
(100k/50k x 40k) (100k/50k x 10k)
Total OH cost assigned P300,000 P500,000
14. B
Direct material P50,000 P60,000
Direct labor 120,000 30,000
Overhead 640,000 160,000
Total cost P810,000 P250,000
Units produced ÷ 10,000 units ÷ 5,000 units
Unit cost P81.00 P50.00
Markup x 140% x 140%
15. B
Direct material P50,000 P60,000
Direct labor 120,000 30,000
Overhead 300,000 500,000
Total cost P470,000 P590,000
Units produced ÷ 10,000 units ÷ 5,000 units
Unit cost P47.00 P118.00
Markup x 140% x 140%
16. C
Predetermined overhead rate:
(P360,000 ÷ 4,000 DL hrs.) P90 per DLH
OH allocated to Job 500 (P90 x 100) P9,000
8
17. A
(P360,000 ÷ 4,000 DL hrs.) P90 per DLH
OH allocated to Job 501 (P90 x 160) P14,400
18. C
Set-up costs (P100,000 ÷ 500 x 2) P400
Ordering costs (P40,000 ÷ 3,200 x 8) 100
Maintenance costs (P200,000 ÷ 4,000 x 40) 2,000
Power (P20,000 ÷ 80,000 x 60) 15
OH allocated to Job 500 P2,515
19. C
Set-up costs (P100,000 ÷ 500 x 8) P1,600
Ordering costs (P40,000 ÷ 3,200 x 10) 125
Maintenance costs (P200,000 ÷ 4,000 x 50) 2,500
Power (P20,000 ÷ 80,000 x 100) 25
OH allocated to Job 501 P4,250
20. D
(P975,000 ÷ 120,000 Mhrs.) P8.125 per MHr.
OH allocated to Product A (P8.125 x 60,000) P487,500
Overhead cost per unit – Product A P16.25
21. B
(P975,000 ÷ 120,000 Mhrs.) P8.125 per MHr.
OH allocated to Product B (P8.125 x 60,000) P487,500
Overhead cost per unit – Product B P40.63
22. C
Receiving costs (P450,000 x 50/200) P112,500
Machine set-up costs (P25,000 x 8/20) 10,000
Inspection costs (P200,000 x 20/50) 80,000
OH allocated to Product A P322,500
Overhead cost per unit – Product A P10.75
23. A
Receiving costs (P450,000 x 150/200) P337,500
Machine set-up costs (P25,000 x 12/20) 15,000
Inspection costs (P200,000 x 30/50) 120,000
OH allocated to Product B P652,500
Overhead cost per unit – Product B P54.38
9
24. A
(P300,000 ÷ P150,000) P2 per DL cost
OH allocated to tax service (P2 x P50,000) P100,000
25. D
(P300,000 ÷ P150,000) P2 per DL cost
OH allocated to tax service (P2 x P100,000) P200,000
26. C
Computer support (P200,000 x 40/50) P160,000
Legal support (P100,000 x 200/1,000) 20,000
OH allocated to tax service P180,000
27. B
Computer support (P200,000 x 10/50) P40,000
Legal support (P100,000 x 800/1,000) 80,000
OH allocated to tax service P120,000
28. D
Direct labor cost P1,200
Computer support (P200,000 ÷ 50,000 x 600) 2,400
Legal support (P100,000 ÷ 1,000 x 1) 100
Total cost P3,700
29. C
Wages and salaries (P360,000 x 40%) P144,000
Depreciation (P140,000 x 55%) 77,000
Occupancy (P160,000 x 45%) 72,000
Total amount allocated to “order processing” pool P293,000
Budgeted level of cost driver ÷ 200 orders
Activity rate P1,465 per order
30. B
Total engineering order cost (P600 x 10) P6,000
Traditional Costing
OH cost allocated to product X (P6,000 x 2/5) P2,400
OH cost allocated to product Y (P600 x 3/5) P3,600
Activity-based Costing
OH cost allocated to product X (P6,000 x 8/10) P4,800
OH cost allocated to product Y (P6,000 x 2/10) P1,200
Difference in cost = cross subsidy P2,400
Cross-subsidy per unit P2.40
10

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Chapter 1

Introduction to Cost Management

1-2 True or False

1-3 Multiple Choice (Theories)

SELF-TEST QUESTIONS (QUIZZER)

1-5 Multiple Choice (Theories)

1-6 Multiple Choice (Theories)

Total 140,000 80,000 234,500 182,000 217,500

Variable maintenance cost = Change in cost ÷ Change in activity

Fixed cost element of maintenance cost = Total cost − Variable cost

2-4 Multiple Choice (Theories)

2-6 Multiple Choice (Problems)

First thing to do is to eliminate “a”, in order to compute “b”:

b= 0.30 per unit

To compute “a”, substitute it to the first equation

b= 0.30 per unit

To compute “a”, substitute it to the first equation

Variable cost = Change in cost ÷ Change in activity

PART 2: SELF-TEST QUESTIONS (QUIZZERS)

3-6 Multiple Choice (Problems)

Therefore, the percentage change and amount of change in

New CMR: [(P20 – P14) / P20] = 30%

DOL: (P40,000 ÷ P10,000) = 4.00

Total CM (P1,000,000 x 30%) P300,000

Using the new information:

New sales: (P330,000 ÷ 30%) = P1,100,000

Thus, we will use the fixed cost of P1,200,000 to compute the

Total CM; [(P127.20 – P83.80 – P15.70) x 5,300 units] = P146,810

Increase in net operating income: P51,280 - P49,000 = P2,280

Increase in net operating income: P98,700 − P98,000 = P700

Decrease in net operating income: P98,000 − P95,900 = P2,100

Increase in net operating income: P98,700 − P98,000 = P700

Total sales to earn 10% OI: [P600,000 ÷ (50% - 10%)] =

Breakdown of total units:

Sales mix (pesos)

WACMR: (20% x 30%) + (33.33% x 60%) + (50% x 10%) = 31%

Total variable cost per unit:

Selling price per unit: [(P55,000 ÷ 20,000) + P5.50] ÷ 80% =

Total sales: (P690,000 ÷ 75%) = P920,000

3. (WORKING BACK EXERCISES)

*Weighted Ave. Standard Price: (P8.00 ÷ 60) = P0.1333

*Weighted Ave. Standard Rate: (P310.00 ÷ 5) = P62

Actual production 40,000 units

Standard VOH cost per unit P10

Actual Overhead 700,000

Direct labor efficiency variance P8,000 F

8. (WORKING BACK EXERCISES)

9. $1,200 unfavorable (100 hours x $12)

11. $800 unfavorable

The difference in net income of P21,250 is attributable to the fixed

Sales (8,750 units x P150) P1,312,500

NOTE: VARIABLE COST PER UNIT (P126,000 ÷ 70,000) = 1.80

Cost of goods sold – variable costing

Standard cost of goods sold – absorption costing

Absorption costing – 2021

Variable costing - 2022

Absorption costing – 2022

Actual fixed manufacturing cost P720,000

Budgeted fixed manufacturing cost P640,000

7. DANE MARK CORP.

Variable manufacturing cost (P50,000 – P30,000) P20,000

Variable manufacturing cost per unit

Increase in total contribution margin