Management Accounting

Basic management concepts and functions - Assessment
Management accounting is an integral part of the management process. As such, it provides

essential information for the following objectives except
Enhancing objectivity in decision-making.
Which of the following is not a characteristic of a “staff” authority?

It has authority to command action or give orders to subordinates.
The concept of ”management by exception” refers to management’s

Consideration of only those items which vary materially from plans.
Who of the following are external users of data gathered by a management information system?
1) Creditors
2) Regulatory Bodies
3) Suppliers
1) yes 2) yes 3) yes
Planning and controlling cycle - Assessment
Management accountants help design, develop, install and maintain reporting systems which are
aligned with the structures of the organization. These systems provide information that are useful
for decision making. Management decision processes fall into three categories.
Non-repetitive, non-programmed, and strategic.
Which of the following represents an internal control weakness in a payroll system?

Paychecks are distributed by the employees’ immediate superior.
In this element of internal control, the object is to gauge the efficiency of the various levels of
people in the organization as well as the quality and quantity of results.
Standards of performance
The concept of ”management by exception” refers to management’s.

Consideration of only those items which vary materially from plans.
Which of the following is not a primary component of a control system?

Operator
Which of the following is not an objective of managerial accounting?

Maximizing profits and minimizing costs.
The activities in a management system’s control process can be grouped into four:
1. Measurement of actual performance.
2. Deciding and implementing corrective action.
3. Determining standards of performance.
4. Comparing actual performance versus standards and analyzing results.
The above steps must be done in this sequence:

3,1,4,2
Management accounting, financial management and financial accounting - Assessment
Which of the statements is true or false?

1.The Securities and Exchange Commission is the only government agency that has jurisdiction
over corporations in the Philippines.
2.Cost of goods sold is not an expense though the amount is applied to units sold.
3.Among the roles of controllership is the development of the management information system,
upon completion of which the controller must not interfere with its implementation.
Statement 1 Statement 2 Statement 3

False True False
A formal report in management accounting is covered by the guidelines of?

Management
Which of the following characteristics does not relate to management accounting?

It is subject to restrictions imposed by GAAP.
As business increases in complexity, the function of controllership has attained top level recognition
in the corporate arena. Many areas related to finance and accounting have been identified with
controllership. One area that violates basic internal control when assigned to controllership function
is
Credit collection.
Which of the statements is true or false?
1.Management accounting reports tend to be much more detailed than financial accounting.
2.Cost accounting refers to accounting for the annual cost of operating a business.
Statement 1 Statement 2
True False
You were newly appointed as controller of CRZ Corporation. Among the jobs your department
would do, include the following:
Financial reporting, strategic planning, managerial accounting, taxation, financial statement
analysis and internal accounting.
The chief management accountant called “controller” traditionally performs these functions except
Relate to specific problems where expert help is required.
Which of the following is not a controller’s function?

Arranging short-term financing.
Management accounting.
Draws from disciplines other than accounting.
To distinguish between management accounting and financial accounting, the following statements
are correct, except?
Management accounting output must be released on time so as not to erode its usefulness;
financial accounting output can still be useful even when delayed
Which of the following is a controller’s responsibility?

Tax planning and accounting.
The chief management accountant called “controller” traditionally performs these functions except?
Preparation of proposals for product promotions.
Controllers are generally not concerned with?

Investor relations.
Identify the following statements as true or false.

A user of financial statements who is a short-term creditor is interested in the borrower’s ability to
pay interest regularly.
A user of financial statements who is a short-term creditor is interested in the borrower’s ability to
pay interest regularly.
Despite of the ever increasing complexities of businesses today the role of the controller in today’s
management has not changed from that of the controller of yesteryears.
Statement 1 Statement 2 Statement 3

False True True
Identify the following statements as true or false. Management accounting has no externally
imposed standards while financial accounting has to follow the generally accepted accounting
principles.In the organizational structure of management accounting, the chief accounting officer’s
authority is basically “line” authority? Management by exception pertains to management taking
action on items selected at random.
statement 1 statement 2 statement 3

True True False
All of the following statements are correct except:

The basic purpose of any costing system is to allocate the cost of production (direct materials,
direct labor and manufacturing overhead) to the units produced.
The following characteristics refer to financial accounting, except:

Has no externally imposed standards.
Identify the following statements as true or false. Reporting to various government agencies such
as BIR, SEC, and SSS is a function of a controller. Interim financial reports issued by managerial
accountants must conform to generally accepted accounting principles. The managerial accountant
often deals with information that cannot be expressed in numbers.
Statement 1 is true, Statement 2 is false.
Which of the following characteristics relates to financial accounting?

It must adhere to the generally accepted accounting principles.
A type of managerial accounting that refers to the determination of the operating cost regardless of
cost behavior is?
Full cost accounting.
Controllership has attained special recognition in corporate management as businesses expand in

complexity and reach, and as the controller exerts influence for management to take organization’s
goals. Controllership and treasurership constitute corporate finance.
These are among the controller’s traditional functions:
1. Tax management.
2. Financial reporting and interpretation.
3. Credit management.
4. Sourcing and investing funds
5. Reporting to government regulatory agencies
6. Risk management
7. Economic appraisal.
8. Planning for control
Items 1, 2, 5, 7 and 8 only.
Strategic management philosophies - Assessment
Which of the following is not considered as a strategic management philosophy?

Activity-based management
Modern management accounting can be characterized by its

flexibility.
The set of processes that convert inputs into services and products that consumers use is called
the value chain.
Assume that a managerial accountant regularly communicates with business associates to avoid
conflicts of interest and advises relevant parties of potential conflicts. In so doing, the accountant
will have applied the ethical standard of:
objectivity.
Code of Conduct for Management Accountants - Assessment
Assume that a managerial accountant regularly communicates with business associates to avoid
conflicts of interest and advises relevant parties of potential conflicts. In so doing, the accountant
will have applied the ethical standard of:
objectivity.
The IMA Code of Ethics includes a competence standard, which requires the financial
manager/management accountant to?
Develop his/her professional proficiency on a continual basis
Sheila is a financial manager who has discovered that her company is violating environmental
regulations. If her immediate superior is involved, her appropriate action is to?
Present the matter to the next higher managerial level
Which of the following is not an element of competency?

To refrain from engaging in an activity that would discredit the accounting profession.
At Key Enterprises, the controller is responsible for directing the budgeting process. In this role, the
controller has significant influence with executive management as individual department budgets
are modified and approved. For the current year, the controller was instrumental in the approval of
a particular line manager's budget without modification, even though significant reductions were
made to the budgets submitted by other line managers. As a token of appreciation, the line
manager in question has given the controller a gift certificate for a popular local restaurant. In
considering whether or not to accept the certificate, the controller should refer to which section of
Statements on Management Accounting Number 1C (SMA 1C) (revised), Standards of Ethical
Conduct for Practitioners of Management Accounting and Financial Management?
Integrity
Which of the following is not the primary group of Standards for Ethical Conduct for Practitioners of
Management Accounting and Financial Management as enunciated by the National Association of
Accountants?
Materiality, integrity, compentence
If a financial manager/management accountant discovers unethical conduct in his/her organization

and fails to act, (s)he will be in violation of which ethical standard(s)?
All of the answers are correct.
A financial manager/management accountant discovers a problem that could mislead users of the
firm's financial data and has informed his/her immediate superior. (S)he should report the
circumstances to the audit committee and/or the board of directors only if?
The immediate superior, the firm's chief executive officer, knows about the situation but refuses to
correct it.
Which ethical standard is most clearly violated if a financial manager/management accountant

knows of a problem that could mislead users but does nothing about it?
Objectivity
The IMA Code of Ethics requires a financial manager/management accountant to follow the
established policies of the organization when faced with an ethical conflict. If these policies do not
resolve the conflict, the financial manager/management accountant should?
Contact the next higher managerial level if initial presentation to the immediate superior does not
resolve the conflict
If a financial manager/management accountant has a problem in identifying unethical behavior or

resolving an ethical conflict, the first action (s)he should normally take is to
Discuss the problem with his/her immediate superior
In accordance with Statements on Management Accounting Number 1C (SMA 1C) (revised),

Standards of Ethical Conduct for Practitioners of Management Accounting and Financial
Management, a management accountant who fails to perform professional duties in accordance
with relevant standards is acting contrary to which one of the following standards?
Competency
Financial managers/management accountants are obligated to maintain the highest standards of

ethical conduct. Accordingly, the IMA Code of Ethics explicitly requires that they?
Not condone violations by others
Expenditures incurred to acquire properties or rights thereof with long-term economic benefits
Investments
These are expenditures charged against the revenue generated in a given period on account of
reasonable uncertainty in the amount of income to be derived in the future, cause and effect
relationships, and systematic and rational allocation:
Expenses
Expenditures, investments, and expenses
These are expenditures charged against the revenue generated in a given period on account of
reasonable uncertainty in the amount of income to be derived in the future, cause and effect
relationships, and systematic and rational allocation:
Expenses
Cost objective
May be intermediate if the costs charged are later reallocated to another cost objective May be final if
the cost objective is the job, product, or process itself Should be logically linked with the cost
pool
All answers are correct
Expenditures incurred to acquire properties or rights thereof with long-term economic benefits
Investments
The accounting concept of expenses - Assessment
Hitchcock Industries, has developed two new products but has only enough plant capacity to
introduce one of these products this year. The company controller has gathered the following data
to assist management in deciding which product should be selected for production.
Hitchcock's fixed overhead includes proportional rent and utilities, machinery depreciation, and
supervisory salaries. Selling and administrative expenses are not allocated to products.
Cost per unit Power Power

Drill Saw
Raw materials $ 22.00 $ 18.00
Machining at $12/hr. 9.00 7.50
Assembly at $10/hr. 15.00 5.00
Variable O/H at $8/hr. 18.00 9.00
Fixed O/H at $4/hr. 9.00 4.50
Total unit cost $73.00 $44.00
Suggested selling price $88.98 $49.95
Actual research and development $ 180,000 $ 95,000
costs
Proposed advertising and promotion $ 300,000 $ 250,000
costs
The total overhead cost of $13.50 for Hitchcock's power saw is a?

Mixed cost
Northcoast Manufacturing Company, a small manufacturer of parts used in appliances, has just
completed its first year of operations. The company's controller, Vic Trainor, has been reviewing
the actual results for the year and is concerned about the application of factory overhead.
Trainor is using the following information to assess operations.
- Northcoast's equipment consists of several machines with a combined cost of $2,200,000 and no
residual value. Each machine has an output of five units of product per hour and a useful life of
20,000 hours.
- Selected actual data of Northcoast's operations for the year just ended is presented below.
Products manufactured 650,000 units

Machine utilization 130,000
hours
Direct labor usage 35,000 hours
Labor rate $ 15 per
hour
Total factory overhead $ 1,130,000
Cost of goods sold $ 1,720,960
Finished goods inventory (at year-end) $ 430,240
Work-in-process inventory (at year- $
end)
- Total factory overhead is applied to direct labor cost using a predetermined plant-wide rate.
- The budgeted activity for the year included 20 employees each working 1,800 productive hours
per year to produce 540,000 units of product. The machines are highly automated, and each
employee can operate two to four machines simultaneously. Normal activity is for each employee
to operate two to four machines simultaneously. Normal activity is for each employee to operate
three machines. Machine operators are paid $15 per hour.
- Budgeted factory overhead costs for the past year for various levels of activity are shown in the
table below.
Northcoast Manufacturing Company
Budgeted Annual Costs
for Total Factory Overhead
Units of product 360,000 540,000 720,000
Labor hours 30,000 36,000 42,000
Machine hours 72,000 108,000 144,000
Total factory overhead
costs:
Plant supervision $ 70,000 $ 70,000 $ 70,000
Plant rent 40,000 40,000 40,000
Equipment depreciation 288,000 432,000 576,000
Maintenance 42,000 51,000 60,000
Utilities 144,600 216,600 288,600
Indirect material 90,000 135,000 180,000
Other costs 11,200 16,600 22,000
Total $ 685,800 $ 961,200 $ 1,236,600
What is the predetermined overhead application rate for the year?

1.78 [$961,200 ・(36,000 x $15)].
CIA 1193 IV-6

Some units of output failed to pass final inspection at the end of the manufacturing process. Thes
production and inspection upervisors determined that the estimated incremental revenue from
reworking the units exceeded the cost of rework. The rework of the defective units was authorized,
and the following costs were incurred in reworking the units:
Materials requisitioned from stores:
Direct materials $ 5,000

Miscellaneous supplies $ 300
Direct labor $ 14,000
The manufacturing overhead budget includes an allowance for rework. The predetermined
manufacturing overhead rate is 150% of direct labor cost. The account(s) to be charged and the
appropriate charges for the rework cost would be
Factory overhead control for $40,300
CMA 0678 4-6

Conversion costs are?
The sum of direct labor costs and all factory overhead costs.
In a broad sense, cost accounting can best be defined within the accounting system as?
Internal reporting for use in management planning and control, and external reporting to the extent
its product-costing function satisfies external reporting requirements.
CMA 0694 3-3

In cost terminology, conversion costs consist of?
Direct labor and factory overhead
CMA 1290 3-2

Allocation of service department costs to the production departments is necessary?
Coordinate production activity
Annual overhead application rates are used to?

Smooth seasonal variability of overhead costs
CMA 1294 3-3

Huron Industries has recently developed two new products, a cleaning unit for laser discs and a
tape duplicator for reproducing home movies taken with a video camera. However, Huron has only
enough plant capacity to introduce one of these products during the current year. The company
controller has gathered the following data to assist management in deciding which product should
be selected for production. Huron's fixed overhead includes rent and utilities, equipment
depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to
products.
Tape Cleaning
Duplicator Unit
Machining @ $12/hr. 18.00 15.00
Assembly @ $10/hr. 30.00 10.00
Variable overhead @ $8/hr. 36.00 18.00
Fixed overhead @ $4/hr. 18.00 9.00
Total cost $ 146.00 $ 88.00
Suggested selling price $ 169.95 $ 99.98
Actual research and development costs $ 240,000 $ 175,000
Proposed advertising and promotion costs $ 500,000 $ 350,000
The total overhead cost of $27.00 for Huron's laser disc cleaning unit is a? Mixed cost
Trainor is using the following information to assess operations.
20,000 hours.

Machine utilization 130,000 hours
Labor rate $ 15 per hour
Work-in-process inventory (at year-end) $
-Total factory overhead is applied to direct labor cost using a predetermined plant-wide rate.
-The budgeted activity for the year included 20 employees each working 1,800 productive hours per
year to produce 540,000 units of product. The machines are highly automated, and each employee
can operate two to four machines simultaneously. Normal activity is for each employee to operate
two to four machines simultaneously. Normal activity is for each employee to operate three
machines. Machine operators are paid $15 per hour.
-Budgeted factory overhead costs for the past year for various levels of activity are shown in the
table below.

Units of product 360,000 540,000 720,000
Labor hours 30,000 36,000 42,000
Machine hours 72,000 108,000 144,000
Total factory overhead costs:
Plant rent 40,000 40,000 40,000
Maintenance 42,000 51,000 60,000
Utilities 144,600 216,600 288,600
Other costs 11,200 16,600 22,000
Total $ 685,800 $ 961,200 $ 1,236,600
How much is factory overhead overapplied/underapplied?

[(35,000 hours x $15) x 1.78] = 934,500 /($934,500 - $1,130,000)= $195,500 underapplied
Felicity Corporation manufactures a specialty line of dresses using a job-order cost system.
During January, the following costs were incurred in completing job J-1:
Direct materials $ 27,400

Direct labor 9,600
Administrative costs 2,800
Selling costs 11,200
Factory overhead was applied at the rate of $50 per direct labor hour, and job J-1 required 400
direct labor hours. If job J-1 resulted in 4,000 good dresses, the cost of goods sold per unit is
$14.25
CMA 0694 3-1

Which one of the following is least likely to be an objective of a cost accounting system?
General Feedback
Sales commission determination
CMA 0697 3-1

Which one of the following best describes direct labor?
General Feedback
Both a product cost and a prime cost
In analyzing whether to build another regional service office, the salary of the Chief Executive Officer
(CEO) at the corporate headquarters is?
Irrelevant because it is future cost that will not differ between the alternatives under consideration.
CMA 1282 4-101

Which of the following is the best example of a variable cost?
General Feedback
Cost of raw materials.
CMA 1294 3-1

products.
Tape Cleaning
Duplicator Unit
Machining @ $12/hr. 18.00 15.00
Assembly @ $10/hr. 30.00 10.00
Total cost $ 146.00 $ 88.00
Actual research and development costs $ 240,000 $ 175,000
Proposed advertising and promotion costs $ 500,000 $ 350,000
For Huron's tape duplicator, the unit costs for raw materials, machining, and assembly represent
Prime costs
Mednick Company's beginning and ending inventories for the month of October are:
October 1 October
31
Direct materials $ 67,000 $ 60,000
Work-in-process 145,000 170,000
Finished goods 85,000 70,000
Production data for the month of October
are
Actual factory overhead 145,200
Direct materials purchased 179,300
Transportation in 4,400
Purchase returns and 2,200
allowances
Mednick uses one factory overhead control account and charges factory overhead to production at
70% of direct labor cost. The company does not formally recognize over- or underapplied overhead
until year-end.
Mednick Company's prime costs for October were?

$408,500 $188,500 DM + $220,000 DL)
Beginning materials inventory
$ 67,000
Purchases
179,300
Transportation in
4,400
Purchase returns and allowances
(2,200)
Materials available for use
248,500
Ending materials inventory
(60,000)
Materials used
$ 188,500

Drill Saw
Fixed O/H at $4/hr. 9.00 4.50
costs
costs
The difference between the $49.95 selling price of Hitchcock's power saw and its total unit cost of
$44.00 represents the unit?
Contribution margin ratio
If the beginning monthly balance of materials inventory was $37,000, the ending balance was
$39,500, and $257,800 of materials were used, the cost of materials purchased during the month
was? $260,300 $37,000 + P - $39,500 = $257,800
P = $257,800 + $39,500 - $37,000
P = $260,300
CMA 0689 4-12


Drill Saw
Fixed O/H at $4/hr. 9.00 4.50
costs
costs
The advertising and promotion costs for the product selected by Hitchcock will be?
Discretionary costs
If the beginning balance for May of the materials inventory account was $27,500, the ending
balance for May is $28,750, and $128,900 of materials were used during the month, the materials
purchased during the month cost?
$130,150 ($128,900 used - $27,500 BI + $28,750 EI)
In a labor intensive industry in which more overhead (service, support, more expensive equipment,
etc.) is incurred by the more highly skilled and paid employees, which activity base is most likely to
be appropriate for applying overhead?
Direct labor cost
.
Trainor is using the following information to assess operations
20,000 hours.

Machine utilization 130,000
hours
Labor rate $ 15 per
hour
Work-in-process inventory (at year- $
end)
-Total factory overhead is applied to direct labor cost using a predetermined plant-wide rate.
-The budgeted activity for the year included 20 employees each working 1,800 productive hours per
year to produce 540,000 units of product. The machines are highly automated, and each employee
can operate two to four machines simultaneously. Normal activity is for each employee to operate
two to four machines simultaneously. Normal activity is for each employee to operate three
machines. Machine operators are paid $15 per hour.
- Budgeted factory overhead costs for the past year for various levels of activity are shown in the
table below.

Units of product 360,000 540,000 720,000
Labor hours 30,000 36,000 42,000
Machine hours 72,000 108,000 144,000
Total factory overhead
costs:
Plant rent 40,000 40,000 40,000
Maintenance 42,000 51,000 60,000
Utilities 144,600 216,600 288,600
Other costs 11,200 16,600 22,000
Total $ $ 961,200 $
685,800 1,236,600
What is the amount of underapplied overhead allocated to cost of goods sold?

$156,400
General Feedback
$156,400
The choice ''$0'' is incorrect because $0 is the amount allocated to work-in-process inventory.The
choice ''$39,100'' is incorrect because $39,100 is the amount allocated to finished goods
inventory.The choice ''$156,400'' is correct because since the amount of underapplied overhead is
considered material, the proper accounting treatment is to prorate this amount to work-in-process,
finished goods inventory, and the cost of goods sold. Thus, the ending balances must be added
together to get $2,151,200 ($1,720,960 + $430,240). The amount of underapplied overhead is then
multiplied by .8 ($1,720,960 ・$2,151,200) to get the amount of underapplied overhead allocated to
cost of goods sold, which is $156,400. The choice ''$195,500'' is incorrect because $195,500 is the
amount of overhead underapplied.
October 1 October 31

Production data for the month of October are
Purchase returns and allowances 2,200
until year-end.
Mednick Company's total manufacturing costs incurred during October were?

$562,500 ($188,500 + $220,000 + $154,000).
CMA 0690 4-4

Alex Company had the following inventories at the beginning and end of the month of January.
January January
1 31
Finished goods $ $ 117,000
125,000
Direct materials 134,000 124,000
The following additional manufacturing data were
available for the month of January:
Direct materials purchased $ 189,000
allowances
Transportation-in 3,000
Direct labor 300,000
Alex Company applies factory overhead at a rate of 60% of direct labor cost, and any overapplied
or underapplied factory overhead is deferred until the end of the year, December 31.
Alex Company's cost of goods sold for January was

Choice 1
CMA 0690 4-4

January 1 January 31
Finished goods $ 125,000 $ 117,000

The following additional manufacturing data were available for the month of
January:
or underapplied factory overhead is deferred until the end of the year, December 31.
Alex Company's cost of goods sold for January was?
Beginning finished goods inventory

$125,000
Plus cost of goods manufactured
665,000
Goods available for sale
790,000
Minus ending finished goods inventory
(117,000)
Cost of goods sold
$673,000
Cost of goods sold is a component of the income statement. In a merchandising establishment, this
refers to purchases adjusted for changes in inventory. In a manufacturing company, what replaced
purchases to arrive at cost of good sold?
Cost of good manufactured
ackson Products
Schedule of Cost of Goods Manufactured
For the Year Ended December 31 (in thousands)
Direct materials:
Beginning inventory $ 17,000
Purchases of direct materials 70,000
Cost of direct materials available for use 87,000
Ending inventory 9,000

Direct materials used $ 78,000
Direct manufacturing labor 9,000
Indirect manufacturing costs:
Indirect manufacturing labor $ 8,000
Supplies 1,000
Heat, light, and power 4,000
Depreciation--plant building 2,000
Depreciation--plant equipment 3,000
Miscellaneous 2,000 20,000
Manufacturing costs incurred during the period 107,000
Add beginning work-in-process inventory 11,000
Total manufacturing costs to account for 118,000
Deduct ending work-in-process inventory 7,000
Cost of goods manufactured (to Income Statement) $ 111,000
What are Jackson's prime costs for the year?

$87,000
October 1 October 31


until year-end.
Mednick Company's net debit or credit to factory overhead control for the month of October was?
Credit of $8,800 overapplied
CMA 0690 4-3

January January
1 31
Finished goods $ $ 117,000
125,000
The following additional manufacturing data were
available for the month of January:
allowances
or underapplied factory overhead is deferred until the end of the year, December 31
Alex Company's cost of goods manufactured for January was?

$665,000
CMA 1295 3-20

Madtack Company's beginning and ending inventories for the month of November are:
November November
1 30
Production data for the month of November follows:
allowances
Madtack uses one factory overhead control account and charges factory overhead to production at
70% of direct labor cost. The company does not formally recognize over/underapplied overhead
until year-end.
Madtack Company's total manufacturing cost for November is?

$510,000
CIA 1196 III-93

A company uses a job-order cost system in accounting for its manufacturing operations. Because
its processes are labor oriented, it applies manufacturing overhead on the basis of direct labor
hours (DLH).Normal spoilage is defined as 4% of the units passing inspection. The company
includes a provision for normal spoilage cost in its budgeted manufacturing overhead and
manufacturing overhead rate. Data regarding a job consisting of 30,000 units are presented below:
Volume Data
Total units in job 30,000
Units failing inspection (spoiled) 1,500
Good units passing inspection 28,500
Cost Data Per Unit Total Cost
Direct materials $ 18.00 $ 540,000
Direct labor 2 DLH @ 32.00 960,000
$16.00/DLH
Manufacturing 2 DLH @ 60.00 1,800,000
overhead $30.00/DLH
Total $110.00 $3,300,000
The 1,500 units that failed inspection required .25 direct labor hours per unit to rework the units
into good units. What is the proper charge to the loss from abnormal spoilage account?
$4,140 {360 units x [(.25 x $16) direct labor + (.25 x $30) manufacturing overhead]}
CMA 0692 3-6

Departmental overhead rates are usually preferred to plant-wide overhead rates when?
The activities of each of the various departments in the plant are not homogeneous
CMA 1294 3-4

products.
Tape Cleaning
Duplicator Unit
Machining @ $12/hr. 18.00 15.00
Assembly @ $10/hr. 30.00 10.00
Total cost $ 146.00 $ 88.00
costs
costs
Research and development costs for Huron's two new products are:
Sunk costs
CMA 0689 4-13


Drill Saw
Fixed O/H at $4/hr. 9.00 4.50
costs
costs
The costs included in Hitchcock's fixed overhead are:

Committed costs
In a labor intensive industry in which more overhead (service, support, more expensive equipment,
etc.) is incurred by the more highly skilled and paid employees, which activity base is most likely to
be appropriate for applying overhead?
Direct labor cost
CMA 0693 3-1

The allocation of costs to particular cost objectives allows a firm to analyze all of the following
except:
Why the sales of a particular product have increased
CMA 1295 3-21

Madtack Company's beginning and ending inventories for the month of November are:
November November
1 30
Production data for the month of November follows:
Madtack uses one factory overhead control account and charges factory overhead to production at
70% of direct labor cost. The company does not formally recognize over/underapplied overhead
until year-end.
Madtack Company's cost of goods transferred to finished goods inventory for November is?
484,000 ($510,000 + $145,000 - $171,000).
Madtack Company's prime cost for November is?

General Feedback
$370,000
October 1 October
31
allowances
until year-end.
Mednick Company's cost of goods transferred to finished goods inventory for October was?
General Feedback
$537,500
Management accounting is an integral part of the management process. As such, it provides essential
information for the following objectives except:
General Feedback
Enhancing objectivity in decision-making.
Which of the following is not a characteristic of a “staff” authority?

General Feedback
It has authority to command action or give orders to subordinates.
A decision-making concept, described as “the contribution to income that is foregone by not using a limited
source for its best alternative use,” is called?
General Feedback
Opportunity Cost
CMA 1291 3-28

The estimated unit costs for a company using absorption (full) costing and planning to produce and
sell at a level of 12,000 units per month are as follows.
Estimated
Cost Item Unit Cost
Direct materials $ 32
Direct labor 20
Variable manufacturing overhead 15
Fixed manufacturing overhead 6
Variable selling 3
Fixed selling 4
Estimated prime costs per unit are?

$52. ($32 direct materials + $20 direct labor).
Lucy Sportswear manufactures a specialty line of T-shirts using a job-order cost system. During
March, the following costs were incurred in completing Job ICU2: direct materials, $13,700; direct
labor, $4,800; administrative, $1,400; and selling, $5,600. Factory overhead was applied at the rate
of $25 per machine hour, and Job ICU2 required 800 machine hours. If Job ICU2 resulted in
7,000 good shirts, the cost of goods sold per unit would be?
$5.50
CMA 0696 3-18

Conversion costs do not include?
Direct materials
A company uses a job-order cost system in accounting for its manufacturing operations. Because
its processes are labor oriented, it applies manufacturing overhead on the basis of direct labor
hours (DLH).Normal spoilage is defined as 4% of the units passing inspection. The company
includes a provision for normal spoilage cost in its budgeted manufacturing overhead and
manufacturing overhead rate. Data regarding a job consisting of 30,000 units are presented below:
Volume Data
Total units in job 30,000
Units failing inspection (spoiled) 1,500
Good units passing inspection 28,500
Cost Data Per Unit Total Cost
Direct materials $ 18.00 $ 540,000
Direct labor 2 DLH @ 32.00 960,000
$16.00/DLH
Manufacturing 2 DLH @ 60.00 1,800,000
overhead $30.00/DLH
Total $110.00 $3,300,000
The 1,500 units that failed inspection required .25 direct labor hours per unit to rework the units
into good units. When allocating service and administrative costs, the least useful criterion as a
basis for allocation is?
Ability to bear
The management concept of expenses - Assessment
CMA 1295 3-27

A cost that bears an observable and known relationship to a quantifiable activity base is a(n)?
Engineered cost
The term relevant cost applies to all the following decision situations except the
Determination of a product price.
A decision-making concept, described as “the contribution to income that is foregone by not using a
limited source for its best alternative use,” is called
Opportunity Cost.
CMA 1291 3-27

Estimated
Cost Item Unit Cost
Direct labor 20
Variable manufacturing overhead 15
Variable selling 3
Fixed selling 4
Estimated conversion costs per unit are?

General Feedback
$41
The denominator of the overhead application rate can be based on one of several production capacities.
Which would minimize expected over- or underapplied overhead?
General Feedback
Expected volume
Cost objectives
General Feedback
All answers are correct
CIA 0593 IV-6

A manufacturing firm may experience both normal and abnormal spoilage in its operations. The
costs of both normal and abnormal spoilage are accounted for in the accounting records. The costs
associated with any abnormal spoilage are?
Charged to a special abnormal spoilage loss account
In analyzing whether to build another regional service office, the salary of the Chief Executive
Officer (CEO) at the corporate headquarters is?
Irrelevant because it is future cost that will not differ between the alternatives under consideration.
Management accountants are frequently asked to analyze various decision situations including the
following:
I. The cost of a special device that is necessary if a special order is accepted.

II. The cost proposed annually for the plant service for the grounds at corporate
headquarters.
III. Joint production cost incurred, to be considered in a sell-at-split versus a process-
further decision.
IV. The cost of alternative use of plant space to be considered in a make-or-buy decision.
V. The cost of obsolete inventory acquired several years ago, to be considered in a
keep-versus-disposal decision.
The cost described in situation II is a?

Differential costs
The costs described in situations I and IV are?
Relevant costs
CMA 0692 3-5
The terms direct cost and indirect cost are commonly used in accounting. A particular cost might be
considered a direct cost of a manufacturing department but an indirect cost of the product produced
in the manufacturing department. Classifying a cost as either direct or indirect depends upon.
The cost objective to which the cost is being related
CMA 1294 3-5
products.
Tape Cleaning
Duplicator Unit
Machining @ $12/hr. 18.00 15.00
Assembly @ $10/hr. 30.00 10.00
Total cost $ 146.00 $ 88.00
costs
costs
The advertising and promotion costs for the product selected by Huron will be ?
Discretionary costs
The costs included in Huron's fixed overhead are
Committed costs
The term that refers to costs incurred in the past that are not relevant to a future decision is?
Sunk Cost
CMA 1282 4-101
Which of the following is the best example of a variable cost?
Cost of raw materials.
CMA 0690 5-27
Costs that arise from periodic budgeting decisions that have no strong input-output relationship are
commonly called?
Discretionary costs
CMA 0678 4-11
Discretionary costs are?
Those management decides to incur in the current period to enable the company to achieve
objectives other than the filling of orders placed by customers.
CMA 0678 4-12
Controllable costs are those that?
Are likely to respond to the amount of attention devoted to them by a specified manager
When all manufacturing cost used in production are attached to the products, whether direct, or
indirect, variable of fixed, this is called?
Absorption costing
A cost that may be eliminated by performing an activity more efficiently is a(n)?
Avoidable cost.
In a decision analysis situation, which one of the following costs is not likely to contain a variable
cost component?
Depreciation
Sunk costs
In themselves are not relevant to decision making
The economic concept of expenses - Assessment
The opportunity cost of making a component part in a factory with excess capacity for which there
is no alternative use is
zero.
CMA 1291 3-29
Estimated
Cost Item Unit Cost
Direct labor 20
Variable manufacturing 15
overhead
Fixed manufacturing 6
overhead
Variable selling 3
Fixed selling 4
Estimated total variable costs per unit are?

$70 ($32 direct materials + $20 direct labor + $15 variable overhead + $3 variable selling costs)
Opportunity costs are?

The difference between actual and standard costs
The increased use of technology and automation in companies has created a trend that has increased a
particular cost. To which cost has this trend caused an increase?
Fixed costs
The salaries you could be earning by working rather than attending college is an example of
Opportunity costs
CMA 1277 5-5

An imputed cost is?
A cost that does not entail any dollar outlay but is relevant to the decision-making process.
CMA 1291 3-30

Estimated
Cost Item Unit Cost
Direct labo 20
Variable manufacturing 15
overhead
Variable selling 3
Fixed selling 4
Estimated total costs that would be incurred during a month with a production level of 12,000 units
and a sales level of 8,000 units are
$948,000 ($876,000 + $48,000 + $24,000).
CMA 0693 3-4

A fixed cost that would be considered a direct cost is?
A production supervisor's salary when the cost objective is the Production Department
Management accountants are concerned with incremental unit costs. These costs are similar to the
following, except?
The manufacturing unit cost
A non-linear cost function
Does not effectively describe the behavior of costs all the time
Which one of the following is most likely a variable cost?

Direct materials
Variable expenses vs. Fixed expenses - Assessment
A fixed cost that would be considered a direct cost is

A production supervisor's salary when the cost objective is the Production Department.
Which one of the following is a name for the level of activity over which a company expects to
operate?
Relevant range
The increased use of technology and automation in companies has created a trend that has
increased a particular cost. To which cost has this trend caused an increase?
Fixed costs
Which one of the following is most likely a variable cost?

Direct materials
Why is identification of a relevant range important?

Cost behavior outside of the relevant range is not linear, which distorts CVP analysis.
An example of a discretionary fixed cost is:

management training.
Expense segregation as to its variable or fixed components - Assessment
A company wants to determine its marketing costs for budgeting purposes. Activity measures and
costs incurred for 4 months of the current year are presented in the table below. Advertising is
considered to be a discretionary cost. Salespersons are paid monthly salaries plus commissions.
The sales force was increased from 20 to 21 individuals during the month of May.
MARCH APRIL MAY JUNE
Activity measures:
Sales orders 2,000 1,800 2,400 2,300
Units sold 55,000 60,000 70,000 65,000
Dollar sales $1,150,000 $1,200,000 $1,330,000 $1,275,000
Marketing costs:
Advertising $ 190,000 $ 200,000 $ 190,000 $ 190,000
Sales salaries 20,000 20,000 21,000 21,000
Commissions 23,000 24,000 26,600 25,500
Shipping costs 93,000 100,000 114,000 107,000
Total costs $ 326,000 $ 344,000 $ 351,600 $ 343,500
Which of the following most appropriately describes the classification and behavior of shipping
costs?
Classification Behavior
Mixed cost $16,000 per month plus $1.40 per unit sold
The four components of time series data are secular trend, cyclical variation, seasonally, and
random variation. The seasonality in the data can be removed by?
Taking the weighted average over four time periods
The auditor of a bank has developed a multiple regression model that has been used for a number
of years to estimate the amount of interest income from commercial loans. During the current year,
the auditor applies the model and discovers that the r2 value has decreased dramatically, but the
model otherwise seems to be working well. Which conclusion is justified by the change?
Some new factors, not included in the model are causing interest income to change.
For the month just ended, the cost components to make Product FX was 50 per unit plus fixed
costs of P250,000. One thousand units were produced. For the current month, the cost to make the
product will be P55 per unit plus fixed cost of P250,000. Fifteen hundred units are expected to be
produced. The estimates of the underlying, but unknown intercept and slope coefficient for the
current month are?
P250,000 and P55
Pyramid Company has data relating total production costs to volume for each quarter during the
past five years. During this period, production volume has varied substantially. The method of
production has been relatively unchanged and the cost behavior has been complex. What is the
most appropriate method for estimating future production cost?
Time-series or trend regression analysis
In regression analysis, the coefficient of determination is a measure of?

The amount of variation in the dependent variable explained by the independent variables.
An internal auditor for a large automotive parts retailer wishes to perform a risk analysis and wants
to use an appropriate statistical tool to help identify stores that are at variance with the majority of
stores. The most appropriate statistical tool to use would be?
Cross-sectional regression analysis
A fixed cost that would be considered a direct cost is

A production supervisor's salary when the cost objective is the Production Department.
Below is an examination of last year’s financial statements of Mackenzie Park Co., which
manufactures and cells trivets. Labor hours and production cost for the last 4 months of the
years, which are representative for the year, were as follows:
Total
Labor Production
Month Hours Costs
September 2,500 P 20,000
October 3,500 25,000
November 4,500 30,000
December 3,500 25,000
Totals 25,000 P 100,000
Based upon the information given using the least squares method of computation with letters
listed below, select the best answer for each question.
IF: a = Fixed variable cost per month

y = Total monthly production costs
b = Variable production cost per labor
hour
n = Number of months
x = Labor hours per month
å = Summation
Using the least squares method of computation the fixed monthly production cost of trivets is
approximately?
The fixed production cost is assumed to be constant. Using the least squares method, the
values of åX, åY, åXY, and åx² are to be determined as shown below (X=labor hours, Y-costs):
X Y XY X²
2,500 P 20,000 P 50,000,000 P 6,250,000
3,500 25,000 87,500,000 12,250,000
4,500 30,000 135,000,000 20,250,000
3,500 25,000 87,500,000 12,250,000
S= 14,000 P100,000 P360,000,000 P51,000,000
Using the least squares equations, and since n = 4, we have:
SY = na + bSx = 100,000 = 4a + b14,0000

SXY = aSx + bSx² = 360,000,000 = 14,000a + b51,000,000
To solve for “b”, let us eliminate “a” by making the coefficient of “a” in the first equation equal to
the negative of the coefficient of “a” in the second equation. To do it, we have to multiply the
first equation by negative 3,500 I.e., 14,000/4), and it will result as follows:
[ 100,000 = 4a + b14,0000 ] –3,500

360,000,000 = 14,000a + b51,000,000
- 350,000,000 = -14,000a – b49,000,000
10,000,000 = + b 2,000,000
b = 10,000,000 / 2,000,000
b = 5
By substituting the value of “b” (i.e., variable cost rate) in the first equation, then, the value of
“a” is determined as:
If : 100,000 = 4a + b14,0000
Then : 100,000 = 4a + (5)14,000
100,000 = 4a + 70,000
4a = 100,000 – 70,00
a = 7,500 (value of fixed cost)
The controller of JoyCo has requested a quick estimate of the manufacturing supplies needed for
the Morton Plant for the month of July when production is expected to be 470,000 units to meet the
ending inventory requirements and sales of 475,000 units. JoyCo's budget analyst has the following
actual data for the last 3 months:
Productio Manufacturi
n ng
Mont in Units Supplies
h
Marc 450,000 $ 723,060
h
April 540,000 853,560
May 480,000 766,560
Using these data and the high-low method to develop a cost estimating equation, the estimate of
needed manufacturing supplies for July would be?
$752,060
Regression analysis
Estimates the dependent cost variable
An auditor used regression analysis to evaluate the relationship between utility costs and
machine hours. The following information was developed using a computer software program:
Intercept 2,050
Regression .825
Correlation coefficient .800
Standard error of the 200
estimate
Numbers of observations 36
What is the expected utility cost if the company’s 10 machines will use 2,400 hours next month?
P4,030
The segregation of fixed costs and variable costs is key to proper cost analysis. Regression
analysis is a technique used for this purpose. Identify the appropriate statements below on
regression analysis:
1. It assumes that a change in value of a dependent variable is related to the change in

the value of an independent variable.
2. A linear relationship between direct cost and production volume can cause a problem
when using accounting data for regression analysis.
3. It attempts to find an equation for the linear relationship among variable.
It establishes a cause and affect relationship
Statements 1 and 3 only
The auditor of a bank has developed a multiple regression model that has been used for a number
of years to estimate the amount of interest income from commercial loans. During the current year,
the auditor applies the model and discovers that the r2 value has decreased dramatically, but the
model otherwise seems to be working well. Which conclusion is justified by the change?
Some new factors, not included in the model are causing interest income to change.
If the coefficient of correlation between two variables is zero, how might a scatter diagram of these
variables appear?
Random points
The Manso Company derived the following cost relationship from a regression analysis of its
monthly manufacturing overhead cost:
C = P80,000 + P12 M
If: C = monthly manufacturing overhead cost
M = machine hours
The standard error of the estimate of the regression is P6,000, The standard time required to
manufacture one six-unit case of Manso’s single product is 4 machine hours. Manso applies
manufacturing overhead to production on the basis of machine hours, and its normal annual
production is 50,000 cases.
Manso’s predetermined fixed manufacturing overhead rate would be?
P4.80 per machine hour
Rovic Company is in the process of preparing its budget for the next fiscal year. The company has
had problems controlling costs in prior years and has decided to adopt a flexible budgeting system
this year. Many of its costs contain both fixed and variable cost components. A method that can be
used to separate costs into fixed and variable components is?
Regression analysis
In preparing the annual profit plan for he coming year. Darna Company wants to determine the
cost behavior pattern of the maintenance costs. Darna has decided to use linear regression by
employing the equation Y = a + bx for maintenance costs. The prior year’s data regarding
maintenance hours and cots and the results of the regression analysis are given below,
Average cost per hour P 9.00

A 684.65
B 7.2884
Standard error of a 49.515
Standard error of b 12126
Standard error of the estimate 34.469
r² .99724
The letter “x” in the standard regression equation is
best described as a (an)?
Independent variable
A division uses a regression in which monthly advertising expenditures are used to predict monthly
product sales (both in millions of pesos). The results show a regression coefficient for the
independent variable equal to 0.8. This coefficient value indicates that?
On average, for every additional peso in advertising, sales increase by P.80.
Multiple regression analysis involves the use of

Dependent Independent
Variables Variables
One More than

one
In preparing the annual profit plan for he coming year. Darna Company wants to determine the
cost behavior pattern of the maintenance costs. Darna has decided to use linear regression by
employing the equation Y = a + bx for maintenance costs. The prior year’s data regarding
maintenance hours and cots and the results of the regression analysis are given below,
Average cost per hour P 9.00

A 684.65
B 7.2884
Standard error of a 49.515
Standard error of b 12126
Standard error of the 34.469
estimate
r² .99724
###########
In the standard regression equation Y = a + bx, the letter b is best described as a(n):
General Feedback
Constant coefficient
The following are selected budgeted data of Russel Gil Company for the coming year:
Selling price per unit P 12.00

Budgeted sales 600,000
Fixed expenses 150,000
Variable cost per unit 8.00
What is the margin of safety ratio in percent?

General Feedback
Margin of safety ratio.
Margin of safety ratio (MSR) is margin of safety divided by actual (or budgeted) sales. Considering the
given data, we have:
Budgeted sales P 600,000

Less: Breakeven sales (37,500 units x 450,000
P12)
Margin of safety P 150,000
Therefore, MSR is 25% (i.e., P150,000 / P600,000).
When using the graph method, if unit output exceeds the break-even point
Total sales exceed total cost
What are the four components of a time series?

Trend, cyclical, seasonal, and irregular
To facilitate planning and budgeting, management of a travel service company wants to develop
forecasts of monthly sales for the next 24 months. Based on past data, management has observed
an upward trend in level of sales. There are also seasonal variations with high sales in June, July,
and August, and low sales in January, February, and March. An appropriate technique for
forecasting the company’s sales is?
Time series analysis
Total
Production
Labor
Costs
Hours
Month
October 3,500 25,000
November 4,500
December 3,500 30,000
Totals 25,000 P 100,000

hour
å = Summation
60. The equation(s) required for applying the least squares method of computation of fixed
and variable production costs can be expressed as
SXY = aSx + bSx 2 ; SY = na + bSx
General Feedback
& In applying the least squares method to segregate the fixed (i.e., “a”) and variable (i.e., “b”)
components in the regression line equation Y = a + bx, the following equations are to be used:
SY = na + bSx
SXY = aSx + bSx²
In determining cost behavior in business, the cost function is often expressed as Y = a + bX. Which
one of the following cost estimation methods should not be used in estimating fixed and variable
costs for the equation?
Multiple regression
Simple regression analysis involves the use of (aicpa)

Dependent Independent
Variables Variables
One
One
Correlation is a term frequently used in conjunction with regression analysis and is measured by
the value of the coefficient of correlation, “r”. The best explanation of the value “r” is that it?
Is a measure of the relative relationship between two variables
Quality control program employs many tools for problem definition and analysis. A scatter diagram
is one of these tools. The objective of a scatter diagram is to?
Quality control program employs many tools for problem definition and analysis. A scatter diagram
is one of these tools. The objective of a scatter diagram is to
The Manso Company derived the following cost relationship from a regression analysis of its
monthly manufacturing overhead cost:
C = P80,000 + P12 M
If: C = monthly manufacturing overhead cost
M = machine hours
The standard error of the estimate of the regression is P6,000, The standard time required to
manufacture one six-unit case of Manso’s single product is 4 machine hours. Manso applies
manufacturing overhead to production on the basis of machine hours, and its normal annual
production is 50,000 cases.
Manso’s estimated variable manufacturing overhead cost for a month in which scheduled overhead
is 5,000 cases will be?
P240,000 (i.e., 20,000 MH x P12).
Which of the following may be used to estimate how both the number of shipments and the weight
of materials handled affect inventory warehouse costs?
Multiple regression analysis
Mine and Yours Company uses a regression equation to analyze the behavior of its
transportation costs (T) as a function of travel time (H). They developed the following equation
using two years’ observation with a related coefficient of determination of .85:
T = 100,000 + P50H
If 500 hours of travel time were logged in one period, the related point estimate of total
transportation costs would be:
P125,000
Simple regression differs from multiple regression in that:

Simple regression uses only one independent variable and multiple regression use more than one
independent variable
Based upon the data described from the regression analysis, 420 maintenance hours in a month
would mean the maintenance costs (rounded to the nearest peso) would be budgeted at?
P3,746 Based on the data given, the regression equation is Y = 684.65 + 7.2884x. If “x” is 420
hours, then the value of Y shall be P3,746 [i.e., Y = 684.65 + 7.2884(420)].
Total
Labor Production
Month Hours Costs
October 3,500 25,000
November 4,500 30,000
December 3,500 25,000
Totals 25,000 P 100,000

hour
å = Summation
Monthly production cost can be expressed

y = a + bx
All of the following are assumptions underlying the validity of linear regression output except:
Certainty
Kwing Company uses regression analysis to develop model for predicting overhead costs. Two
different cost drivers (machine hours and direct materials weight) are under considerations as
the independent variable. Relevant data were run on a computer using one of the standard
regression programs, with the following results:
Machine Coefficient Direct materials Coefficient

hours weight
Y intercept 2,500 Y Intercept 4,600
b 5.0 b 2.6
r2 .70 r2 50
Which regression equation should be used?

Y = 2,500 + 5.0x.
An auditor asks accounting personnel how they determine the value of the organization’s real
estate holdings. They say that valuations are based on a regression model that uses 17 different
characteristics of the properties (square footage, proximity to downtown, age, etc.) to predict value.
The coefficients of this model were estimated using a random sample of 20 company properties, for
which the model produced an r2 value of 0.92. Based on this information, which one of the
following should the auditor conclude.
The model’s high r2 probably is due in large part to random chance
These are among the methods of segregating fixed cost and variable costs except
Breakeven method.
Inventory and profit measurement: absorption costing vs. variable costing
Which one of the following considers the impact of fixed overhead costs?
Full absorption costing
Care Company’s 2013 fixed manufacturing overhead cost totaled P100,000 and variable selling
costs totaled P80,000. Under direct costing, how should these costs be classified?
Period Cost Product Cost
P180,000 P 0
This data was taken from Valenz Company's records for the fiscal year ended November 30.

Variable factory overhead 50,000
Fixed factory overhead 80,000
Selling and admin. costs- 40,000
variable
Selling and admin. costs-fixed 20,000
If Valenz Company uses variable (direct) costing, the inventoriable costs for the fiscal year are:
Direct materials used $
300,000
Total inventoriable costs $
450,000
With a production of 200,000 units of product A during the month of June, Bucayao Corporation
has incurred costs as follows:
Direct materials P 200,000
Direct labor used 135,000
Manufacturing overhead:
Variable 75,000
Fixed 90,000
Selling and administrative expenses:
Variable 30,000
Fixed 85,000
Total P615,000
Under absorption costing, the unit cost of product A was:

P 2.50
Direct materials (P200,000/200,000 units) P 1.000
Direct labor (P135,000/200,000 units) 0.675
Variable overhead (P75,000/200,000 units) 0.375
Fixed overhead (P90,000/200,000 units) 0.450
Total Unit Cost P 2.500
Alternatively, the unit costs may be determined as follows:

Total production costs
( P200,000 + P135,000 + P75000 + P 90,000) P 500,000
/ Production in units 200,000
Unit costs P 2.50
In an income statement prepared as an internal report using the direct (variable) costing method, fixed
selling and administrative expenses would
Be used in the computation of operating income but not in the computation of the contribution margin
Lina Company produced 100,000 units of Product Zee during the month of June. Costs incurred
during June were as follows:
Direct materials P
100,000
Direct labor 80,000
Variable manufacturing overhead 40,000
Fixed manufacturing overhead 50,000
Variable selling and general 12,000
expenses
Fixed selling and general 46,000
expenses
Total P
327,000
. What was product Zee’s unit cost under variable (direct) costing?
P2.20
Direct materials P1.00
Direct labor 0.80
Variable overhead 0.40
Unit product cost- variable P2.20
costing
Which method of inventory costing treats direct manufacturing costs and manufacturing overhead costs,
both variable and fixed, as inventoriable costs?
Absorption costing
In absorption costing, as contrasted with direct costing, the following are absorbed into inventory
All the elements of fixed and variable manufacturing overhead

variable
Using absorption (full) costing, inventoriable costs are?

$530,000
Absorption costing and variable costing are two different methods of assigning costs to units
produced. Of the following five cost items listed, identify the one that is not correctly accounted for
as a product cost.
Part of Product Cost under

Absorption Cost Variable Cost
Packaging and shipping costs Yes Yes
Care Company’s 20CY fixed manufacturing overhead cost totaled P100,000 and variable selling
costs totaled P80,000. Under direct costing, how should these costs be classified?
Period Cost Product Cost
P180,000 P 0
Assuming absorption costing, which of the following columns includes only product costs?
A B C D
Direct labor X X X
Direct materials X X X
Sales materials X
Advertising costs X
Indirect factory materials X X X
Indirect labor X X X
Sales commissions X
Factory utilities X X X
Administrative supplies expense X
Administrative labor X
Depreciation on administration X
building
Cost of research on customer X
demographics
General Feedback
D
Compute for the inventory value under the direct costing method using the data given: units unsold
a the end of the period, 45,000; raw materials used, P6.00 per unit; raw materials inventory,
beginning, P5.90 per unit; direct labor, P3.00 per unit; variable overhead pe
General Feedback
The cost of the ending inventory comprises that of the variable production costs, such as:
Direct materials P 6.00

Direct labor 3.00
Variable factory overhead 2.00
Unit cost-direct costing P11.00
Identify the following statements as true or false.
Statement 1. In a variable costing system, fixed overhead costs are included as cost of
inventory.
Statement 2. Under the direct costing method, the contribution margin discloses the
excess of revenues over fixed costs.
Statement 1 is false, Statement 2 is false
The books of Mariposa Company pertaining to the year ended December 31, 2017 operations,
showed the following figures relating to product A:
Beginning inventory-finished goods and work in none

process
No. of units produced 40,000
units
No. of units sold at P 15 32,500
units
Direct materials used P 177,500
Direct labor used P 85,000
Manufacturing costs:
Fixed P
110,000
Variable 61,500 P 171,500
Fixed administrative expenses P 30,000
Under variable costing, what would be the finished goods inventory as at December 31, 2017?
General Feedback
The amount of the finished goods inventory under the variable costing method.
The cost of the ending inventory under the variable costing model shall be:
Ending inventory in units (40,000 – 32,500) 7,500
x Unit product cost

[(P177,500 +P85,000 + P61,500) / 40,000 units] P 8.10
Ending inventory in pesos P 60,750
The data available for the current year are given below:
Whole Division Division Division Division

Company 1 2 3 4
Variable manufacturing cost $400,000 $140,000 $80,000 $70,000 $110,000
of goods sold
Unallocated costs (e.g., 100,000
president's salary)
Fixed costs controllable by 90,000 30,000 20,000 20,000 20,000
division managers (e.g.,
advertising, engineering,
supervision costs)
Net revenue 1,000,000 300,000 200,000 250,000 250,000
Variable selling and 120,000 40,000 20,000 30,000 30,000
administrative costs
others (e.g., depreciation,
insurance)

General Feedback
$1,060,000
The following data are provided to you:
Sales per unit P 15.00

Variable production cost P 8.00
Annual fixed production cost 35,000.00
Variable office expense (unit) P 3.00
Annual fixed selling expense 15,000.00
Produced 12,500 units during the
period
No inventory at January 1 (beg.)
Sold 10,000 units
The ending inventory under direct costing is? P20,000

In absorption costing, as contrasted with direct costing, the following are absorbed into inventory
All the elements of fixed and variable manufacturing overhead
The following data are provided to you:

period
Sold 10,000 units
Ending inventory under absorption costing is

General Feedback
The ending inventory under absorption costing method.
The unit fixed overhead is P2.80 (i.e., P35,000 / 12,500 units). The total unit inventoriable cost
under absorption costing method is P10.80 (i.e. P8.00 + P2.80). Since, the ending inventory in
units is 2,500, then the cost of the ending inventory under the absorption costing method is
P27,000 (i.e., 2,500 units x P10.80).
Under the direct costing, which is classified as product costs?
Only variable production costs.
The following data are provided to you”

period

Sold 10,000 units
Total variable annual cost charged to expense in direct costing

General Feedback
Total variable costs charged to expenses.
The total variable costs charged to expense shall be composed of the variable cost and variable
expenses, as follows:
Variable CGS (10,000 x P8) P 80,000
Variable expenses (10,000 x P3) 30,000
Total variable costs P110,000
For P1,000 per box, the Majestic Producers, Inc., produces and sell delicacies. Direct materials
are P400 per box and direct manufacturing labor averages P75 per box. Variable overhead is
P25 per box and fixed overhead is P12,500,000 per year. Administrative expenses, all fixed, run
P4,500,000 per year, with sales commissions of P100 per box. Production is expected to be
100,000 boxes, which is met every year. For the year just ended, 75,000 boxes were sold. What
is the inventoriable cost per box using absorption costing.
P670
General Feedback
The inventoriable cost per box using absorption costing.
& Under the absorption costing method, the product (or inventoriable) costs include direct
materials, direct labor, variable overhead and fixed overhead. Therefore, the unit product cost is
P625, computed as follows:
Direct materials P400

Direct labor 75
Variable overhead 25
Fixed overhead 125
(P12,500,000/100,000)
Unit product cost P625
Which method of inventory costing treats direct manufacturing costs and manufacturing overhead costs,
both variable and fixed, as inventoriable costs?
Absorption costing
In the application of direct costing as a cost-allocation process in manufacturing.
Variable indirect costs are treated as product costs
Dotdot, Ltd., manufactures a single product for which the costs and selling prices are:
Variable production costs P 50 / unit

Selling price P 150 / unit
Fixed production overhead P 200,000 / quarter
Fixed selling and administrative overhead P 480,000 / quarter
Normal capacity is 20,000 units per quarter. Production in 1 quarter was 19,000 units and sales
volume was 16,000 units. No opening inventory for the quarter. The absorption costing profit
for the quarter was:
General Feedback
The absorption profit for the quarter.
The determination of the profit would have been easier without the implied presence of the
volume variance. The volume variance occurs because the normal capacity differs from the
actual level of production.
Normal capacity 20,000 units

- Actual production 19,000
Underabsorbed capacity 1,000 UF
x Unit fixed overhead (P200,000 / 20,000) P 10
Volume variance P 10,000 UF
The volume variance shall be included in the computation of profit. Unfavorable variances are
added to cost of goods sold or deducted from the profit. The profit, using the absorption costing
method, shall be as follows:
Sales (16,000 x P150) P 2,400,000

Variable CGS (16,00 x P50) ( 800,000)
Fixed overhead (16,000 x P10) ( 160,000)
Volume variance – unfavorable ( 10,000) UF
Fixed expenses ( 480,000)
Profit P 950,000
In absorption costing, as contrasted with direct costing, the following are absorbed into
inventory.
All the elements of fixed and variable manufacturing overhead.
The data available for the current year are given below:
Whole Division Division Division Division

Company 1 2 3 4
Variable manufacturing cost $400,000 $140,000 $80,000 $70,000 $110,000
of goods sold
Unallocated costs (e.g., 100,000
president's salary)
division managers (e.g.,
advertising, engineering,
supervision costs)
Net revenue 1,000,000 300,000 200,000 250,000 250,000
Variable selling and 120,000 40,000 20,000 30,000 30,000
administrative costs
others (e.g., depreciation,
insurance)

General Feedback
$1,060,000
Variable 75,000
Fixed 90,000
Variable 30,000
Fixed 85,000
Total P615,000

General Feedback
The inventoriable costs under absorption costing include direct materials, direct labor, variable
overhead, and fixed overhead, as follows:


( P200,000 + P135,000 + P75000 + P 90,000) P 500,000
Unit costs P 2.50
In an income statement prepared as internal report using the variable costing method, variable
selling and administrative expense would?
Be used in the computation of the contribution margin
Under the direct costing, which is classified as product costs?
Only variable production costs.

variable

$530,000
Absorption costing and variable costing are two different methods of assigning costs to units
produced. Of the following five cost items listed, identify the one that is not correctly accounted for
as a product cost.
Part of Product Cost

under
Absorption Variable
Cost Cost
Packaging and shipping Yes Yes
costs

variable

$530,000
Excellent Writer produces and sells boxes of signing pens for P1,000 per box. Direct materials
are P400 per box and direct manufacturing labor averages P75 per box. Variable overhead is
P25 per box and fixed overhead is P12,500,000 per year. Administrative expenses, all fixed, run
P4,500,000 per year, with sales commissions of P100 per box. Production is expected to be
100,000 boxes, which is met every year. For the year just ended, 75,000 boxes were sold. What
is the inventoriable cost per box using variable costing?
P500
Variable 75,000
Fixed 90,000
Variable 30,000
Fixed 85,000
Total P615,000

General Feedback
The inventoriable costs under absorption costing include direct materials, direct labor, variable
overhead, and fixed overhead, as follows:


( P200,000 + P135,000 + P75000 + P 90,000) P 500,000
Unit costs P 2.50
Valyn Corporation employs an absorption costing system for internal reporting purposes; however, the
company is considering using variable costing. Data regarding Valyn's planned and actual operations for
the calendar year are presented.
Planned Actual
Activity Activity
Beginning finished goods inventory 35,000 35,00
in units
Sales in units 140,000 125,000
Production in units 140,000 130,000
The planned per unit cost figures shown in the next schedule were based on the estimated
production and sale of 140,000 units for the year. Valyn uses a predetermined manufacturing
overhead rate for applying manufacturing overhead to its product; thus, a combined manufacturing
overhead rate of $9.00 per unit was employed for absorption costing purposes. Any over- or
underapplied
manufacturing overhead is closed to the cost of goods sold account at the end of the reporting year.
Planned Costs Incurred

Per Unit Total Costs
Direct materials $ 12.00 $ $
1,680,000 1,560,000
Direct labor 9.00 1,260,000 1,170,000
Variable manufacturing 4.00 560,000 520,000
overhead
Fixed manufacturing overhead 5.00 700,000 715,000
Variable selling expenses 8.00 1,120,000 1,000,000
Fixed selling expenses 7.00 980,000 980,000
Variable administrative 2.00 280,000 250,000
expenses
Fixed administrative expenses 3.00 420,00 425,000
Total $ 50.00 $ 7,000,00 $
6,620,000
The beginning finished goods inventory for absorption costing purposes was valued at the previous
year's planned unit manufacturing cost, which was the same as the current year's planned unit
manufacturing cost. There are no work-in-process inventories at either the beginning or the end of
the year. The planned and actual unit selling price for the current year was $70.00 per unit.
The value of Valyn Corporation's actual ending finished goods inventory on the variable costing
basis was?
General Feedback
$1,000,000
Lina Company produced 100,000 units of Product Zee during the month of June. Costs incurred during June
were as follows:

Direct labor 80,000
Variable manufacturing overhead 40,000
Fixed manufacturing overhead 50,000
Variable selling and general 12,000
expenses
Fixed selling and general expenses 46,000
Total P 327,000
What was product Zee’s unit cost under absorption costing?
General Feedback
The unit cost under absorption costing.
The unit product cost using absorption costing method includes all variable production costs (i.e., direct
materials, direct labor, and variable overhead) and fixed manufacturing overhead. Selling and general
expenses, both variable and fixed, are period costs. The unit product cost under absorption costing is
P2.70, determined as follows:
Direct materials (P100,000 / 100,000 units) P 1.00
Direct labor (P 80,000 / 100,000 units) 0.80
Variable overhead (P 40,000 / 100,000 units) 0.40
Fixed overhead (P 50,000 / 100,000 units) 0.50
Unit product cost- absorption costing (P270,000 / 100,000 units) P 2.70
Inventoriable costs.
General Feedback
Are regarded as assets before the products are sold
If production is greater than sales (units), then absorption costing profit will generally be
Greater than direct costing profit.
In the application of direct costing as a cost-allocation process in manufacturing.
Variable indirect costs are treated as product costs
Valyn Corporation employs an absorption costing system for internal reporting purposes; however,
the company is considering using variable costing. Data regarding Valyn's planned and actual
operations for the calendar year are presented.
Planned Actual
Activity Activity
Beginning finished goods inventory 35,000 35,00
in units
Production in units 140,000 130,000
The planned per unit cost figures shown in the next schedule were based on the estimated
production and sale of 140,000 units for the year. Valyn uses a predetermined manufacturing
overhead rate for applying manufacturing overhead to its product; thus, a combined manufacturing
overhead rate of $9.00 per unit was employed for absorption costing purposes. Any over- or
underapplied
manufacturing overhead is closed to the cost of goods sold account at the end of the reporting year.
Planned Costs Incurred

Per Unit Total Costs
Direct materials $ 12.00 $ $
1,680,000 1,560,000
Direct labor 9.00 1,260,000 1,170,000
Variable manufacturing 4.00 560,000 520,000
overhead
Fixed manufacturing overhead 5.00 700,000 715,000
Variable selling expenses 8.00 1,120,000 1,000,000
Fixed selling expenses 7.00 980,000 980,000
Variable administrative 2.00 280,000 250,000
expenses
Fixed administrative expenses 3.00 420,00 425,000
Total $ 50.00 $ 7,000,00 $
6,620,000
The beginning finished goods inventory for absorption costing purposes was valued at the previous
year's planned unit manufacturing cost, which was the same as the current year's planned unit
manufacturing cost. There are no work-in-process inventories at either the beginning or the end of
the year. The planned and actual unit selling price for the current year was $70.00 per unit.
The value of Valyn Corporation's current year actual ending finished goods inventory under the
absorption costing basis was?
General Feedback
$1,200,000
Accounting for the difference in profit - Assessment

If sales equal production, one would expect profit under the variable costing method to be
General Feedback
The same as profit under the absorption costing method.
When all manufacturing costs used in production are attached to the products, whether direct, or
indirect, variable of fixed, this is called:
General Feedback
Absorption costing
Which of the following statements is correct?

If all the products manufactured during the period are sold in that period, variable costing profit is
equal to absorption costing profit.
Operating income using direct costing as compared to absorption costing would be higher
When the quantity of beginning inventory is more than the quantity of ending inventory.
LY & Company completed its first year of operations during which time the following information were
generated:
Total units produced 100,000
Total units sold 80,000 @ P100/unit
Work in process ending inventory none
Cost:
Fixed cost:
Factory overhead P1.2 million
Selling and administrative P0.7 million
Per unit variable cost
Raw materials P 20.00
Direct labor 12.50
Factory overhead 7.50
Selling and administrative 10.00
If the company used the variable (direct) costing method, the operating income would be
General Feedback
The total of unit variable costs and expenses is P50 (i.e., P20 + P12.50 +P7.50 + P10). The analysis in
computing operating income is shown below:
Sales (80,000 units x P100) P8,000,000

Variable costs and expenses (80,000 units x (4,000,000)
50)
Fixed costs and expenses (1,900,000)
Operating income – variable costing P2,100,000
Volume variance - Assessment
Sta. Maria Inc. reported the following data for 20CY:

Actual hours 120,000
Denominator hours 150,000
Standards hours allowed for 140,000
output
Fixed predetermined overhead P6 per hour
rate
Variable predetermined overhead P4 per hour
rate
Sta. Maria’s 20CY volume variance was:

General Feedback
Volume variance refers to the ability or inability of the business to meet its normal production capacity.
In as much as unit fixed cost is affected by the level of production (i.e., UFxC decreases as production
increases), the volume variance has a direct relation to the amount of fixed costs charged against the
operations. The volume variance is computed as follows:
Normal hours 150,000 hrs
- Standard hours (140,000) hrs
Underabsorbed hours 10,000 hrs. UF
x Fixed costs rate per hour P 6 per hour

Volume variance P60,000 UF
P60,000 underapplied
Dotdot, Ltd., manufactures a single product for which the costs and selling prices are:
Variable production costs P 50 / unit
Selling price P 150 / unit
Fixed production overhead P 200,000 / quarter
Fixed selling and administrative overhead P 480,000 / quarter
Normal capacity is 20,000 units per quarter. Production in 1 quarter was 19,000 units and sales volume
was 16,000 units. No opening inventory for the quarter. The absorption costing profit for the quarter
was:
General Feedback
The absorption profit for the quarter.
The determination of the profit would have been easier without the implied presence of the volume
variance. The volume variance occurs because the normal capacity differs from the actual level of
production.
Normal capacity 20,000 units
- Actual production 19,000
Underabsorbed capacity 1,000 UF
x Unit fixed overhead (P200,000 / 20,000) P 10
Volume variance P10,000 UF
The volume variance shall be included in the computation of profit. Unfavorable variances are added to
cost of goods sold or deducted from the profit. The profit, using the absorption costing method, shall be
as follows:
Sales (16,000 x P150) P2,400,000
Variable CGS (16,00 x P50) ( 800,000)
Fixed overhead (16,000 x P10) ( 160,000)
Volume variance – unfavorable ( 10,000) UF
Fixed expenses ( 480,000)
Profit P 950,000
The production volume variance occurs when using
The absorption costing approach because production differs from that use in setting the fixed overhead
rate used in applying fixed overhead to production.
Basic assumptions in profit planning - Assessment
Cost-volume-profit analysis assumes that over the relevant range

Selling prices are unchanged.
Cost-volume-profit analysis assumes that over the relevant range total
Revenues are linear
The amount of variable cost per unit and total fixed cost within a relevant range behave this way in
relation to production level:
Production increases, unit variable cost remains constant, total fixed cost remains the same
Break-even analysis assumes that over the relevant range.
Selling prices are unchanged.
Breakeven analysis assumes linearity over the relevant range with respect to
Total costs Total revenue

Yes Yes
Total unit costs are
Irrelevant in marginal analysis
Break-even analysis assumes that over the relevant range
Selling prices are unchanged
Which one of the following is correct regarding a relevant range?
Total fixed costs will not change
Assuming that a flexible budget is in use, production levels are expected to increase within a relevant
ranged, the expected effect on fixed cost per unit (FCU) and variable costs per unit (VCU) would be
FCU to decrease and VCU no change
In a profit-volume graph, the cost/volume/profit relationships are represented. The vertical axis is the
profit in pesos and the horizontal axis is the volume in units. The diagonal line is the contribution
margin line. The point at which the contribution margin line intersects the zero profit line is the point:
At which the total costs equal the total sales
The amount of variable cost per unit and total fixed cost within a relevant range behave this way in
relation to production level:
Production increases, unit variable cost remains constant, total fixed cost remains the same
Breakeven point, margin of safety and operating leverage - Assessment
An organization sells a single product for P40 per unit that it purchased for P20. The salespeople
receive a salary plus a commission of 5% of sales. Last year the organization’s profit (after
taxes) was P100,800. The organization is subject to an income tax rate of 30%. The fixed costs
of the organization are:
Advertising P 124,000
Rent 60,000
Salaries 180,000
Other fixed costs 32,000
Total P 396,000
The breakeven point in unit sales for the organization is

22,000 units
A company is concerned about its operating performance, as summarized below:
Revenues (P12.50 per unit) P 300,000

Variable costs 180,000
Operating loss (40,000)
How many additional units should have been sold in order for the company to break even in
2013?
General Feedback
The number of additional units to sell at breakeven.
The company is operating at a loss. It has to increase its actual units sold to breakeven. The additional
number of units to sell to breakeven is the difference between breakeven point and the present actual
units sold.
The variable cost ratio is 60% (e.g., P180,000/P300,000). Therefore, the CMR is automatically 40%,
and the UCM is P5 (e.g., P12.50 x 40%).
Total fixed cost equals CM plus operating loss. CM is P120,000 (e.g., P300,000 – P180,000).
Therefore, total fixed cost is P160,000 (e.g., P120,000 + P40,000). The additional number of units to
sell is calculated as follows:
Breakeven sales (P160,000 / P5) 32,000 units

- Actual units sold (P300,000 / P12.50) 24,000
Needed increase in units sold to breakeven 8,000 units
To reduce the break-even point, the company may

Decrease the fixed costs and increase the contribution margin
The rate or amount that sales may decline before losses are incurred is called
Margin safety
At the breakeven point, the contribution margin equals total
Fixed costs
The percentage change in earnings before interest and taxes associated with the percentage change in
revenues is the degree of
Operating leverage
Given the following notations, what is the breakeven sales level in units?
SP = selling price per unit VC = variable cost per unit

FC = total fixed costs
FC ¸ [1 – (VC ¸ SP)].
Fixed costs
Hello Garci Company sells 50,000 units of “yo” a top-of-the-line garden sprinkle. These were taken from
the company’s records:
General Feedback
Breakeven revenue.
Breakeven revenue or breakeven peso sales is equal to fixed cost over CMRatio. The fixed cost is not
given but could be determined by getting the difference of contribution margin and profit before tax. The
amount of contribution margin is equal to sales multiplied by the CMRatio. The CMR is given but the
amount of net sales is to be computed using the receivable turnover analysis. Net sales equal average
accounts receivable balance times the receivable turnover. The A/R turnover is equal to 360 days in a
year divided by the collection period. The procedural analysis follows:
a. Average Accounts P 129,000

Receivable
x A/Receivable Turnover (360 days/15 24 times
days)
Net sales 3,096,000
X CMRatio 49%
Contribution margin 1,517,040
Less: Profit before tax 485,000
Fixed costs P1,032,040
b. BEP (pesos) P1,032,040 / 49% P2,106,204
Cost-volume-profit analysis is a key factor in many decisions, including choice of product-lines, pricing
of products, marketing strategy, and utilization of productive facilities. A calculation used in CVP
analysis is the break-even point. Once the break-even point has been reached profit will increase by the
General Feedback
Contribution margin per unit for each additional unit sold
A company manufactures a single product. Estimated cost data regarding this product and other
information for the product and the companies are as follows:
Sales price per unit P 40

Total variable production cost per P 22
unit
Sales commission (on sales) 5%
Fixed costs and expenses:
Manufacturing overhead P
5,598,720
General and P
administrative 3,732,480
Effective income tax rate 40%
The number of units the company must sell in the coming year in order to reach its breakeven
point is
General Feedback
The number of units to breakeven.
The sales commission is P2 per unit (5% x P40). The total unit variable cost is P24 (i.e., P22 + P2), and
the unit contribution margin is P16 (i.e., P40 – P24).
Total fixed costs are P9,331,200 (i.e., P5,598,720 + P3,732,480). Therefore, the BEP in units is:
BEP (units) = P9,331,200 / P16 = 583,200 units

Mela Corporation has a contribution margin ratio of 0.26. It aims to have a profit of P320,000 with a
sales volume of P2 million. Its total fixed costs amount to
General Feedback
The amount of fixed costs.
Fixed costs and expenses may be determined by getting the difference of contribution margin and income
before income tax, as follows:
Contribution margin (P2 million x .26) P 520,000

- Income before income tax 320,000
Total fixed costs and expenses P 200,000
Don Masters and two of his colleagues are considering opening a law office that would make
inexpensive legal services available to those who could not otherwise afford these services. The
intent is to provide easy access for their clients by having the office open 360 days per year, 16
hours each day from 7:00 a.m. to 11:00 p.m. The office would be staffed by a lawyer, paralegal,
legal secretary, and clerk-receptionist for each of the two 8-hour shifts.To determine the
feasibility of the project, Masters hired a marketing consultant to assist with market projections.
The results of this study show that if the firm spends $500,000 on advertising the first year, the
number of new clients expected each day would have the following probability distribution.
Number of
New Clients Probability
per Day
20 .10
30 .30
55 .40
85 .20
Masters and his associates believe these numbers are reasonable and are prepared to spend the
$500,000 on advertising. Other information about the operation of the office is given below.The
only charge to each new client would be $30 for the initial consultation. All cases that warranted
further legal work would be accepted on a contingency basis with the firm earning 30% of any
favorable settlements or judgments. Masters estimates that 20% of new client consultations will
result in favorable settlements or judgments averaging $2,000 each. It is not expected that there will
be repeat clients during the first year of operations. The hourly wages of the staff are projected to
be $25 for the lawyer, $20 for the paralegal, $15 for the legal secretary, and $10 for the clerk-
receptionist. Fringe benefit expense will be 40% of the wages paid. A total of 400 hours of
overtime is expected for the year; this will be divided equally between the legal secretary and the
clerk-receptionist positions. Overtime will be paid at one and one-half times the regular wage, and
the fringe benefit expense will apply to the full wage. Masters has located 6,000 square feet of
suitable office space which rents for $28 per square foot annually. Associated expenses will be
$22,000 for property insurance and $32,000 for utilities. It will be necessary for the group to
purchase malpractice insurance, which is expected to cost $180,000 annually. The initial investment
in office equipment will be $60,000; this equipment has an estimated useful life of 4 years. The
cost of office supplies has been estimated to be $4 per expected new client consultation.
What is the law office's breakeven point?

General Feedback
10,219
is incorrect because 9,947 clients results from a failure to subtract variable costs
is correct. In a breakeven analysis, the profit is equal to zero and sales must be equal to the sum of
fixed costs and variable costs. In the analysis, there are two forms of revenue, $30 for the initial
consultation, and the inflow from favorable settlements. Therefore, the formula is
$30x + ($2,000 x .2x x .3) = $4x + $1,491,980

$30x + $120x = $4x + $1,491,980
$146x = $1,491,980
x = $ 10,219 clients
The breakeven point in units increases when unit costs

Increase and sales price remains unchanged
A company produced 500 units of a product and incurred the following costs. Direct materials, P8,000;
direct labor, P10,000 overhead (20% fixed), P45,000. If the sales value of 500 units is P102,000, what
is the contribution margin percentage?
General Feedback
The contribution margin percentage.
Contribution margin percentage (CMR) is the quotient of contribution margin and net sales. Given the
data on the problem, the contribution margin is determined as follows:
Sales P 102,000
Direct materials ( 8,000)
Direct labor ( 10,000)
Variable overhead (P45,000 x ( 36,000)
80%)
Contribution margin P 48,000
The CMR is 47% (i.e., P48,000/P102,000).

Kent Co.'s operating percentages were as follows:
Revenues 100%
Cost of goods sold:
Variable 50%
Fixed 10 60
Gross profit 40%
Other operating
expenses:
Variable 20
Fixed 15 35
Profit 5%
Kent’s sales totaled P2 million. At what revenue level would Kent break even?
General Feedback
Breakeven sales.
BEP is fixed costs divided by CMR. Total fixed cost is P500,000 (i.e., P2,000,000 x 25%). The
total variable cost ratio is 70% (i.e., 50% + 20%). Therefore, CMR is 30%. The breakeven point
in pesos is:
BEP (pesos) = P500,000 / 30% = P1,666,667
The ratio of fixed costs to the unit contribution margin is the

General Feedback
Breakeven point
A company’s breakeven point (BEP) in pesos of revenue may be affected by equal percentage increase in
both selling price and variable cost per unit (assume all other factors are constant within the relevant
range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven
point in pesos to
Remain unchanged.
An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost pool,
which is then applied to work-in-process using a single application base. The assembly plant
management wants to estimate the magnitude of the total manufacturing overhead costs for different
volume levels of the application activity base using a flexible budget formula. If there is an increase in
the application activity base that is within the relevant range of activity for the assembly plant, which
one of the following relationship regarding variable and fixed costs is correct?
The variable cost per unit and the total fixed costs remain constant.
Fixed costs
Fely Company reported the following for the year just ended:
Budgeted sales P 3,000,000

Break-even sales 2,100,000
Budgeted contribution 1,800,000
margin
Cashflow break-even 600,000
The company’s margin of safety is
General Feedback
The amount of margin of safety.
Margin of safety is the difference between budgeted sales and breakeven sales, as follows:

- Breakeven sales 2,100,000
Margin of safety P 900,000
State whether the following statements are true or false.
Statement 1-The breakeven point is defined as the sum of variable expenses and fixed
expenses.
Statement 2-As sales exceed the breakeven point, a low contribution margin percentage
would result in lower profit than would a high contribution margin percentage.
Statement 3-All fixed costs are treated as period costs when variable costing is used.
Statement Statement Statement

1 2 3
False True True
Oslo Company’s industrial photo-finishing division, Rho, incurred the following cost and
expenses in 20CY:
Fixed Variable
Factory overhead 70,000 P 42,000
General, selling and 30,000 48,000
administrative
Totals P 450,000 P 90,000
During 20CY, Rho produced 300,000 units of industrial photo-prints, which were sold for P2.00
each. Oslo’s investment in Rho was P500,000 and P700,000 at January 1, 20CY and December 31,
20CY, respectively. Oslo normally imputes interest on investments at 15% of average invested
capital.
For the year ended December 31, 20CY, Rho’s contribution margin was
General Feedback
The amount of contribution margin.
Contribution margin is the difference in net sales and variable costs and expenses. The net amount of
sales is P600,000 (i.e., 300,000 units x P2) while the variable costs and expenses total P450,00. The
contribution margin should be P150,000 (i.e., P600,000 – P450,000).
Oslo Company’s industrial photo-finishing division, Rho, incurred the following cost and
expenses in 20CY:
Fixed Variable
Factory overhead 70,000 P 42,000
General, selling and 30,000 48,000
administrative
Totals P 450,000 P 90,000
During 20CY, Rho produced 300,000 units of industrial photo-prints, which were sold for P2.00
each. Oslo’s investment in Rho was P500,000 and P700,000 at January 1, 20CY and December 31,
20CY, respectively. Oslo normally imputes interest on investments at 15% of average invested
capital.
Assume the variable cost per unit was P1.50. Based on Rho’s financial data, and an estimated 20CY
production of 350,000 units of industrial photo-prints, Rho’s estimated 20CY total cost and
expenses will be
General Feedback
The estimated total costs and expenses in 20CY if production is 350,000 units.
The total costs and expenses are composed of variable costs and fixed costs, as follows:
Variable costs and expenses (350,000 units x P1.50) P 525,000
Fixed costs and expenses 90,000

Estimated total costs and expenses P 615,000
The contribution margin ratio always increases when the

Variable costs as a percentage of net sales decrease
Almo Company manufactures and sells adjustable canopies that attach to motor homes and
trailers. The market covers both new unit purchasers as well as replacement canopies. Almo
developed its business plan based on the assumption that canopies would sell at a price of $400
each. The variable costs for each canopy were projected at $200, and the annual fixed costs were
budgeted at $100,000. Almo's after-tax profit objective was $240,000; the company's effective
tax rate is 40%.While Almo's sales usually rise during the second quarter, the May financial
statements reported that sales were not meeting expectations. For the first 5 months of the year,
only 350 units had been sold at the established price, with variable costs as planned, and it was
clear that the after-tax profit projection would not be reached unless some actions were taken.
Almo's president assigned a management committee to analyze the situation and develop an
alternative course of action. The following was presented to the president. Reduce the sales price
by $40. The sales organization forecasts that with the significantly reduced sales price, 2,700
units can be sold during the remainder of the year. Total fixed and variable unit costs will stay
as budgeted.
Assuming no changes were made to the selling price or cost structure, how many units must
Almo sell to break even?
General Feedback
500
is incorrect because 167 units is the result of adding variable cost to the sales priceis incorrect because 250
units results from a failure to subtract the variable cost from the sales price
is correct. At breakeven, the profit is zero, therefore sales must be equal to fixed cost and variable
cost. In this case, the formula is
$400x = $200x + $100,000

$200x = $100,000
x = 500 units
When an organization is operating above the breakeven point, the degree or amount that sales may
decline before losses are incurred is called the
General Feedback
Margin of safety
The rate or amount that sales may decline before losses are incurred is called
Margin safety
Fixed costs
A company’s breakeven point (BEP) in pesos of revenue may be affected by equal percentage increase in
both selling price and variable cost per unit (assume all other factors are constant within the relevant
range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven
point in pesos to
Remain unchanged
The sum of the costs necessary to effect a one-unit increase in the activity level is a(n
Marginal cost
Oradell Company sells its single product at a price of $60 per unit and incurs the following
variable costs per unit of product:
Direct material $ 16
Direct labor 12
Manufacturing overhead 7
Total variable manufacturing 35
costs
Selling expenses 5
Total variable costs $ 40
Oradell's annual fixed costs are $880,000, and Oradell is subject to a 30% income tax rate.
The number of units of product that Oradell Company must sell annually to break even is
General Feedback
44,000 units
is incorrect because 22,000 units is fixed cost ($880,000) divided by variable costs ($40).is correct. The
breakeven point in units equals fixed costs divided by the contribution margin per unit. At a selling price
of $60 per unit and with variable costs of $40 per unit, the unit contribution margin is $20. Thus, the
breakeven point is 44,000 units ($880,000 ・$20). is incorrect because the contribution margin should
reflect selling expensesis incorrect because there are no income taxes at the breakeven point
For a profitable company, the amount by which sales can decline before losses occur is known as the
General Feedback
Margin of safety
A not-for-profit social agency provides home health care assistance to as many patients as
possible. Its budgeted appropriation (X) for next year must cover fixed costs of $5,000,000 and
the annual per-patient cost (Y) of its services. However, the agency is preparing for a possible
10% reduction in its appropriation that will lower the number of patients served from 5,000 to
4,000. The reduced appropriation and the annual per-patient cost equal
Reduced Per-Patient
Appropriation Annual Cost
General Feedback
$ 9,000,000 $ 1,000
Total
Labor Production
Month Hours Costs
October 3,500 25,000
November 4,500 30,000
December 3,500 25,000
Totals 25,000 P 100,000

hour
å = Summation
The cost function derived by the simple least squares method.

General Feedback
Is linear
Given the following notations, what is the breakeven sales level in units?
SP = selling price per unit VC = variable cost per unit
FC = total fixed costs
FC ¸ [ 1 – (VC ¸ SP)]
General Feedback
Computation of breakeven point in units.
Choice-letter “b” is correct. Unit contribution margin equals unit sales price (USP) less unit variable
costs (UVC). Therefore, breakeven point (BEP) in units and in pesos is computed as follows:
BEP (units) = Fixed costs / Unit contribution margin

or FC / (USP – UVC)
BEP (pesos) = Fixed costs / Contribution margin ratio
or FC ÷ (100% - VCR)
Sales with profit - Assessment

In using cost-volume-profit analysis to calculate expected unit sales, which of the following should be
deducted to fixed cost in the numerator?
General Feedback
Predicted operating loss.
Variable cost per unit is P3.50. Contribution margin is 30%. Breakeven sales is P1 million. To sell an
additional 50,000 units at the same price and contribution margin, how much will fixed costs increase to
have a gross margin equal to 10% of the sales value of the additional cost of 50,000 units to be sold?
General Feedback
Increase in contribution margin less increase in profit is increase in fixed cost. The unit sales price is P5
(i.e., P3.50 / 70%) and the UCM is P1.50 (P5 – P3.50). The gross margin (e.g., profit) is 10% of sales.
The increase in fixed cost is P50,000, calculated as follows:
Increase in CM (50,000 units x P1.50) P75,000
- Increase in profit [50,000 units x (10% x P5)] 25,000
Increase in fixed cost P50,000
Ipil-ipil Company would like to market a new product at a selling price of P15 per unit. Fixed costs for
his product are P1,000,000 for less than 500,000 units of output and P1,500,000 for 500,000 or more
units of output. The contribution margin percentage is 20%. How many units of this product must be sold
to earn a target profit of P1 million?
General Feedback
833,334
Nette & Company has sales of P400,00 with variable costs of P300,000, fixed costs of P120,000 and an
operating loss of P20,000. By how much would Nette need to increase its sales in order to achieve a
target profit of 10% of sales?
General Feedback
The present sales amount to P400,000, the VCR is 75% (i.e., P300,000/P400,000), and, therefore, the CMR
is 25%. Since the profit ratio is given, the computation of the sales with profit shall be:
Sales = Fixed costs / (CMR – NPR)

= P120,000 / (25% - 10%) = P800,000
The increase in sales shall therefore be P400,000 (i.e., P800,000 – P400,000).

Merchandiser, Inc. sells Product O to retailers for P200. The unit variable cost is P40 with a selling
commission of 10%. Fixed manufacturing costs total P1,000,000 per month while fixed selling and
administrative costs total P420,000. The income tax rate is 30%. The target sales if the after tax income
is P123,200 would be
General Feedback
The total unit variable cost is 60 [i.e., P40 + (10% x P200)]. And the UCM is P140 (i.e., P200 – 60). The
total of fixed costs and expenses is P1,420,000 (i.e., P1,000,000 + P420,000). And PBIT is P176,000
(i.e., P123,200 / 70%). Therefore, the targeted sales in units are 11,400 units computed as follows:
Sales = (FC + PBIT) / UCM

Sales = (P1,420,000 + P176,000) / P140 = 11,400 units
Profit sensitivity analysis - Assessment
CMA 1285 4-7

Oradell Company sells its single product at a price of $60 per unit and incurs the following variable
costs per unit of product:
Direct material $ 16
Direct labor 12
Manufacturing overhead 7
Total variable manufacturing 35
costs
Selling expenses 5
Total variable costs $ 40
Oradell's annual fixed costs are $880,000, and Oradell is subject to a 30% income tax rate.
If prime costs increased by 20% and all other values remained the same, Oradell Company's
contribution margin (to the nearest whole percent) would be
24
1Bulacan Gold, Inc. manufactures and sells key rings embossed with college names and
slogans. Last year, the key rings sold for P75 each, and the variable costs to manufacture them
were P22.50 per unit. The company needed to sell 20,000 key rings to break-even. The profit
last year was P50,400. The company expects the following for the coming year:
 The selling price of the key rings will be P90.
 Variable manufacturing costs per unit will increase by one-third.
 Fixed cost will increase by 10%.
 The income tax rate will remain unchanged.
For the company to break-even the coming year, the company should sell
General Feedback
Breakeven point is fixed costs divided by unit contribution margin. Using the “before-after
analysis”, the data are treated as follows:
Before After
Unit sales price P 75.00 P 90.00
Unit variable costs 22.50 30.00 (P22.50 x 1.33)
Unit contribution margin P 52.50 P 60.00
Total fixed costs (20,000 x P52.50)P1,050,000 P1,155,000 (P1,050,000 x 110%)
The new breakeven point in the coming year shall be 19,250 units (P1,155,000 / P60).
CMA 0687 4-10
Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans.
Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per
unit. The company needed to sell 20,000 shirts to break even. The net after-tax income last year
was $5,040. Donnelly's expectations for the coming year include the following:
ｷ The sales price of the T-shirts will be $9.

ｷ Variable costs to manufacture will increase by one-third.
ｷ Fixed costs will increase by 10%.
ｷ The income tax rate of 40% will be unchanged.
The selling price that would maintain the same contribution margin rate as last year is
General Feedback
$10.00
The Kabayan Company manufactures and sells Batik handbags to assorted prints. Data for the
previous year were as follows:
Selling price per piece P 8.00

Variable cost per piece P 2.00
No. of pieces to breakeven 25,000
Profit last year P 5,850
For the coming year, the company estimates that the selling price will be P9.50 per piece,
Variable cost to manufacture will increase by 25%, and fixed costs will increase by 10%. Income
tax rate of 35% will not change.
What is the selling price per piece that would give the same contribution margin rate as previous
year?
General Feedback
The old variable cost ratio is 25% (i.e. P2 / P8) and the CMRatio is 75% (i.e., 100% – 25%). If the
new unit variable cost is P2.50 (i.e., P2.00 x 125%), then the new unit sales price to maintain the
same CMR of 75% and the same VCRatio of 25% shall be P10.00 (i.e., P2.50 / 25%
Birney Company is planning its advertising campaign for 2011 and has prepared the following
budget data based on a zero advertising expenditures:
Normal plant capacity 200,000 units

Sales 150,000 units
Selling price P25 per unit
Variable manufacturing costs P15 per unit
Fixed costs:
Manufacturing P 800,000
Selling and administration P 700,000
An advertising agency claims that an aggressive advertising campaign would enable Birney to
increase its unit sales by 20%. What is the maximum amount that Birney can pay for advertising
and obtain an operating profit of P200,000.
General Feedback
Increase in fixed cost is new fixed cost less old fixed cost. The old fixed cost is P1,500,000
(i.e., P800,000 + P700,000). The new fixed cost is not readily given and must be computed.
The UCM is P10 (i.e., P15 – P10). And sales are expected to increase by 20%. The increase in
fixed cost shall be computed as follows:
New contribution margin (50,000 units x 120% x P15) P1,800,000

- New profit 200,000
New fixed costs 1,600,000
- Old fixed costs 1,500,000
Increase in fixed costs P 100,000
MultiFrame Company has the following revenue and cost budgets for the two products it sells:
Plastic Glass
Frames Frames
Sales price P 10.00 P 15.00
Direct materials (2.00) (3.00)
Direct Labor (3.00) (5.00)
Fixed overhead (3.00) (2.75)
Profit per unit P 2.00 P 4.25
Budgeted unit 100,000 300,000
sales
The budgeted unit sales equal the current unit demand, and total fixed overhead for the year is
budgeted at P975,000. Assume that the company plans to maintain the same proportional mix.
In numerical calculation, MultiFrame rounds to the nearest cent and unit
The total number of units needed to break even if sales were budgeted at 150,000 units of plastic
frames and 300,000 units of glass frames with all other costs remaining constant is
General Feedback
153,947 units.
Bulacan Gold, Inc. manufactures and sells key rings embossed with college names and slogans.
Last year, the key rings sold for P75 each, and the variable costs to manufacture them were
P22.50 per unit. The company needed to sell 20,000 key rings to break-even. The profit last year
was P50,400. The company expects the following for the coming year:
The selling price of the key rings will be P90.
Variable manufacturing costs per unit will increase by one-third.
Fixed cost will increase by 10%.
The income tax rate will remain unchanged.
General Feedback
Breakeven point is fixed costs divided by unit contribution margin. Using the “before-after
analysis”, the data are treated as follows:
Before After
Total fixed costs (20,000 x P52.50)P1,050,000 P1,155,000 (P1,050,000 x 110%)
A company has revenues of P500, 000, variable costs of P300, 000, and pretax profit of P150, 000.
If the company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left
variable cost per unit unchanged, what would be the new breakeven point in pesos?
General Feedback
Inasmuch as there are changes in the variables of profit, the before-after analysis would be
used as follows:
Before After .
Sales P500,000 P550,000 (P500,000 x
110%)
-Variable cost 300,000 300,000 (same)
Contribution P200,000 P250,000
margin
CMR 45.45% (P250,000 /

P550,000)
Fixed costs P 50,000 P 40,000 (P50,000 x 80%)
New BEP (pesos) P 88,000 (P40,000 /
45.45%)
CMA 0687 4-12


Sales for the coming year are expected to exceed last year's by 1,000 units. If this occurs,
Donnelly's sales volume in the coming year will be
General Feedback
22,600 units [20,000 ・($8,400 pretax NI ・$5.25 UCM) ・1,000]
developed its business plan based on the assumption that canopies would sell at a price of
$400 each. The variable costs for each canopy were projected at $200, and the annual fixed
costs were budgeted at $100,000. Almo's after-tax profit objective was $240,000; the company's
effective tax rate is 40%.While Almo's sales usually rise during the second quarter, the May
financial statements reported that sales were not meeting expectations. For the first 5 months of
the year, only 350 units had been sold at the established price, with variable costs as planned,
and it was clear that the after-tax profit projection would not be reached unless some actions
were taken. Almo's president assigned a management committee to analyze the situation and
develop an alternative course of action. The following was presented to the president. Reduce
the sales price by $40. The sales organization forecasts that with the significantly reduced
sales price, 2,700 units can be sold during the remainder of the year. Total fixed and variable
unit costs will stay as budgeted.
If management decides to reduce the selling price by $40, what will Almo's after-tax profit be?
General Feedback
$241,200
Last year, the contribution margin ratio of Lamesa Company was 30%. This year, fixed costs are
expected to be P120, 000, the same as last year, and revenues are forecasted at P550, 000, a 10%
increase over last year. For the company to increase profit by P15,000 in the coming year, the
contribution margin ratio must be
General Feedback
The new contribution margin ratio is determined by dividing the new contribution margin with the
new sales. The new contribution margin is calculated as follows:
Sales last year (P550,000/110%) P
500,000
x CMR last year 30%
CM last year 150,000
Add: Increase in contribution margin 15,000
CM this year 165,000
Divide by sales this year 550,000
CMR this year 30%
developed its business plan based on the assumption that canopies would sell at a price of
$400 each. The variable costs for each canopy were projected at $200, and the annual fixed
costs were budgeted at $100,000. Almo's after-tax profit objective was $240,000; the company's
effective tax rate is 40%.While Almo's sales usually rise during the second quarter, the May
financial statements reported that sales were not meeting expectations. For the first 5 months of
the year, only 350 units had been sold at the established price, with variable costs as planned,
and it was clear that the after-tax profit projection would not be reached unless some actions
were taken. Almo's president assigned a management committee to analyze the situation and
develop an alternative course of action. The following was presented to the president. Reduce
the sales price by $40. The sales organization forecasts that with the significantly reduced
sales price, 2,700 units can be sold during the remainder of the year. Total fixed and variable
unit costs will stay as budgeted.
If management decides to reduce the selling price by $40, what will Almo's after-tax profit be?
General Feedback
$241,200
The Kabayan Company manufactures and sells Batik handbags to assorted prints. Data for the
previous year were as follows:
Selling price per piece P 8.00

Variable cost per piece P 2.00
No. of pieces to breakeven 25,000
Profit last year P 5,850
For the coming year, the company estimates that the selling price will be P9.50 per piece,
Variable cost to manufacture will increase by 25%, and fixed costs will increase by 10%. Income
tax rate of 35% will not change.
If sales for the coming year are expected to exceed last year’s by 1,800 pieces, what would be the
expected sales volume for the coming year?
General Feedback
The sales volume in the coming year shall be the sum of the sales volume last year plus the
expected increase of 1,800 units. The sales volume last year and the new sales volume is
determined as follows:
Fixed costs (25,000 x P6) P 150,000

Income before income tax (P5,850 / 65%) 9,000
Contribution margin 159,000

/ Contribution margin ratio 75 %
Sales 212,000
/ Unit sales price P 8.00
Sales volume last year 26,500 units
Add: Increase in sales volume this year 1,800
Expected sales in units in the coming year 28,300 units
Levi Company has developed a new project that will be marketed for the first time during the
next fiscal year. Although the Marketing Department estimates that 35,000 units could be sold
at P36 per unit, Levi management has allocated only enough manufacturing capacity to produce
a maximum of 25,000 units of the new product annually. The fixed costs associated with the
new product are budgeted at P450,000 for the year, which includes P60, 000 for depreciation on
new manufacturing equipment.
Data associated with each unit of product are presented below. Levi is subject to a 40% income
tax rate.
Variable
Cost
Direct material P 7.00
Direct labor 3.50
Manufacturing overhead 4.00
Total variable manufacturing 14.50
cost
Selling expenses 1.50
Total variable cost P 16.00
The maximum after-tax income that can be earned by Levi Company from sales of the new product
during the next fiscal year is
General Feedback
The management has decided to produce and sell only 25,000 units. The UCM of the product is
P20 (i.e., P36 – P16). The profit is computed as follows:
Contribution margin (25,000 units x P 500,000

P20)
- Fixed costs 450,000
Income before income tax 50,000
- Income tax (40%) 20,000
Profit P 30,000
Rainbow Company’s controller developed the following variable-costing income statement for 2016:
Per
Unit
Revenues (150,000 units at P 4,500,000 P 30
P30)
Variable costs:
Direct materials 1,050,000 7
Direct labor 1,500,000 10
Mfg. Overhead 300,000 2
Selling & marketing 300,000 2
( 3,150,000) 21
Contribution margin 1,350,000 9
Fixed costs:
Mfg. overhead 600,000 4
Selling & marketing 300,000 2
( 900,000) 6
Profit P 450,000 P 3
Rainbow Company based its 7 budget on the assumption that fixed costs, unit sales, and the sales
price would remain as they were in 2016, but with profit being reduced to P300, 000. By July of
2017, the controller was able to predict that unit sales would increase over 2016 levels by 10%.
Based on the 2017 budget and the new information, the predicted 2017 profit would be
General Feedback
& Profit is sales less total costs and expenses. It is predicted that total fixed costs and unit sales
price are unchanged, units sold increases by 10%, and profit decreases to P300,000, if units
sold remain constant. The UCM as predicted on January 1, 2013 is:
Projected profit P 300,000

+ Fixed costs 900,000
Projected CM 1,200,000
/ Units sold (assumed 150,000 units
unchanged)
UCM if units were unchanged P 8.00
The projected profit is revised on July 1, 2017 when volume is expected to increase by 10%
over that of the 2016 level, as follows:
CM (150,000 x 110% x P8) P 1,320,000

- Fixed costs 900,000
Projected profit P 420,000
An organization sells a single product for P40 per unit that it purchased for P20. The
salespeople receive a salary plus a commission of 5% of sales. Last year the organization’s
profit (after taxes) was P100,800. The organization is subject to an income tax rate of 30%. The
fixed costs of the organization are:
Rent 60,000
Salaries 180,000
Other fixed costs 32,000
Total P 396,000
The organization is considering changing the compensation plan for sales personnel. If the
organization increases the commission to 10% of revenues and reduces salaries by P80,000, what
revenues must the organization have to earn to have the same profit as last year?
General Feedback
Sales in pesos are FC plus profit divided by CMR. The fixed cost is reduced to P316,000 (i.e.,
P396,000 – P80,000). The income before income tax (PBIT) is the same as last year at
P144,000 (i.e., P100,800 / 70%). The new unit variable cost is P24 [i.e., P20 + (10% x P40)],
resulting to a new unit contribution margin of P16 (i.e., P40 - P24) or a CMR of 40% ([16 /
P40). The sales in pesos shall be determined as:
Sales (pesos) = (FC+ PBIT) / CMR
= (P316,000 + P144,000) / 40% = P1,150,000
A wholesale distributing company has budgeted its before-tax profit to be P643,500 for 2016.
The company is preparing its annual budget for 2017 and has accumulated the following data:
Projected annual revenues P6,000,000

Variable costs as a percent of
revenues:
Cost of merchandise 30%
Sales commissions 5%
Shipping expenses 10%
Annual fixed operating costs:
Selling expenses P 772,200
Administrative expenses P1,801,800
If the wholesale distributing company wants to earn the same before-tax profit in 2017 as
budgeted for 2016, the annual revenues would not be the projected P6 million but would
have to
General Feedback
The variable cost ratio is 45% (i.e., 30% + 5% + 10%) and CMR is automatically 55%. Total
fixed costs is P2,574,000 (i.e., P772,200 + P1,801,800). If the income in 2016 is retained in
2017, the needed sales in 2017 shall be P5,850,000 calculated as follows:
Sales (pesos) = (FC + PBIT) / CMR

= (P2,574,000 + P643,500) / 55% =
P5,850,000
Presented below are the results of operations of Softtouch Products, Inc., for 2017:
Sales (150,000 units) P

600,000
Cost of goods sold:
Fixed P 150,000
Variable 300,000 450,000
Gross profit 150,000
Selling and
administrative:
Fixed 39,000
Variable 45,000 84,000
Income before taxes P 66,000
The company is concerned about the expected increase in fixed manufacturing costs by 50% if it
will buy new equipment with a higher production capacity. However, study shows that with the use
of the new equipment sales volume in units are expected to increase by 40% while variable
manufacturing costs will decrease from P2.00 to P1.50 per unit. The total fixed selling and
administrative expenses and variable selling and administrative expenses will remain the same.
The selling price per unit will also remain the same. The company has been operating at full
capacity. If the company will buy the new equipment,
What is the maximum expected income before income tax?
General Feedback
Income before income tax is contribution margin less fixed costs and expenses. Therefore, the
maximum income before income tax is P198,000, calculated as:
Contribution margin (150,000 units x 140% x P2.20) P 462,000
- Fixed costs and expenses 264,000

Income before income tax P 198,000
Plastic Glass
Frames Frames
sales
budgeted at P975,000. Assume that the company plans to maintain the same proportional mix. In
numerical calculation, MultiFrame rounds to the nearest cent and unit
Calculate the overall breakeven point in terms of units if the company believes that the current price
of P40 is too high and the firm faces stiff competition. After all the sensitivity analysis is done, it
was decided by the management committee to lower the price to P36 without sacrificing the quality
of the product. What is the new breakeven point if fixed costs are P309,750 and unit contribution
margin is P6?
General Feedback
The new breakeven point is equal to new fixed costs divided by the new unit contribution margin. Applying
this, we will have a new BEP in units of 51, 625 units (i.e., P309,750 / P6)
A retail company determines its selling price by marking up variable costs by 60%. In addition, the company
uses frequent selling price markdown to stimulate sales. If the markdown average 10%, what is the company
contribution margin ratio?
General Feedback
The sales price is based on variable cost, which is the 100%. Variable cost ratio is variable cost over net
sales price. Net sales price is 160% of variable cost less 10% markdown. The variable cost ratio (VCR)
and contribution margin ratio (CMR) are calculated as follows:
VCR = 100% / (160% x 90%) = 69.4%.
And, CMR = 100% - 69.44% = 30.6 %
Plastic Glass
Frames Frames
sales
The total number of units needed to break even If the budgeted direct labor cost were P2 for plastic
frames instead of P3 is?
General Feedback
The direct labor cost of plastic frames decreases to P2 from a previous balance of P3 or a decrease of
P1. This decrease in unit variable cost will increase the UCM of plastic frames to P6 (i.e., P5 + P1).
With this change, the new average UCM shall be:
Plastic frames (P6 x ¼) P 1.50

Glass frames (P7 x ¾) 5.25
Average UCM P 6.75
The composite BEP shall be 144,444 units (i.e., P975,000 / P6.75).
Planners have determined that sales will increase by 25% next year, and that the profit margin will remain at
15% of sales. Which of the following statements is correct?
General Feedback
Profit will grow by 25%.

If Donnelly Corporation wishes to earn $22,500 in net income for the coming year, the company's
sales volume in dollars must be
General Feedback
$229,500
Plastic Glass
Frames Frames
sales
The total number of units needed to break even if sales were budgeted at 150,000 units of plastic
frames and 300,000 units of glass frames with all other costs remaining constant is
General Feedback
153,947 units.
Bulacan Gold, Inc. manufactures and sells key rings embossed with college names and slogans.
Last year, the key rings sold for P75 each, and the variable costs to manufacture them were
P22.50 per unit. The company needed to sell 20,000 key rings to break-even. The profit last year
was P50,400. The company expects the following for the coming year:
The selling price of the key rings will be P90.
Variable manufacturing costs per unit will increase by one-third.
Fixed cost will increase by 10%.
The income tax rate will remain unchanged.
General Feedback
Breakeven point is fixed costs divided by unit contribution margin. Using the “before-after analysis”,
the data are treated as follows:
Before After

Total fixed costs (20,000 x P1,050,000 P1,155,000 (P1,050,000 x
P52.50) 110%)
Which of the following would decrease unit contribution margin the most?
A 15% decrease in selling price
Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electric flows. The
cost information below relates to the product.
Unit Costs
Direct labor 4.00
Distribution .75
The company will also be absorbing P120,000 of additional fixed costs associated with this new product. A corporate fixed charge of
P20,000 currently absorbed by other products will be allocated to this new product.
How many surge protectors (rounded to the nearest hundred) must Bruell Electronics sell at a selling price of P14 per unit to gain P30,000
additional profit before taxes?
General Feedback
Sales in units are fixed costs plus operating profit divided by unit contribution margin. Therefore, sales
in units are 25,000 units, computed as follows:
Sales = (FC + PBIT) / UCM

Sales = (P120,000 + P30,000) / P6 = 25,000 units
Asian Corporation, a manufacturing company, is operating at 90% capacity. Since there is no

other use of the 10% idle capacity, an offer for a new order at P8.20 per unit requiring 15%
capacity is being considered. If the order will be accepted, the 5% additional capacity will be
sub-contracted at the cost of P7.80 per unit. The variable cost per unit of production of Asian
Corporation follows:
Materials P 4.00
Labor 1.75
Variable overhead 1.75
Total P 7.50
What is the expected contribution margin per unit on the new order?
General Feedback
There are two unit contribution margins here. One for the 10% capacity and the other for the 5%
capacity, as follows:
10% 5% capacity
capacity (Sub-contract)
Regular
- Unit variable costs 7.50 7.80
The individual UCM shall be multiplied by the production mix of 10% and 5% for regular production
and sub-contract, respectively. The average unit contribution margin may now be determined as:
Regular sales (P0.70 x 10/15) P 0.47

Sub-contract (P0.40 x 5/15 ) 0.13
Average unit contribution margin P 0.60
A wholesale distributing company has budgeted its before-tax profit to be P643,500 for 2016.
The company is preparing its annual budget for 2017 and has accumulated the following data:
Projected annual revenues P6,000,000

Variable costs as a percent of
revenues:
Cost of merchandise 30%
Sales commissions 5%
Shipping expenses 10%
Annual fixed operating costs:
Selling expenses P 772,200
Administrative expenses P1,801,800
Using the original P 6 million projections, the wholesale distributing company’s margin of safety in
terms of revenues for 2017 would be
General Feedback
Margin of safety is budgeted sales less breakeven sales, computed as follows:

- Breakeven sales (P2,574,000 / 55%) 4,680,000
Margin of safety P 1,320,000
Presented below are the results of operations of Softtouch Products, Inc., for 2017:
Sales (150,000 units) P 600,000

Cost of goods sold:
Fixed P 150,000
Variable 300,000 450,000
Selling and
administrative:
Fixed 39,000
Variable 45,000 84,000
Income before taxes P 66,000
The company is concerned about the expected increase in fixed manufacturing costs by 50% if it
will buy new equipment with a higher production capacity. However, study shows that with the use
of the new equipment sales volume in units are expected to increase by 40% while variable
manufacturing costs will decrease from P2.00 to P1.50 per unit. The total fixed selling and
administrative expenses and variable selling and administrative expenses will remain the same. The
selling price per unit will also remain the same. The company has been operating at full capacity.
If the company will buy the new equipment,
What is the maximum expected income before income tax?

General Feedback
Income before income tax is contribution margin less fixed costs and expenses. Therefore, the maximum
income before income tax is P198,000, calculated as:
Contribution margin (150,000 units x 140% x P 462,000

P2.20)
Income before income tax P 198,000
Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electric flows. The
cost information below relates to the product.
Unit Costs
Direct labor 4.00
Distribution .75
The company will also be absorbing P120,000 of additional fixed costs associated with this new product. A corporate fixed charge of
P20,000 currently absorbed by other products will be allocated to this new product.
If the selling price is P14 per unit, the breakeven point in units (rounded to the nearest hundred) for surge
protectors is
General Feedback
The unit variable cost is P8 (i.e., P3.25 + P4.00 + P0.75), and the unit contribution margin is P6 (i.e.,
P14 – P8). Therefore, the BEP in units is 20,000 units (i.e., P120,000/P8).
Multi-product profit planning and analysis - Assessment
Sari- sari Corporation is a multiple-product firm. In their review of operations, they decided to shift the sales
mix from less profitable products to more profitable products, accounting for 30% of gross sales. This will
cause the company’s breakeven profit to
Decrease
The data below pertain to two types of products manufactured by Korn Corporation:
Unit sales Unit

price variable
costs
Product Y P 120 P 70
Product Z 500 200
Fixed costs total P300,000 annually. The expected mix in units is 60% for product Y and 40%
for product Z.
How much is Korn’s breakeven sales in units?

General Feedback
Composite BEP in units.
Composite breakeven point (CBEP) in units is total fixed costs over average UCM. The average UCM
is determined as follows:
Sales Average
UCM Mix Ratio UCM
Product Y P 50 60% P 30
Product Z 300 40% 120
Total P 150
And the CBEP is 2,000 units computed as follows:

CBEP (units) = FC / Ave. UCM -= P300,000 / P150 = 2,000 units
Phil. Frames Inc. has the following revenue and cost budgets for the two products it sells/
Plastic Glass
Frames Frames
Direct labor (15.00) (25.00)
Budgeted units sales 100,000 300,000
The budgeted unit sales equal the current unit demand, and total fixed overhead for the year in budgeted
at P4,875,000. Assume that the company plans to maintain the proportional mix. In numerical
calculations, the company rounds to the nearest centavo and unit. The total number of units the company
needs to produce and sell to break-even is
General Feedback
The composite breakeven point.
Composite BEP refers to the point where the total sales of all the products made by the company are
equal to the total costs. These products made by the company are equal to the total process, and costs
structure.
The composite BEP is equal to fixed costs divide by average unit contribution margin (UCM). The fixed
costs are given at P4,875,000. The average UCM shall be computed using the sales mix ratio of 1:3 for
plastic and glass, respectively, based on the given budgeted unit sales.
Average
UCM
Plastic Glass
Unit direct materials cost ( 10,.00) ( 15.00)
Unit direct labor cost ( 15.00) ( 25.00)

Unit contribution margin 25.00 35.00
X Sales mix ratio (1:3) ¼ ¾

Adjusted UCM P 6.25 P 26.25 P32.50
Composite BEP (units)
[Fixed costs / Average UCM]
[P4,875,000 / P32.50] 150,000 units
Margarita Manufacturing Company produces two products for which the following data have
been tabulated. Fixed manufacturing cost is applied at a rate of P1.00 per machine hour.
Per Unit XY-7 BD-4

Selling price P 4.00 P 3.00
Variable manufacturing costs 2.00 1.50
Fixed manufacturing cost .75 20
Variable selling costs 1.00 1.00
The sales manager has a P160,000 increases in the money to the most profitable product. The
products are not substitutes for one another in the eyes of the company’s customers.
Suppose Margarita has only 100,000 machine hours that can be made available to produce
additional units of XY-7 and BD-4. If the potential increase in sales units for either product
resulting from advertising is far in excess of this production capacity, which product should be
advertised and what is the estimated increase in contribution margin earned?
Product BD-4 should be produced, yielding a contribution margin of P250,000
General Feedback
The product to be sold and its estimated increase in contribution margin.
The unit contribution margin of each product must be converted into contribution margin per hour
to determine which is more profitable. It is given that the fixed overhead is applied at P1.00 per
hour. The contribution margin per hour shall be computed as follows:
XY-7 BD-4
UCM P4.00 - P3.00 P 1.00 P 0.50
P3.00 – P2.50
÷ No, of hours per unit
(P.75 per unit / P1 per 0.75
hour) hr.
(P.20 per unit / P1 per 0.20
hour) hr.
Contribution margin per hour P 1.33 P 2.50
Product BD-4 gives a higher CM per hour and should be prioritized for production and sales.
The total CM in producing BD-4 is P250,000 (i.e., 100,000 hours x P2.50 per hour).
Cook Company sells three chemicals; Simpol, Plutex and Coplex. Simpol is the most profitable product while Coplex
is the least compatible. Which of the following events will definitely decrease the firm’s overall BEP for the upcoming
account period
An increase in anticipated sales of Simpol relative to the sales of Plutex and Coplex
The data below pertain to two types of products manufactured by Korn Corporation:
Unit sales Unit

price variable
costs
Product Y P 120 P 70
Product Z 500 200
Fixed costs total P300,000 annually. The expected mix in units is 60% for product Y and 40%
for product Z.
How much is Korn’s breakeven sales in pesos?

General Feedback
Composite BEP in pesos (CBEP).
CBEP in pesos is fixed costs over average CMR, and average CMR is average UCM divided average
USP. Average USP is P272, determined as follows:
Product Y (P120 x 60%) P 72

Product Z (P500 x 40%) 200
Average USP P 272
Average CMR is average UCM divided by average USP and is computed at 55.15% (i.e.., P150 / P272).
The CBEP in pesos shall be:
CBEP (pesos) = FC / Average CMR = P300,000 / 55.15% = P544,000
Alternatively, the composite breakeven point in pesos may also be determined by getting the sum
of individual product sales. First, given that the CBEP in units is 2,000 units, the allocated BEP
in units shall be 1,200 units for product Y (i.e., 2,000 units x 60%) and 800 units for product Z
(i.e., 2,000 units x 40%). The CBEP in pesos shall be:
Product Y (1,200 units x P120) P 144,000

Product Z ( 800 units x P 500) 400,000
Composite BEP P 544,000

Maribel is selling three products: Red, White, and Blue. The company sells three units of Red
for every unit of Blue, and two units of White for every unit of Red. Fixed costs are P720,000.
Contribution margin are:
P 1.90 per unit of Red

2.00 per unit of
White
2.30 per unit of Blue
How many units of White would the company sell at breakeven point?
General Feedback
The number of units of White to sell at breakeven point.
First, let us determine the composite breakeven point by dividing the fixed costs by the average unit
contribution margin (UCM). The average unit contribution margin is calculated by multiplying the
individual UCM of the products with their respective sales mix ratio. Now, the sales mix ratio is not
readily given, but is to be obtained as follows:
If: 3 Reds = 1 Blue Therefore:

2 Whites = 1 Red 6 Whites = 1 Blue
And, the sales mix is:

Red 3
White 6
Blue 1
10
The average UCM is determined as:
Red P1.90 x 3/10 P 0.57

White 2.00 x 6/10 1.20
Blue 2.30 x 1/10 0.23
Average UCM P 2.00
The composite breakeven point (CBEP) is 360,000 units (i.e., P720,000 / P2.00). With the CBEP
already determined, the share of each product on the CBEP shall be calculated based on sales
mix ratio. The share of product White in the composite breakeven point is 216,000 units (i.e.,
360,000 units x 6/10).
Tomas Company sells products X, Y, and Z. Tomas sells three units of X for each unit of Z, and two units of
Y for each unit of X. The contribution margins are P1.00 per unit of X, P1.50 per unit of Y, and P3.00 per
unit of Z. Fixed costs are P600,000. How many units of X would Tomas sell at the breakeven point?
General Feedback
The number of units of X to sell at the composite BEP.
First, compute the CBEP in units, then, allocate it among the products. CBEP is fixed costs over average
UCM. The average UCM is determined as follows:
Sales mix Sales Mix Ave. UCM
Ratio
UCM
X 3 P1.00 3/10 P 0.30
Y (3 x 2) 6 1.50 6/10 0.90
Z 1 3.00 1/10 0.30
10 P 1.50
Therefore, the CBEP in units shall be 400,000 units (i.e., P600,000 / P1.50) and the share of product X is
120,000 units (i.e., 400,000 units x 3/10).
A company sells two products X and Y. The sales mix consists of a composite unit of two units
of X for every five units of Y (2:5). Fixed costs are P49,500. The unit contribution margins for
X and Y are P2.50 and P1.20, respectively.
Considering the company as a whole, the number of composite units to break even is
General Feedback
Composite BEP in units is fixed costs divided by average UCM. The average UCM is determined as
follows:
Product X (P2.50 x P 0.71429

2/7)
Product Y (P1.20 x 0.85714
5/7)
Average UCM P 1.57143
Composite BEP (pesos) = FC / Average UCM

= P49,500 / P1.57143 = 31,500 units
If the company had an profit of P22,000,. the unit sales must have been
Product X Product Y Product X Product Y
General Feedback
Units sold if profit is P22,000.
The average UCM is P1.57143, the composite BEP in units shall be:
Composite BEP (pesos) = (FC + PBIT) / Average UCM

= (P49,500 + P22,000) / P1.57143
= 45,500 units
The CBEP shall be allocated based on their sales mix as follows:
Product X (45,500 units x 2/7) 13,000 units
Product Y (45,500 units x 5/7) 32,500 units
Composite BEP in units is fixed costs divided by average UCM. The average UCM is
Product X (P2.50 x 2/7) P 0.71429

Product Y (P1.20 x 5/7) 0.85714
Per Unit XY-7 BD-4

Variable manufacturing 2.00 1.50
costs
Suppose the sales manager chooses to devote the entire P160,000 to increase advertising for XY-
7. The minimum increase in sales units of XY-7 to offset the increased advertising is
General Feedback
The increase in unit sales to offset the increase in advertising.
The unit variable cost of XY-7 is P3.00 (i.e., P2 + P1), and its UCM is P1.00 (i.e., P4 – P3). The
increased in unit sales to offset the increased in advertising is:
Increase in unit sales = Increase in fixed cost / UCM
= P160,000 / P1 = 160,000 units
Tomas Company sells products X, Y, and Z. Tomas sells three units of X for each unit of Z, and two units of
Y for each unit of X. The contribution margins are P1.00 per unit of X, P1.50 per unit of Y, and P3.00 per
unit of Z. Fixed costs are P600,000. How many units of X would Tomas sell at the breakeven point?
General Feedback
First, compute the CBEP in units, then, allocate it among the products. CBEP is fixed costs over average
UCM. The average UCM is determined as follows:
Sales mix UCM Sales mix ratio Ave. UCM

X 3 P1.00 3/10 P0.30
Y (3 x 2) 6 1.50 6/10 0.90
Z 1 3.00 1/10 0.30
10 P1.50
Therefore, the CBEP in units shall be 400,000 units (i.e., P600,000 / P1.50) and the share of product X is
120,000 units (i.e., 400,000 units x 3/10).
In a multi-product company, as the mix of the products being sold changes, the overall contribution margin
ratio will also change. If the shift in mix is toward the less profitable products, then the contribution margin
ratio will
Fall
Considering the company as a whole, the number of composite units to break even is
General Feedback
Composite BEP in units is fixed costs divided by average UCM. The average UCM is determined as
follows:
Product X (P2.50 x P 0.71429

2/7)
Product Y (P1.20 x 0.85714
5/7)
Composite BEP (pesos) = FC / Average UCM

= P49,500 / P1.57143 = 31,500 units
Per Unit XY-7 BD-4

costs
Suppose the sales manager chooses to devote the entire P160,000 to increase advertising for XY-
7. The minimum increase in sales units of XY-7 to offset the increased advertising is
General Feedback
The increase in unit sales to offset the increase in advertising.
The unit variable cost of XY-7 is P3.00 (i.e., P2 + P1), and its UCM is P1.00 (i.e., P4 – P3). The
increased in unit sales to offset the increased in advertising is:
Increase in unit sales = Increase in fixed cost / UCM
= P160,000 / P1 = 160,000 units
Per Unit XY-7 BD-4

costs
Suppose the sales manager chooses to devote the entire P160, 000 to increase advertising for
BD-4, the minimum increase in revenues of BD-4 to offset the increased advertising would be
General Feedback
The increase in peso sales of produce BD-4 to offset the increase in advertising expense.
The unit variable cost of BD-4 is P2.50 (i.e., P1.50 + P1.00), and its UCM is P0.50 (i.e., P3.00 –
P2.50). Its CMR is 16-2/3 %. The increase in peso sales to offset the increase in fixed
advertising cost is:
sssIncrease in peso sales = Increase in fixed cost / CMR

= P160,000 / 16-2/3% = P960,000
Indifference point and other matters - Assessment
Bi Corporation is operationally, a highly leveraged company, that is, it has high fixed costs and low variable
costs. As such, small changes in sales volume result in
Large changes in profit.
Two companies produce and sell the same product in a competitive industry. Thus, the selling price of the
product of each company is the same. Company 1 has a contribution margin ratio of 40% and fixed costs
of P25 million. Company 2 is more automated, making its fixed costs 40% higher than those of Company
1. Company 2 also has a contribution margin ratio that is 30% greater than that of Company 1. By
comparison, Company 1 will have the <List A> breakeven point in terms of pesos sales volume and will
have the <List B> peso profit potential once the indifference point in peso sales volume is exceeded.
List A List B
Lower Lesser
Two companies are expected to have annual sales of 1 million decks of playing cards next year. Estimates
for next year are presented below:
Company 1 Company 2
Selling price per deck P3.00 P3.00
Cost of paper per deck .62 .65
Printing ink per deck .13 .15
Labor per deck .75 1.25
Variable overhead per deck .30 .35
Fixed costs P960,000 P252,000
Given these data, which of the following responses is correct?

Volume in Units
Breakeven Breakeven at which profits
Points in Point in of Company 1
Units for Units for and Company 2
Company 1 Company 2 are Equal
General Feedback
The BEP for each company shall be:
Company 1 Company 2
Unit variable cost
(P.62 + P.13 + P.75 + P.30) 1.80 2.40 (P.65 + P.15 + P1.25 + P.35)
Unit contribution margin 1.20 0.60
BEP in units (P960,000 ÷ P1.20) 800,000 420,000 (P252,000 ÷
P.60)
The indifference point is where the results or profits between the alternatives would be the
same. The profits of the two companies are expressed as follows (assume “x” as the number of
units sold):
P1 = 1.20x + P960,000 where: P1 = profit of Co. 1
P2 = 0.60x – P252,000 P2 = profit of Co.2
At indifference point: P1 = P2
Therefore: 1.20x – P960, 000 = 0.60x – P252,000
x = 1,180,000 units
The percentage change in earnings before interest and taxes associated with the percentage change in
revenues is the degree of
Operating leverage.
Basic concepts in short-term budgeting - Assessment
Which of these statements are advantages of profit planning?

1. Develops profit-mindedness, encourages cost consciousness and resource utilization
throughout the company.
2. Provides vehicle to communicate objectives, gain support for the plan, of what is expected,
thereby developing a sense of commitment to achieve established goals.
3. Provides yardstick to evaluate actual performance; encouraging efficiency increasing output
and reducing cost.
4. Provides a sense of direction for the company and enhances coordination of business activity
5. Eliminates or takes over the role of administration by providing detailed information that
allows executives to operate toward achievement of the organization’s objectives.
Statements 1, 2, 3 and 4 only.(rpcpa)
A budget manual, which enhances the operation of a budget, is most likely to include
Distribution instruction for budget schedules.
The major objectives of any budget system are to

Foster the planning of operations, provide a framework for performance evaluation, and promote
communication and coordination among organization segments.
Budgetary slack can best be described as

The planned overestimation of budgeted expenses.
Which of the following objectives is not a primary purpose of preparing a budget?

To make sure the company expands its operations.
The process of creating a formal plan and translating goals into a quantitative format is
Budgeting.
Forecasting, planning and budgeting - Assessment
The most common method used in sales forecasting which makes use of the cause and effect relationship
between the company sales and some outside economic factor is the
General Feedback
Industry trend analysis.
Zhei Company had data relating total production costs to volume for each quarter during the past five years.
During this period, production volume has varied substantially, method of production has been relatively
unchanged, and the cost behavior has been complex. What is the most appropriate method for estimating
future production costs?
General Feedback
Time-series or trend-regression analysis
Feedback, feedforward, and preventive are important types of control systems and procedures for accounting
information system. Which of the following is in the correct order of feedback, fedforward, and preventive
control system?
General Feedback
Cost accounting variances, cash budgeting, and organizational independence
The most common method used in sales forecasting which makes use of the cause and effect relationship
between the company sales and some outside economic factor is the
General Feedback
Industry trend analysis
Boy Company is considering the sale of banners at the state university football championship game. Boy
could purchase these banners for P0.60 each. Unsold banners would be non-returnable and worthless after
the game. Boy would have to rent a booth at the stadium for P250. Boy estimates sales of 500 banners at
P2.00 each. If Boy’s prediction proves to be incorrect and only 300 banners were sold, the cost of this
prediction error would be
General Feedback
120
Which one of the following organizational policies is most likely to result in undesirable managerial
behavior?
Joe Walk, the chief executive officer of eagle Eagle Rock Brewey, wrote a memorandum to his executives
stating, “Operating plans are contracts and they should be met without fail”
All of the following are characteristics of the strategic planning process except the
General Feedback
Analysis and review of departmental budgets
The use of budgetary slack does not allow the preparer to

General Feedback
Use the budget to control subordinates performance
Which of the following would be considered when preparing a company's sales forecast?
Anticipated General Expected
Advertising Economic Competitive
Campaigns Trends Actions
Yes Yes Yes
From the perspective of corporate management the use of budgetary slack

Increases the likelihood of inefficient resource allocation
Boromir Company currently uses the company’s budget only as a planning tool. Management has decided
that it would be beneficial to also use budgets for control purposes. In order to implement this change, the
management accountant must
Synchronize the budgeting and accounting system with the organizational structure
Which of the following would be considered when preparing a company's sales forecast?
1) Anticipated Advertising Campaigns
2) General Economic Trends
3) Expected Competitive Actions
1) Yes 2) Yes 3) Yes
The goals and objectives upon which an annual profit plan is most effectively based are
A combination of financial, quantitative, and qualitative measures
Tei-zhei Manufacturing currently uses the company budget as a planning tool only. Management has
decided to use budgets for control purposes also. To implement this change, the management accountant
must
Synchronize the budgeting and accounting system with the organizational structure
Master budgeting - Assessment
Which one of the following items is the last schedule to be prepared in the normal budget preparation
process?
General Feedback
Cash budget.
The operating budget process usually begins with the

Sales budget
A static budget:
General Feedback
is based on one anticipated activity level.
Wilson Company uses a comprehensive planning and budgeting system. The proper order for Wilson to
prepare certain budget schedules would be CMA 0691 3-1
General Feedback
Cost of goods sold, income statement, statement of financial position, and statement of cash flows
Which one of the following items should be done first when developing a comprehensive budget for a
manufacturing company?
General Feedback
Development of a sales budget
Which of the following is normally included in the operating budget?

General Feedback
Selling expense budget
The foundation of a profit plan is the

General Feedback
Sales forecast
Which of the following is normally included in the financial budget of a firm?

General Feedback
Budgeted statement of financial position
All of the following are considered operating budgets except the

Capital Budget
The operating budget process usually begins with the

General Feedback
Sales budget
In an organization that plans by using comprehensive budgeting, the master budget is

General Feedback
A compilation of all the separate operational and financial budget schedules of the organization
Computer based financial planning models often use the master budget as their
General Feedback
Structural base
Which of the following budgets is prepared at the end of the budget-construction cycle?
General Feedback
Budgeted financial statements.
In a master budget plan, sales forecast is under

General Feedback
Operating budget.
Which of the following is normally included in the operating budget?

General Feedback
Selling expense budget
The master budget process usually begins with the

Sales Budget
Which of the following is normally included in the financial budget of firm?

Budgeted balance sheet
The preparation of a comprehensive master budget culminates with the preparation of the
CMA 0692 3-9
General Feedback
Cash management and working capital budget
For the company that does not have resource limitation, in what sequence would following
budgets be prepared?
i. Cash budget
ii. Sales budget
iii. Inventory budget
iv. Production budget
v. Purchases budget
Sequence ii, iii, iv, v and i
The master budget

General Feedback
Contains the operating budget
Which one of the following items should be done first when developing a comprehensive budget for a
manufacturing company?
General Feedback
Development of a sales budget
In developing a comprehensive budget for a manufacturing company, which one of the following
items should be done first?
CMA 0691 3-9
General Feedback
Development of a sales plan
Which one of the following schedules would be the last item to be prepared in the normal budget preparation
process? CMA 0691 3-15
General Feedback
Cash budget
The starting point in the preparation of an annual as well as monthly master budget prepared by the Budget
Committee is the
General Feedback
Responsibility center
Which of the following is the principal advantage of budgeting?

General Feedback
Forced planning
The master budget process usually begins with the

General Feedback
Sales budget
Which of the following is normally included in the financial budget of firm?

Budgeted balance sheet
Sales budget - Assessment
The Sales Department of Union Company has been in the business of selling toy batteries which
has a total market of 20,000,000 last 20PY. It served 20% of the total market last year and in the
coming year it expects the following total market based on various economic forecasts is as
follows:
Estimated total market

Economy Probability Rechargeable Non-
rechargeable
Excellent 50% 100,000 30,000,000
Good 40% 78,000 23,000,000
Fair 10% 54,000 17,000,000
It targets to serve at least 25% of the total market in a rechargeable battery and 34% in the non-rechargeable
battery. It plans to sell the rechargeable battery at P80 each and the non-rechargeable battery at P6 each.
What are the estimated sales in pesos for 20CY?
General Feedback
The estimated sales in pesos for 20CY.
The estimated sales in pesos for 20CY are as follows:
Rechargeable Non-rechargeable
Economy Probability
Units Expected Value Units Expected Value
Excellent 50% 100,000 50,000 30,000,000 15,000,000
Good 40% 78,000 31,200 23,000,000 9,200,000
Fair 10% 54,000 5,400 17,000,000 1,700,000
Projected sales in units 86,600 25,900,000
Budgeted sales in units
86,600 x 25% 21,650
25,900,000 x 34% 8,806,000
Budgeted sales in pesos
21,650 x P80 P1,732,000
8,806,000 x P6 P52,836,000
Budgeted total sales in pesos P54,568.000
The budget that is usually the most difficult to forecast is the

CMA 0692 3-8
General Feedback
Sales budget
Planners have determined that sales will increase by 25% next year, and that the profit margin will
remain at 15% of sales. Which of the following statements is correct?
General Feedback
Profit will grow by 25%.
From the perspective of corporate management, the use of budgetary slack

General Feedback
Increases the likelihood of inefficient resource allocation
Josefina Company expects to manufacture and sell 30,000 baskets in 2016 for P6 each. There are
3,000 baskets in beginning finished goods inventory with target ending inventory of 4,000 baskets.
The company keeps no work-in-process inventory. What amount of sales revenue will be reported
on the 2016 budgeted income statement?
General Feedback
Using as guide the reverse financial accounting analysis, the projected sales shall be as follows:
Budgeted production (units) 30,000

+ Finished goods inventory, beginning 3,000
- Finished goods inventory, ending ( 4,000)
Budgeted sales (units) 29,000
Budgeted sales in pesos 29,000 x P6 P174,000
The retail computer store’s budgeted total revenue for 2017 would be
General Feedback
Hardware sales increase by 10% in sales price and 5% in unit sales. Software sales increase by 8%
while maintenance contracts increase by 5%. The new revenues shall be:
Hardware sales (P4,800,000 x 110% x 105%) P5,544,000
Software sales (P2,000,000 x 108%) 2,160,000
Maintenance contracts (P1,200,000 x 105%) 1,260,000
Budgeted total revenue for 2017 P8,964,000
A company’s product has an expected 4-year life cycle from research, development, and design through
its withdrawal from the market. Budgeted costs are
Upstream costs (R&D, Design) P 2,000,000

Manufacturing costs 3,000,000
Downstream costs (marketing, distribution, customer service) 1,200,000
After-purchase costs 1,000,000
The company plans to produce 200,000 units and price the product at 125% of the whole-life unit cost. Thus,
the budgeted unit selling price is
General Feedback
The whole life unit cost system or life-cycle costing considers all the costs and expenses related to the
product from its research and development, to design, production, marketing, distribution, and post-sale
services. The budgeted unit selling price is computed as follows:
R&D and design (upstream costs) P 2,000,000

Manufacturing costs 3,000,000
Marketing, distribution, customer services (downstream costs) 1,200,000
After-purchase costs 1,000,000
Total business costs and expenses 7,200,000
/ Number of units produced 200,000
Average unit cost P
36
x Mark-up rate 125%
Unit sales price P 45
The operating results in summarized form for a retail computer store for 2017 are
Revenue
Hardware sales P4,800,000
Software sales 2,000,000
Maintenance contracts 1,200,000
Total revenue P8,000,000
Costs and expenses

Cost of hardware sales P3,360,000
Cost of software sales 1,200,000
Marketing expenses 600,000
Customer maintenance costs 640,000
Administration expenses 1,120,000
Total costs and expenses P6,920,000
Operating income P1,080,000
Management has prepared a graph showing the total costs of operating branch warehouses throughout the
country. The cost line crosses the vertical axis at P200,000. The total cost of operating one branch is
P350,000. The total cost of operating ten branches is P1,700,000. For purposes of preparing a flexible
budget based on the number of branch warehouses in operation, what formula should be used to determine
budgeted costs at various levels of activity?
. Y = P200,000 + P150,000X
In estimating the sales volume for a master budget, which of the following techniques may be used to
improve the estimate?
All of the answers are correct
When sales volume is seasonal in nature, certain items in the budget must be coordinated. The three
most significant items to coordinate in budgeting seasonal sales volume are
CMA 0689 4-27
General Feedback
Production volume, finished goods inventory, and sales volume
When an organization prepares a forecast, it CMA 0679 4-10

Presents a statement of expectations for a period but does not present a firm commitment
A production plan should be based on

A sales forecast adjusted for projected inventory levels
Production budget - Assessment
Backstreet Girls Corporation plans to sell 200,000 units of product Xey in July and anticipated a growth in
sales of 5% per month. The target ending inventory in units of the product is 80% of the next month’s
estimated sales. There are 150,000 units in inventory as of the end of June. The production requirement in
units of Xey for the quarter ending September 30 would be
General Feedback
The budgeted production in the quarter ending September 30.
The quarter ending September 30 includes the months of July, August, and September. In July the estimated sales are
200,000, in August is 210,000 (i.e., 200,000 units x 105%), in September is 220,500 (i.e., 210,000 x 105%), and in
October is 231,525 (i.e., 220,500 x 105%). The company has a policy of maintaining an ending inventory at 80%
of the next month’s estimated sales.
The budgeted sales in the quarter is 630,500 units (i.e., 200,000 + 210,000 + 220,500), and the budgeted
production for the third quarter is:
Budgeted sales – 3 rd quarter 630,500 Units
FG - September 30 (231,525 x 80%) 185,220
FG – July 1 (given) (150,000)
Budgeted production – 3 rd quarter 665,720 units
Superior Industries' sales budget shows quarterly sales for the next year as follows:
Quarter Units
1 10,000
2 8,000
3 12,000
4 14,000
Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the
next quarter's sales. Budgeted production for the second quarter of the next year would be
General Feedback
8,800 units
is incorrect because 7,200 units results from subtracting the beginning inventory twiceis incorrect because
8,000 units results from assuming no change in inventoryis correct. The finished units needed for sales
(8,000), plus the units desired for ending inventory (20% x 12,000 units to be sold in the third quarter =
2,400), minus the units in beginning inventory (20% x 8,000 units to be sold in the second quarter = 1,600)
equals budgeted production for the second quarter of 8,800 unit sis incorrect because 8,400 units results
from including the beginning inventory for the first quarter, not the second quarter, in the calculation
Daffy Tunes manufactures a toy rabbit with moving parts and a built-in voice box. Projected sales in
units for the next 5 months are as follows:
Projected
Month Sales in
Units
January 30,000
February 36,000
March 33,000
April 40,000
May 29,000
Each rabbit requires basic materials that Daffy purchases from a single supplier at P3.50 per rabbit.
Voice boxes are purchased from another supplier at P1.00 each. Assembly labor cost is P2.00 per
rabbit, and variable overhead cost is P.50 per rabbit. Fixed manufacturing overhead applicable to
rabbit production is P12,000 per month. Daffy's policy is to manufacture 1.5 times the coming
month's projected sales every other month, starting with January (i.e., odd-numbered months) for
February sales, and to manufacture 0.5 times the coming month's projected sales in alternate months
(i.e., even-numbered months). This allows Daffy to allocate limited manufacturing resources to
other products as needed during the even-numbered months.
The unit production budget for toy rabbits for January is

General Feedback
54,000 units
is incorrect because 45,000 is based on January salesis incorrect because 16,500 is budgeted production for
Februaryis correct. January's production should be 1.5 times February's sales. Thus, the production budget
for January should be 54,000 units (1.5 x 36,000 units of February sales). is incorrect because 14,500 is
budgeted production for April
Projected
Month Sales in
Units
January 30,000
February 36,000
March 33,000
April 40,000
May 29,000
The dollar production budget for toy rabbits for February is

General Feedback
P127,500
is incorrect because P327,000 is based on January salesis incorrect because P390,000 is the production
budget for Januaryis incorrect because P113,500 is the production budget for Aprilis correct. The units to be
produced in February equal 50% of March sales, or 16,500 units (.5 x 33,000). The unit variable cost is
P7.00 (P3.50 + P1.00 + P2.00 + P.50), so total variable costs are P115,500 (P7 x 16,500). Thus, the dollar
production budget for February is P127,500 (P115,500 VUC + P12,000 FC).
When budgeting, the items to be considered by a manufacturing firm in going from a sales quantity budget
to a production budget would be the
General Feedback
Expected change in the quantity of finished goods and work-in-process inventories
Tei Company’s 20CY budget contains the following information (in units):
Beginning finished goods inventory 85

Beginning work-in-process in equivalent 10
units
Desired ending finished goods inventory 100
Desired ending work-in-process in 40
equivalent units
Projected sales for 20CY 1,800
How many equivalent units should Tei plan to produce in 20CY?

General Feedback
The equivalent units that should be produced in 20CY.
The equivalent units is 1,845 computed as follows:
Projected sales 1,800 units

Finished goods-end 100
Finished goods-beginning ( 85)
Budgeted production 1,815
In process, ending 40
In-process, beginning ( 10)
Equivalent production 1,845 units
Modesto Company produces and sells Product AlphaB. To guard against stockouts, the company
requires that 20% of the next month's sales be on hand at the end of each month. Budgeted sales of
Product AlphaB over the next four months are:
June July August September

Budgeted sales in units 30,000 40,000 60,000 50,000
General Feedback
58,000 units.
Budgeted production for August would be:
Following is the sales budget of U2 Company for the period January to June 2017:
Months Units
January 100,000
February 90,000
March 90,000
April 80,000
May 70,000
June 70,000
The company’s projection is to have inventory on hand at the end of each month equal to 70% of the sales
for the month following. It is assumed that the inventory at the end of December 2017 will meet this
requirement. It is also estimated that the 80,000 units will sold in July 2017. What is the total production
budget in units for the six months period ending June 30, 2017?
Following is the sales budget of U2 Company for the period January to June 2017:
Months Units
January 100,000
February 90,000
March 90,000
April 80,000
May 70,000
June 70,000
for the month following. It is assumed that the inventory at the end of December 2017 will meet this
requirement. It is also estimated that the 80,000 units will sold in July 2017. What is the total production
budget in units for the six months period ending June 30, 2017?
General Feedback
The total budgeted sales from January to June is 500,000 units (i.e., 10,000 + 90,00 + 90,000 + 80,000 +
70,000 + 70,000). The ending inventory of the business is 70% of the next month’s sales. The budgeted
production is determined as follows:
Sales 500,000 units
+ FG – end (80,000 x 70%) 56,000
Total goods available for sale 556,000

- FG – beg (100,000 x 70%) 70,000
Budgeted production 486,000 units
Pardise Company budgets on an annual basis for its fiscal year. The following beginning and ending
inventory levels in units) are planned for the fiscal year of July 1, year 1 through June 30, year 2.
July 1, year 1
June 30, year
2
Raw material* 40,000 50,000
* Two (2) units of raw material are needed to produce
each unit of finished product.
If Pardise Company plans to sell 480,000 units during its fiscal year, the number of units it would
have to manufacture during the year would be
General Feedback
450,000 units
is incorrect because the company needs 480,000 units to sell. Beginning inventory is 80,000. The number of
units to be produced is 450,000 (480,000 sales + 50,000 ending inventory - 80,000 beginning inventory). is
incorrect because the company needs 480,000 units to sell. Beginning inventory is 80,000. The number of
incorrect because the company needs 480,000 units to sell. Beginning inventory is 80,000. The number of
correct. The company needs 480,000 units of finished goods to sell plus 50,000 for the ending inventory, or a
total of 530,000 units. Beginning inventory is 80,000 units. Therefore, only 450,000 units (530,000 - 80,000)
need to be manufactured this year.
A company has budgeted sales of 24,000 finished units for the forthcoming 6-month period. It takes 4
pounds of direct materials to make one finished unit. Given the following:
Finished Direct materials
units (pounds)
Beginning inventory 14,000 44,000
Target ending inventory 12,000 48,000
How many pounds of direct materials should be budgeted for purchase during the 6-month period?
General Feedback
92,000
Modesto Company produces and sells Product AlphaB. To guard against stockouts, the company requires
that 20% of the next month's sales be on hand at the end of each month. Budgeted sales of Product
AlphaB over the next four months are:
June July August September

Budgeted sales in units 30,000 40,000 60,000 50,000
Budgeted production for August would be:

General Feedback
58,000 units.
Projected
Month Sales in
Units
January 30,000
February 36,000
March 33,000
April 40,000
May 29,000
Berol Company's production requirement in units of finished product for the 3-month period ending
September 30 is
General Feedback
665,720 units
is incorrect because 712,025 units equals the total estimated sales for the next 4 months, minus beginning
inventory for Julyis incorrect because 630,500 units equals the total sales for 3 monthsis incorrect because
638,000 units assumes that each succeeding month's sales are 105% of July'sis correct. Sales are expected to
increase at the rate of 5% per month. Given that July sales are estimated to be 200,000 units, August,
September, and October sales are expected to be 210,000 units (1.05 x 200,000), 220,500 units (1.05 x
210,000), and 231,525 units (1.05 x 220,500), respectively. Moreover, September ending inventory must be
80% of October's estimated sales, or 185,220 units (80% x 231,525). Consequently, the production
requirement for the 3-month period is 665,720 units (200,000 + 210,000 + 220,500 + 185,220 September EI
- 150,000 July BI).
Various budgets are included in the master budget cycle. One of these budgets is the production budget.
Which one of the following best describes the production budget?
General Feedback
It is calculated from the desired ending inventory and the sales forecast.
Backstreet Girls Corporation plans to sell 200,000 units of product Xey in July and anticipated a growth in
sales of 5% per month. The target ending inventory in units of the product is 80% of the next month’s
estimated sales. There are 150,000 units in inventory as of the end of June. The production requirement in
units of Xey for the quarter ending September 30 would be
General Feedback
The budgeted production in the quarter ending September 30.
The quarter ending September 30 includes the months of July, August, and September. In July the estimated sales are
200,000, in August is 210,000 (i.e., 200,000 units x 105%), in September is 220,500 (i.e., 210,000 x 105%), and in
October is 231,525 (i.e., 220,500 x 105%). The company has a policy of maintaining an ending inventory at 80%
of the next month’s estimated sales.
The budgeted sales in the quarter is 630,500 units (i.e., 200,000 + 210,000 + 220,500), and the budgeted
production for the third quarter is:
Budgeted sales – 3 rd quarter 630,500 Units
FG - September 30 (231,525 x 80%) 185,220
FG – July 1 (given) (150,000)
Budgeted production – 3 rd quarter 665,720 units
Superflite expects April sales of its deluxe model airplane, the C-14, to be 402,000 units at P11
each. Each C-14 requires three purchased components shown below.
Purchase Number
Cost Needed
for each
C-14
Unit
A-9 P0.50 1
B-6 0.25 2
D-28 1.00 3
Factory direct labor and variable overhead per unit of C-14 totals P3.00. Fixed factory overhead is
P1.00 per unit at a production level of 500,000 units. Superflite plans the following beginning and
ending inventories for the month of April and uses standard absorption costing for valuing
inventory.
Part No. Units at April Units at April

1 30
C-14 12,000 10,000
A-9 21,000 9,000
B-6 32,000 10,000
D-28 14,000 6,000
The C-14 production budget for April should be based on the manufacture of
General Feedback
400,000 units
each. C-14 requires purchased components shown below. Factory direct labor and variable
overhead per unit of C-14 total P3.00. Fixed factory overhead is P1.00 per unit at a production
level of 500,000 units. Superflite plans the following beginning and ending inventories for the
month of April and uses standard absorption costing for valuing inventory.
Number Purchase For Units Units at

Needed Cost Each Part at April
C-14 No. April 1 30
Unit
A-9 P .50 1 C-14 12,000 10,000
B-6 .25 2 A-9 21,000 9,000
D-28 1.00 3 B-6 32,000 10,000
D-28 14,000 6,000
The C-14 production budget for April should be based on the manufacture of
General Feedback
The production budget of product C-14.
The budgeted production of C-14 is 400,000 units determined as follows:
Budgeted sales 402,000 units

Finished goods inventory – 04/30 10,000
Finished goods inventory – 04/01 (12,000)
Zhei Company had data relating total production costs to volume for each quarter during the past five years.
During this period, production volume has varied substantially, method of production has been relatively
unchanged, and the cost behavior has been complex. What is the most appropriate method for estimating
future production costs?
General Feedback
Time-series or trend-regression analysis.
Rex Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other
institutions. The tabletops are manufactured by Rex, but the table legs are purchased from an
outside supplier. The Assembly Department takes a manufactured tabletop and attaches the four
purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a
policy of producing enough tables to ensure that 40% of next month’s sales are in the finished
goods inventory. Rex also purchases sufficient raw materials to insure that raw materials
inventory is 60% of the following month’s scheduled production. Rex’s sales budget in units for
the next quarter is as follows:
July 2,300
August 2,500
September 2,100
Rex’s ending inventories in units for July 31, 20CY are:
Finished goods 1,900

Raw materials 4,000
(legs)
The number of tables to be produced during August 20CY

General Feedback
The number of tables to be produced in August.
The finished goods ending inventory is 40% of next month’s sales. The budgeted production in August
is 2,340 tables, computed as follows:
Budgeted sales 2,500 tables

Finished goods inventory, ending (2,100 units x 40%) 840
Finished goods inventory, beg (2,500 units x 40%) (1,900)
Budgeted production in August 1,440 tables
The Shocker Company's sales budget shows quarterly sales for the next year as follows:
Qtr 1 10,000 units Qtr 3 12,000 units

Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the
next quarter's sales. Budgeted production for the second quarter of the next year would be
General Feedback
8,800 units
is incorrect because budgeted production for the second quarter is calculated as follows: Beginning
inventory for Quarter should be 1,600 units (20% x 8,000 units of budgeted sales). The ending inventory
should be 2,400 units (20% x 12,000 units for Quarter 3). Because beginning inventory plus production,
minus ending inventory, equals Quarter 2 sales, production must be 8,800 unitsis incorrect because
budgeted production for the second quarter is calculated as follows: Beginning inventory for Quarter 2
should be 1,600 units (20% x 8,000 units of budgeted sales). The ending inventory should be 2,400 units
(20% x 12,000 units for Quarter 3). Because beginning inventory plus production, minus ending inventory,
equals Quarter 2 sales, production must be 8,800 units
is correct. The beginning inventory for Quarter 2 should be 1,600 units (20% x 8,000 units of
budgeted sales). The ending inventory should be 2,400 units (20% x 12,000 units of sales budgeted
for Quarter 3). Since BI plus production minus EI equals Quarter 2 sales, production must be
8,800 units.
1,600 + X - 2,400 = 8,000

X = 8,800
Following is the sales budget of U2 Company for the period January to June 20CY:
Months Units
January 100,000
February 90,000
March 90,000
April 80,000
May 70,000
June 70,000
for the month following. It is assumed that the inventory at the end of December 20PY will meet this
requirement. It is also estimated that the 80,000 units will sold in July 20CY. What is the total
production budget in units for the six months period ending June 30, 20CY?
General Feedback
The budgeted production for six months ending June 30, 20CY.
The total budgeted sales from January to June is 500,000 units (i.e., 10,000 + 90,00 + 90,000 + 80,000 +
70,000 + 70,000). The ending inventory of the business is 70% of the next month’s sales. The budgeted
production is determined as follows:
Sales 500,000 Units

+ FG – end (80,000 x 70%) 56,000
Total goods available for sale 556,000

- FG – beg (100,000 x 70%) 70,000
Materials budget - Assessment

Polk Retailers is developing cash and other budget information for July, August, and September. At
June 30, Polk had cash of P6,600, accounts receivable of P524,000, inventories of P371,280, and
accounts payable of P159,666. The budget is to be based on the following assumptions:
Sales
-----
Each month's sales are billed on the last day of the month. Customers are allowed a 2% discount if
payment is made within 10 days after the billing date. Receivables are booked gross. 65% of the
billings are collected within the discount period, 20% are collected by the end of the month, 10%
are collected by the end of the second month, and 5% prove uncollectible. Purchases
--------- 60% of all purchases of materials and selling, general, and administrative expenses are
paid in the month purchased and the remainder in the following month. Each month's ending
inventory in units is equal to 120% of the next month's units of sales.
The cost of each unit of inventory is P25. Selling, general, and administrative expenses, of which
P3,000 is depreciation, are equal to 20% of the current month's sales.
Actual and projected sales are as follows:
Pesos Units
May P424,000 10,600
June 436,000 10,900
July 428,000 10,700
August 408,000 10,200
September 432,000 10,800
October 440,000 11,000
The budgeted number of units of inventory to be purchased during September is

General Feedback
11,040
is incorrect because 13,200 units is the ending inventory in September. The budgeted units of inventory to be
purchased in September are 11,040 (13,200 EI + 10,800 September sales - 12,960 BI).is incorrect because
10,560 results from adding (rather than subtracting) beginning inventory and subtracting (rather than adding)
ending inventoryis incorrect because 10,800 units are the sales for September. The budgeted units of
inventory to be purchased in September are 11,040 (13,200 EI + 10,800 September sales - 12,960 BI).
is correct. The budgeted units of inventory to be purchased during September equal the EI of
September (120% of the unit sales in October), plus the sales units in September, minus the BI of
September. BI of September is equal to 120% of September sales.
EI (120% x 11,000) 13,200

September sales 10,800
24,000
BI (120% x (12,960)
10,800)
Units to be purchased 11,040
(September)
Russel Gil Corporation has the following budget estimates for its second year of operations:
Projected sales - P3,500,000.

Projected income before tax - 12% of sales.
Estimated selling and administrative expenses –25% of sales.
Direct labor and factory overhead are budgeted at 70% of the total manufacturing
cost.
Inventories are estimated as follows:
Raw Goods-in- Finished goods

Materials process
Beginning P 220,000 P 250,000 P 350,000
Ending P 270,000 P 300,000 P 420,000
The estimated cost of goods sold would be:

General Feedback
& The gross profit rate is 37% (i.e., 12% + 25%), ad the cost ratio is 63% (i.e., 100% - 37%). Therefore, the
cost of goods sold is P2,205,000 (i.e., P3,500,000 x 63%)
The estimated purchases of raw materials would be

General Feedback
& To compute for the raw materials purchases, we have to work back following the computation of cost of goods
sold as follows:
Cost of goods sold P 2,205,000

+ FG – ending 420,000
- FG – beginning ( 350,000)
Cost of goods manufactured 2,275,000
+ WIP – ending 300,000
- WIP – beginning ( 250,000)
Total factory costs 2,325,000
x Materials rate (100% - 70%) 30%
Materials used 697,500
+ Materials inventory – ending 270,000
- Materials inventory – beginning ( 220,000)
Budgeted materials purchases P 747,500
May Corporation uses flexible budgeting for cost control. It produced 5,400 units of product for the month
just ended incurring an indirect materials cost of P26,000. Its master budget for the year showed an indirect
materials cost of P360,000 at a production volume of 72,000 units. A flexible budget for the month just
ended, production would show indirect material cost of?
General Feedback
Indirect materials are variable factory overhead. As such, the budgeted cost of indirect materials should be
based on the level of production, which in this case should be P 27,000 [i.e., 5,400 units x (P360,000 /
72,000)]
A company produces a product that requires 2 pounds of raw materials. It is forecasted that there
will be 6,000 pounds of raw materials on hand at the end of June. At the end of any given month,
the company wishes to have 30% of next month’s raw material requirement on hand. The
company has budgeted production of the product for July, August, September, and October to be
10,000, 12,000, 13,000, and 11,000 units, respectively. As of June 1, raw material sells for P1.00
per pound.
In the month of September, raw material purchases and ending inventory, respectively, will be (in
pounds)
General Feedback
& As shown in the calculation presented in the preceding solution, the ending inventory in September is 30% of the
materials need in October which is 22,000 units (i.e., 11,000 units x 2 lbs.). Thus, the ending inventory in
September is 6,600 lbs. (i.e., 22,000 units x 30%). 24,800 and 6,600
CIA 0594 III-69

A company produces a product that requires 2 pounds of a raw material. The company forecasts that
there will be 6,000 pounds of raw material on hand at the end of June. At the end of any given
month the company wishes to have 30% of next month's raw material requirements on hand. The
10,000, 12,000, 13,000, and 11,000 units, respectively. As of June 1, the raw material sells for
P1.00 per pound.
In the month of September, raw material purchases and ending inventory, respectively, will be (in
pounds):
General Feedback
24,800 and 6,600
is correct. The ending inventory equals 6,600 pounds [30% x (11,000 units x 2 pounds) required in October].
The requirements for September equal 26,000 pounds (13,000 units x 2 pounds), and the beginning inventory
is 7,800 pounds (30% x 26,000 pounds). Thus, September purchases equal 24,800 pounds (26,000 pounds
currently required + 6,600 pounds EI - 7,800 pounds BI).is incorrect because 32,600 results from adding
beginning inventory to purchases. is incorrect because 13,000 is the budgeted production in units, and 3,900
is the number of units that can be produced using the ending inventory of raw material for August. is
incorrect because 28,600 is a nonsensical number
Jordan Auto has developed the following production plan:
Month Sales
January 10,000
February 8,000
March 9,000
April 12,000
Each unit contains 3 pounds of raw material. The desired raw material ending inventory each month
is 120% of the next month's production, plus500 pounds. (The beginning inventory meets this
requirement.) Jordanhas developed the following direct labor standards for production of these
units:
Department Department 2
1
Hours per unit 2.0 0.5
Hourly rate P6.75 P12.00
How much raw material should Jordan Auto purchase in March?

General Feedback
37,800 pounds
is incorrect because 27,000 pounds is the usage for Marchis incorrect because 32,900 pounds is the
beginning inventory. is incorrect because 36,000 pounds is the usage for April.is correct. Jordan needs
27,000 pounds (3 x 9,000 units) of materials for March production. It also needs 43,700 pounds {[(3 x
12,000 units to be produced in April) x 120%] + 500} for ending inventory. Given a beginning inventory of
32,900 pounds {[(3 x 9,000 units to be produced in March) x 120%] + 500}, required purchases equal
37,800 pounds (27,000 pounds + 43,700 pounds - 32,900 pounds).
Donald Company is budgeting sales of 42,000 units of produce Y for March 20CY. To make one
unit of finished product, three pounds of raw material A are required. Actual beginning and
desired ending inventories of raw material A and product Y are as follows:
March 1, March 31, 20CY
20CY
Raw material A 100,000 110,000 pounds
Product Y 22,000 24,000 units
There is no work-in-process inventory for product Y at the beginning and end of March. For the month of March, how
many pounds of raw material A is Donnie planning to purchase?
General Feedback
& Budgeted materials purchases is based on budgeted production, computed as follows:
Budgeted sales - March 2,000 units
+ FG – March 31 24,000
- FG – March 1 (22,000)
Budgeted production in March 44,000 units
Next, the budgeted materials purchases is determined as follows:
Budgeted materials used (44,000 units x 3 lbs.) 132,000 lbs.
+ Materials inventory – March 31 110,000
- Materials inventory – March 1 (100,000)
Budgeted materials purchases-March 142,000 lbs.
CMA 0692 3-30

Pardise Company, which budgets on an annual basis for its fiscal year. The following beginning
and ending inventory levels (in units) are planned for the fiscal year of July 1, year 1 through June
30, year 2:
July 1, year June 30, year

1 2
Raw material* 40,000 50,000
*Two units of raw materials are needed to
produce each unit of finished product.
If 500,000 complete units were to be manufactured during year 1-2 by Pardise Company, the
number of units of raw materials to be purchased is
General Feedback
1,010,000 units.
is incorrect because 1,000,000 units is the total needed for production.is incorrect because the number of
units in raw materials is not doubled.is correct. The total raw materials needed for production will be
1,000,000 units (500,000 units x 2 units of raw materials). In addition, raw materials inventory is expected
to increase by 10,000 units. Thus, raw materials purchases will be 1,010,000.is incorrect because 990,000
units is less than the amount used in production.
The sales manager of Francine Trading has budgeted the following sales for the third quarter of
20CY:
July P 1,235,000
August P 1,560,000
September P 2,080,000
Other budget estimates are:

All merchandise are to sell at its invoice cost plus 30% mark up.
Beginning inventories of each month are budgeted at 40% of that month’s projected cost of goods sold.
The projected merchandise purchases for the month of July would be

General Feedback
Projected purchases are equal to cost of goods sold plus ending merchandise inventory less beginning
merchandise inventory. Since the mark-up rate is 30% on cost, then cost of goods is sales divided
130%. The merchandise purchases in July is computed as follows:
Cost of goods sold (P1,235,000 / 130%) P 950,000

Add: Merchandise inventory – July 31 [(P1,560,000/130%) x 40%] 480,000
Total goods available for sale 1,430,000

Less: Merchandise inventory – July 1 (P950,000 x 40%) 380,000
Merchandise purchases – July P 1,050,000
Southful, Inc. desires to reduce its inventory of a particular raw material by 40%. The inventory at the
beginning of the budget period is 240,000 units, and the company plans to manufacture 168,000 units of
output. Each of these units require 2.5 units of raw materials. How much of the raw materials should be
purchased during the budget period?
General Feedback
& The budgeted raw materials purchases, based on budgeted production of 168,000 units, is computed as follows:
x Standard materials per unit 2.5
Budgeted materials requirements 420,000
Decrease in materials inventory (240,000 x 40%) ( 96,000)
Budgeted materials purchases 324,000 units
CMA 1293 3-11

Number Needed
Purchase for each C-14
Cost Unit
A-9 P0.50 1
B-6 0.25 2
D-28 1.00 3
inventory.
Part Units at Units at April

No. April 1 30
C-14 12,000 10,000
A-9 21,000 9,000
B-6 32,000 10,000
D-28 14,000 6,000
Assume Superflite plans to manufacture 400,000 units in April. Superflite's April budget for the
purchase of A-9 should be
General Feedback
388,000 units
CMA 0692 3-26

Berol Company, which plans to sell 200,000 units of finished product in July and anticipates a
growth rate in sales of 5% per month. The desired monthly ending inventory in units of finished
product is 80% of the next month's estimated sales. There are 150,000 finished units in inventory on
June 30. Each unit of finished product requires 4 pounds of direct materials at a cost of P1.20 per
pound. There are 800,000 pounds of direct materials in inventory on June 30.
Assume Berol Company plans to produce 600,000 units of finished product in the 3-month period
ending September 30, and to have direct materials inventory on hand at the end of the 3-month
period equal to 25% of the use in that period. The estimated cost of direct materials purchases for
the 3-month period ending September 30 is
General Feedback
P2,640,000
July 2,300
August 2,500
September 2,100

Raw materials (legs) 4,000
Assume the required production for August and September is 1,600 and 1,800 units, respectively,
and the July 31, 20CY raw materials inventory is 4,200 units. The number of table legs to be
purchased in August is.
General Feedback
& The materials purchases in August are computed as:
Budgeted production 1,600 tables
x Number of legs per table 4
Budgeted materials to be used 6,400 legs
Materials inventory – ending (1,800 units x 4 legs x 60%) 4,320
Materials inventory-beginning (4,200)
Budgeted materials purchases in lbs. 6,520 legs
Donald Company is budgeting sales of 42,000 units of produce Y for March 2017. To make one
unit of finished product, three pounds of raw material A are required. Actual beginning and desired
ending inventories of raw material A and product Y are as follows:
March 1, 2017 March 31, 2017
Raw material A 100,000 pounds 110,000 pounds
Product Y 22,000 units 24,000 units
There is no work-in-process inventory for product Y at the beginning and end of March. For the
month of March, how many pounds of raw material A is Donnie planning to purchase?
General Feedback
142,000
Each unit of product Omega requires 3 kilos of raw material. Next month’s production budget for
product Omega is as follows:
Opening inventory:
Raw materials 15,000 kgs.
Finished goods 2,000 units
Finished ending inventory:
The number of kilograms of raw materials to be purchased next month is?
General Feedback
& Budgeted raw materials purchases is based on the budgeted production, as follows:
+ Finished gods inventory-ending 3,000
- Finished goods inventory-beginning ( 2,000)

x Standard materials per unit 3 kgs.
Budgeted raw materials need 183,000

+ Materials inventory-ending 7,000
- Materials inventory-beginning ( 15,000)
Budgeted materials purchases 175,000 kgs.
Scarborough Corporation manufactures and sells two products, Thingone and Thingtwo.
Scarborough's budget department gathered the following data to project sales and budget
requirements:
Projected Sales
Product Units Price
Thingone 60,000 P70
Thingtwo 40,000 100
Projected Inventories in units

Expected Desired
Product January 1 December
31
Thingone 20,000 25,000
Thingtwo 8,000 9,000
To produce one unit of Thingone and Thingtwo, the following raw materials are used:
Raw Unit Thingone Thingtwo

Material
A lb. 4 5
B lb. 2 3
C each 1
Projected data for the year with respect to raw materials are as follows:
Raw Anticipated Expected Desired

Material Purchase Inventories Inventories
Price 1/1 12/31
A P8 32,000 lb. 36,000 lb.
B 5 29,000 lb. 32,000 lb.
C 3 6,000 7,000 each
each
Projected direct labor requirements and rates are as follows:
Thingone 2 hours per unit at P3 per hour

Thingtwo 3 hours per unit at P4 per hour
Overhead is applied at the rate of P2 per direct labor
hour.
What is the raw materials budget in quantities?

General Feedback
469,000 256,000 42,000
is incorrect because the expected beginning inventory should be subtracted from (not added to) the total
requirements
is correct. The raw materials budget consists of raw materials A, B, and C. Thingone and Thingtwo
require different proportions of each item. Once production requirements are established, add
desired EI and subtract the BI of each raw material to arrive at purchases required.
A B C
Thingone (65,000 units projected to 260,000 130,000 -0-
be produced)
Thingtwo (41,000 units projected to 205,000 123,000 41,000
be produced)
Production requirements 465,000 253,000 41,000
Add desired inventories, 12/31 36,000 32,000 7,000
Total requirements 501,000 285,000 48,000
Less expected inventories, 1/1 (32,000) (29,000) (6,000)
Purchase requirements (units) 469,000 256,000 42,000
Sales
-----
Pesos Units
May P 10,600
424,000
June 436,000 10,900
July 428,000 10,700
August 408,000 10,200
September 432,000 10,800
October 440,000 11,000
Budgeted purchases for July and August are

General Feedback
P252,500 and P273,000
is incorrect because budgeted purchases for July are P252,500 (10,100 purchases x P25 unit price) and for
August are P273,000 (10,920 purchases x P25 unit price). is incorrect because budgeted purchases for July
are P252,500 (10,100 purchases x P25 unit price) and for August are P273,000 (10,920 purchases x P25 unit
price).
is correct. Each month's units of EI equal 120% of the next month's units of sales. Thus, the
purchases each month are equal to the EI, plus the sales of the current month, minus the BI.
July August
Sales 10,700 10,200
Add: EI 12,240 12,960
22,940 23,160
Minus: BI (12,840) (12,240)
Purchases 10,100 10,920
Unit price x P 25 x P 25
Purchase cost P 252,500 P 273,000
is incorrect because budgeted purchases for July are P252,500 (10,100 purchases x P25 unit price) and for
August are P273,000 (10,920 purchases x P25 unit price).
A company produces a product that requires 2 pounds of raw materials. It is forecasted that there
will be 6,000 pounds of raw materials on hand at the end of June. At the end of any given month,
the company wishes to have 30% of next month’s raw material requirement on hand. The
10,000, 12,000, 13,000, and 11,000 units, respectively. As of June 1, raw material sells for P1.00
per pound.
The cost of inventory is determined using the last-in, first-out (LIFO) method. If the price of raw
materials increases 10% as of June 30, what will be the effect of this increase on the cost of
purchases from July to September?
General Feedback
& The budgeted materials purchases in July, August, and September are (in lbs.):
July August September
Budgeted materials used
(10,000 units x 2 lbs.) 20,000
(12,000 units x 2 lbs.) 24,000
(13,000 units x 2 lbs.) 26,000
Materials inventory - ending
(24,000 x 30%) 7,200
(26,000 x 30%) 7,800
(11,000 units x 2 lbs. X 30%) 6,600
Materials inventory – beginning
(20,000 x 30%) ( 6,000) (7,200) ( 7,800)
Materials purchases 21,200 24,600 24,800

The total purchases for July, August, and September are 70,600 lbs. (i.e., 21,200 lbs + 24,600 lbs. + 24,800 lbs.) or
P70,600 (ie., 70,600 lbs. x P1.00). Hence, the effect of the 10% increase in materials cost in the months of July to
September is an increase of P7,060 (i.e, P70,600 x 10%).
CMA 1293 3-12

Part Units at Units at April 30
No. April 1
C-14 12,000 10,000
A-9 21,000 9,000
B-6 32,000 10,000
D-28 14,000 6,000
inventory.
Assume Superflite plans to manufacture 400,000 units in April. The total April budget for all
purchased components should be
General Feedback
P1,580,500
Each unit of product Fely uses 6 kilograms of raw materials. The production and inventory budgets
for June 20CY are as follows:
Opening inventories:
Closing inventories:
Budgeted sales of Fely for June are 18,000 units. During the production process, it is usually found that 10% of
production units are scrapped as defective and this loss occurs after the raw materials have been placed in process.
What will the raw materials purchases be in June?
General Feedback
& The budgeted raw materials purchases for June is determined as follows:
+ Finished good inventory-ending 11,400
- Finished goods inventory-beginning (15,000)
Budgeted materials used [(14,400 / 90%) x 6 kgs.] 96,000 kgs.
Materials inventory-ending 24,400
Materials inventory-beginning ( 21,000)
Budgeted materials purchases 99,400 Kgs.
The budgeted production, net of lost units, is adjusted to total units started in process of 16,000 units (i.e., 14,400 /
90%). Since the problem is silent, it is assumed the units were lost at the start of the proces.
CMA 1287 4-29

The Jung Corporation's budget calls for the following production:
Each unit of product requires three pounds of direct material. The company's policy is to begin each
quarter with an inventory of direct materials equal to 30% of that quarter's direct material
requirements. Budgeted direct materials purchases for the third quarter would be
General Feedback
114,600 pounds
is correct. Beginning inventory should be 30,600 pounds (30% x 3 pounds x 34,000 units of
budgeted sales). Ending inventory should be 43,200 pounds (30% x 3 pounds x 48,000 units of
budgeted sales for Quarter 4). Since BI plus purchases minus EI equals Quarter 3 budgeted sales,
purchases must be 114,600.
30,60 + X - 43,200 = 3 x 34,000 = 102,000

X = 114,600
Direct labor budget - Assessment
purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a policy
of producing enough tables to ensure that 40% of next month’s sales are in the finished goods
inventory. Rex also purchases sufficient raw materials to insure that raw materials inventory is 60%
of the following month’s scheduled production. Rex’s sales budget in units for the next quarter is as
follows:
July 2,300
August 2,500
September 2,100
Rex’s ending inventories in units for July 31, 2017 are
The number of tables to be produced during August 2017

General Feedback
1,440 tables.
Each unit of product Jollicat takes five direct labor hours to make. Quality standards are high and 8% of
units produced are normally rejected due to substandard quality. Next month budgets are as follows:
Beginning inventory of finished gods 3,000 units

Planned ending inventory of finished goods 7,600 units
Budgeted sales of Jollicat 36,800 units
All stocks of finished goods must have successfully passed the quality control check. What is the direct
labor budget for the month?
General Feedback
The direct labor budget is also based on budgeted production. Budgeted direct labor hours are budgeted
production multiplied by standard direct labor hours per unit. First, let us compute the budgeted
production, then, the budgeted direct labor hours.
Finished inventory-ending 7,600
Finished inventory-beginning (3,000)
Budgeted direct labor hours [(41,400 / 92% x 5 hrs.) 225,000 hrs.
Individual budget schedules are prepared to develop an annual comprehensive or master budget. The
budget schedule that would provide the necessary input data for the direct labor budget would be the
General Feedback
Production budget.
July 2,300
August 2,500
September 2,100

Assume that Rex Corporation will produce 1,800 units in the month of September 20CY, how many
employees will be required for the Assembly Department? (Fractional employees are acceptable
since employees can be hired on a part-time basis. Assume a 40-hour week and a 4-week month.)
General Feedback
The number of employees required for the Assembly Department in September.
It takes 20 minutes to assemble a table. The number of employees to produce 1,800 units is 3.75, determined as
follows:
Total hours needed to produce 1,800 tables 600 hrs.

(1,800 tables x 20/60)
/ Total man hours per employee per month (40

hrs. x 4 wks.)
160
Number of employees 3.75
requirements:
Projected Sales
Product Units Price
Thingone 60,000 P 70
Thingtwo 40,000 100
Projected Inventories -- in units:
Expected January 1 Desired

Product December
31
Thingone 20,000 25,000

Material
A lb. 4 5
B lb. 2 3
C each 1
Desired
Anticipated Expected Inventories Inventories
Raw Purchase 1/1 12/31
Material Price
A P8 32,000 lb. 36,000 lb.
B 5 29,000 lb. 32,000 lb.
C 3 6,000 each 7,000 each

Thingone -- 2 hours per unit at P3 per hour
Thingtwo -- 3 hours per unit at P4 per hour
Overhead is applied at the rate of P2 per direct labor hour.
What is the direct labor budget in pesos?

Thingone Thingtwo
General Feedback
P390,000 P492,000
is incorrect because the total hours for Thingtwo (123,000) should be multiplied by a rate of P4 to get the
direct labor budget in pesos of P492,000is incorrect because the total hours for Thingone (130,000) should
be multiplied by a rate of P3 (not P4) per hour to arrive at the direct labor budget for Thingone
is correct. The direct labor budget in pesos is the estimated unit production times the hours per unit
times the expected rate, which gives the direct labor pesos for each product.
Projected
Production Hours Total Hours
(units) per Unit Rate Total
Thingone 65,000 2 130,000 P3 P 390,000
Thingtwo 41,000 3 123,000 4 492,000
Mountain Corporation manufactures cabinets but outsources the handles. Eight handles are needed
for a cabinet, with assembly requiring 30 minutes of direct labor per unit. Ending finished goods
inventory is planned to consist of 50% of projected unit sales for the next month, and ending
handles inventory is planned to be 80% of the requirement for the next month's projected unit
output of finished goods.
Mountain's projected unit sales:
October 4,600
November 5,000
December 4,200
January 6,000
Mountain's ending inventories in units at September 30:

Handles 16,000
Given that a full-time employee works 160 hours per month, no overtime is allowed, and part-time
employees may be used, how many full-time equivalent employees are needed to assemble the
output of finished units in November?
General Feedback
14.375
Assume the required production for August and September is 1,600 and 1,800 units, respectively, and the
July 31, 2017 raw materials inventory is 4,200 units. The number of table legs to be purchased in August is.
General Feedback
The materials purchases in August is computed as:
Budgeted production 1,600 tables
x Number of legs per table 4
Budgeted materials to be used 6,400 legs
Materials inventory – ending (1,800 units x 4 legs x 60%) 4,320
Materials inventory-beginning (4,200)
Budgeted materials purchases in lbs. 6,520 legs
Jordan Auto has developed the following production plan:
Month Sales
January 10,000
February 8,000
March 9,000
April 12,000
Each unit contains 3 pounds of raw material. The desired raw material ending inventory each month
is 120% of the next month's production, plus500 pounds. (The beginning inventory meets this
requirement.) Jordan has developed the following direct labor standards for production ofthese
units:
Department Department 2
1
Hours per
unit 2.0 0.5
Hourly P P 12.00
rate 6.75
Jordan Auto's total budgeted direct labor pesos for February usage should be
General Feedback
P156,000
Factory overhead budget - Assessment
The Carroll Timber Corporation purchased a medium-size log skidder on July 1, year 1, the
beginning of the company's fiscal year. The skidder cost P84,000, has an estimated productive
life of 8 years, and an estimated salvage value of P12,000. The skidder has been used in
operations throughout the entire fiscal year.
If Carroll uses the full-year convention to recognize depreciation expense in the year of acquisition,
the amount of the projected depreciation expense using the sum-of-years'-digits method for the
fiscal year ending June 30, year 2, would be
General Feedback
P16,000
is incorrect because P2,333 is based on the last year of the asset's life and ignores salvage valueis correct.
Under SYD, the amount depreciated is P72,000 (P84,000 cost - P12,000 salvage value). The portion
expensed each year is based on a fraction equal to the periods remaining divided by {[n (n + 1)] ・2}. For
the first year, the fraction is 8 ・36 {8 ・[8 (8 + 1) ・2]}. Given that the full-year convention applies
depreciation is P16,000 [P72,000 x (8 ・36)]. is incorrect because P18,000 is based on a fraction of 1 ・4. is
incorrect because P18,667 is based on the original cost without a deduction for salvage value
Whole Corporation’s master budget shows straight-line depreciation machinery of P516,000 based on an
annual production volume of 103,200 units of product. In July, it produced 8,170 units of product, and the
accounts had the actual depreciation on machinery of P41,000. It controls manufacturing costs with a
flexible budget. The flexible budget amount for depreciation on machinery for July is
General Feedback
A depreciation expense computed based on units of output is a variable cost. The variable cost rate of the
depreciation expense is P5.00 (i.e, P516,000 / 103,200 units). The flexible budget allowance for
depreciation expense in July should be P40,850 (i.e., 8,170 units x P5).
Southwing Company is preparing a flexible budget for 20CY and the following maximum
capacity estimates for department M are available:
At
maximum
capacity
Direct labor hours 60,000
Variable factory overhead P 150,000
Fixed factory overhead P 240,000
Assume that Southwing’s normal capacity is 80% of maximum capacity. What would be the total factory
overhead rate, based on direct labor-hours, in a flexible budget at normal capacity?
General Feedback
The total factory overhead rate.
Total factory overhead rate is composed of variable overhead rate and fixed overhead rate. The fixed
factory overhead rate is based on normal capacity of 48,000 hours (i.e., 60,000 hrs. x 80%). As such,
the total overhead rate is P7.50, as follows:
Variable overhead rate (P150,000 / 60,000 P 2.50

hrs.)
Fixed overhead rate (P240,000 / 48,000 hrs.) 5.00
Total overhead rate P 7.50
The two most appropriate factors for budgeting manufacturing overhead expenses would be
General Feedback
Management judgment and production volume
Whole Corporation’s master budget shows straight-line depreciation machinery of P516,000 based on an
annual production volume of 103,200 units of product. In July, it produced 8,170 units of product, and the
accounts had the actual depreciation on machinery of P41,000. It controls manufacturing costs with a
flexible budget. The flexible budget amount for depreciation on machinery for July is
General Feedback
The budgeted depreciation expense in July.
A depreciation expense computed based on units of output is a variable cost. The variable cost rate of
the depreciation expense is P5.00 (i.e, P516,000 / 103,200 units). The flexible budget allowance for
depreciation expense in July should be P40,850 (i.e., 8,170 units x P5). P40,85
EYE Corporation uses flexible budgeting for cost control. It produced 5,400 units of product for the
month just ended incurring an indirect materials cost of P26,000. Its master budget for the year showed
an indirect materials cost of P360,000 at a production volume of 72,000 units. A flexible budget for the
month just ended would show indirect material cost of
General Feedback
P27,000
The Carroll Timber Corporation purchased a medium-size log skidder on July 1, year 1, the
beginning of the company's fiscal year. The skidder cost P84,000, has an estimated productive
life of 8 years, and an estimated salvage value of P12,000. The skidder has been used in
operations throughout the entire fiscal year.
If Carroll uses the half-year convention to recognize depreciation expense on all depreciable
assets bought during the year, the amount of depreciation expense using the straight-line method
that would be projected for the fiscal year ending June 30, year 2, would be
General Feedback
P4,500
Administration, marketing, distribution expenses budget - Assessment
Which one the following statements regarding selling and administrative budgets are most accurate?
Selling and administrative budgets need to be detailed in order that the key assumptions can be better
understood.
A company prepares a flexible budget each month for manufacturing costs. Formulas have been developed
for all costs within a relevant range of 5,000 to 15,000 units per month. The budget for electricity (a
semivariable cost) is P19,800 at 9,000 units per month, and P21,000 at 10,000 units per month. How much
should be budgeted for electricity for the coming month if 12,000 units are to be produced?
General Feedback
P23,400 [the cost for 10,000 (P21,000) + P2,400 (2 x P1,200).
The International Company makes and sells only one product, Product SW. The company is in the
process of preparing its Selling and Administrative Expense Budget for the last half of the year.
The following budget data are available:
VC/unit sold FC/month
Sales commissions P0.70
Shipping 1.10
Advertising 0.20 P14,000
Executive salaries - 34,000
Depreciation on office equipment - 11,000
Other 0.25 19,000
If the company has budgeted to sell 20,000 units of Product SW in October then the total
budgeted variable selling and administrative expenses for October will be:
General Feedback
The total budgeted variable selling and administrative expenses.
The budgeted variable selling and administrative expenses shall be P45,000, ie, 20,000 x P2.25.
Karmel, Inc. pays out sales commissions to its sales team in the month the company receives cash for
payment. These commissions equal 5% of total (monthly) cash inflows as a result of sales. Karmel has
budgeted sales of P300,000 for August, P400,000 for September, and P200,000 for October. Approximately
half of all sales are on credit, and the other half are all cash sales. Experience indicates that 70% of the
budgeted credit sales will be collected in the month following the sale, 20% the month after that, and 10% of
the sales will be uncollectible. Based on this information, what should be the total amount of sales
commissions paid out by Karmel in the month of October?
General Feedback
P13,500
Shipping 1.10
Other 0.25 19,000
If the budgeted cash disbursements for selling and administrative expenses for November total
P123,250, then how many units of Product SW does the company plan to sell in November
(rounded to the nearest whole unit)?
General Feedback
The number of units the company should sell in November if the budgeted cash expenses are P123,250
The cash fixed expense total to P67,000, eg, P78,000 – P11,000 and the cash variable selling
expenses are P56,250 (eg, P123,250 – P67,000). Therefore, the number of units to be sold given
the amount of cash expenses would be 25,000 eg, P56,250
The International Company makes and sells only one product, Product SW. The company is in the process
of preparing its Selling and Administrative Expense Budget for the last half of the year. The following
budget data are available:
Shipping 1.10
Other 0.25 19,000
All expenses other than depreciation are paid in cash in the month they are incurred. If the company has
budgeted to sell 25,000 units of Product SW in July, then the total budgeted selling and administrative
expenses for July will be:
General Feedback
The budgeted selling and administrative expenses shall be composed of the following:
Variable expenses 25,000 x P2.25 P 56,250
Fixed expenses 78,000
Budgeted selling and administrative expenses P134,250
Premised on past experience Jason Corp. adopted the following budgeted formula for estimating
shipping expenses. The company’s shipments averaged 12 kilos per shipment (Shipping costs =
P8,000 + (P0.25 x standard kgs. shipped). Pertinent data for the current month are given below:
Planned Actual
Sales order 800 780
Shipments 800 820
Units shipped 8,000 9,000
Sales 240,000 288,000
Total pounds shipped 9,600 12,300
The actual shipping costs for the month amounted to P10,500. The appropriate monthly flexible budget allowance
for shipping costs for purposes of performance evaluation would be
General Feedback
The appropriate flexible budget allowance for shipping costs.
The budgeted shipping costs has a fixed costs of P8,000 and a variable cost rate of P0.25 per standard kilogram
shipped. The actual number of shipments total 820 and the standard number of kilograms shipped should be 9,840
kilograms (i.e., 820 shipments x 12 kgs.). The budget allowance on actual production, which is used for
evaluation purposes, is
Variable costs (820 shipments x 12 kgs. x P0.25) P 2,460
Fixed costs 8,000
Budget allowance on actual shipments P10,460
As you are doing an analysis of the cash flow, you found these data belonging to the Blue Sky Company.
· Taxes: beginning of the year P 6,000
ending of the year 4,000
· Interest expense 50,000
· General and administrative expense 155,765
· Tax expense per income statement 20,000
Cash used to pay taxes must have been P22,000. First, get the total of the available data in the credit side of
the account of which total must be also the total of the debit side. The tax payment is equal to P22,000 (i.e.,
P26,000 – P4,000), hence, choice-letter “c” is correct. The interest expense and the general and
administrative expenses are irrelevant data in this problem.
For the month of December, Crystal Clear Bottling expects to sell 12,500 cases of Cranberry Sparkling
Water at P24.80 per case and 33,100 cases of Lemon Dream Cola at P32.00 per case. Sales personnel receive
6% commission on each case of Cranberry Sparkling Water and 8% commission on each case of Lemon
Dream Cola. In order to receive a commission on a product, the sales personnel team must meet the
individual product revenue quota. The sales quota for Cranberry Sparkling Water is P500,000, and the sales
quota for Lemon Dream Cola is P1,000,000. The sales commission that should be budgeted for December is
General Feedback
P84,736 (8% x P1,059,200)
Shipping 1.10
Other 0.25 19,000
If the company has budgeted to sell 24,000 units of Product SW in September, then the total
budgeted fixed selling and administrative expenses for September would be
General Feedback
The budgeted total fixed expenses.
The budgeted total fixed expenses shall be the same at P78,000 regardless of change in the level of production.
For the month of June, Wilder Cherry Company expects to sell 12,500 cases of small cherries at P25 per case
and 33,000 cases of large cherries at P32 per case. Sales personnel receive a 6% commission on each case of
small cherries and an 8% commission on each case of large cherries. To receive a commission on a product,
the sales personnel team must meet the individual product revenue quota. The sales quotas for small cherries
and large cherries are P500,000 and P1 million, respectively. What are the sales commissions budgeted for
June?
General Feedback
P84,480
Melsie Company has budgeted its activity for October 2017 based on the following information:
w Sales are budgeted at P300,000. All sales are credit sales and a provision for doubtful
accounts is made monthly at the rate of 3% of sales.
w Merchandise inventory was P70,000 at September 30, 2004, and an increase of P10,000 is
planned for the month.
w All merchandise is marked up to sell at invoice cost plus 50%.
w Estimated cash disbursements for selling and administrative expenses for the month are
P40,000.
w Depreciation for the month is projected at P5,000.
Melsie is projecting operating income for October 2017 in the amount of

General Feedback
The projected operating income of Melsie Company in October 2017 is:
Sales P 300,000
Cost of sales (P300,000/150%) ( 200,000)
Cash selling and administrative expenses ( 40,000)
Doubtful accounts expense (3% x P300,000) ( 9,000)
Depreciation expense ( 5,000)
Operating income P 46,000
Budgeted statement of profit or loss - Assessment
Melsie Company has budgeted its activity for October 2017 based on the following information:
 Sales are budgeted at P300,000. All sales are credit sales and a provision for doubtful accounts is
made monthly at the rate of 3% of sales.
 Merchandise inventory was P70,000 at September 30, 2004, and an increase of P10,000 is planned
for the month.
 All merchandise is marked up to sell at invoice cost plus 50%.
 Estimated cash disbursements for selling and administrative expenses for the month are P40,000.
 Depreciation for the month is projected at P5,000.
Melsie is projecting operating income for October 2017 in the amount of
General Feedback
The projected operating income of Melsie Company in October 2017 is:
Sales P 300,000
Cost of sales (P300,000/150%) ( 200,000)
Cash selling and administrative expenses ( 40,000)
Doubtful accounts expense (3% x P300,000) ( 9,000)

Super Drive, a computer disk storage and back-up company, uses accrual accounting. The
company's Statement of Financial Position for the year ended November 30, is as follows:
Super Drive
Statement of Financial Position
November 30
Assets
Cash P 52,000
Accounts receivable, net 150,000
Inventory 315,000
Property, plant and equipment 1,000,000
Total assets P 1,517,000
Liabilities and Shareholders’ Equity
Accounts payable P 175,000
Common stock 900,000
Retained earnings 442,000
Total liabilities and shareholders' P 1,517,000
equity
Additional information regarding Super Drive's operations

include the following:
ｷ Sales are budgeted at P520,000 for December and P500,000 for January of the next year.
ｷ Collections are expected to be 60% in the month of sale and 40% in the month following the
sale.
ｷ 80% of the disk drive components are purchased in the month prior to the month of sale, and 20%
are purchased in the month of sale.
Purchased components are 40% of the cost of goods sold.
ｷ Payment for the components is made in the month following the purchase.
ｷ Cost of goods sold is 80% of sales.
The projected gross profit for the month ending December 31 is

General Feedback
P104,000 (20% x P520,000)
Number Purchase For Each Part No. Units at Units at

Needed Cost C-14 April 1 April 30
Unit
A-9 P .50 1 C-14 12,000 10,000
B-6 .25 2 A-9 21,000 9,000
D-28 1.00 3 B-6 32,000 10,000
D-28 14,000 6,000
Superflite’s budgeted gross margin for April is

General Feedback
The budgeted gross margin.
Gross margin is sales less cost of goods sold. The units sold is 402,000 at a sales price of P11. The gross margin is
Budgeted sales (402,000 x P11) P

4,422,000
Budgeted cost of goods sold (402,000 x P8) 3,216,000
Budgeted gross margin P
1,206,000
The operating results in summarized form for a retail computer store for 20PY are:
Revenue
Costs and expenses

The computer store is in process of formulating its operating budget for 20CY and has made the following
assumptions:
w The selling prices of hardware are expected to increase 10%, but there will be no selling increase for software or
maintenance contracts.
w Hardware unit sales are expected to increase 5% with a corresponding 5% growth in the number of maintenance
contracts; the growth in units of the software sales is estimated at 8%.
w The costs of hardware and software is expected to increase by 4%.
w Marketing expenses will be increased by 5% in the coming year.
w Three technicians will be added to the customer maintenance operations in the coming year, increasing the
customer maintenance costs by P120,000.
w Administrative costs will be held at the same level.
The retail computer store’s budgeted total revenue for 20CY would be
General Feedback
The budgeted total revenue for 20CY.
Hardware sales increase by 10% in sales price and 5% in unit sales. Software sales increase by 8% while maintenance
contracts increase by 5%. The new revenues shall be:
Hardware sales (P4,800,000 x 110% x 105%) P 5,544,000
Software sales (P2,000,000 x 108%) 2,160,000
Maintenance contracts (P1,200,000 x 105%) 1,260,000
Budgeted total revenue for 2013 P 8,964,000
James Corporation expects to sell 150,000 board games for July. Its master budget related to the
sale and production of these items is presented below (in thousands):
Revenue P 480
- Cost of goods sold:
Direct materials P135
Direct labor 60
Variable overhead 90 285
Contribution margin 195
- Fixed overhead 50
Fixed selling and administrative costs 100 150
Operating income P 45
July’s sales registered at 180,000 board games. Using the flexible budget, the company expects the operating
income for July to be
General Feedback
The expected operating income in July.
The unit contribution margin is P1.30 (i.e., P195,000 / 150,000). Using the flexible budget, the expected operating
income in July is P84,000, computed as follows:
Contribution margin (180,000 units x P1.30) P 234,000
The operating results in summarized form for a retail computer store for 20PY are:
Revenue
Costs and expenses
The computer store is in process of formulating its operating budget for 20CY and has made the following
assumptions:
w The selling prices of hardware are expected to increase 10%, but there will be no selling increase for software or
maintenance contracts.
w Hardware unit sales are expected to increase 5% with a corresponding 5% growth in the number of maintenance
contracts; the growth in units of the software sales is estimated at 8%.
w The costs of hardware and software is expected to increase by 4%.
w Marketing expenses will be increased by 5% in the coming year.
w Three technicians will be added to the customer maintenance operations in the coming year, increasing the
customer maintenance costs by P120,000.
w Administrative costs will be held at the same level.
The retail computer store’s budgeted total costs and expenses for 20CY would be
General Feedback
The budgeted costs and expenses for the coming year.
The budgeted costs and expense for the coming year are as follows:
Cost of hardware sales (P3,360,000 x 105% x 104%) P 3,669,120

Cost of software sales (P1,200,000 x 108% x 104%) 1,347,840
Marketing expenses (P600,000 x 105%) 630,000
Customer maintenance costs (P640,000 + P120,000) 760,000
Budgeted costs and expenses in 20CY P 7,526.960
Brogan Co. operated four sales offices last year. Brogan's costs were P400,000, of which P60,000 were
fixed. Brogan's total costs are significantly influenced by the number of sales offices it operates. Using last
year's costs as the basis for predicting annual costs, what would the budgeted costs be if Brogan operated six
sales offices?
General Feedback
P570,000 [P60,000 + (P85,000 x 6)]
Arfel Trading, which is marketing a single product, has the following preliminary forecast for
20CY:
No. of units 150,000 units
Selling price per unit P 15
Variable costs P1,200,000
Fixed costs P 850,000
Advertising expense was not included in the above. Based on a market study in December 20CY, the company
estimated that it could increase the unit selling price by 10% and increase the unit sales volume by 20% if
P200,000 would be spent on advertising. If Arfel will incorporate these changes in its 20CY forecast, what would
be the operating income?
General Feedback
The expected operating income in 20CY.
Operating income is contribution margin less fixed costs and expenses. Based on the data given, the following may
be derived:
New number of units sold (150,000 x 120%) 180,000 units

New unit sales price (P15 x 110%) P16.50
Unit variable cost (P1,200,000 / 150,000 units) P 8.00
New unit contribution margin (P16.50 – P8.00) P 8.50
New fixed costs (P850,000 + P200,000) P 1,050,000
The expected operating income shall be calculated as:

Contribution margin (180,000 x P8.50) P 1,530,000
- Fixed costs 1,050,000
requirements:
Projected Sales
Product Units Price
Thingone 60,000 P 70
Thingtwo 40,000 100
Projected Inventories in
units
Expected Desired
Product January 1 December
31
Thingone 20,000 25,000

Material
A lb. 4 5
B lb. 2 3
C each 1
Desired
Anticipated Expected Inventories Inventories
Raw Purchase 1/1 12/31
Material Price
A P8 32,000 lb. 36,000 lb.
B 5 29,000 lb. 32,000 lb.
C 3 6,000 each 7,000 each

Thingone -- 2 hours per unit at P3 per hour
Thingtwo -- 3 hours per unit at P4 per hour
Overhead is applied at the rate of P2 per direct labor hour.
What is the budgeted finished goods inventory for Thingtwo in pesos?

General Feedback
P684,000
is incorrect because budgeted finished goods inventory is P684,000 [(P58 DM + P12 DL + P6 O/H)
x 9,000 EI units]. P108,000 was arrived at by multiplying EI units (9,000) by direct labor (P12).
is incorrect because P306,000 ignores the amounts of each raw material required per unit of Thingtwo (i.e. 5
pounds of A, 3 pounds of B, and 1 each of C). is incorrect because P522,000 was arrived at by multiplying
EI units (9,000) by direct materials (P58). Budgeted finished goods inventory is P684,000 [(P58 DM + P12
DL + P6 O/H) x 9,000 EI units].
is correct. The budgeted FG inventory includes DM, DL, and O/H associated with Thingtwo times
the desired inventory.
Raw materials:
A (5 pounds x P8) P 40
B (3 pounds x P5) 15
C (1 each x P3) 3 P 58
Direct labor (3 hours x P4) 12
Overhead (3 hours x P2) 6
Per unit cost 76
Units in EI x 9,000
EI value P 684,000
Bradley Co. budgets its total production costs at P220,000 for 75,000 units of output and P275,000 for
100,000 units of output. Since additional facilities are needed to produce 100,000 units, fixed costs are
budgeted at 20% more than for 75,000 units. What is Bradley's budgeted variable cost per unit of output?
General Feedback
P1.10
is correct. Total budgeted costs equals fixed costs plus variable costs. Given that fixed costs (FC)
increase 20% from one output level to another, simultaneous equations are required to determine
variable costs per unit (VC).
75,000 VC + FC = P220,000
100,000 VC + 1.2 FC = P275,000
FC = P220,000 - 75,000 VC
Substituting for FC in the second equation,
100,000 VC + 1.2 (P220,000 - 75,000 VC) = P275,000

100,000 VC + P264,000 - 90,000 VC = P275,000
10,000 VC = P11,000
VC = P1.10
A company has the following 20CY budget data:
Beginning finished goods inventory 40,000 units

Sales 70,000 units
Ending finished goods inventory 30.000 units
Direct materials P 10 per unit
Direct labor P 20 per unit
Variable factory overhead P 5 per unit
Selling costs P 2 per unit
Fixed factory overhead P 80,000
What are 20CY total budgeted production costs?

General Feedback
The budgeted production costs.
Production costs include materials, labor, and overhead. The budgeted production is 60,000 units (i.e., 70,000 units +
30,000 units – 40,000 units). The total production costs of P2,180,000 is computed below:
Materials (60,000 units x P10) P 600,000
Direct labor (60,000 units x P20) 1,200,000
Variable factory overhead (60,000 units x P5) 300,000
Budgeted cost of production P 2,180,000
Butteco has the following cost components for 100,000 units of product for the year:
Raw materials P 200,000

Manufacturing overhead 200,000
Selling/administrative expense 150,000
All costs are variable except for P100,000 of manufacturing overhead and P100,000 of selling and
administrative expenses. The total costs to produce and sell 110,000 units for the year are
General Feedback
P695,000 (P495,000 + P200,000)
It is budgeting time for Rodney Company. The following assumptions were agreed upon for the
next year after a strategic planning which covered a five-year horizon:
1. Sales are estimated to be at 70,000 units at its national selling price of P126.00.
2. Sales discounts are given to various customers at different rates and net to gross ratio is at 93%.
3. Mark-up on merchandise is at 45% of invoice cost. Beginning inventory is P80,900 and is expected to be
reduced by P15,000 at the end of the period.
4. Selling and administrative expenses are expected to be 15% of gross sales.
5. Depreciation in computed at P500,000.
6. Seventy-five percent (75%) of sales are on account. Doubtful accounts expense is estimated to be 1.5% of
credit sales.
The projected operating income for the year is:

General Feedback
The projected operating income for the year.
Data on amount and rates are readily given and are simple arranged below to compute the operating income:
Sales (70,000 x P126) P 8,820,000
Sales discounts (7% x P8,820,000) ( 617,400)
Cost of goods sold (P8,202,600/145%) ( 5,656,966)
Selling and administrative expenses (15% x P8,820,000) ( 1,323,000)
Doubtful accounts expense (P8,820,000 x 75% x 1.5%) ( 992,813)
Great Corporation expected to sell 150,000 board games during the month of November, and the
company’s master budget contained the following data related to the sale and production of these
games:
Revenue P 2,400,000
Cost of goods sold

Direct materials 675,000
Variable overhead 450,000
Contribution margin 975,000

Fixed overhead 250,000
Fixed selling/administration 500,000
Actual sales during November were 180,000 games. Using a flexible budget, the company expects the operating
income for the month of November to be
General Feedback
The expected operating income in November.
The unit contribution margin is P6.50 (i.e., P975,000 / 150,000 units). Using marginal costing, the operating income
at 180,000 units shall be:
Contribution margin (180,000 units x P6.50) P 1,170,000

- Fixed costs and expenses (P250,000 + P500,000) 750,000
Budji Corp. is preparing its budget for 19B. For 19A, the following were reported:
Sales (100,000 units) P 1,000,000

Cost of goods sold 600,000
Operating expenses* 240,000
Profit P 160,000
*Including depreciation of P40,000
Selling prices will increase by 10% and sales volume in units will decrease by 5%. The cost of goods sold as a
percent of sales will increase to 62%. Other than depreciation, all operating costs are variable. Budji will budget a
profit for 19B of
General Feedback
The budgeted profit in 19B.
Budgeted profit is the difference between budgeted sales and budgeted costs and expenses. There are changes to be
considered in 19B based on 19A data: (a) 10% increase in units sales price, (b) 5% increase in sales volume, and
(c) cost of good sold is set at 62% of sales. The new unit sales price and units sold are determined below:
Unit sales price (P1 million/100,000 x 110%) P 11.00
Unit sold (100,000 x 95%) 95,000 units
The variable expenses ratio is 20% [(P240,000 - P40,000)/P1 million] Therefore the budgeted profit in 19B is
P167,900 as computed below:
Sales (95,000 units x P11) P 1,045,000
Cost of good sold (P1,045,000 x 62%) ( 647,900)
Variable expenses
[(P240,000 – P20,000) / 100,000 x 95,000] ( 190,000)
Number Purchase For Each Part No. Units at Units at

Needed Cost C-14 April 1 April 30
Unit
A-9 P .50 1 C-14 12,000 10,000
B-6 .25 2 A-9 21,000 9,000
D-28 1.00 3 B-6 32,000 10,000
D-28 14,000 6,000
Assume Superflite plans to manufacture 400,000 units in April. The book value of the planned April 30
inventories is
General Feedback
The book value of the planned April 30 inventories.
The inventories of April 30 are composed of the finished goods inventory and materials inventories. The unit cost of
finished goods inventory is determined as follows:
Material A-9 (P0.50 x 1) P 0.50

Material B-6 (P0.25 x 2) 0.50
Material D-28 (P1.00 x 3) 3.00
Labor and overhead 3.00
Unit cost of a finished good P 8.00
The total inventory value is to be computed as follows:
Finished goods inventory C-14 (10,000 units x P8.00) P 80,000
Materials inventory A-9 (9,000 units x P0.50) 4,500
B-6 (10,000 units x P0.25) 2,500
D-28 (6,000 units x P1.00) 6,000
Total cost of inventories - April 30 P 93,000
Number Needed
Purchase Cost for each C-14
Unit
A-9 P0.50 1
B-6 0.25 2
D-28 1.00 3
Factory direct labor and variable overhead per unit of C-14 totals P3.00. Fixed factory overhead
is P1.00 per unit at a production level of 500,000 units. Superflite plans the following beginning
and ending inventories for the month of April and uses standard absorption costing for valuing
inventory.
Part No. Units at Units at April

April 1 30
C-14 12,000 10,000
A-9 21,000 9,000
B-6 32,000 0,000
D-28 14,000 6,000
Assume Superflite plans to manufacture 400,000 units in April. Superflite's budgeted gross margin
for April is
General Feedback
P1,206,000
The amount for cost of goods sold that will appear on Karmee Company's pro forma income statement for
the month of February will be
General Feedback
P260,000 (40% x P650,000 February sales).
Cash budget - Assessment
CMA 1296 3-10

The total cash disbursements that Karmee Company will make for the operating expenses (expenses
other than the cost of goods sold) during the month of April will be?
General Feedback
P385,000 (P70,000 + P60,000 + P90,000 + P45,000 + P120,000)
Pera Inc. prepared the following sales budget
Month Cash Sales Credit Sales

February P 80,000 P 340,000
March 100,000 400,000
April 90,000 370,000
May 120,000 460,000
June 110,000 380,000
Collections are 40% in the month of sale, 45% in the month following the sale, and 10% two months
following the sale. The remaining 5% is expected to be uncollectible. The company’s total budget collection
from April to June amounts to
General Feedback
The collection pattern is 40-45-10. This means 40% is to be collected in the month of sale, 45% in the
month of following sale, and 10% in second month following the sale. The following percentages of
collection shall be made in the months of April to June: February, 10%; March, 55% (i.e., 10% + 45%);
April, 95% (i.e., 10% + 45% + 40%); May, 85% (i.e., 40% + 45%); and June, 40%.
The budgeted collections from April to June is P1,468,500 determined as follows:
Collections from credit sales:

From February (P340,000 x 10%) P 34,000
March (P400,000 x 55%) 220,000
April (P370,000 x 95%) 351,500
May (P460,000 x 85%) 391,000
June (P380,000 x 40%) 152,000
Total 1,148,500
Add: Cash sales 320,000
(P90,000+P120,000+P110,000)
Budgeted collections (April-June) P1,468,500
A cash flow statement is an integral part of the company’s financial statements. It is required because
General Feedback
The reason why the cash flow statement is required as an integral part of the company’s financial
statements. It summarizes cash movements during the accounting period, linking the balance sheet and
the income statement.
Given the following events, which affect cash flows from operations?
1. Cash sale
2. Cash dividends paid
3. Purchase of a long-term asset
4. Purchase of inventory
5. Paid employees
1 and 5
CMA 1296 3-7

Karmee Company has been accumulating operating data in order to prepare an annual profit plan.
Details regarding Karmee's sales for the first 6 months of the coming year are as follows:
Estimated Monthly Type of Monthly Sale

Sales
January P 600,000 Cash sales 20%
February 650,000 Credit 80%
sales
March 700,000
April 625,000
May 720,000
June 800,000
Collection Pattern for Credit Sales
Month of sale 30%

One month following 40%
sale
Second month following 25%
sale
Karmee's cost of goods sold averages 40% of the sales value. Karmee's objective is to maintain a
target inventory equal to 30% of the next month's sales in units. Purchases of merchandise for resale
are paid for in the month following the sale. The variable operating expenses (other than cost of
goods sold) for Karmee are 10% of sales and are paid for in the month following the sale. The
annual fixed operating expenses are presented below. All of these are incurred uniformly throughout
the year and paid
monthly except for insurance and property taxes. Insurance is paid quarterly in January, April, July,
and October. Property taxes are paid twice a year in April and October.
Annual Fixed Operating Costs”
Depreciation 420,000
Insurance 180,000
Property taxes 240,000
Salaries 1,080,000
Karmee Company's total cash receipts for the month of April will be
General Feedback
P629,000 (P275,000 + P224,000 + P130,000)
Juice Company budgeted P148,000 sales on account for June, P120,000 for July, P211,000 for August,
P198,000 for September, and P164,000 for October. Collection experience indicates that 60% of the
budgeted sales will be collected the month after the sale, 36% will be collected the second month, and 4%
will be uncollectible. Which month should have the largest amount of cash receipts from accounts receivable
budgeted?
General Feedback
October
CMA 0696 3-9

Trumbull Company budgeted sales on account of P120,000 for July, P211,000 for August, and
P198,000 for September. Collection experience indicates that 60% of the budgeted sales will be
collected the month after the sale, 36% will be collected the second month, and 4% will be
uncollectible. The cash receipts from accounts receivable that should be budgeted for September
would be?
General Feedback
P169,800 [(36% x P120,000 July sales) + (60% x P211,000 August sales)
Patty Corporation has estimated its activity for December 20CY. Selected data from these
estimated amounts are as follows:
‣ Sales P 350,000
‣ Gross profit (based on sales) 30%
‣ Increase in trade accounts receivable during 10,000
month
‣ Change in accounts payable during month 0
‣ Increase in inventory during month 5,000
‣ Variable selling, general and administrative expenses (S,G,&A)
include uncollectible accounts of 1% of sales.
‣ Total S,G,&A is P35,000 per month plus 15% of sales.
‣ Depreciation expense of P20,000 per month is included in
fixed S,G,&A.
On the basis of the above data, what are the estimated cash receipts from operations for December?
General Feedback
The receipts from operations are the collections from customers, calculated as follows:
Sales P 350,000
Increase in trade accounts receivable ( 10,000)
Uncollectible accounts ( 3,500)
Collections from customers P 336,500
CIA 0589 IV-12

A company has P10,000 in cash and P150,000 in merchandise inventory on March 31. The desired
cash and merchandise inventory balances on June 30 are P20,000 and P250,000, respectively. Sales
for the quarter are expected to be P300,000, all in cash. Gross margin is 40% of sales. Cash
operating expenses are expected to be P50,000. All merchandise inventory purchases are paid for in
cash at the time of purchase. What amount of financing will the company need during the quarter?
General Feedback
P40,000
is incorrect because the beginning cash balance of P10,000 was not deducted from P50,000
is correct. The quarterly amount of purchases is
Desired ending inventory P 250,000

Cost of goods sold [(1 - .4) x 180,000
P300,000]
Beginning inventory ( 150,000)
Purchases during quarter P 280,000
Thus, the financing required for the quarter is

Desired ending cash balance P 20,000
Cash for purchases 280,000
Cash operating expenses 50,000
Cash from sales (300,000)
Beginning cash balance (10,000)
Financing required P 40,000
National Warehousing is constructing a corporate planning model. Cash sales are 30% of the
company’s, with the remainder subject to the following collection pattern:
One month after sale 60%

Two months after sale 30
Three months after sales 8
Uncollectible 2
If Sn is defined as total sales in month n, which one of the following expressions correctly describes
National’s collections on account in any given month?
General Feedback
is the fitting answer. Credit sales comprise 70% of total sales. Therefore, collections shall be as follows:
0.42Sn-1 + 0.21Sn-2 + 0.056S n-3
Month of sale (70% x 60%) 42%

1st month following sale (70% x 30%) 21%
2nd month following sale (70% x 8%) 5.6%
Spaghetti Corporation prepared the following sales budget:
Month Cash sales Credit sales

February P 80,000 P 340,000
March 100,000 400,000
April 90,000 370,000
May 120,000 460,000
June 110,000 380,000
Collections are 40% in the month of sale, 45% in the month following the sale, and 10% two months
following the sale. The remaining 5% is expected to be uncollectible. The company’s budgeted collections
from April to June amounts to:
General Feedback
The total budgeted collections come from credit sales and cash sales, as follows:
Collections from credit customers:

Credit sales x Collection April to June
Rate Collections
Month Amount
February sales P340,000 x 10% P 34,000
March sales 400,000 x 55% 220,000
April sales 370,000 x 95% 351,500

May sales 460,000 x 85% 391,000
June sales 380,000 x 40% 152,000 P1,148,500
Cash sales (P90,000 + P120,000 + P110,000) 320,000
Total collections from April to June P1,468,500
DIGNA Company had the following transactions in 20CY, its first year of operations:
Sales (90% collected in 2013) P 1,500,000

Bad debts written off 60,000
Disbursements for costs and expenses 1,200,000
Disbursements for income taxes 90,000
Purchases of fixed assets 400,000
Depreciation of fixed assets 80,000
Proceeds from issuance of ordinary share 500,000
Proceeds from short-term borrowings 100,000
Payments on short-term borrowings 50,000
What is the cash balance at December 31, 20CY?

General Feedback
It is the company’s first year of operations and the cash balance at the start is zero. The cash balance at
the end shall be:
Receipts:
Collections from customers(P1,500,000 x 90%) P 1,350,000
Proceeds from issuance of ordinary share 500,000
Proceeds from short-term borrowings 100,000 P 1,950,000
Payments:
Costs and expenses 1,200,000
Income taxes 90,000
Fixed assets 400,000
Short-term borrowings 50,000 1,740,000
Cash balance, Dec. 31, 2013 P 210,000
CrossMan Corporation, a rapidly expanding crossbow distributor, is in the process of formulating

plans for Year 2. Joan Caldwell, director of marketing, has completed her Year 2 forecast and is
confident that sales estimates will be met or exceeded. The following sales figures show the
growth expected.
Forecasted Forecaste
Month Sales Month d Sales
Januar P 1,800,000 July P
y 3,000,00
0
Februa 2,000,000 August 3,000,00
ry 0
March 1,800,000 Septemb 3,200,00
er 0
April 2,200,000 October 3,200,00
0
May 2,500,000 Novemb 3,000,00
er 0
June 2,800,000 Decembe 3,400,00
r 0
George Brownell, assistant controller, has been given the responsibility for formulating the cash
flow projection, a critical element during a period of rapid expansion. The following information
will be used in preparing the cash analysis. Sixty percent of billings are collected in the month after
the sale and 40% in the second month after the sale. Uncollectible accounts are nominal and will
not be considered in the analysis. The purchase of the crossbows is CrossMan's largest expenditure;
the cost of these items equals 50% of sales. Sixty percent of the crossbows are received 1 month
prior to sale and 40% are received during the month of sale.
Prior experience shows that 80% of accounts payable are paid by CrossMan 1 month after receipt of
the purchased crossbows, and the remaining 20% are paid the second month after receipt. Hourly
wages, including fringe benefits, are a factor of sales volume and are equal to 20% of the current
month's sales. These wages are paid in the month incurred. General and administrative expenses are
projected to be P2,640,000 next year. The composition of the expenses is given below. All of these
expenses are incurred uniformly throughout the year except the property taxes. Property taxes are
paid in four equal installments in the last month of each quarter.
Salaries P 480,000
Promotion 660,000
Insurance 360,000
Utilities 300,000
Total P 2,640,000
Income tax payments are made by CrossMan in the first month of each quarter based on the
income for the prior quarter. CrossMan's income tax rate is 40%. CrossMan's net income for the
first quarter of Year 2 is projected to be P612,000. CrossMan has a policy of maintaining an end-of-
month cash balance of P100,000. Cash is invested or borrowed monthly, as necessary, to
maintain this balance. CrossMan uses a calendar year reporting period.
What is CrossMan's expected cash disbursement for material purchases in the month of June?
General Feedback
P1,310,000 [(P1,340,000 x .8) + (P1,190,000 x .2)].
Harrison Company has budgeted its operations for August. No change in the inventory level during
the month is planned. Selected data based on estimated amounts are as follows:
Net loss P
(120,000)
Increase in accounts payable 48,000
Depreciation expense 42,000
Decrease in gross amounts of trade account 72,000
receivables
Purchase of equipment on 90-day credit terms 18,000
Provision for estimated warranty liability 12,000
What is the expected change in the cash position during August?

General Feedback
P54,000 increase [P(120,000) net loss + P42,000 depreciation + P12,000 warranty liability + P48,000
increase in accounts payable + P72,000 decrease in accounts receivable].
The Alsner Company budgeted sales of P220,000 for June, P200,000 for July, P280,000 for August,
P264,000 for September, P244,000 for October, and P300,000 for November. Approximately 75% of sales
are on credit; the remainder are cash sales. Collection experience indicates that 60% of the budgeted credit
sales will be collected the month after the sale, 36% the second month, and 4% will be uncollectible. Which
month has the highest budgeted cash receipts?
General Feedback
November
Super Micro, a computer disk storage and backup company, uses accrual accounting. The
company’s statement of financial position for the year ended November 30,20CY is as follows:
Super Micro
November 30, 20CY
Assets
Cash P 52,000
Inventory 315,000
Ordinary shares 900,000
Total liabilities and shareholder’s P 1,517,000
equity
Additional information regarding Super Micro’s operations include the following:

w Sales are budgeted at P520,000 for December 20CY and P500,000 for January 20NY.
w Collections are expected to be 40% in the month following the sale.
w 80% of the disk drive components are purchased in the month prior to the month of sale, and
20% are purchased in the month of sale. Purchased components are 40% of the cost of goods
sold.
w Payment for the components is made in the month following the purchase.
w Cost of goods sold is 80% of sales.
The projected gross profit for the month ending December 31, 20CY is
General Feedback
& The gross profit rate is 20% (i.e., 100% - 80%). Therefore, the gross profit is P104,000 (I.e., P520,000 x
20%).
A cash flow statement is an integral part of the company’s financial statements. It is required because
It summarizes cash movements during the accounting period, linking the balance sheet and the income
statement.
In preparing its cash budget for May 20CY, Roy Company made the following projections:
Sales P3,000,000
Gross margin (based on sales) 25%
Decrease in inventories 140,000
Decrease in accounts payable for inventories 240,000
For May 20CY, the estimated cash disbursements for inventories were:
General Feedback
Using the cost of goods sold to compute the purchases and the accounts payable account to determine the
cash payments to merchandise suppliers, the estimated cash disbursements for inventories are calculated
as follows:
Cost of goods sold (P3 million x 75%) P 2,250,000

Decrease in inventories ( 140,000)
Purchases 2,110,000
Decrease in accounts payable 240,000
Payments to merchandise suppliers P 2,350,000
The Lending Corporation has the following historical pattern on its credit sales:
70% during the month of sale

15% in the first month after sale
10% in the second month after sale
4% in the third month after sale
1% uncollectible
The sales on account of the last six months of the year were reported as follows:
July P 120,000
August 140,000
September 160,000
October 180,000
November 200,000
December 170,000
Cash collection in October amounted to
General Feedback
The collection pattern of the company is 70%-15%-10%-4%; that is 70% in the month of sale, 15% in
the first month after sale, etc. Therefore, collections in October starts from sales made in July:
Month Credit sales Collection Collections

rate
July P120,000 4% P 4,800
August 140,000 10% 14,000
September 160,000 15% 24,000
October 180,000 70% 126,000
Total P168,800
CMA 1289 4-24
Birch Corporation has the following historical pattern on its credit sales.
70% collected in month of sale

15% collected in the first month after sale
10% collected in the second month after sale
4% collected in the third month after sale
1% uncollectible
The sales on open account have been budgeted for the first 6 months of the year are as follows:
Sales on
Month Open
Account
January P 70,000
February 90,000
March 100,000
April 120,000
May 100,000
June 90,000
The estimated total cash collections during April from accounts receivable would be
General Feedback
P110,800
is incorrect because P84,000 equals estimated collections from April sales only.
is correct. The estimated April collections are P110,800.
70% of April sales of P120,000 P 84,000

15% of March sales of P100,000 15,000
10% of February sales of P90,000 9,000
4% of January sales of P70,000 2,800
` Total collections P 110,800
CMA 0696 3-6

The cash receipts budget includes
General Feedback
Loan proceeds
CMA 1296 3-6


Sales
sales
March 700,000
April 625,000
May 720,000
June 800,000
Month of sale 30%

sale
sale
the year and paid
Annual Fixed Operating Costs:
Insurance 180,000
Salaries 1,080,000
The amount of cash collected in March for Karmee Company from the sales made during March will
be
General Feedback
P308,000 (44% x P700,000)
In preparing its budget for July 20CY, Robinson Company has the following accounts receivable
information available:
Accounts receivable at June 30, 20CY P 350,000

Estimated credit sales for July 400,000
Estimated collections in July for credit sales in 320,000
July and prior years
Estimated write-off in July for uncollectible 16,000
credit sales
Estimated provision or doubtful accounts for 12,000
credit sales in July
What is the projected balance of accounts receivable at July 31, 20Cy?

General Feedback
By analyzing the components of the accounts receivable, the ending balance shall be determined as
follows:
Accounts receivable – 06/30 P 350,000

Credit sales 400,000
Collections from customers ( 320,000)
Account written-off ( 16,000)
Accounts receivable – 07/31 P 414,000
Which one of the following items would have to be included for a company preparing a schedule of cash
receipts and disbursements for the calendar year 20CY?
General Feedback
The borrowing of funds from a bank on a note payable taken out in June 20CY with an agreement to pay the
principal and interest in June 20CY.
CMA 0691 3-4

DeBerg Company has developed the following sales projections for the calendar year.
May P 100,000 August P 160,000

June 120,000 September 150,000
July 140,000 October 130,000
Normal cash collection experience has been that 50% of sales are collected during the month of sale
and 45% in the month following sale. The remaining 5% of sales is never collected. DeBerg's
budgeted cash collections for the third calendar quarter are
General Feedback
P414,000
is incorrect because total budgeted collections are P414,000is incorrect because total budgeted collections
are P414,000
is correct. If 50% of sales are collected in the month of sale and 45% in the next month, with the
balance uncollectible, collections during the third quarter will be based on sales during June, July,
August, and September. As calculated below, total budgeted collections are P414,000.
June P120,000 x 45% P 54,000

July 140,000 x (50% + 45%) 133,000
August 160,000 x (50% + 45%) 152,000
September 150,000 x 50% 75,000
P 414,000
CMA 0697 3-18
Historically, Pine Hill Wood Products has had no significant bad debt experience with its customers.
Cash sales have accounted for 10% of total sales, and payments for credit sales have been
received as follows:
40% of credit sales in the month of the sale
30% of credit sales in the first subsequent month
25% of credit sales in the second subsequent month
5% of credit sales in the third subsequent month
The forecast for both cash and credit sales is as follows:
Month Sales
January P
95,000
February 65,000
March 70,000
April 80,000
May 85,000
What is the forecasted cash inflow for Pine Hill Wood Products for May?
General Feedback
P79,375
In preparing its cash budget for April, Brown Co. made the following projections:
Sales P 4,000,000
Gross margin (based on sales) 25%
Decrease in inventories 160,000
Decrease in accounts payable for 275,000
inventories
For April, the estimated cash disbursements for inventories were

General Feedback
P3,115,000 (P2,840,000 + P275,000 decrease in accounts payable
CMA 0693 3-10

A firm develops an annual cash budget in order to?
General Feedback
Avoid the opportunity costs of noninvested excess cash and minimize the cost of interim financing
CMA 1292 3-10

Pro forma financial statements are part of the budgeting process. Normally, the last pro forma
statement prepared is the?
General Feedback
Statement of cash flows
Purchases Sales
January P42,000 P72,000
February 48,000 66,000
March 36,000 60,000
April 54,000 78,000
Collections from Montero Corp.'s customers are normally 70% in the month of sale, and 20% and
9%, respectively, in the 2 months following the sale. The balance is uncollectible. Montero takes
full advantage of the 2% discount allowed on purchases paid for by the 10th of the following month.
Purchases for May are budgeted at P60,000, and sales for May are forecasted at P66,000.
Cash disbursements for expenses are expected to be P14,400 for the month of May. Montero's cash
balance at May 1 was P22,000.
What are the expected cash disbursements for May?
General Feedback
P67,320
is incorrect because P14,400 ignores cash disbursements for purchasesis incorrect because P52,920 is the
cash expended in May for April purchases. The additional P14,400 of May expenses should also be added
is correct. The expected cash disbursements for any month equal the previous month's purchases
minus the 2% discount, plus any cash disbursements for expenses in the current period.
April purchases P 54,000

Minus: 2% cash discount (1,080)
Net purchases 52,920
Cash expenses 14,400
Total cash disbursements for May P 67,320
CMA 0692 3-27

Esplanade Company, which has the following historical pattern for its credit sales:
70% collected in month of sale

15% collected in the first month after sale
10% collected in the second month after sale
4% collected in the third month after sale
1% uncollectible
The sales on open account have been budgeted for the last 6 months of the year as shown below.
July P 60,000
August 70,000
September 80,000
October 90,000
November 100,000
December 85,000
The estimated total cash collections during October from accounts receivable would be
General Feedback
P84,400
is incorrect because P63,000 equals October collections
is correct. During October, collections will be received from sales made in October, September,
August, and July.
Months Percentage Sales Collections

October 70% P90,000 P 63,000
September 15% 80,000 12,000
August 10% 70,000 7,000
July 4% 60,000 2,400
Total collections P 84,400
Ronald Company is developing a forecast of March 20CY cash receipts from credit sales. Credit
sales for March 20Cy are estimated to be P320,000. The accounts receivable balance on
February 28, 20CY, is P300,000, one-quarter of the balance represents January credit sales and
the remainder is from February sales. All accounts receivable prior to January of 20CY have
been collected or written off. Ronald’s history of accounts receivable collections is as follows:
In the month of sale 20%
In the first month after month of sale 50%
In the second month after month of sale 25%
Written off as uncollectible at the end of the 5%
second month after month of sale
Based on the above information, Ronal is forecasting March 20CY cash receipts from credit sales
of?
General Feedback
The collection is made over a period of three months with a 20-50-25 collection pattern (meaning, 20%
in the month of sale, 50% in the month following sale, and 25% in the second month following the sale).
The February 28 receivable balance from January sales is already 70% (i.e., 20% + 50%) collected.
Ergo, the uncollected balance of January credit sales at the end of February is still 30%. The February
28 receivable balance from February credit sales is already 20% collected, therefore, still 80%
outstanding.
The credit sales of January and February are determined as follows:
January sales (P300,000 x ¼ / 30%) P 250,000

February sales (P300,000 x ¾ / 80%) 281,250
The collections in March shall be coming from January sales (25%), February sales (50%, and March
sales (20%), as follows:
From January sales (P250,000 x 25%) P 62,500

From February sales (P281,250 x 50%) 140,625
From March sales (P320,000 x 20%) 64,000
Collections in March P 267,125
The Zachary Company budgeted sales of P200,000 for July, P280,000 for August, and P264,000 for
September. Approximately 75% of sales are on credit; the remainder are cash sales. Collection experience
indicates that 60% of the budgeted credit sales will be collected the month after the sale, 36% the second
month, and 4% will be uncollectible. The cash receipts from accounts receivable (excluding cash sales) that
should be budgeted for September equal
General Feedback
P180,000
is incorrect because P165,600 results from reversing the percentages for July and August.
is correct. Credit sales for July and August are P150,000 (75% x P200,000) and P210,000 (75% x
P280,000), respectively. The cash collections from receivables during September therefore should
be P169,800.
July : P150,000 x .36 P 54,000

Aug. : 210,000 x .60 126,000
P 180,000
CMA 0697 3-19
Historically, Pine Hill Wood Products has had no significant bad debt experience with its
customers. Cash sales have accounted for 10% of total sales, and payments for credit sales have
been received as follows:
40% of credit sales in the month of the sale

30% of credit sales in the first subsequent month
25% of credit sales in the second subsequent month
5% of credit sales in the third subsequent month
The forecast for both cash and credit sales is as follows:
Month Sales
January P
95,000
February 65,000
March 70,000
April 80,000
May 85,000
[137] Source: CMA 0697 3-19

Due to deteriorating economic conditions, Pine Hill Wood Products has now decided that its cash
forecast should include a bad debt adjustment of 2% of credit sales, beginning with sales for the
month of April. Because of this policy change, the total expected cash inflow related to sales made
in April will
General Feedback
Decrease by P1,440.00
After generating a sizeable year-end profit, Mayaman, Inc. declared and issued a 50% stock dividend. In the
preparation of the cash flows, the transaction would be included as?
General Feedback
Would not appear at all in the statement of cash flows
Tarlac Company has developed the following sales projections for calendar year 2017:
May P100,000 August 160,000

June 120,000 September 150,000
July 140,000 October 130,000
Normal cash collection experience has been that 50% of sales is collected during the month of
sales and 45% in the month following sale. The remaining 5% of sales is never collected.
Tarlac’s budgeted cash collections for the third calendar quarter are
General Feedback
The collection pattern is 50-45. Therefore, the collection in the third quarter shall be:
June (P120,000 x 45%) P 54,000
July (P140,000 x 95%) 133,000
August (P160,00 x 95%) 152,000
September (P150,000 x 50%) 75,000
Collections in the third calendar quarter P414,000
The Matthew Nichols Company budgeted sales of P200,000 for July, P280,000 for August,
P198,000 for September and P200,000 for October. Approximately 75% of sales are on credit;
the remainder are cash sales. Collection experience indicates that 60% of the budgeted credit
sales will be collected the month after the sale, 36% will be collected the second month, and 4%
will be
uncollectible. The cash receipts budgeted for October equal
General Feedback
P214,700
is incorrect because P164,700 fails to include October cash salesis incorrect because P200,000 equals total
sales for October
is correct. Credit sales for August and September are P210,000 (75% x P280,000) and P148,500
(75% x P198,000), respectively. Cash sales for October are P50,000 [P200,000 x (1.00 - .75)]. The
cash collections during October should therefore be P214,700.
August P210,000 x .36 P 75,600

September 148,500 x .60 89,100
October 50,000 x 1.00 50,000
P 214,700
CMA 1296 3-6

Sales
sales
March 700,000
April 625,000
May 720,000
June 800,000
Month of sale 30%

sale
sale
the year and paid
Annual Fixed Operating Costs:
Insurance 180,000
Salaries 1,080,000
The amount of cash collected in March for Karmee Company from the sales made during March will
be
General Feedback
P308,000
Sales
-----
Pesos Unit
s
May P 424,000 10,6
00
June 436,000 10,9
00
July 428,000 10,7
00
August 408,000 10,2
00
Septem 432,000 10,8
ber 00
October 440,000 11,0
00
Budgeted cash disbursements during August are

General Feedback
P345,000
is incorrect because total cash disbursements during August are P345,000 (P264,800 August purchases +
P80,200 other expenses). is incorrect because total cash disbursements during August are P345,000
(P264,800 August purchases + P80,200 other expenses).is incorrect because total cash disbursements
during August are P345,000 (P264,800 August purchases + P80,200 other expenses).
is correct. Budgeted cash disbursements during August are affected by the accounts payable
remaining at July 31 and by the cash disbursements made in August. The latter include 40% of July
purchases and expenses and 60% of August purchases and expenses. Depreciation expense of
P3,000 is a noncash expenditure and should be deducted from the selling, general and administrative
expenses (SG & A) for each month. SG&A expenses equal 20% of the current month's sales. Cash
disbursements in August for purchases are P264,800 [(P252,500 July purchases x 40%) + (P273,000
x 60%)]. Cash disbursements for other expenses are:
August: 60% x [(P408,000 x 20%) - P3,000] = P47,160
July: 40% x [(P428,000 x 20%) - P3,000] = P33,040
Therefore, total cash disbursements during June are:
P345,000 (P264,800 + P47,160 + P33,040).
On January 1, the Cheers Company has a beginning balance of P42,000. During the year, the company
expects cash disbursements of P340,000 and cash receipts of P290,000. If the company requires a cash
balance of P40,000, Cheers Company should borrow by what amount?
General Feedback
The amount of cash to be borrowed should be enough to maintain a cash balance of P40,000. This
calls for the computation of the cash balance at the end and the cash to be borrowed as follows:
Cash balance – January 1 P 42,000

Cash receipts 290,000
Cash disbursements (340,000)
Cash balance – December 31 (P8,000)
Required cash balance 40,000
Cash to be borrowed P 48,000
Super Micro, a computer disk storage and backup company, uses accrual accounting. The
company’s statement of financial position for the year ended November 30, 20CY is as follows:
Super Micro
November 30, 20CY
Assets
Cash P 52,000
Inventory 315,000
Ordinary shares 900,000
Total liabilities and shareholder’s P 1,517,000
equity
Additional information regarding Super Micro’s operations include the following:

w Sales are budgeted at P520,000 for December 20CY and P500,000 for January 20NY.
w Collections are expected to be 40% in the month following the sale.
w 80% of the disk drive components are purchased in the month prior to the month of sale, and
20% are purchased in the month of sale. Purchased components are 40% of the cost of goods
sold.
w Payment for the components is made in the month following the purchase.
w Cost of goods sold is 80% of sales.
The budgeted cash collections for the month of December 20CY are
General Feedback
& Collections in December shall come from the credit sales of November and December, as follows:
From November sales P 150,000
From December sales (P520,000 x 312,000
60%)
December collections P 462,000
CMA 0696 3-8
The cash budget must be prepared before completing the?
General Feedback
Forecasted statement of financial position
A company is formulating its plans for the coming year, including the preparation of its cash
budget. Historically, the company’s sales are 30% cash, The remaining sales are on credit with
the following collection pattern:
Collections on Account Percentage

In the month of sale 40%
In the month following the 58%
sale
Uncollectible 2%
Sales for the first 5 months of the coming year are forecast as follows:
January P April P
3,500,000 4,000,000
February 3,800,000 May 4,200.000
March 3,600,000
For the month of April, the total cash receipts from sales and collection on account would be?
General Feedback
Collections from April will come from March sales and April sales, as follows:
Cash sales (P4,000,000 x 30%) P 1,200,000
From March credit sales (P3,600,000 x 70% x 58%) 1,461,600
From April credit sales (P4,000,000 x 70% x 40%) 1,120,000
Collections in April P 3,781,600
CrossMan Corporation, a rapidly expanding crossbow distributor, is in the process of formulating

plans for Year 2. Joan Caldwell, director of marketing, has completed her Year 2 forecast and is
confident that sales estimates will be met or exceeded. The following sales figures show the
growth expected.
Forecasted Forecaste
Month Sales Month d Sales
Januar P 1,800,000 July P
y 3,000,00
0
Februa 2,000,000 August 3,000,00
ry 0
March 1,800,000 Septemb 3,200,00
er 0
April 2,200,000 October 3,200,00
0
May 2,500,000 Novemb 3,000,00
er 0
June 2,800,000 Decembe 3,400,00
r 0
George Brownell, assistant controller, has been given the responsibility for formulating the cash
flow projection, a critical element during a period of rapid expansion. The following information
will be used in preparing the cash analysis. Sixty percent of billings are collected in the month after
the sale and 40% in the second month after the sale. Uncollectible accounts are nominal and will
not be considered in the analysis. The purchase of the crossbows is CrossMan's largest expenditure;
the cost of these items equals 50% of sales. Sixty percent of the crossbows are received 1 month
prior to sale and 40% are received during the month of sale.
Prior experience shows that 80% of accounts payable are paid by CrossMan 1 month after receipt of
the purchased crossbows, and the remaining 20% are paid the second month after receipt. Hourly
wages, including fringe benefits, are a factor of sales volume and are equal to 20% of the current
month's sales. These wages are paid in the month incurred. General and administrative expenses are
projected to be P2,640,000 next year. The composition of the expenses is given below. All of these
expenses are incurred uniformly throughout the year except the property taxes. Property taxes are
paid in four equal installments in the last month of each quarter.
Salaries P 480,000
Promotion 660,000
Insurance 360,000
Utilities 300,000
Total P 2,640,000
Income tax payments are made by CrossMan in the first month of each quarter based on the income
for the prior quarter. CrossMan's income tax rate is 40%. CrossMan's net income for the first
quarter of Year 2 is projected to be P612,000. CrossMan has a policy of maintaining an end-of-
month cash balance of P100,000. Cash is invested or borrowed monthly, as necessary, to
maintain this balance. CrossMan uses a calendar year reporting period.
What is the expected cash disbursement for general and administrative expenses for the month of
June?
General Feedback
P210,000 [1/12(P480,000 + P660,000 + P360,000 + P300,000) + 1/4(P240,000)]
JTL Corporation expects to sell 150,000 units during the first quarter of 20CY with an ending inventory for
the quarter of 20,000 units. Variable manufacturing costs are budgeted at P50 per unit with 70% of total
variable manufacturing costs requiring cash payment during the quarter. Fixed manufacturing costs are
budgeted at P120,000 per quarter, 40% of which are expected to require cash payments during the quarter.
In the cash budget, payments for manufacturing costs during the quarter will total?
General Feedback
P5,998,000
CMA 1291 3-24

Information pertaining to Noskey Corporation's sales revenue is presented in the following table.
November December January

Year 1 Year 1 Year 2
(Actual) (Budget) (Budget)
Cash sales P 80,000 P100,000 P 60,000
Credit sales 240,000 360,000 180,000
Total sale P 320,000 P460,000 P 240,000
Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are
collectible, 60% are collected in the month of sale and the remainder in the month following the
sale. Purchases of inventory are equal to next month's sales and gross profit margin is 30%. All
purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder
are paid in the month following the purchase.
Noskey Corporation's budgeted total cash receipts in January year 2 are

General Feedback
P299,400 (P136,800 + P102,600 + P60,000)
CIA 1190 IV-16

A company is preparing its cash budget for the coming month. All sales are made on account.
Given the following:
Beginning Budgeted
Balances Amounts
Cash P 50,000
Accounts receivable 180,000
Sales P 800,000
Cash disbursements 780,000
Depreciation 25,000
Ending accounts receivable 210,000
balance
What is the expected cash balance of the company at the end of the coming month?
General Feedback
P40,000
Budgeted statement of financial position - Assessment
Drago makes all sales on account, subject to the following collection pattern: 30% are collected in the
month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month
after sale. If sales for June July, and August were P120,000, P160,000, and P220,000, respectively, what
were the firm’s budgeted collections for August and the company’s budgeted receivables balance on
August 31?
August Collections August 31
Receivables Balance
General Feedback
P174,000 P170,000
Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets were P16,000
in cash and P3,500 in merchandise inventory. For purposes of budget preparation, assume that the
company's cost of goods sold is 60% of sales. Expected sales for the first four months appear below.
Expected
Sales
January P10,000
February 24,000
March 16,000
April 25,000
The company desires that the merchandise inventory on hand at the end of each month be equal to
50% of the next month's merchandise sales (stated at cost). All purchases of merchandise inventory
must be paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will
be on credit. Seventy-five percent of the credit sales should be collected in the month following the
month of sale, with the balance collected in the following month. Variable operating expenses
should be 10% of sales and fixed expenses (all depreciation) should be P3,000 per month. Cash
payments for the variable operating expenses are made during the month the expenses are incurred.
In a budgeted balance sheet, the Merchandise Inventory on February 28 would be:

General Feedback
P4,800
(Refers to Fact Pattern #24)

Super Drive, a computer disk storage and back-up company, uses accrual accounting. The
company's Statement of Financial Position for the year ended November 30, is as follows:
Super Drive
November 30
Assets
Cash P 52,000
Inventory 315,000
Liabilities
Common stock 900,000
Total liabilities and shareholders' P 1,517,000
equity
Additional information regarding Super Drive's operations include the following:

ｷ Sales are budgeted at P520,000 for December and P500,000 for January of the next year.
ｷ Collections are expected to be 60% in the month of sale and 40% in the month following the
sale.
ｷ 80% of the disk drive components are purchased in the month prior to the month of sale, and 20%
are purchased in the month of sale.
Purchased components are 40% of the cost of goods sold.
ｷ Payment for the components is made in the month following the purchase.
ｷ Cost of goods sold is 80% of sales.
The projected balance in accounts payable on December 31 is

General Feedback
P161,280 (P33,280 + P128,000)
Drago makes all sales on account, subject to the following collection pattern: 30% are collected in the
month of sale; 60% are collected in the first month after sale; and 10% are collected in the second
month after sale. If sales for June July, and August were $120,000, $160,000, and $220,000,
respectively, what were the firm’s budgeted collections for August and the company’s budgeted
receivables balance on August 31?
1) August Collections
2) August 31 Receivables Balance

General Feedback
1) $174,000 2) $170,000
Flexible budgeting - Assessment
CMA 1295 3-6

The difference between the actual amounts and the flexible budget amounts for the actual output
achieved is the
General Feedback
Flexible budget variance
A difference between standard costs used for cost control and budgeted costs
Can exist because standard costs represent what costs should be, whereas budgeted costs represent expected actual
costs
Budgets that are prepared for various degree of plant operations and are used to control costs at different
levels of productive capacity is
General Feedback
Flexible budgets.
CMA 1296 3-14

Flexible budgets
General Feedback
Accommodate changes in activity levels
CMA 1292 3-12

Barnes Corporation expected to sell 150,000 board games during the month of November, and the
company's master budget contained the following data related to the sale and production of these
games:
Revenue P 2,400,000
Cost of goods sold
Contribution 975,000
Actual sales during November were 180,000 games. Using a flexible budget, the company expects
the operating income for the month of November to be
General Feedback
P420,000 (P225,000 originally reported + P195,000)
1. A flexible budget is not appropriate for a(n)
Marketing Administrative Production

Budget Budget Budget
General Feedback
No No No
CMA 1292 3-14

When preparing a performance report for a cost center using flexible budgeting techniques, the
planned cost column should be based on the
General Feedback
Budget adjusted to the actual level of activity for the period being reported
In flexible budget, when production levels are expected to decline within a relevant range, the effects would
be
General Feedback
Increase in fixed costs per unit only.
When a flexible budget is used, an increase in production levels within a relevant range would
General Feedback
Not change variable costs per unit
CIA 0587 III-16
A manufacturing firm has certain peak seasons; namely the Christmas season, the summer season,
and the last 2 weeks of February. During these periods of increased output, the firm leases
additional production equipment and hires additional temporary employees. Which of the following
budget techniques would best fit this firm's needs?
General Feedback
Flexible budgeting
CMA 1291 3-11

A difference between standard costs used for cost control and budgeted costs?
General Feedback
Can exist because standard costs represent what costs should be while budgeted costs represent
expected actual costs.
CMA 1291 3-26

RedRock Company uses flexible budgeting for cost control. RedRock produced 10,800 units of
product during October, incurring indirect materials costs of P13,000. Its master budget for the year
reflected indirect materials costs of P180,000 at a production volume of 144,000 units. A flexible
budget for October production would reflect indirect materials costs of
General Feedback
P13,500
CMA 1292 3-12

Barnes Corporation expected to sell 150,000 board games during the month of November, and the
company's master budget contained the following data related to the sale and production of these
games:
Revenue P 2,400,000
Cost of goods sold
Contribution 975,000
Actual sales during November were 180,000 games. Using a flexible budget, the company expects
the operating income for the month of November to be
General Feedback
P420,000
Based on past experience, a company has developed the following budget formula for estimating its
shipping expenses. The company's shipments average 12 lbs. per shipment:
Shipping costs = P16,000 + (P0.50 x lbs. shipped)
The planned activity and actual activity regarding orders and shipments for the current month are
given in the following schedule:
Plan Actual
Sales orders 800 780
Shipments 800 820
Sales P 120,000 P 144,000
The actual shipping costs for the month amounted to P21,000. The appropriate monthly flexible
budget allowance for shipping costs for the purpose of performance evaluation would be
General Feedback
P22,150
Omni Company’s total costs of operating five sales office last year were P500,000 of which P70,000
represented fixed costs. Omni has determined that total costs are significantly influenced by the number of
sales offices operated. Last year’s costs and number of sales offices can be used as the bases for predicting
annual costs. What would be the budgeted cost for the coming year if Cook were to operate seven sales
offices?
General Feedback
The variable costs last year was P430,000 (i.e., P500,000 – P70,000), and the variable rate per sales
office is P86,000 (i.e., P430,000 / 5). Hence, the estimated costs in operating seven sales offices shall
be:
Variable costs (P86,000 x 7) P 602,000
Fixed costs 70,000
Budgeted costs in operating 7 sales offices P 672,000
RedRock East Company uses flexible budgeting for cost control. RedRock produced 10,800 units of
product during March, incurring an indirect materials costs of P13,000. Its master budget for the year
reflected an indirect materials cost of P180,000 at a production volume of 144,000 units. A flexible budget
for March production should reflect indirect materials costs of?
General Feedback
& The indirect materials rate per unit is P1.25 (i.e., P180,000 / 144,000). At an actual production of 10,800
units the budgeted indirect materials costs should be P13,500 (i.e., 10,800 units x P1.25).
Which one of the following statements regarding the difference between a flexible budget and a static budget
is true?
A flexible budget provides cost allowances for different levels of activity, whereas a static budget provides costs for
one level of activity.
CIA 0593 IV-13

Flexible budgeting
General Feedback
Helps control costs through comparison of actual and flexible budgeted amounts
CMA 1290 3-20

The use of standard costs in the budgeting process signifies that an organization has probably
implemented a
General Feedback
Flexible budget
CMA 0697 3-12

Which one of the following budgeting methodologies would be most appropriate for a firm facing a
significant level of uncertainty in unit sales volumes for next year?
General Feedback
Flexible budgeting
A company has developed the budget formula below for estimating its shipping expenses. Shipments
have historically averaged 12 pounds per shipment.
Shipping costs = P18,000 + (P.60 x Pounds shipped)
The planned activity and actual activity regarding orders and shipments for the current month are
given in the following schedule:
Plan Actual
Sales orders 800 780
Shipments 800 820
Sales P 120,000 P 144,000
The actual shipping costs for the month amounted to P21,000. The appropriate monthly flexible
budget allowance for shipping costs for the purpose of performance evaluation should be
General Feedback
P25,500
CMA 0679 4-9
A flexible budget
General Feedback
Presents the plan for a range of activity so that the plan can be adjusted for changes in activity
Which one of the following budgeting methodologies would be most appropriate for a firm facing a
significant level of uncertainty in unit sales volumes for next year?
General Feedback
Flexible budgeting.
CMA 1295 3-10

Which one of the following statements regarding the difference between a flexible budget and a
static budget is correct?
General Feedback
A flexible budget provides cost allowances for different levels of activity, whereas a static budget provides
costs for one level of activity
The difference between the actual amounts and flexible budget amounts for the actual output achieved is
the?
General Feedback
Flexible budget variance
Considering the budgeting concepts and principles, which of the following statements is not applicable?
General Feedback
The only difference between a flexible budget and static budget is that a flexible budget does not contain fixed costs.
A flexible budget is appropriate for?

General Feedback
Control of direct labor and direct materials but not fixed factory overhead.
CIA 1193 IV-27

A company develops a budget that is based on the behavior of costs and revenues over a range of
sales for the upcoming year. This is an example of a
General Feedback
Flexible budget
A flexible budget is appropriate for a(an):

Administrative Direct material
budget budget
General Feedback
Yes Yes
Types of budgets - Assessment
CIA 1192 IV-19
There are many different budget techniques or processes that business organizations can employ.
One of these techniques or processes is zero-base budgeting, which is
General Feedback
Budgeting from the ground up as though the budget process were being initiated for the first time.
CMA 1291 3-20

A continuous profit plan
General Feedback
Is a plan that is revised monthly or quarterly
he budget that describes the long-term position, goals, and objectives of an entity within its environment is
the
General Feedback
Strategic budget (cma/rpcpa)
A systemized approach known as zero-base budgeting (ZBB)

General Feedback
Divides the activities of individual responsibility centers into a series of packages that are prioritized
CMA 0694 3-10

The financial budget process includes
General Feedback
All of the answers are correct
A continuous (rolling) budget

General Feedback
Drops the current month or quarter and adds a future month or quarter as the current month or quarter is
completed.
Which one of the following is not considered to be a benefit of participative budgeting?

General Feedback
When managers set the final targets for the budget, top management need not be concerned with the overall
profitability of current operations
If a company wishes to establish a factory overhead budget system in which estimated costs can be derived
directly from estimates of activity levels, it should prepare a?
General Feedback
Flexible budget
CMA 0696 3-10

The budgeting tool or process in which estimates of revenues and expenses are prepared for each
product beginning with the product's research and development phase and traced through to its
customer support phase is a(n)
General Feedback
Life-cycle budget
The budgeting tool or process in which estimates of revenues and expenses are prepared for each product
beginning with the product’s research and development phase and traced through to its customer support
phase is a (n)
General Feedback
& Life-cycle budgeting
CIA 1193 IV-14

A municipal government requires each department supervisor to submit an annual budget request
stating the specific goals of the department and listing a series of "decision packages" relating to
each goal. Each decision package describes a set of desired activities, the benefits of these
activities, and the potential consequences of not performing the activities. Funds are allocated based
on the estimated costs and benefits of each package. This is an example of?
General Feedback
Zero-based budgeting.
CMA 0694 3-13

A continuous (rolling) budget
General Feedback
Is a plan that is revised monthly or quarterly, dropping one period and adding another
In zero-based budgeting, which of the following statements are true?
1. All activities in the company are organized into breakup units called packages.
2. All costs have to be justified every budgeting period.
The process is not time consuming since justification of costs can be done as a routine matter
Statements 1 and 2 only
All types of organization can benefit from budgeting. A major difference between governmental budgeting
and business budgeting is that
General Feedback
Governmental budgeting usually reflects the legal limits on proposed expenditures.
A manufacturing company has prepared quarterly budgets for the next 12 months. These budgets
anticipate steady decreases in the unit costs of a new product. Accordingly, if unit costs for the
fourth quarter are materially lower than those for the first quarter, but an unfavorable variance is
reported, the company is most likely using?
General Feedback
Kaizen budgeting
A budget expressed in units of materials, number of employees, or number of man-hours or service units
rather than in pesos is known as?
General Feedback
Physical budget
CMA 0679 4-7
A continuous budget
General Feedback
Drops the current month or quarter and adds a future month or a future quarter as the current month or
quarter is completed
When sales volume is seasonal in nature, certain items in the budget must be coordinated. The three most
significant items to coordinate in budgeting seasonal sales volume are?
General Feedback
Production volume, finished goods inventory and sales volume
All types of organization can benefit from budgeting. A major difference between governmental budgeting
and business budgeting is that?
General Feedback
Governmental budgeting usually reflects the legal limits on proposed expenditures.
CMA 0697 3-21

The Yummy Dog Bone Company is anticipating that a major supplier might experience a strike this
year. Because of the nature of the product and emphasis on quality, extra production cannot be
stored as finished goods inventory. When developing a contingency budget that would anticipate a
raw material buildup, the two most significant items that will be affected are
General Feedback
Raw material and cash flow.
CMA 1296 3-1

An advantage of incremental budgeting when compared with zero-base budgeting is that
incremental budgeting?
General Feedback
Accepts the existing base as being satisfactory
CMA 1292 3-23

The budgeting technique that is most likely to motivate managers is ?
General Feedback
Bottom-up budgeting
CMA 1290 3-19

The use of the master budget throughout the year as a constant comparison with actual results
signifies that the master budget is also a ?
General Feedback
Static budget
The major disadvantage of a budget produced by means of a top-down process is?

General Feedback
Impairment of goal congruence
CMA 1296 3-1

An advantage of incremental budgeting when compared with zero-base budgeting is that
incremental budgeting?
General Feedback
Accepts the existing base as being satisfactory
The budget that describes the long-term position, goals, and objectives of an entity within its environment is
the?
Strategic budget
CMA 0694 3-15
A method of budgeting in which the cost of each program must be justified, starting with the one
most vital to the company, is?
General Feedback
Zero-based budgeting
Capacity, standards and standards-setting - Assessment
CMA 0683 4-5

A difference between standard costs used for cost control and the budgeted costs of the same manufacturing effort?
General Feedback
Can exist because standard costs represent what costs should be, whereas budgeted costs are expected actual costs
CIA 0579 IV-2

Which of the following factors should not be considered when deciding whether to investigate a variance?
General Feedback
Whether the variance is favorable or unfavorable
Standard costs are least useful for?

General Feedback
Determining minimum inventory levels
When standard costs are used in a process-costing system, how, if at all, are equivalent units of production (EUP)
involved or used in the cost report at standard?
General Feedback
The actual equivalent units are multiplied by the standard cost per unit
RPCPA 0580
To which of the following is a standard cost nearly like?
General Feedback
Budgeted cost
Which of the following cost allocation methods would be used to determine the lowest price that could be
quoted for a special order that would utilize the capacity within a production area? Job order
General Feedback
Variable.
AICPA 1175 T-15, RPCPA 1082, 10/83

One of the purposes of standard costs is to?
General Feedback
Simplify costing procedures and expedite cost reports.
CMA 0696 3-1

When Nash Glassworks Company allocates fixed costs, management will select a capacity level to
use as the denominator volume. All of the following would be appropriate as the capacity level that
approximates actual volume levels except:
General Feedback
Theoretical capacity
A difference between standard costs used for cost control and the budgeted costs of the same manufacturing
effort?
General Feedback
Can exist because standard costs represent what costs should be whereas budgeted costs are expected actual
costs.
Which of the following factors should not be considered when deciding whether to investigate a variance?
Whether the variance is favorable or unfavorable
A company controls its production costs by comparing its actual monthly production costs with the expected levels.
Any significant deviations from expected levels are investigated and evaluated as a basis for corrective actions. The
quantitative technique that is most probably being used is:
General Feedback
Choice 1
A company produces a gasoline additive. The standard costs and input for a 500-liter batch of the
additive are represented below.
Chemical Standard Standard Total Cost

Input Cost Per
Quantity in Liter
Liters
Echol 200 P.200 P 40.00
Protex 100 .425 42.25
Benz 250 .150 37.50
CT-40 50 .300 15.00
600 P135.00
The quantities purchased and used during the current period are shown below. A total of 140 batches
were made during the current period.
Quantity Chemical Total Purchased (Liters) Quantity Purchased Price Used (Liters)
Echol 25,000 P 5,365 26,600
Protex 13,000 6,240 12,880
Benz 40,000 5,840 37,800
CT-40 7,500 2,220
7,140
Total 85,500 P19,665 84,420
What is the material mix variance for this operation?

General Feedback
P388.50 favorable.
An efficiency variance equals
Budgeted unit price times the difference between actual inputs and budgeted inputs for the actual activity
level achieved
The absolute minimum cost that would be possible under the best operating conditions is a description of
which type of standard cost?
General Feedback
Theoretical.
AICPA 0573 T-23

Standard costing will produce the same income before extraordinary items as actual costing when standard cost
variances are assigned to?
General Feedback
Cost of goods sold and inventories
RPCPA 1086
One of the purposes of standard costs is to?
General Feedback
Control costs and motivate and measure efficiencies
AICPA 0573 T-23, RPCPA 1077, 1096

Standard costing will produce the same results as actual or conventional costing when standard cost variances are
distributed to?
General Feedback
Cost of goods sold and inventories
To measure controllable production inefficiencies, which of the following is the best basis for a company to
use in establishing the standard hours allowed for the output of one unit of product?
General Feedback
Engineering estimates based on attainable performance
A purpose of standard costing is to?

General Feedback
control costs
AICPA 0574 T-18

Which of the following is not an acceptable treatment of factory O/H variances at an interim reporting date?
General Feedback
Apportion the total only among work-in-process and finished goods inventories on hand at the end of the interim
reporting period.
The sales-volume variance equals:

General Feedback
(actual sales volume - budgeted sales volume) x budgeted sales price.
When items are transferred from stores to production, an accountant debits work-in-process and credits
material accounts. During production, a materials quantity variance may occur. The materials quantity
variance is debited for an unfavorable variance and credited for a favorable variance. The intent of variance
entries is to provide?
General Feedback
Information for use in controlling the cost of production.
A standard cost system may be used in?
Process costing but not job-order costing
An inventory method which is particularly useful in connection with the valuation of the overhead element
of work-in-process is?
General Feedback
Standard cost
Which one of the following terms best describes the rate of output which qualified workers can achieve as an
average over the working day or shift, without over-exertion, provided they adhere to the specified method
of working and are well motivated in their work?
General Feedback
Standard performance
CMA 0694 3-19

Which one of the following is least likely to be involved in establishing standard costs for evaluation purposes?
General Feedback
Top management.
Which one of the following terms best describes the rate of output which qualified workers can achieve as an
average over the working day or shift, without over-exertion, provided they adhere to the specified method
of working and are well motivated in their work?
General Feedback
Standard performance
Which of the following is a purpose of standard costing?

General Feedback
Control costs
CMA 0696 3-2

The choice of a production volume level as a denominator in the computation of fixed overhead
rates can significantly affect reported net income. Which one of the following statements is correct
for Nash Glassworks Company if its beginning inventory is zero, production exceeded sales, and
variances are adjustments to cost of goods sold? The choice of?
General Feedback
Practical capacity as the denominator level will result in a lower net income amount than if master-budget
capacity is chosen
CMA 1296 3-23

The purpose of identifying manufacturing variances and assigning their responsibility to a person/department should
be to?
General Feedback
Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing
operations
If new standard costs reflect conditions that affected the actual cost of goods in the ending inventory, then ending
inventories are costed at:
General Feedback
the new standard
Which one of the following statements pertaining to practical standards is incorrect?

General Feedback
& Practical standards are currently attainable level of performance after giving effect to normal allowances
for spoilage, inefficiencies, machine
In connection with a standard cost system being developed by Flint Co., the following
information is being considered with regard to standard hours allowed for output of one unit of
product:
Hours
Average historical performance for the past 3 years 1.85
Production level to satisfy average consumer demand over
a seasonal time span
1.60
Engineering estimates based on attainable performance 1.50
Engineering estimates based on ideal performance 1.25
To measure controllable production inefficiencies, what is the best basis for Flint to use in establishing
standard hours allowed?
General Feedback
1.50
When standard costs are used in a process costing system, how, if at all, are equivalent units of production
(EUP) involved or used in the cost report at standard?
General Feedback
The actual equivalent units are multiplied by the standard cost per unit
CMA 1290 3-1
Practical capacity as a plant capacity concept?
General Feedback
Does not consider idle time caused by inadequate sales demand.
Master Products has the following information for the year just ended:
Budget Actual
Sales $150,000 $147,000
Less: Variable expenses 90,000 82,600
Contribution margin $ 60,000 $ 64,400
Less: Fixed expenses 35,000 40,000
Operating income $ 25,000 $ 24,400
The company's sales-price variance is:

General Feedback
P7,000 favorable.
RPCPA 1077, 0580, 0588

If you compute variances from standard cost, the difference between the actual and standard price multiplied by actual
quantity will yield a?
General Feedback
Price variance
CIA 1185 IV-10

When the amount of overapplied factory overhead is significant, the entry to close the overapplied factory overhead
will most likely require
General Feedback
Credits to cost of goods sold, finished goods inventory, and work-in-process inventory
If the total materials variance (actual cost of materials used compared with the standard cost of the standard
amount of materials required) for a given operation is favorable, why must this variance be further evaluated
as to a price and usage?
Determining price and usage variance allows management to evaluate the efficiency of the purchasing and
production functions
SanBox Company is choosing new cost drivers for its accounting system. One driver is labor hours;
the other is a combination of machine hours for unit variable costs and number of setups for a pool of
batch-level costs. Data for the past year follow.
Budget Actual
Labor hours 200,000 200,000
Machine hours 360,000 450,000
Number of setups 3,000 3,300
Unit variable cost pool $1,600,000 $2,000,000
Batch-level cost pool $900,000 $990,000
Assume that both cost pools are combined into a single pool, and labor hours is the driver.
The total flexible budget for the actual level of labor hours and the total variance for the combined
pool are:
1) Flexible Budget
2) Variance
General Feedback
1) $2,500,000 2) $490,000U
The accepted purpose of standard costing is?

General Feedback
To control costs
CMA 0696 3-17

The upper limit of a company's productive output capacity given its existing resources is called?
General Feedback
Practical capacity
A standard costing system is most often used by a firm in conjunction with?

General Feedback
Flexible budgets
AICPA 0573 T-36

At the end of its fiscal year, Graham Co. had several substantial variances from standard variable manufacturing
costs. The one that should be allocated between inventories and cost of sales is the one attributable to? Increased
labor rates won by the union as a result of a strike.
Management scrutinizes variances because?

General Feedback
Management recognizes the need to know why variances happen to be able to make corrective actions and fairly
reward good performers
RPCPA 0587
Which of the following term is best identified with a system of standard cost?
General Feedback
Management by exception
Direct materials costs variances - Assessment
Information on Kenon Company’s direct material costs is as follows:
Standard unit price P 3.60
Actual quantity purchased 1,600
Standard quantity allowed for actual production 1,450
Materials purchase price variance – favorable P 240
What was the actual purchase price per unit, rounded to the nearest cent?
General Feedback
& By using the materials purchase price variance formula, we can derived the actual materials purchase price per
unit, as follows:
Materials purchase price variance = (AP- SP) x AQ purchased
(240) F = (AP – P3.60) x 1,600
(240) F = 1,600AP - 5,760
5,760 – 240 = 1,600AP
AP = 5,520 / 1,600 = P3.45
Alternatively, the actual materials purchase price per unit is:
Standard price per unit P 3.60

Price variance per unit (P240 / 1,600) (0.15) F
Actual price per unit P 3.45
Information on Dean Company’s direct-material costs for the month of January 20CY was as
follows:
Actual quantity purchased 18,000

Actual unit purchase price P 3.60
Materials purchase price variance- unfavorable P 3,600
(based on purchases)
Actual quantity used 15,000
For January 20CY there was a favorable direct material usage variance of?
General Feedback
& Direct usage variance (or quantity variance) is the difference in actual quantity and standard quantity, multiplied
by standard unit cost. The standard unit cost is not given, and should be derived from materials purchase price
variance as follows:
Mat purchase price variance = (Actual price – Standard price) x Actual quantity
purchased
3,600 = (P3.60 – SP) x 18,000 units

3,600 = 64,800 – 18,000 SP
SP = 61,200 / 18,000 = P3.40
Alternatively, the standard purchase price variance may be determined as follows:
Actual purchase price P 3.60

Change in price (P3,600 UF / 0.20 UF
18,000)
Standard purchase price P 3.40
The change in unfavorable purchase price is deducted from the actual price because it is
supposed to be higher than the standard price.
Now that standard unit cost is derived, the materials usage variance shall be computed as follows:
Mat usage variance = (Actual quantity used – Standard quantity) x Standard
unit cost
MUV = (15,000 – 16,000) x P3.40

MUV = (1,000) F x P3.40 = ( P3,400) F
There is a favorable quantity variance because actual quantity is smaller than standard quantity.
RPCPA 1094
RTW Co. manufactures a “one-size-fits-all” ready-to-wear outfit and uses a standard cost system. Each unit of
finished outfit contains two yards of fabric that cost P75 per yard. Based on experience, a 20% loss on fabric
input is incurred. For each unit of outfit, the standard materials cost is
General Feedback
P187.50
Under a standard cost system, the material price variances are usually the responsibility of the:
General Feedback
purchasing manager
CIA 0594 III-72 to 74
A company manufactures one product and has a standard cost system. In April the company had the
following experience:
Direct Materials Direct Labor
Actual P/unit of input (lbs. & hrs.) P28 P18
Standard price/unit of input P24 P20
Standard inputs allowed per unit of output 10 4
Actual units of input 190,000 78,000
Actual units of output 20,000 20,000
The direct materials efficiency variance for April is?

General Feedback
P240,000 favorable {[190,000 - (10 x 20,000)] x P24}
CMA 694 3-21

Under a standard cost system, the materials efficiency variance are the responsibility of?
General Feedback
Production and industrial engineering
CIA 0582 IV-22

Which of the following is least likely to cause an unfavorable materials quantity (usage) variance?
General Feedback
Labor that possesses skills equal to those required by the standards
CIA 1196 III-81

A company manufactures a product that has the direct materials, standard cost presented below.
Budgeted and actual information for the current month for the manufacture of the finished product
and the purchase and use of the direct materials is also presented.
Standard cost for direct materials:

1.60 lbs. @ $2.50 per lb. = $4.00
Budget Actual
Finished goods (in units) 30,000 32,000
Direct materials usage (in 48,000 51,000
pounds)
Direct materials purchases (in 48,000 50,000
pounds)
Total cost of direct materials $ $ 120,000
purchases 120,000
The direct materials efficiency variance for the current month is
General Feedback
$500 favorable {[(32,000 x 1.60) - 51,000] x $2.50}
Kaiser Manufacturing Company uses a standard cost system in accounting for the costs of
production of its only product, Product A. The standards for the production of one unit of
Product A are as follows:
Direct materials: 10 feet of Item 1 at P.78 per foot and 3 feet of Item 2 at P1
per foot
Direct labor: 4 hours at P3.60 per hour
Factory overhead: applied at 150% of standard direct labor costs
There was no inventory on hand at the end of the year. Materials price variances are isolated at purchase. Following is
a summary of costs and related data for the production of Product A during the year:
Ø 100,000 feet of Item 1 were purchased at P.75 per foot.
Ø 8,000 units of Product A were produced that required 78,000 feet of Item 1, 26,000 feet of Item 2, and 31,000 hours
of direct labor at P3.50 per hour.
Ø 6,000 units of Product A were sold.
The total debits to the direct materials account for the purchase of Item 1 should be:
General Feedback
P78,000
100,000 x P.78 = P78,000
Josey Manufacturing Corporation uses a standard cost system that records direct materials at actual
cost, records materials price variances at the time that direct materials are issued to work in
process, and prorates all variances at year end. Variances associated with direct materials are
prorated based on the direct materials balances in the appropriate accounts, and variances
associated with direct labor and factory overhead are prorated based on the direct labor balances
in the appropriate accounts.
The following information is available for Josey for the year ended December 31:
Finished goods inventory at December 31:
Applied factory overhead 104,400
Direct materials inventory at December 31 65,000
Cost of goods sold for the year ended December 31:
Applied factory overhead 591,600
Direct materials price variance (unfavorable) 12,500
Direct materials usage variance (favorable) 15,000

Direct labor rate variance (unfavorable) 20,000
Direct labor efficiency variance (favorable) 5,000
Factory overhead incurred 690,000
There were no beginning inventories and no ending work in process inventory. Factory overhead is applied at 80%
of standard direct labor cost.
The amount of direct materials price variance to be prorated to finished goods inventory at December 31 is
a?
General Feedback
P2,500 debit
RPCPA 0593
The U. R. Good Company manufactures a product, using standard costs as follows:
1. Standard costs per unit:

Material - 7 kilos at P3.50 per kilo
Labor - 8 hours at P1.75 per hour
Overhead: Fixed - P1.15 per hour or P9.20 per unit
Variable - P0.85 per hour or P6.80 per unit
2. Overhead applied on direct labor hours
3. Actual performance (one month)
a) Volume produced - 800
b) Labor hours - 6,300
c) Overhead - P13,200
d) Material cost - P3.45 per kilo
e) Labor cost - P1.80 per hour
f) Material used - 4,800 kilos
Total material variance is

General Feedback
P3,040 favorable
Which department is customarily held responsible for an unfavorable materials usage variance?
General Feedback
Production.
CMA 0692 3-18 to 21
Jackson Industries, which employs a standard cost system in which direct materials inventory is
carried at standard cost. Jackson has established the following standards for the prime costs of
one unit of product. During May, Jackson purchased 125,000 pounds of direct materials at a
total cost of P475,000. The total factory wages for May were P364,000, 90% of which were for
direct labor.
Jackson manufactured 22,000 units of product during May using 108,000 pounds of direct materials and 28,000 direct
labor hours.
Standard Quantity Standard Price Standard Cost
Direct materials 5 pounds P3.60/pound P18.00
Direct labor 1.25 hours P12.00/hr. 15.00
P33.00
The purchase price variance for the direct materials acquired by Jackson Industries during May is?
General Feedback
P25,000 unfavorable
CMA 1291 3-1 to 4
Arrow Industries employs a standard cost system in which direct materials inventory is carried at
standard cost. Arrow has established the following standards for the prime costs of one unit of
product.
Standard Quantity Standard Price Standard Cost
Direct materials 8 pounds P1.80 per pound P14.40
Direct labor . 25 hour 8.00 per hour 2.00
P16.40
During November, Arrow purchased 160,000 pounds of direct materials at a total cost of P304,000. The total factory
wages for November were P42,000, 90% of which were for direct labor. Arrow manufactured 19,000 units of product
during November using 142,500 pounds of direct materials and 5,000 direct labor hours.
The direct materials purchase price variance for November is

General Feedback
P16,000 unfavorable
A favorable materials price variance coupled with an unfavorable materials usage variance would most likely result
from?
General Feedback
The purchase of lower-than-standard-quality materials
The standard unit cost is used in the calculation of which of the following variances?
Materials Materials
Price Usage
General Feedback
Yes Yes
AICPA 0581 T-50

Which department is customarily held responsible for an unfavorable materials usage variance?
General Feedback
Production.
Under a standard cost system, the materials price variances are usually the responsibility of the?
General Feedback
Purchasing manager
CIA 1191 IV-16
A company producing a single product employs the following direct material cost standard for each
unit of output:
3 pounds of material x P4/pound = P12/output unit

Data regarding the operations for the current month are as follows:
Planned production 26,000 units
Actual production 23,000 units
Actual purchases of direct materials (75,000 pounds) P 297,000
Direct materials used in production 70,000 pounds
What would be the amount of the direct materials purchase price variance and direct materials quantity variance that
the company would recognize for the month?
Purchase Price Variance
Quantity Variance
P3,000 F
P4,000 U
Burger Queen uses a standard costing system in the manufacture of its single product. The 35,000
units of raw material in inventory were purchased for P105,000, and two units of raw materials
are required to produce one unit of final product. In November, the company produced 12,000
units of product. The standard allowed for material was P60,000, and there was an unfavorable
quantity variance of P2,500.
The materials price variance for the units used in November was
General Feedback
& The actual materials unit price is P3.00 (i.e., P105,000 / 35,000 units). The actual number of units used and
standard price per unit have been determined in the preceding questions. Materials price variance on the units
used is the difference in price multiplied by actual quantity used, and is computed as follows:
Actual quantity used 25,000 Units
x Difference in unit price (P3.00 – P2.50) P 0.50 UF
Materials price variance P 12,500 UF UF
information on Kennedy Company's direct material costs follows:
Standard price per pound of raw materials P 3.60

Actual quantity of raw materials purchased 1,600
pounds
pounds
Materials purchase price variance--favorable P 240
What was the actual purchase price per unit, rounded to the nearest penny?
General Feedback
P3.45
P240 = 1,600 (x - P3.60)
1,600 x = P240 + P5,760

x = P3.75
CIA 1192 IV-20
A manufacturer has the following direct materials standard for one of its products.
Direct materials: 3 pounds @ P1.60/pound = P4.80
The company records all inventory at standard cost. Data for the current period regarding the manufacturer's
budgeted and actual production for the product as well as direct materials purchases and issues to production for
manufacture of the product are presented as follows.
Budgeted production for the period 8,000 units
Actual production for the period 7,500 units
Direct materials purchases:
Pounds purchased 25,000 pounds
Total cost P38,750
Direct materials issued to production 23,000 pounds
The direct materials price variance for the current period is

General Feedback
P1,250 favorable
CMA 1293 3-24

ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material
in inventory were purchased for P105,000, and two units of raw material are required to produce one unit of final
product. In November, the company produced 12,000 units of product. The standard allowed for material was
P60,000, and there was an unfavorable quantity variance of P2,500. The materials price variance for the units used in
November was?
General Feedback
P12,500 unfavorable [(P3.00 - P2.50) x 25,000 units]
CMA 0696 3-22 to 25
Ardmore Enterprises uses a standard cost system in its small appliance division. The standard cost
of manufacturing one unit of Zeb is as follows:
Materials = 60 pounds at P1.50 per pound P 90

Labor = 3 hours at P12 per hour 36
Factory overhead – 3 hours at P8 per hour 24
Total standard cost per unit P 150
The budgeted variable factory overhead rate is P3 per labor hour, and the budgeted fixed factory overhead is P27,000
per month. During May, Ardmore produced 1,650 units of Zeb compared with a normal capacity of 1,800 units. The
actual cost per unit was as follows:
Materials (purchased and used) 58 pounds at P1.65 per pound) P95.70

Labor = 3.1 hours at P12 per hour 37.20
Factory overhead – P39,930 per 1,650 units 24.20
Total actual cost per unit P157.10
The materials price variance for May is? General Feedback

P14,355 unfavorable [58 actual pounds x 1,650 units x (P1.65 actual price - P1.50 standard price)].
RPCPA 580
The Willard Manufacturing Co., Inc. uses standard cost systems in accounting for manufacturing costs. On
June 1, 19x9, it started the manufacture of a new product known as “Whippy.” The standard costs of a
unit of “Whippy” are:
Raw materials 3 kilos @ P1.00 per kilo P 3.00
Direct labor 1 hour @ P4.00 per hour 4.00
Overhead 75% of direct labor cost 3.00
P 10.00
The following data were obtained from Willard’s records for the month of June:
Actual production of “Whippy” 2,000 units
Units sold of “Whippy” 1,250 units
Debit Credit
Sales P25,000
Purchases P13,650
Materials price variance 650
Materials quantity variance 500
Direct labor rate variance 380
Direct labor efficiency variance 400
Manufacturing overhead total variance 250
The amount shown above for the materials price variance is applicable to raw materials purchased during June.
The actual quantity of raw materials used (in kilos) for the month of June is?
General Feedback
6,500 kilos
Troop Company had budgeted 50,000 units of output using 50,000 units of raw materials at a
total material cost of P100,000. Actual output was 50,000 units of product requiring 45,000
units of raw materials at a cost of P2.10 per unit. The direct material price variance and usage
variance were:
1) Price
2) Usage
General Feedback
1) P 4,500 unfavorable 2) P10,000 favorable
AICPA 1195
The standard direct material cost to produce a unit of Lem is 4 meters of material at P2.50 per meter. During May
2001, 4,200 meters of material costing P10,080 were purchased and used to produce 1,000 units of Lem. What was
the material price variance for May 2001?
General Feedback
P80 unfavorable
is correct. The direct materials price variance is the difference between actual unit prices and
standard unit prices multiplied by the actual quantity, as shown below.
AQ x AP – AQ x SP = Materials price variance
P10,080 – (4,200m x P2.50.) = P420F
CIA 0594 III-72 to 74
1. A company manufactures one product and has a standard cost system. In April the company
had the following experience:
Direct Materials Direct Labor
Actual P/unit of input (lbs. & hrs.) P28 P18
Standard price/unit of input P24 P20
Standard inputs allowed per unit of output 10 4
Actual units of input 190,000 78,000
Actual units of output 20,000 20,000
The direct materials price variance for April is?

General Feedback
P760,000 unfavorable [(P28 - P24) x 190,000].
Price variances and efficiency variances can be keys to the performance measurement within a company. In evaluating
the performance within a company, material efficiency variance can be caused by all of the following except the?
General Feedback
Sales volume of the product
An unfavorable price variance occurs because of?

Price increases for raw materials
Hankies Unlimited has a signature scarf for ladies that is very popular. Certain production and
marketing data are indicated below:
Cost per yard of cloth P 36.00

Allowance for rejected scarf 5% of
production
Yards of cloth needed per scarf 0.475 yards
Airfreight from supplier P 0.60/yard
Motor freight to customers P 0.90/scarf
Purchase discount from supplier 3%
Sales discount to customers 2%
The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have no market value.
Materials are used at the start of production. Calculate the standard cost of cloth per scarf that Hankies Unlimited
should use in its cost sheets
General Feedback
& The standard cost of materials is composed of the net invoice price plus all necessary costs of
handling the materials purchased. The materials input per unit of scarf is 0.50 yard (i.e., 0.475
yd./95%). This is because of the adjustment made on the allowance for rejected scarf. Given
this input base, the standard cost of materials shall be:
Net purchase price (P36 per yd x 0.50 yd. X 97%) P 17.46
Airfreight from supplier/freight-in (P0.60 x 0.50) 0.30
Standard cost of materials per scarf P 17.76

CMA 0697 3-23
The controller of Durham Skates is reviewing the production cost report for July. An analysis of direct
materials costs reflects an unfavorable flexible budget variance of P25. The plant manager believes this
is excellent performance on a flexible budget for 5,000 units of direct materials. However, the
production supervisor is not pleased with this result because he claims to have saved P1,200 in material
cost on actual production using 4,900 units of direct materials. The standard materials cost is P12 per
unit. Actual materials used for the month amounted to P60,025.
If the direct materials variance is investigated further, it will reflect a price variance of?
General Feedback
P1,225 unfavorable
CPA 0578 T-44

If the total materials variance (actual cost of materials used compared with the standard cost of the standard amount of
materials required) for a given operation is favorable, why must this variance be further evaluated as to price and
usage?
General Feedback
Determining price and usage variances allows management to evaluate the efficiency of the purchasing and production
functions.
CMA 0695 3-24
Blaster Inc., a manufacturer of portable radios, purchases the components from subcontractors to
use to assemble into a complete radio. Each radio requires three units each of Part XBEZ52
which has a standard cost of P1.45 per unit. During May 1995, Blaster experienced the
following with respect to Part XBEZ52.
Units
Purchases (P18,000) 12,000
Consumed in manufacturing 10,000
Radios manufactured 3,000
During May 1995, Blaster Inc. incurred a materials efficiency variance of

General Feedback
P1,450 unfavorable [P1.45 standard cost per part x (10,000 used - 9,000 standard usage)]
Kaiser Manufacturing Company uses a standard cost system in accounting for the costs of
production of its only product, Product A. The standards for the production of one unit of
Product A are as follows:
Direct materials: 10 feet of Item 1 at P.78 per foot and 3 feet of Item 2 at P1
per foot
Direct labor: 4 hours at P3.60 per hour
Factory overhead: applied at 150% of standard direct labor costs
There was no inventory on hand at the end of the year. Materials price variances are isolated at purchase. Following is
a summary of costs and related data for the production of Product A during the year:
Ø 8,000 units of Product A were produced that required 78,000 feet of Item 1, 26,000 feet of Item 2, and 31,000 hours
of direct labor at P3.50 per hour.
Ø 6,000 units of Product A were sold.

If all standard variances are prorated to inventories and cost of goods sold, the amount of materials quantity variance
for Item 2 to be prorated to direct materials inventory would be:
General Feedback
0
The variance would be allocated only to finished goods and cost of goods sold.
CIA 1192 IV-21
A manufacturer has the following direct materials standard for one of its products.
Direct materials: 3 pounds @ P1.60/pound = P4.80
The company records all inventory at standard cost. Data for the current period regarding the manufacturer's
budgeted and actual production for the product as well as direct materials purchases and issues to production for
manufacture of the product are presented as follows.
Budgeted production for the period 8,000 units
Actual production for the period 7,500 units
Direct materials purchases:
Pounds purchased 25,000 pounds
Total cost P 38,750
Direct materials issued to production 23,000 pounds
The materials efficiency variance for the current period is

General Feedback
P800 unfavorable
RPCPA 0597
ALPHA Co. uses a standard cost system. Direct materials statistics for the month of May, 19x7 are
summarize below:
Standard unit price P 90.00

Actual units purchased 40,000
Standard units allowed for actual production 36,250
Materials price variance- favorable P 6,000
What was the actual purchase price per unit?

General Feedback
P89.85
CIA adapted
A company recorded the following journal entry when materials were issued to the factory:
Work in Process 9,000

Materials Quantity Variance 200
Materials 8,800
Assuming that there was both a price variance and a quantity variance associated with these materials, this entry
indicates that the method used for materials price variances is to:
General Feedback
record variances at the time materials are received
RPCPA 1082
The Sta. Anita Company has a budgeted normal monthly capacity of 5,000 labor hours with a
standard production of 4,000 units are this capacity. Standard costs are:
Materials - 2 kilos at P1.00

Labor - P8.00 per hour
Factory overhead at normal capacity
Fixed expenses - P5,000
Variable expenses - P1.50 per labor hour
During September, actual factory overhead totaled P11,250 and 4,500 labor hours cost P33,750. Production during the
month was 3,500 units using 7,200 kilos of materials at a cost of P1.02 per kilo.
The labor efficiency variance was

General Feedback
P1,000 unfavorable
Which of the following people is most likely responsible for an unfavorable materials usage variance?
General Feedback
production supervisor
AICPA 1184 T-50

If a company follows a practice of isolating variances as soon as possible, the appropriate time to isolate and
recognize a direct materials price variance is when
General Feedback
Materials are purchased
RPCPA 1088
MAXIM MFG CO., which uses a standard cost system, manufactures one product with the following
standard costs:
Direct materials 2 Kilos at P10 P20.00

Direct labor 1 hour at P8 8.00
Factory overhead 80% of direct labor 6.40
TOTAL STANDARD UNIT COST P34.40
Total production in units 10,000 units

Direct materials purchased 22,000 kilos at P11
Actual quantity of materials used 21,000 kilos
Actual labor cost 9,500 at P7.50
Factory overhead total variance P1,000 unfavotable
The direct material usage variance is?

General Feedback
P10,000 unfavorable
The U. R. Good Company manufactures a product, using standard costs as follows:
1. Standard costs per unit:

Material - 7 kilos at P3.50 per kilo
Labor - 8 hours at P1.75 per hour
Overhead: Fixed - P1.15 per hour or P9.20 per unit
Variable - P0.85 per hour or P6.80 per unit
2. Overhead applied on direct labor hours
3. Actual performance (one month)
a) Volume produced - 800
b) Labor hours - 6,300
c) Overhead - P13,200
d) Material cost - P3.45 per kilo
e) Labor cost - P1.80 per hour
f) Material used - 4,800 kilos
Material price variance is?

General Feedback
P 240 favorable
RPCPA 580
The Willard Manufacturing Co., Inc. uses standard cost systems in accounting for manufacturing costs. On
June 1, 19x9, it started the manufacture of a new product known as “Whippy.” The standard costs of a
unit of “Whippy” are:
Raw materials 3 kilos @ P1.00 per kilo P 3.00
Direct labor 1 hour @ P4.00 per hour 4.00
Overhead 75% of direct labor cost 3.00
P 10.00
The following data were obtained from Willard’s records for the month of June:
Actual production of “Whippy” 2,000 units
Units sold of “Whippy” 1,250 units
Debit Credit
Sales P25,000
Purchases P13,650
Materials price variance 650
Materials quantity variance 500
Direct labor rate variance 380
Direct labor efficiency variance 400
Manufacturing overhead total variance 250
The amount shown above for the materials price variance is applicable to raw materials purchased during June.
The actual quantity of raw materials used (in kilos) for the month of June is?
General Feedback
6,500 kilos
Price variances and efficiency variances can be key to the performance measurement within a company. In evaluating
the performance within a company, a materials efficiency variance can be caused by all of the following except the?
General Feedback
Sales volume of the product
Direct labor costs variances - Assessment

Management Accounting

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Management Accounting

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Basic management concepts and functions - Assessment

Management accounting is an integral part of the management process. As such, it provides

Which of the following is not a characteristic of a “staff” authority?

The concept of ”management by exception” refers to management’s

Planning and controlling cycle - Assessment

Which of the following represents an internal control weakness in a payroll system?

The concept of ”management by exception” refers to management’s.

Which of the following is not a primary component of a control system?

Which of the following is not an objective of managerial accounting?

The above steps must be done in this sequence:

Management accounting, financial management and financial accounting - Assessment

Which of the statements is true or false?

Statement 1 Statement 2 Statement 3

A formal report in management accounting is covered by the guidelines of?

Which of the following characteristics does not relate to management accounting?

Which of the statements is true or false?

Which of the following is not a controller’s function?

Which of the following is a controller’s responsibility?

Controllers are generally not concerned with?

Identify the following statements as true or false.

Statement 1 Statement 2 Statement 3

statement 1 statement 2 statement 3

All of the following statements are correct except:

The following characteristics refer to financial accounting, except:

Which of the following characteristics relates to financial accounting?

Controllership has attained special recognition in corporate management as businesses expand in

Items 1, 2, 5, 7 and 8 only.

Strategic management philosophies - Assessment

Which of the following is not considered as a strategic management philosophy?

Modern management accounting can be characterized by its

Code of Conduct for Management Accountants - Assessment

Which of the following is not an element of competency?

If a financial manager/management accountant discovers unethical conduct in his/her organization

Which ethical standard is most clearly violated if a financial manager/management accountant

If a financial manager/management accountant has a problem in identifying unethical behavior or

In accordance with Statements on Management Accounting Number 1C (SMA 1C) (revised),

Financial managers/management accountants are obligated to maintain the highest standards of

Expenditures, investments, and expenses

The accounting concept of expenses - Assessment

Cost per unit Power Power

The total overhead cost of $13.50 for Hitchcock's power saw is a?

Products manufactured 650,000 units

What is the predetermined overhead application rate for the year?

CIA 1193 IV-6

Materials requisitioned from stores:

Direct materials $ 5,000

CMA 0678 4-6

CMA 0694 3-3

CMA 1290 3-2

Annual overhead application rates are used to?

CMA 1294 3-3

Products manufactured 650,000 units

Northcoast Manufacturing Company

How much is factory overhead overapplied/underapplied?

Direct materials $ 27,400

CMA 0694 3-1

CMA 0697 3-1

CMA 1282 4-101

CMA 1294 3-1

Mednick Company's prime costs for October were?

Cost per unit Power Power

CMA 0689 4-12

Cost per unit Power Power