MAS - 100 Questions 73rd PDF

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MANAGEMENT ADVISORY SERVICESPROBLEMS A company has the following cost components for 100,000 units of product for the year: Materials P200,Labor 100,Manufacturing overhead 200,Selling and administrative expenses 150,All costs are variable except for P100,000 of manufacturing overhead and P100,000 of...

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MANAGEMENT ADVISORY SERVICES

PROBLEMS 1. A company has the following cost components for 100,000 units of product for the year: Materials

P200,000

Labor

100,000

Manufacturing overhead

200,000

Selling and administrative expenses

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: a. P540,000 c. P715,000 b. P695,000 d. P650,000 Answer: B Variable cost: Materials and labor [(P200,000+P100,000)/100,000] x 110,000

P330,000

Overhead (P100,000/100,000) x 110,000

110,000

Selling and adm. expenses (P50,000/100,000) x 110,000

55,000 Fixed cost (P100,000 + P100,000)

200,000 Total P695,000

2. A manufacturing company employs variable costing for internal reporting and analysis purposes. However, it converts its records to absorption costing for external reporting. The accounting department always reconciles the two operating income figures to assure that no errors have occurred in the conversion. Financial data for the year are presented below. The fixed manufacturing overhead cost per unit was based on the planned level of production of 480,000 units. Budgeted and Actual Levels for Sales and Production Budget

Actual Sales

495,000 480,000

(in 510,000 Production (in units)

units)

500,000 Standard Unit Manufacturing Costs Variable Costing P10.00

Absorption Costing Variable costs

P10.00

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Fixed manufacturing overhead 0 6.00 Total unit manufacturing costs P10.00 P16.00 The difference between the operating income calculated under the variable costing method and the operating income calculated under the absorption costing method would be a. P120,000 c. P60,000 b. P90,000 d. P57,600 Answer: C Change in inventory (500,000 – 510,000) x Fixed overhead cost per unit Difference in income

10,000 P6 P60,000

5. A manufacturer can sell its single product for P660. Below are the cost data for the product: Direct materials Direct labor Manufacturing overhead

P170 225 90

The relevant margin amount when beginning a theory of constraints (TOC) analysis is a. P175 c. P345 b. P265 d. P490 Answer: D Selling price Less direct materials Margin

P660 170 P490

Items 6 and 7 are based on the following information: Blackhall Corporation produces chemicals used in the cleaning industry. During the previous month, Blackhall incurred P300,000 of joint costs in producing 60,000 units of AR-01 and 40,000 units of JZ-02. Blackhall uses the units-of-production method to allocate joint costs. Currently, AR-01 is sold at split-off for P3.50 per unit. Franck Corporation has approached Blackhall to purchase all of the production of AR-01 after further processing. The further processing will cost Blackhall P90,000. 6.

Concerning AR-01, which one of the following alternatives is most advantageous? a. Blackhall should process further and sell to Franck if the selling price is greater than P3.00, which covers the joint costs. b. Blackhall should continue to sell at split-off unless Franck offers at least P4.50 per unit after further processing, which covers Blackhall’s total costs. c. Blackhall should process further and sell to Franck if the selling price is greater than P5.00. d. Blackhall should process further and sell to Franck if the selling price is greater than P5.25, which maintains the same gross profit percentage. Answer: C Selling price at split off Add further processing cost (P90,000÷60,000)

P3.50 1.50 Break-even price P5.00

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7.Assume that Blackhall Corporation agreed to sell AR-01 to Franck Corporation at P5.50 per unit after further processing. During the first month of production, Blackhall sold 50,000 units with 10,000 units remaining in inventory at the end of the month. With respect to AR-01, which one of the following statements is true? a. The operating profit last month was P50,000, and the inventory value is P15,000. b. The operating profit last month was P50,000, and the inventory value is P45,000. c. The operating profit last month was P125,000, and the inventory value is P30,000. d. The operating profit last month was P200,000, and the inventory value is P30,000. Answer: B Selling price Less costs: Joint cost (P300,000 ÷ 100,000) P3.00 Further processing cost 1.50 Profit

P5.50

4.50 P1.00 Profit

(50,000 x P1.00) P50,000 Inventory (10,000 x P4.50) P45,000

8. Meemon Manufacturing, which is subject to a 40% income tax rate, had the following operating data for the period just ended: Selling price per unit P60 Variable costs per unit P22 Fixed costs P504,000 Management plans to improve quality of its sole product by (1) replacing ta component that costs P3.50 with a higher-grade unit that costs P5.50, and (2) acquiring a P180,000 packaging machine. Meemon will depreciate the machine over a 10-year life with no estimated salvage value by the straight-line method of depreciation. If the company wants to earn after-tax income of P172,800 in the upcoming period, it must sell a. 19,300 units. c. 22,500 units. b. 21,316 units. d. 23,800 units. Answer: C Fixed cost [P504,000 + (P180,000÷10)]

P522,000

Desired profit (P172,800 ÷ 60%)

288,000

Contribution margin P810,000 ÷ P36 Required

Contribution margin per unit (P60 – ) sales in units 22,500

9.

Given the following data, what is the marginal propensity to consume? Level of Disposable income P40,000 48,000

Level of Consumption P38,000 44,000

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a. 1.33 c. b. 1.16 d.

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0.95 0.75

Answer: D Change in consumption (P44,000 – P88,000) ÷ Change in disposable income (P48,000 – P40,000)

P6,000 8,000 Marginal 0.75

propensity to consume

Items 10 and 11 are based on the following information: JSR Manufacturing has assembled the data appearing below pertaining to two products. Past experience has shown that the unavoidable fixed manufacturing factory overhead included in the cost per machine hour averages P10. JSR has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Total machine capacity is 50,000 hours. Blender Electric Mixer Direct materials P 6 P11 Direct labor 4 9 Manufacturing overhead at P16/hr 16 32 Cost if purchased from outside supplier 20 38 Annual demand (units) 20,000 28,000 10.

If JSR Manufacturing desires to follow an optimal strategy, it should produce a. 25,000 electric mixers and purchase all other units as needed. b. 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed. c. 20,000 blenders and purchase all other units as needed. d. 28,000 electric mixers and purchase all other units as needed. Answer: B Blender Electric Mixer Relevant cost to make: Materials and labor (P6 + P4)P10 (P11+P9)

P20 Overhead (P16 – P10*)

(P32 – P20*)

6

12 Total

P16

P32 Purchase price

20

38 Savings if made

P4

÷ Hours per unit (P16÷P16)

1

Savings per hour

P4

P6 (P32÷P16)

2 P3 *Fixed overhead (P10 x 1 hr/unit = P10; P10 x 2hrs/unit = P20) Blender’s savings per hour is higher than that of Mixer. The available 50,000 hrs should be used to produce 20,000 units of Blenders and 15,000 units [(50,000 – 20,000) ÷ 2 hours] of Electric mixers.

11. With all other things constant, if JSR Manufacturing is able to reduce the direct materials for an electric mixer to P6 per unit, the company should a. produce 25,000 electric mixers and purchase all other units as needed. b. produce 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed. c. produce 20,000 blenders and purchase all other units as needed.

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d.

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purchase all units as needed. Answer: A Blender Electric Mixer Relevant cost to make: Materials and labor (P6 + P4)P10 (P6+P9)

P15 Overhead (P16 – P10*)

(P32 – P20*)

6

12 Total

P16

P27 Purchase price

20

38 Savings if made

P4

÷ Hours per unit (P16÷P16)

1

Savings per hour

P4

P11 (P32÷P16)

2 P5.5 *Fixed overhead (P10 x 1 hr/unit = P10; P10 x 2hrs/unit = P20) Mixer’s savings per hour is higher than that of Blender. The available 50,000 hrs should be used to produce 25,000 units of Mixers (50,000 hrs ÷ 2 hrs/unit) and purchase all the other additional units required.

12. Listed below are selected line items from the Cost of Quality Report for Watsup Products for last month: Rework P 725 Equipment maintenance 1,154 Product testing 786 Product repair 695 What is Watsup’s total prevention and appraisal cost for last month? a. P786 c. P1,940 b. P1,154 d. P2,665 Answer: C Prevention maintenance)

13.

cost

(preventive

P1,154 Appraisal cost (product testing) Total prevention and appraisal cost

equipment 786 P1,940

Donnie Auto has developed the following production plan: January 10,000 February 8,000 March 9,000 April 12,000

Each unit contains 3 kilograms of direct materials. The desired direct materials ending inventory each month is 120% of the next month’s production, plus 500 kilograms. (The beginning inventory meets this requirement.) Donnie has developed the following direct labor standards for production of these units. Department 1 Department 2 Hours per unit Hourly rate

2.0 P7.25

0.5 P12.00

Donnie Auto’s total budgeted direct labor pesos for February usage should be a. P164,000. c. P184,500. b. P174,250. d. P221,400. Answer: A

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February production 8,000 Labor cost per unit [(2 x P7.25) + (0.5 x P12)]

P20.50 Budgeted labor cost P164,000

14. Based on past experience, a company has developed the following budget formula for estimating its shipping expenses. The company’s shipments average 12 kg. per shipment: Shipping costs = P16,000 + (P0.50 x kg. shipped) The planned and actual activities regarding order and shipments for the current month are given in the following schedule: Plan Actual Sales orders 800 780 Shipments 800 820 Units shipped 8,000 9,000 Sales P120,000 P144,000 Total kilograms shipped 9,600 12,300 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 a. P20,680. c. P20,800. b. P20,920. d. P22,150. Answer: C Variable cost (12,300 kgs. x P0.50) Fixed cost

P 6,150

16,000 Flexible budget P22,150

15.

Ebony Company has the following expected pattern of collections on credit sales: 70 percent collected in the month of sale, 15 percent in the month after the month of sale, and 14 percent in the second month after the month of sale. The remaining 1 percent is never collected. At the end of May, Ebony Company has the following accounts receivable balances: From April sales P21,000 From May sales 48,000 Ebony's expected sales for June are P150,000. What were total sales for April? a. P150,000 c. P 70,000 b. P 72,414 d. P140,000 Answer: D April sales P21,000 ÷ 15% = P140,000

16.

sold costs

The following information is given for the Alpha Division of Sorority Corporation. Sales P600,000 Var. cost of goods 200,000 Fixed manufacturing 50,000 Variable selling 30,000

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allocated)

20,000

allocated)

50,000

Fixed

admin.

(50%

Fixed

selling

(20%

Assets

at

cost

800,000 Accumulated depreciation

200,000

If Sorority Corporation uses ROI to evaluate division managers and uses historical cost as the investment base, the ROI for Alpha Division is: a. 31.25% c. 41.67% b. 33.75% d. 45.00% Answer: B Sales P600,000 Var. cost of goods sold

200,000 Fixed

manufacturing costs

50,000 Variable

selling

Fixed

admin.

30,000 (50%x P20,000)

10,000 Fixed 40,000 Total

selling (80% x P50,000) cost P330,000

Division profit P270,000 ÷ Asset at cost 800,000 Division ROI 33.75%

17. In the two following constraint equations, X and Y represent two products (in units) produced by the Uncommon Products Corporation. Constraint 1: 3X + 5Y < 4,200 Constraint 2: 5X + 2Y > 3,000 What is the maximum number of units of Product X that can be produced? a. 4,200 c. 600 b. 3,000 d. 1,400 Answer: D If Y = 0, X = 1,400 for constraint 1 and 600 for constraint 2. Take the higher value (1,400).

18. The projected sales price for a new product (which is still in the development stage of the product life cycle) is P50. The company has estimated the life-cycle cost to be P30 and the first-year cost to be P60. On this type of product, the company requires a P12 per unit profit. What is the target cost of the new product? a. P60 c. P38 b. P30 d. P43 Answer: C Projected sales price of P50 less required profit of P12 = Target cost of P38.

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19. A company annually consumes 10,000 units of Part C. The carrying cost of this part is P2 per year and the ordering costs are P100. The company uses an order quantity of 500 units. By how much could the company reduce its total costs if it purchased the economic order quantity instead of 500 units? a. P 500 c. P2,500 b. P2,000 d. P0 Answer: A EOQ =

√

= 1,000

1,000 units Carrying cost (

x P2) P

Ordering cost ( P100)

500 units P1,000

500

x P100)

1,000

2,000 Total

cost

P2,000

P2,500 Savings

if 1,000 units are ordered (P2,500 – P2,000) = P500

20. Ning Company has only 25,000 hours of machine time each month to manufacture its two products. Product X has a contribution margin of P50, and Product Y has a contribution margin of P64. Product X requires 5 hours of machine time, and Product Y requires 8 hours of machine time. If Ning Company wants to dedicate 80 percent of its machine time to the product that will provide the most income, the company will have a total contribution margin of a. P250,000. c. P210,000. b. P240,000. d. P200,000. Answer: B Product X

Product Y

Contribution margin per unit

P50

5

8

Contribution margin per hour

P10

P64 ÷

Machine hours per unit

P8

Product X has the higher contribution margin per hour, so 80% of the available time must be used to produce 4,000 units of X [(25,000 x 80%) ÷ 5 hrs/unit]. the remaining time should be used to produce 625 units of Product Y [(25,000 x 20%) ÷ 8 hrs/unit. Number of units to produce

4,000

625

P50

P64

P200,000

P40,000

x CM per unit margin

Total contribution = P240,000

21. Mangit Company is currently operating at a loss of P15,000. The sales manager has received a special order for 5,000 units of product, which normally sells for P35 per unit. Costs associated with the product are: direct material, P6; direct labor, P10; variable overhead, P3; applied fixed overhead, P4; and variable selling expenses, P2. The special order would allow the use of a slightly lower grade of direct material, thereby lowering the price per unit by P1.50 and selling expenses would be decreased by P1. If Mangit wants

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this special order to increase the total net income for the firm to P10,000, what sales price must be quoted for each of the 5,000 units? a. P23.50 c. P27.50 b. P24.50 d. P34.00 Answer: A Desired profit per unit [(P15,000) + P10,000] ÷ 5,000 units

P 5.00

Add relevant costs (P6 – P1.50) + P10 + P3 + (P2 – P1)

18.50

Selling price

P23.50

22. Briar Co. signed a government construction contract providing for a formula price of actual cost plus 10%. In addition, Briar was to receive one-half of any savings resulting from the formula price being less than the target price of P2,200,000. Briar’s actual costs incurred were P1,920,000. How much should Briar receive from the contract? a. P2,060,000 c. P2,156,000 b. P2,112,000 d. P2,200,000 Answer: c Actual costs incurred P1,920,000 Multiply by 110% (cost + 10%) × 1.10

x

110% Formula price P2,112,000 Target price 2,200,000 Savings

P

88,000 Amount to be received = (P88,000 x 50%) + 2,112,000 = P2,156,000

23. The following is a summarized income statement of Carr Co.’s Profit Center No. 43 for March 2013: Contribution margin P70,000 Period expenses: Manager’s salary P20,000 Facility depreciation 8,000 Corporate expense allocation 5,000 33,000 Profit center income P37,000 Which of the following amounts would most likely be subject to the control of the profit center’s manager? a. P70,000 c. P37,000 b. P50,000 d. P33,000 Answer: A The manager of Carr Co.’s Center No. 43 would be most likely to control the Center’s contribution margin of P70,000. The period expenses shown in the problem would not be subject to the manager’s control and thus are irrelevant items

24.

The budget for Edwin Auto Repair Shop for the year is as follows:

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per hour

Direct

labor

Total

labor

P30

hours 10,000 Overhead costs: Materials handling and storage

P10,000

(rent, utilities, depreciation, insurance)

P120,000

materials cost

P500,000

Other Direct

Edwin allocates materials handling and storage costs per peso of direct materials cost. Other overhead is allocated based on total labor hours. In addition, Edwin adds a charge of P8 per labor hour to cover profit margin. Cargo Trucking Co. has brought one of its trucks to Edwin for an engine overhaul. If the overhaul requires twelve labor hours and P800 parts, what price should Edwin charge Cargo for these repair services? a. P1,160 c. P1,416 b. P1,256 d. P1,472 Answer: C Materials P 800 Materials

handling

(P10,000÷P500,000)]

[P800 16

x

Labor, other overhead, and profit 600

[P30+(P120,000÷10,000) + P8] x 12 hrs

Selling P1,416

price

Items 25 to 29 are based on the following information: The following information pertains to a product for a ten-week budget period: Sales price

P11

per unit Materials

P3 per

unit Manufacturing conversions costs:...