Cost-Volume-Profit Analysis A. P8,800,000 C.

P12,000,000
13. The Ship Company is planning to produce two products, Alt and Tude. Ship is planning to sell B. P16,000,000 D. P6,880,000
100,000 units of Alt at P4 a unit and 200,000 units of Tude at P3 a unit. Variable costs are 70% of
sales for Alt and 80% of sales for Tude. In order to realize a total profit of P160,000, what must the 17. The following data relate to Homer Company which sells a single product:
total fixed costs be? Unit selling price P 20.00
A. P80,000 C. P240,000 Purchase cost per unit 11.00
B. P90,000 D. P600,000 Sales commission, 10% of selling price 2.00
Monthly fixed costs P80,000
14. Glow Co. wants to sell a product at a gross margin of 20%. The cost of the product is P2.00. The The firms salespersons would like to change their compensation from a 10
selling price should be
A. P1.60 C. P2.40 percent commission to a 5 percent commission plus P20,000 per month in salary.
B. P2.10 D. P2.50
They now receive only commission.
15. The following relates to Gloria Corporation, which produced and sold 50,000 units during a recent
accounting period:
Sales P850,000 The change in compensation plan should change the monthly breakeven point by
Fixed manufacturing costs 210,000 A. 1,071 Increase C. 1,538 Increase
Variable manufacturing costs 140,000 B. 1,071 Decrease D. 1,538 Decrease
Fixed selling and administrative expense 300,000
Variable selling and administrative expense 45,000 18. Brunei Corp. is developing a new product, surge protectors for high-voltage electrical flows. The
Income tax rate 40% cost information for the product are: Direct materials, P3.25 per unit; Direct labor, P4.00 per unit;
For the next accounting period, if production and sales are expected to be 40,000 units, the Distribution, P0.75 per unit. The company will also be absorbing P120,000 of additional fixed costs
company should anticipate a contribution margin per unit of associated with this new product. A corporate fixed charge of P20,000 currently absorbed by other
A. P1.00 C. P3.10 products will be allocated to this new product.
B. P13.30 D. P7.30 How many surge protectors (rounded to the nearest hundred) must Brunei sell at a

16. Madden, Company has projected its income before taxes for next year as shown below. Madden selling price of P14 per unit to increase after-tax income by P30,000? (effective
is subject to a 40% income tax rate.
Sales (160,000 units) P8,000,000 income tax rate is 40%)
Cost of sales
Variable costs P 2,000,000
Fixed costs 3,000,000 5,000,000 A. 10,700 C. 20,000
Income before taxes P 3,000,000 B. 12,100 D. 28,300
Maddens net assets are P36,000,000. The peso sales that must be achieved for
19. A manufacturer produces a product that sells for P10 per unit. Variable costs per unit are P6 and
total fixed costs are P12,000. At this selling price, the company earns a profit equal to 10% of total
Madden to earn a 10 percent after tax return on assets would be
peso sales. By reducing its selling price to P9 per unit, the manufacturer can increase its unit sales 20. Last year, the marginal contribution rate of Lamesa Company was 30%. This year, fixed costs are
volume by 25%. Assume that there are no taxes and that total fixed costs and variable costs per expected to be P120,000, the same as last year, and sales are forecasted at P550,000 a 10%
unit remain unchanged. If the selling price were reduced to P9 per unit, the profit would be increase over last year. For the company to increase income by P15,000 in the coming year, the
A. P3,000 C. P5,000 marginal contribution margin rate must be
B. P4,000 D. P6,000 A. 20% C. 40%
B. 30% D. 70%

21. Wilson Co. prepared the following preliminary forecast concerning product G for next year
assuming no expenditure for advertising:
Selling price per unit P 10
Units sales 100,000
Variable costs P600,000
Fixed costs P300,000
Based on a market study in December of this year, Wilson estimated that it could

increase the unit selling price by 15% and increase the unit sales volume by 10%

if P100,000 were spent on advertising. Assuming that Wilson incorporates these

changes in its forecast, what should be the operating income from product G?

A. P175,000 C. P205,000
B. P190,000 D. P365,000

22. Shoes, Unlimited operates a chain of shoe stores around the country. The stores carry many
styles of shoes that are all sold at the same price. To encourage sales personnel to be aggressive
in their sales efforts, the company pays a substantial sales commission on each pair of shoes sold.
Sales personnel also receive a small basic salary.
The following cost and revenue data relate to Store 21 and are typical of the

companys many sales outlets:

Selling price P 800

Variable expenses:
 Invoice costs P360 Sales P900,000
Sales commission 140 Variable costs
500 Manufacturing P315,000
Fixed expenses per year: Selling costs 180,000
Rent P1,600,000 Total variable costs 495,000
Advertising 3,000,000 Contribution margin P405,000
Salaries 1,400,000 Fixed costs
Total P6,000,000 Manufacturing P 90,000
The company is considering paying the store manager a P60 commission on each Selling 112,500
Administration 45,000
pair of shoes sold in excess of break-even point. If this change were made, what Total fixed costs 247,500
Net income before income taxes P157,500
will be the stores before tax profit or loss assuming 23,500 pairs of shoes are sold Income taxes (40%) (63,000)
Net income after income taxes P 94,500
in a year?
24. The breakeven volume in tons of product for the year is
A. 420 C. 1,100
A. P(360,000) C. P840,000 B. 495 D. 550
B. P2,930,000 D. P1,330,000

23. BE&H Co. is considering dropping a product. Variable costs are $6.00 per unit. Fixed overhead
costs, exclusive of depreciation, have been allocated at a rate of $3.50 per unit and will continue
whether or not production ceases. Depreciation on the equipment is P20,000 a year. If production
is stopped, the equipment can be sold for P18,000, if production continues, however, it will be
useless at the end of 1 year and will have no salvage value. The selling price is P10 a unit.
Ignoring taxes, the minimum units to be sold in the current year to break even on a cash flow basis
is
A. 4,500 units C. 1,800 units
B. 5,000 units D. 36,000 units

Questions 24 through 28 are based on the Statement of Income of Davao, Inc. which
represents the operating results for the current fiscal year ending December 31.
Davao had sales of 1,800 tons of product during the current year. The manufacturing
capacity of Davaos facilities is 3,000 tons of product. Consider each questions
situation separately.
25. If the sales volume is estimated to be 2,100 tons in the next year, and if the prices and costs stay at
the same levels and amounts next year, the after-tax net income that Davao can expect for the
next year is
A. P135,000 C. P110,25
B. P283,500 D. P184,500

26. Davao has a potential foreign customer that has offered to buy 1,500 tons at P450 per ton.
Assume that all of Davaos costs would be at the same levels and rates as last year. What net
income after taxes would Davao make if it took this order and rejected some business from regular
customers so as not to exceed capacity?
A. P297,500 C. P252,000
B. P211,500 D. P256,500

27. Without prejudice to your answers to previous questions, and assume that Davao plans to market
its product in an new territory. Davao estimates that an advertising and promotion program costing
P61,500 annually would need to be undertaken for the next two or three years. In addition , a P25
per ton sales commission over and above the current commission to the sales force in the new
territory would be required. How many tons would have to be sold in the new territory to maintain
Davaos current after-tax income of P94,500?
A. 307.5 C. 1,095
B. 273.33 D. 1,545

28. Without prejudice to preceding questions, assume that Davao estimates that the per ton selling
price will decline 10% next year. Variable costs will increase P40 per ton and the fixed costs will
not change. What sales volume in pesos will be required to earn an after-tax net income of
P94,500 next year?
A. P1,140,000 C. P825,000
B. P1,500,000 D. P1,350,000

Standard Costing & Variance Analysis

29. Dahl Company, a clothing manufacturer, uses a standard costing system. Each unit of finished
product contains 2 yards of cloth. However, there is unavoidable waste of 20% calculated on input
quantities, when the cloth is cut for assembly. The cost of the cloth is P3 per yard. The standard
direct material cost for cloth per unit of finished product is:
A. P4.80 C. P7.00
B. P6.00 D. P7.50
30. The following information relates to Ore Companys 2003 manufacturing activities: B. 12,000 D. 10,500
Standard direct labor hours per unit 2
Number of units produced 5,000 34. If annual overhead costs are expected to be P1,000,000 and 200,000 total labor hours are
Standard variable overhead per standard direct labor hours P3 anticipated (80% direct, 20% indirect), the overhead rate based on direct labor hours is
Actual variable overhead P28,000 A. P6.25 C. P25.00
Unfavorable overhead efficiency variance P 1,500 B. P5.00 D. P4.00
The number of actual direct labor hours are
A. 10,500 C. 10,000 35. ABC had a P28,000 favorable volume variance, a P25,000 unfavorable variable overhead
B. 11,000 D. 12,400 spending variance, and P12,000 total overapplied overhead. The fixed overhead budget variance
was
Questions 31 & 32 are based on the following information. A. P9,000 favorable C. P9,000 unfavorable
Rainbow Company uses a standard cost system. Information about its direct labor costs for Product B. P26,000 favorable D. P26,000 unfavorable
Lux for the month of January follows:
Standard hours allowed for actual production 1,500 36. Given for the variable factory overhead of X Products Inc.: P39,500 actual input at budgeted rate,
Actual hourly rate paid P61.00 P41,500 flexible budget based on standard input allowed for actual output, P2,500 favorable
Standard hourly rate P60.00 flexible budget variance. Compute the spending variance:
Labor efficiency variance, Favorable P6,000 A. P500 U C. P500 F
B. P2,000 F D. P2,000 U
31. How many direct labor hours were actually worked during the month of January?
A. 1,400 C. 1,402 37. Bacon had a P28,000 unfavorable volume variance, a P5,000 unfavorable fixed overhead budget
B. 1,498 D. 1,600 variance, and P22,000 total underapplied overhead. The variable overhead spending variance was
A. P11,000 favorable C. P11,000 unfavorable
32. How much was the direct labor rate variance? B. P1,000 favorable D. P23,000 unfavorable
A. P1,400 F C. P1,400 U
B. P1,600 F D. P1,600 U 38. Acme had a P22,000 favorable fixed overhead budget variance, a P15,000 unfavorable variable
overhead spending variance, and P2,000 total overapplied overhead. The volume variance was
33. STA Company uses a standard cost system. The following information pertains to direct labor A. P13,000 overapplied C. P5,000 overapplied
costs for the month of June: B. P13,000 underapplied D. P5,000 underapplied
Standard direct labor rate per hour P10.00
Actual direct labor rate per hour P 9.00 39. Aldorp had a P10,000 unfavorable fixed overhead budget variance, a P6,000 unfavorable variable
Labor rate variance P12,000 favorable overhead spending variance, and a P2,000 favorable volume variance. The total overhead was
Actual output 2,000 units A. P14,000 overapplied C. P18,000 overapplied
Standard hours allowed for actual production 10,000 hours B. P14,000 underapplied D. P18,000 underapplied
How many actual labor hours were worked during March for STA Company?

A. 10,000 C. 8,000
40. Fidelity Company uses a flexible budget system and prepared the following information for the The following information pertains to the month of March
year: Fidelity operated at 80 percent of capacity during the year, but applied factory overhead Units actually produced 38,000
based on the 90 percent capacity level. Assuming that actual factory overhead was equal to the Actual direct labor hours worked 80,000
budgeted amount of overhead, how much was the overhead volume variance for the year? Actual overhead incurred:
Percent of Capacity 80 Percent 90 Percent
Direct labor hours 24,000 27,000
Variable P250,000
Variable factory overhead P54,000 P60,750
Fixed 384,000
Fixed factory overhead P81,000 P81,000
43. For March, the unfavorable variable overhead spending variance was
Total factory overhead rate pre DLH P5.625 P5.25
A. P6,000 C. P12,000
A. P9,000 U C. P9,000 F B. P10,000 D. P22,000
B. P15,750 U D. P15,750 F
44. For March, the fixed overhead volume variance was
41. Using the information presented below, calculate the total overhead spending variance. A. P96,000 U C. P80,000 U
Budgeted fixed overhead P10,000 B. P96,000 F D. P80,000 F
Standard variable overhead (2 DLH at P2 per DLH) P4 per unit
Actual fixed overhead P10,300 45. Smile Corporation uses a standard cost system. Information for the month of April is as follows:
Actual variable overhead P19,500 Actual manufacturing overhead costs (P13,000 is fixed) P40,000
Budgeted volume (5,000 units x 2 DLH) 10,000 DLH Direct labor:
Actual direct labor hours (DLH) 9,500 Actual hours worked 12,000 hours
Units produced 4,500 Standard hours allowed 10,000 hours
A. P500 U C. P1,000 U Average actual labor cost per hour P9
B. P800 U D. P1,300 U The factory overhead rate is based on a normal volume of 12,000 direct labor hours
Standard cost data at 12,000 direct labor hours was:
42. STA Companys standard fixed overhead cost is P3 per direct labor hour based on budgeted fixed
costs of P300,000. The standard allows 2 direct labor hours per unit. During 2001, STA produced
55,000 units of product, incurred P315,000 of fixed overhead costs, and recorded 106,000 actual Variable factory overhead P24,000
hours of direct labor. What are the fixed overhead variances? Fixed factory overhead 12,000
A. B. C. D. Total factory overhead P36,000
Fixed OH spending (budget) variance P15,000 U P33,000 U P15,000 U P33,000 U What are the following overhead variances?
Fixed OH Volume variance P30,000 F P30,000 F P18,000 F P18,000 F
A. B. C. D.
Questions 43 and 44 are based on the following information.
Variable OH Spending P3,000 U P3,000 U P7,000 U P7,000 U
Raff Co.s monthly normal volume is 50,000 units (100,000 direct labor hours.) Raff Co.s standard cost
Variable OH Efficiency P2,000 U P4,000 U P2,000 U P4,000 U
system contains the following overhead costs:
Fixed OH Spending P4,000 U P1,000 U P1,000 U P4,000 U
Variable P6 per unit
Fixed 8 per unit
Questions 46 thru 48 are based on the following information. A. P9,000 U C. P21,000 U
Edney Company employs standard absorption system for product costing. The standard cost of its B. P12,000 U D. P12,000 U
product is as follows:
Raw materials P14.50 Questions 49 thru 53 are based on the following information.
Direct labor (2 DLH x P8) 16.00 The following data are actual results for Roadtrek company for October:
Manufacturing overhead (2 DLH x P11) 22.00 Actual output 9,000 cases
The manufacturing overhead rate is based upon a normal activity level of 600,000 Actual variable overhead P405,000
Actual fixed overhead P122,000
direct labor hours. Edney planned to produce 25,000 units each month during the Actual machine time 40,500 machine hours

Standard cost and budget information for Roadtrek Company follows:

year. The budgeted annual manufacturing overhead is
Standard variable overhead rate P9.00 per MH
Standard quantity of machine hours 4 hours per case
Variable P3,600,000 Budgeted fixed overhead P1,440,000 per year
Fixed 3,000,000 Budgeted output 10,000 cases per month
During November, Edney produced 26,000 units. Edney used 53,500 direct labor

hours in November at a cost of P433,350. Actual manufacturing overhead for the

month was P260,000 fixed and 315,000 variable. The total manufacturing overhead

applied during November was P572,000.

46. The variable manufacturing overhead variances for November are

A. B. C. D.
Spending P9,000 U P6,000 F P4,000 U P 9,000 F
Efficiency P3,000 U P9,000 U P1,000 F P12,000 U

47. The fixed manufacturing overhead variances for November are

A. B. C. D.
Spending P10,000 F P10,000 U P6,000 F P 4,000 U
Volume P10,000 f P10,000 F P3,000 U P22,000 F

48. The total variance related to efficiency of the manufacturing operation for November is:
49. The variable overhead spending variance for the month of October is Relevant Costing
A. P40,500 U C. P45,000 U 56. An important concept in decision making is described as the contribution to income that is forgone
B. P81,000 U D. P81,000 F by not using a limited resources in its best alternative use. This concept is called
A. Marginal cost C. Potential cost
50. The overhead efficiency variance is B. Opportunity costs D. Relevant cost
A. P4,500 U C. P4,500 F
B. P40,500 U D. P40,500 F 57. If revenues are P210,000 under alternative A and P216,000 under alternative B, and costs are
P190,000 for A and P204,000 for B, then using the basic approach in incremental analysis,
51. The amount of fixed overhead controllable variance is incremental revenues, costs, and net income, in comparing B to A are respectively
A. P2,000 U C. P42,500 U A. P6,000, P(14,000), P(8,000) C. P6,000, P14,000, P8,00
B. P2,000 F D. P42,500 F B. P(6,000), P14,000, P8,000 D. P(6,000), P(14,000), P(8,000)

52. The amount of fixed overhead volume variance is 58. For the year ended April 30, 2003, Leba Company incurred direct costs of P800,000 based on a
A. P12,000 F C. P21,000 F particular course of action. Had a different course of action been taken, direct costs would have
B. P12,000 U D. P21,000 U been P650,000. In addition, Lebas fixed costs during the fiscal year were P110,000.
The incremental (decremental) costs was:
53. The amount variable overhead volume variance is
A. Zero C. P12,000 F
B. P9,000 U D. P2,250 U A. P40,000 C. P(40,000)
B. P150,000 D. P(150,000)
Absorption Costing & Variable Costing
54. Which of the following statements is true for a firm that uses variable (direct) costing? 59. Wallace Company produces 15,000 pounds of Product A and 30,000 pound of Product B each
A. The cost of a unit of product changes because of changes in the number of units week by incurring a common variable costs of P400,000. These two products can be sold as is or
manufactured. processed further. Further processing of either product does not delay the production of
B. Profits fluctuate with sales subsequent batches of the joint product. Data gathering there two products are as follows:
C. An idle facility variation is calculated Product A Product B
D. Product costs include direct (variable) administrative costs. Selling price per pound without further Processing P 12.00 P 9.00
Selling price per pound with further Processing P 15.00 P 11.00
55. At its present level of operations, a small manufacturing firm has total variable costs equal to 75% Total separate weekly variable costs of Further processing P50,000 P45,000
of sales and total fixed costs equal to 15% of sales. Based on variable costing, if sales change by To maximize Wallace Companys manufacturing contribution margin, the total separate variable
P1.00, income will change by costs of further processing that should be incurred each week are
A. P0.25 C. P0.75 A. P45,000 C. P95,000
B. P0.12 D. P0.10 B. P50,000 D. P0
60. Blue & Company sells a product for P20 with variable cost of P8 per unit. Blue could accept a Total demand for X is 16,000 units and for Y is 8,000 units. Machine hours is a
special order for 1,000 units at P14. If Blue accepted the order, how many units could it lose at the
regular price before the decision become unwise? scarce resource. 42,000 machine hours are available during the year. Product X
A. 1,000 units C. P500 units
B. P200 units D. 0 units requires 6 machine hours per unit while product Y requires 3 machine hours per
61. Geary Manufacturing has assembled the following data pertaining to two popular products.
unit.
Blender Electric mixer
Direct materials P 6 P 11
Direct labor 4 9 How many units of X and Y should Hingis Corporation produce?
Factory overhead @ P16 per hour 16 32
Cost if purchased from an outside supplier 20 38
Annual demand (units) 20,000 28,000 A. B. C. D.
Past experience has shown that the fixed manufacturing overhead component Product X 16,000 8,000 7,000 3,000
Product Y -0- 4,000 -0- 8,000
included in the cost per machine hour averages P10. Geary has a policy of filling
63. Wagner sells product A at a price of P21 per unit. Wagners cost per unit based on the full capacity
of 200,000 units is as follows:
all sales orders, even if it means purchasing units from outside suppliers. Direct materials P 4
Direct labor 5
If 50,000 machine hours are available, and Geary Manufacturing desires to follow Overhead (2/3 of which is fixed) 6
P15
an optimal strategy, it should A special order offering to buy 20,000 units was received from a foreign distributor. The only selling
costs that would be incurred on this order would be P3 per unit for shipping. Wagner has sufficient
existing capacity to manufacture the additional units
A. produce 25,000 electric mixers, and purchase all other units as needed To achieve an increase in operating income of P40,000. Wagner should charge a selling price of
B. produce 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed A. P14 C. P16
C. produce 20,000 blenders and purchase all other units as needed B. P15 D. P18
D. purchase all units as needed
64. Yardley Co. has considerable excess manufacturing capacity. A special job orders cost sheet
62. The Hingis Corporation manufactures two products: X and Y. Contribution margin per unit is includes the following applied manufacturing overhead costs:
determined as follows: Variable costs P56,250
Product X Product Y Fixed costs 45,000
Revenue P 130 P80 The fixed costs include a normal P6,800 allocation for in-house design costs, although no in-house
Variable costs 70 38 design will be done. Instead, the special job will require the use of external designers costing
P13,750. What is the minimum acceptable price of the job?
Contribution margin P 60 P42
 A. P63,050 C. P101,250 69. Consider the following portion of a segmented income statement for the year just ended. Assume
B. P70,000 D. P108,200 that the fixed expenses of Division X include P30,000 of direct expenses and that the
discontinuance of the department will not affect the sales of the other departments nor reduce the
65. MC Industries manufactures a product with the following costs per unit at the expected production common expenses:
of 30,000 units: Net sales P100,000
Direct materials P 4 Variable manufacturing costs 60,000
Direct labor 12 Gross profit P 40,000
Variable manufacturing overhead 6 Fixed expenses (direct and allocated) 50,000
Fixed manufacturing overhead 8 Loss from operations P (10,000)
The company has the capacity to produce 40,000 units. The product regularly sells for P40. A What would be the effect on the firms operating income if Division X were
wholesaler has offered to pay P32 a unit for 2,000 units.
If the firm is at capacity and the special order is accepted, the effect on operating income would be discontinued?
A. a P20,000 increase C. a P4,000 increase
B. a P16,000 decrease D. P0
A. increase of P10,000 C. decrease of P100,000
66. Gata Co. plans to discontinue a department with a P48,000 contribution to overhead, and allocated B. decrease of P40,000 D. decrease of P10,000
overhead of P96,000, of which P42,000 cannot be eliminated. What would be the effect of this
discontinuance on Gatas pretax profit? 70. Condensed monthly operating income data for Cosmo Inc. for November 2000 is presented below.
A. increase of P48,000 C. increase of P6,000 Additional information regarding Cosmos operation follows the statement.
B. decrease of P48,000 D. increase of P6,000 Total Hall Store Town Store
Sales P200,000 P80,000 P120,000
67. Pili Company plans to discontinue a segment with a P32,000 segment margin. Common expenses Less Variable costs 116,000 32,000 84,000
allocated to the segment amounted to P45,000, of which P20,000 cannot be eliminated if the Contribution margin P 84,000 P48,000 P 36,000
segment were closed. The effect of closing down the segment on Pili Companys before tax profit Less direct fixed expense 60,000 20,000 40,000
would be Store segment margin P 24,000 P28,000 P ( 4,000)
A. P12,000 decrease C. P12,000 increase Less common fixed expenses 10,000 4,000 6,000
B. P 7,000 decrease D. P 7,000 increase Operating income P 14,000 P24,000 P (10,000)
One-fourth of each stores direct fixed expenses would continue through
68. Division B earns a contribution margin of P200,000 and has a divisional margin of P70,000. If
Division B is closed, all of the direct divisional expenses and P110,000 of common expenses can December 31, 2001, if either store were closed. Management estimates that
be eliminated. These facts indicate that closing the division will cause the firms operating income
to
closing the Town Store would result in a ten percent decrease in Hall Store. Hall
A. increase by P90,000 C. increase by P40,000
B. decrease by P90,000 D. decrease by P40,000
 Store would not affect Town Store sales. The operating results for November
72. If Leland purchases the KJ37 units from Scott, the capacity Leland used to manufacture these
2000 are representative of all months. parts would be idle. Should Leland decide to purchase the parts from Scott, the unit cost of KJ37
would
A. increase by P4,800 C. decrease by P3,200
A decision of Cosmo, Inc. to close the Town Store would result in a monthly increase (decrease) in B. decrease by P6,200 D. increase by P1,800
Cosmos operating income during 2001 of
A. P4,000 C. (P800)
B. (P10,800) D. (P6,000)

71. Peluso Company, a manufacturer of snowmobiles, is operating at 70 percent of plant capacity.

Pelusos plant manager is considering making the headlights now being purchased for P1,100
each, a price that is not expected to change in the near future. The Peluso plant has the
equipment and labor force required to manufacture the headlights. The design engineer estimates
that each headlight requires P400 of direct materials and P300 of direct labor. Pelusos plant
overhead rate is 200 percent of direct labor costs, and 40 percent of the overhead is fixed cost. A
decision by Peluso Company to manufacture the headlights will result in a gain (loss) for each
headlight of
A. P(200) C. P40
B. P160 D. P280

Questions 72 thru 74 are based on the following information:

Leland Manufacturing uses 10 units of Part Number KJ37 each month in the production of radar
equipment. The unit cost to manufacture one unit of KJ37 is presented below.
Direct materials P1,000
Materials handling (20% of direct material cost) 200
Direct labor 8,000
Manufacturing overhead (150% of direct labor) 12,000
Material handling represents the direct variable costs of the Receiving department
that are applied to direct materials and purchased components on the basis of their
cost. This is a separate charge in addition to manufacturing overhead. Lelands
annual manufacturing overhead budget is one-third variable and two-thirds fixed.
Scott Supply, one of Lelands reliable vendors, has offered to supply Part No. KJ137
at a unit price of P15,000.
73. Assume Leland Manufacturing is able to rent all idle capacity for P25,000 per month. If Leland
decided to purchase the 10 units from Scott Supply, Lelands monthly cost for KJ37 would RELEVANT COSTING
A. increase P48,000 C. decrease P7,000 Basic Concepts
B. increase P23,000 D. decrease P57,000
85. The potential benefit that may be obtained from following an alternative course of action is called
74. Assume that Leland does not wish to commit to a rental agreement but could use idle capacity to A. opportunity benefit C. relevant cost
manufacture another product that would contribute P52,000 per month. If Leland elects to B. opportunity cost D. sunk cost
manufacture KJ37 in order to maintain quality control, Lelands opportunity cost is
A. P18,000 C. P4,000 86.Opportunity costs:
B. (P20,000) D. (P48,000) A. Are treated as period costs under variable costing.
B. Have already been incurred as a result of past action.
C. Are benefits that could have been obtained by following another course of action.
D. Do not vary among alternative courses of action.

87. The Auto Division of Fly Insurance employs three claims processors capable of processing 5,000
claims each. The division currently processes 12,000 claims. The manager has recently been
approached by two sister divisions. Division A would like the auto division to process
approximately 2,000 claims. Division B would like the auto division to process approximately 5,000
claims. The Auto Division would be compensated Division A or Division B for processing these
claims. Assume that these are mutually exclusive alternatives. Claims processor salary cost is
relevant for
A. division A alternative only
B. division B alternative only
C. both Division A and Division B alternatives
D. neither Division A nor Division B alternatives

Gross Profit Variance Analysis

74. Vicki Division operates as a revenue center and sells only one product. Data for May 2000 are as
follows:
Actual Expected
Sales in units 10,000 9,500
Selling price per unit P11 P10
Variable expense per unit P 6
What are the price variance and price volume variance?
A. B. C. D.
 Sales Price Variance P10,000 F P 5,000 F P 5,000 U P10,000 U A. P516,000 C. P504,000
Price Volume Variance P 5,000 F P10,000 U P10,000 F P 5,000 U
Four-Way Overhead Variances B. P512,000 D. P496,000
67. Franklin Glass Works production budget for the year ended November 30, 2001 was based on
200,000 units. Each unit requires two standard hours of labor for completion. Total overhead was
budgeted at P900,000 for the year, and the fixed overhead rate was estimated to be P3.00 per unit. 70. Mulvey Company derived the following cost relationship from a regression analysis of its monthly
Both fixed and variable overhead are assigned to the product on the basis of direct labor hours. manufacturing overhead cost:
The actual data for the year ended November 30, 2001 are presented below. C = P80,000 + P12M
Actual production in units 198,000 Where C = monthly manufacturing overhead cost
Actual direct labor hours 440,000 M = machine hours
Actual variable overhead P 352,000 The standard error of the estimate of the regression is P6,000.
Actual fixed overhead P 575,000 The standard time required to manufacture one six-unit case of Mulveys single product is 4
Franklins variable overhead efficiency variance for the year ended November 30, 2001 is machine hours. Mulvey applies manufacturing overhead to production on the basis of machine
A. P33,000 unfavorable C. P66,000 unfavorable hours and its normal annual production is 50,000 cases.
Mulveys estimated variable manufacturing overhead cost for a month in which scheduled
B. P35,520 favorable D. P33,000 favorable
production is 5,000 cases would be
A. P80,000 C. P240,000
B. P320,000 D. P360,000
68. The Virgin Island Company has standard variable costs as follows:
Questions 71 thru 73 are based on the following information.
Materials, 3 pounds at P4.00 per pound P12.00 The Lustre Company produces its only product, Kool Chewing Gum. The standard overhead cost for
Labor, 2 hours P10.00 per hour 20.00 one pack of the product follows:
Variable overhead, P7.50 per labor hour 15.00
Fixed overhead (1.50 hours at P18.00) P27.00
Total P47.00 Variable overhead (1.50 hours at P10.00) 15.00
During September, Virgin Island produced 6,000 units, using 11,560 labor hours at a total wage of Total application rate P42.00
P113,870 and incurring P88,600 in variable overhead. The variable overhead variances are:
Lustre uses expected volume of 20,000 units. During the year, Lustre used 31,500 direct labor hours
A. B. C. D. for the production of 20,000 units. Actual overhead costs were P545,000 fixed and P308,700 variable.
Spending P1,900 favorable P1,900 unfavorable P1,400 favorable P1,400 unfavorable
Efficiency P3,300 unfavorable P3,300 favorable P1,900 favorable P1,900 favorable 71. The amount of variable overhead spending variance is
A. P6,300 Favorable C. P6,300 Unfavorable
69. Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct labor hours
were budgeted. If the fixed overhead volume variance was P12,000 favorable and the B. P 8,700 Favorable D. P8,700 Unfavorable
fixed overhead spending variance was P16,000 unfavorable, fixed manufacturing
overhead applied must be 72. The total overhead controllable variance is
A. P13,700 Favorable C. P13,700 Unfavorable
B. P 8,700 Favorable D. P 8, 700 Unfavorable 73. The overhead efficiency variance is
A. P22,500 Favorable C. P22,500 Unfavorable
B. P15,000 Favorable D. P15,000 Unfavorable

Absorption Costing Income vs. Variable Costing Income

46. Simple Corp. produces a single product. The following cost structure applied to their first
year of operations, 2000:

Variable Costs per Unit Annual Fixed Costs

SG&A P2.00 P14,000
Production 4.00 P20,000
Assume that during 2000 Simple Corp. manufactured 5,000 units and sold 3,800. There
was no beginning or ending work-in-process inventory. How much larger or smaller would
Simple Corp.s income be if it uses absorption rather than variable costing?
A. The absorption costing income would be P6,000 larger
B. The absorption costing income would be P6,000 smaller
C. The absorption costing income would be P4,800 larger*
D. The absorption costing income would be P4,000 smaller

STANDARD COSTING & VARIANCE ANALYSIS

Basic Concepts
47. Which of the following is a difference between a static budget and a flexible budget?
A. A flexible budget includes only variable costs; a static budget includes only fixed costs.
B. A flexible budget includes all costs, a static budget includes only fixed costs.
C. A flexible budget gives different allowances for different levels of activity, a static budget does
not.
D. There is no difference between the two
Raw Materials Variances Direct Labor Variance
51. Derby Co. uses a standard costing system in connection with the manufacture of a line of T-shirts. 55. Anne had a P750 unfavorable direct labor rate variance and an P800 favorable efficiency
Each unit of finished product contains 2 yards of direct material. However, a 20 percent direct
variance. Anne paid P7,150 for 800 hours of labor. What was the standard direct labor
material spoilage calculated on input quantities occurs during the manufacturing process. The cost
of the direct materials is P120 per yard. wage rate?
The standard direct material cost per unit of finished product is
A. P8.94 C. P7.94
A. P192 C. P288
B. P8.00 D. P7.80
B. P240 D. P300

52. Silver Company has a standard of 15 parts of Component R costing P1.50 each. Silver purchased 56. The flexible budget for the month of May 2002 was for 9,000 units with direct material at P15 per
14,910 units of R for P22,145. Silver generated a P220 favorable price variance and a P3,735 unit. Direct labor was budgeted at 45 minutes per unit for a total of P81,000. Actual output for the
favorable usage variance. If there were no changes in the component of inventory, how many units month was 8,500 units with P127,500 in direct material and P77,775 in direct labor expense.
of finished product were produced? Direct labor hours of 6,375 were actually worked during the month. Variance analysis of the
A. 994 units C. 1,725 units performance for the month of May would show a(n)
B. 1,160 units D. 828 units A. favorable material quantity variance of P7,500
B. unfavorable direct labor efficiency variance of P1,275
53. The standard usage for raw materials is 5 pounds at P40.00 per pound. Cave Company spent C. unfavorable material quantity variance of P7,500
P131,200 in purchasing 3,200 pounds. Cave used 3,150 pounds to produce 600 units of finished D. unfavorable direct labor rate variance of P1,275
product. The material quantity variance is
A. P6,000 unfavorable C. P5,200 unfavorable
B. P3,200 unfavorable D. P2,000 unfavorable

54. Ramie has a standard price of P5.50 per pound for materials. Julys results showed an
unfavorable material price variance of P44 and a favorable quantity variance of P209. If
1,066 pounds were used in production, what was the standard quantity allowed for
materials?
A. 1,104 C. 1,074
B. 1,066 D. 1,100
Two-Way Overhead Variances Actual factory overhead 230,000
57. Karla Company uses an annual cost formula for overhead of P72,000 + P1.60 for each direct labor
hour worked. For the upcoming month Karla plans to manufacture 96,000 units. Each unit Variable factory overhead rater per DLH P 5
requires five minutes of direct labor. Karlas budgeted overhead for the month is
A. P12,800 C. P84,800 Standard DLH 32,000

B. P18,800 D. P774,000 Actual DLH 32,000

The budget (controllable) variance for June is
58. If actual overhead is P14,000, overhead applied is P13,400, and overhead budgeted for the A. P1,000 favorable C. P6,000 favorable
standard hours allowed is P15,600, then the overhead controllable variance is
A. P600F C. P1,600F B. P1,000 unfavorable D. P6,000 unfavorable
B. P2,200U D. P1,600U
61. South Company has total budgeted fixed costs of P75,000, Actual production of 19,500 units
resulted in a P3,000 favorable volume variance. What normal capacity was used to determine the
59. Universal Company uses a standard cost system and prepared the following budget at normal fixed overhead rate?
capacity for January A. 16,500 C. 20,313
Direct labor hours 24,000
Variable factory OH P48,000 B. 18,750 D. 20,325
Fixed factory OH P108,000
Total factory OH per DLH P6.50
Actual data for January were as follows: 62. CTV Company has a standard fixed cost of P6 per unit. At an actual production of 8,000
Direct labor hours worked 22,000 units a favorable volume variance of P12,000 resulted. What were total budgeted fixed
Total factory OH P147,000
Standard DLHs allowed for capacity attained 21,000 costs?
Using the two-way analysis of overhead variance, what is the controllable variance for January? A. P36,000 C. P60,000
A. P3,000 F C. P9,000 F
B. P48,000 D. P75,000
B. P5,000 F D. P10,500 U

63. The Pinatubo Company makes and sells a single product and uses standard costing. During
60. The Terrain Company has a standard absorption and flexible budgeting system and uses a January, the company actually used 8,700 direct labor-hours (DLHs) and produced 3,000 units of
two-way analysis of overhead variances. Selected data for the June production activity product. The standard cost card for one unit of product includes the following:
are: Variable factory overhead: 3.0 DLHs @ P4.00 per DLH.
Fixed factory overhead: 3.0 DLHs @ P3.50 per DLH
Budgeted fixed factory overhead costs P 64,000
 For January, the company incurred P22,000 of actual fixed overhead costs and recorded a P875 Absorption Costing & Variable Costing
favorable volume variance. 44. Southseas Corp. uses a standard cost system. The standard cost per unit of one of its products are
The budgeted fixed overhead cost for January is as follows:
A. P31,500 C. P32,375 Direct Materials P4.00
Direct labor 6.00
B. P30,625 D. P33,250 Factory overhead
Variable 3.00
Fixed (based on a normal capacity of 10,000 units) 2.00
Questions 64 & 65 are based on the following information.
Total 15.00
Lucky Company sets the following standards for 2003:
Direct labor cost (2 DLH @ P4.50) P 9.00
Manufacturing overhead (2 DLH @ P7.50) 15.00 Beginning inventory 2,000 units
Lucky Company plans to produce its only product equally each month. The annual budget for overhead costs are: Production 8,000 units
Units sold (selling price P50) 7,000 units
Fixed overhead P150,000
Variable overhead 300,000
Actual costs:
Normal activity in direct labor hours 60,000
In March, Lucky Company produced 2,450 units with actual direct labor hours used of 5,050. Actual overhead costs for the
Direct materials P 35,000
month amounted to P37,245 (Fixed overhead is as budgeted.) Direct labor 50,000
Variable overhead 23,000
Fixed 18,000
64. The amount of overhead volume variance for Lucky Company is Variable selling and adm. 60,000
A. P250 unfavorable C. P750 Unfavorable Fixed selling and adm. 35,000
B. P500 unfavorable D. P375 Unfavorable Variances are closed to cost of sales monthly
How much are the net income under absorption costing and variable costing methods?
65. Using the preceding data for Lucky Company, the controllable overhead variance was A. B. C. D.
A. P505 favorable C. P245 favorable Absorption P144,000 P143,000 144,000 142,000
Variable 143,000 144,000 142,000 144,000
B. P505 unfavorable D. P245 unfavorable
45. Lord Industries manufactures a single product. Variable production costs are P10 and fixed
production costs are P75,000. Lord uses a normal activity of 10,000 units to set its standard costs.
Three-Way Overhead Variances
Lord began the year with no inventory, produced 11,000 units and sold 10,500 units. The volume
66. Arlene had an P18,000 unfavorable volume variance, a P25,000 unfavorable variable overhead
variance under each product costing are:
spending variance, and P2,000 total under applied overhead. The fixed overhead budget variance
is A. B. C. D.
A. P41,000 favorable C. P41,000 Unfavorable Under Absorption Costing P3,750 P3,750 P7,500 P7,500
Under Variable Costing P 0 P7,500 P0 P0
B. P45,000 favorable D. P45,000 Unfavorable