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Management Advisory Services Quiz - Cost Concept and CVP (Problems)Cost Concepti. Harem Company uses an annual cost formula for overhead of P72,000 + P1 for each direct labor hour worked. For the upcoming monthKarla plans to manufacture 96,000 units. Each unit requires five minutes of direct labor. ...

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Harem Company uses an annual cost formula for overhead of P72,000 + P1.60 for each direct labor hour worked. For the upcoming month Karla plans to manufacture 96,000 units. Each unit requires five minutes of direct labor. Harem Company’s budgeted overhead for the month is A. P 12,800 C. P 84,800 B. P 18,800 D. P774,000

ii.

Total production costs for Jordan, Inc. are budgeted at P2,300,000 and P2,800,000 for 50,000 and 60,000 units of budgeted output, respectively. Because of the need for additional facilities, budgeted fixed costs for 60,000 units are 25 percent more than budgeted fixed costs for 50,000 units. How much is Jordan’s budgeted variable cost per unit of output? C. P30.00 A. P 7.50 B. P16.00 D. P62.50

iii.

Deakin Company is preparing a flexible budget for the coming year and the following maximum capacity estimates for Department OZ are available: Direct labor hours 60,000 Variable factory overhead P150,000 Fixed factory overhead P240,000 Assume that Deakin’s normal capacity is 80% of maximum capacity. What would be the total factory overhead rate, based on direct labors, in a flexible budget at normal capacity? A. P6.00 C. P6.50 B. P7.50 D. P8.13

iv.

The controller of Jema Company has requested a quick estimate of the manufacturing supplies that it needs for the month of July when the expected production are 470,000 units. Below are the actual data from the prior three months of operations. Production in units Manufacturing supplies March 450,000 P723,060 April 540,000 853,560 May 480,000 766,560 Using these data and the high-low method, what is the reasonable estimate of the cost of manufacturing supplies that would be needed for July? (Assume that this activity is within the relevant range.) A. P 805,284 C. P 755,196 D. P 752,060 B. P1,188,756

v.

The following activity and cost data that were provided by Hoist Corporation would help in estimating its future maintenance costs: Units Maintenance Cost 3 P450 7 P530 11 P640 15 P700 Using the least-squares regression method to estimate the cost formula, the expected total cost for an activity level of 10 units would be closest to: A. P612.50. C. P595.84. B. P581.82. D. P601.50.

vi.

Given the cost formula Y = P17,500 + P4X, at what level of activity will total cost be P42,500? A. 10,625 units. C. 6,250 units. B. 4,375 units. D. 5,250 units.

vii.

Balsy Company has provided the following data for maintenance cost: Prior Year Machine hours 12,500 Maintenance cost P27,000 The best estimate of the cost formula for maintenance would be: A. P21,625 per year plus P0.625 per machine hour. B. P 7,000 per year plus P0.625 per machine hour. C. P 7,000 per year plus P1.60 per machine hour. D. P27,000 per year plus P1.60 per machine hour.

Current Year 15,000 P31,000

viii.

In the equation Y = P4,000 + P3X; Y is the cost of workers' compensation insurance and X is direct labor hours. According to this equation, a 100-hour change in total direct labor hours will change the cost of workers compensation insurance by A. P4,000. C. P4,300. B. P 300. D. none of the above amounts.

ix.

Using multiple regression, you have identified P12,000 of unit level costs for 3,000 units, P1,000 of product level costs for 40 products, and P3,500 of customer-level costs for ten customers. The cost of Job 002 which used 800 unit level activities, 4 product level activities, and one customer-level activities amounts to A. P3,650 C. P3,050 B. P3,250 D. P2,950

x.

It takes a worker 10 minutes to assemble a toy. With a learning curve of 70% as production doubles, the average time (per unit) needed to make 8 units would be A. 4.90 minutes C. 3.33 minutes B. 3.43 minutes D. 3.23 minutes

xi.

The cost to rebuild a race car engine is P1,500, and a buyer offers to buy four engines for P6,000. Assuming a cumulative learning curve of 90% as production doubles, the incremental cost of the third and fourth items will be A. P 0 C. P2,160 B. P 600 D. P1,250

xii.

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

A. B.

P250,000. P155,000.

C. D.

P170,000. P185,000.

xiii.

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

Question Nos. 14 and 15 are based on the following information: SERAL Company is a manufacturing entity whose total factory overhead costs fluctuate considerably from year to year according to increases and decrease in the number of direct labor hours worked in the plant. Total factory overhead costs at high and low levels of activity for recent years follow: Low High Direct labor hours 50,000 75,000 Total factory overhead costs P14,250,000 P17,625,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 50,000-hour level of activity as follows: Indirect materials (V) P 5,000,000 Rent (F) 6,000,000 Maintenance (M) 3,250,000 Total factory overhead costs P14,250,000 V = variable; F = fixed; M = mixed xiv.

How much of the P17,625,000 factory overhead cost at the high level of activity consist of maintenance cost? A. P4,125,000 C. P4,450,000 B. P4,220,000 D. P4,525,000

xv.

What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labor hours? A. P16,950,000 C. P13,000,000 B. P13,950,000 D. P10,950,000

Question Nos. 16 through 18 are based on the following: In the Omara Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were P223,000. Of this amount, utilities were P48,000 (all variable) and depreciation was P60,000 (all fixed). The balance of the overhead cost consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were P130,000. Assume that all of the activity levels mentioned in this problem are within the relevant range. xvi.

xvii.

The variable cost for maintenance per machine hour is: A. P1.30. B. P1.44.

C. D.

P0.75. P1.35.

The total fixed overhead cost for Omara is: A. P115,000. B. P130,000.

C. D.

P 60,000. P 55,000.

xviii.

If 110,000 machine hours of activity are projected for the next period, total expected overhead cost would be: A. P256,000. C. P306,625. B. P263,500. D. P242,500.

xix.

The following information was taken from a computer printout generated with the least squares method for use in estimating overhead costs: Slope 90 Intercept 11400 Correlation coefficient 0.6 Activity variable Direct labor hours The cost formula is C. Overhead = P11,400 + P90X A. Overhead = P11,400 – P90X B. Overhead = P11,400 + (P45 x .6) D. Overhead = P11,400 x .6

xx.

The following information pertains to data that have been gathered in the process of estimating a simple least squares regression: Mean value of the dependent variable 30 Mean value of the independent variable 10 Coefficient of the independent variable 3 Number of observations 12 What is the "a" value for the least squares regression model? A. 20 B. 6 C. 0 D. The intercept term cannot be computed from the information given.

Question Nos. 21 through 22 are based on the following: The House of TROPS Company is a large retailer of sports equipment. An income statement for the company’s Ski Department for a recent quarter is presented as follows: The House of TROPS Company Income Statement For the Quarter Ended March 31 Sales Less cost of goods sold Gross margin

P1,500,000 900,000 600,000

Less operating expenses: Selling expenses Administrative expenses Net income

P300,000 100,000

400,000 P 200,000

Skis sell, on the average, for P7,500. Variable selling expenses are P500 per pair of skis sold. The remaining selling expenses are fixed. The administrative expenses are 20 percent variable and 80 percent fixed. The company does not manufacture its own skis; it purchases them from a supplier for P4,500 per pair. xxi.

xxii.

What is the variable cost per pair of skis? A. P 900,000 B. P 920,000

C. D.

P1,000,000 P1,020,000

Given the cost formula Y = P30,000 + P5X, total cost at an activity level of 16,000 units would be: A. P 30,000. C. P 80,000. D. P110,000. B. P 46,000.

Use the following Information to answer Question Nos. 23 through 28. Units Sold @ P60/each 1,000 Salary P20,000 Cost of Goods Sold 15,000 Cost/Unit of Depreciation 300 Rent 20,000 xxiii.

xxiv.

xxv.

xxvi.

xxvii.

xxviii.

2,000 P30,000 30,000 150 20,000

Which of the above costs behaves as a Variable Cost? A. Rent. B. Salary.

C. D.

Cost of Goods sold. Depreciation.

Which of the above costs behaves as a Mixed Cost? A. Rent. B. Salary.

C. D.

Cost of Goods sold. Depreciation.

Which one does not contain any fixed cost behavior? A. Rent. B. Salary.

C. D.

Cost of goods sold. Depreciation.

If 3,000 units are sold what is the contribution margin? A. P 75,000. B. P105,000.

C. D.

P135,000. P180,000.

What is total fixed cost? A. P50,000. B. P60,000.

C. D.

P60,100. P90,000.

3,000 P40,000 45,000 100 20,000

Given the following information, choose the cost and activity that would be used as the high data point in high-low cost estimation: Costs Activity (hours) P51,000 40,000 P50,000 41,000 P58,000 42,000 P56,000 43,000 A. B.

P58,000 and 42,000 hours P58,000 and 43,000 hours

C. D.

P56,000 and 43,000 hours P56,000 and 42,000 hours

Use the following simple regression results based on the data from the Madrigal Corporation to answer Question Nos. 29 and 30. Dependent variable - Machine maintenance costs Independent variable - Machine hours Computed values Intercept P3,500 Coefficient on independent variable P 3.50 Coefficient of correlation 0.856 2 R 0.733 xxix.

What percentage of the variation in maintenance costs is explained by the independent variable? A. 85.6% C. 47.3% B. 95.2% D. 73.3%

xxx.

What is the total maintenance cost for an estimated activity level of 20,000 machine hours? A. P73,500 C. P82,300 B. P78,400 D. P84,750

CVP xxxi. Green Corporation expects to sell 3,000 plants a month. Its operations manager estimated the following monthly costs: Variable costs P 7,500 Fixed costs 15,000 What sales price per plant does she need to achieve to begin making a profit if she sells the estimated number of plants per month? A. P7.51 C. P5.00 B. P7.50 D. P2.50 xxxii.

An organization's break-even point is 4,000 units at a sales price of P50 per unit, variable cost of P30 per unit, and total fixed costs of P80,000. If the company sells 500 additional units, by how much will its profit increase? C. P10,000 A. P25,000 B. P15,000 D. P12,000

xxxiii.

The Red Lions Brotherhood is planning its annual Riverboat Extravaganza. The Extravaganza committee has assembled the following expected costs for the event:

Dinner per person P 70 Programs and souvenir per person 30 Orchestra 15,000 Tickets and advertising 7,000 Riverboat rental 48,000 Floor show and strolling entertainment 10,000 The committee members would like to charge P300 per person for the evening’s activities. Assume that only 250 persons are expected to attend the extravaganza, what ticket price must be charged to breakeven? A. P420 C. P320 B. P350 D. P390 xxxiv.

Consider the following: Fixed expenses Unit contribution margin Target net profit How many unit sales are required to earn the target net profit? A. 15,000 units C. 12,800 units B. 10,000 units D. 20,000 units

P78,000 12 42,000

xxxv.

Carribean Company produces a product that sells for P60. The variable manufacturing costs are P30 per unit. The fixed manufacturing cost is P10 per unit based on the current level of activity, and fixed selling and administrative costs are P8 per unit. A selling commission of 10% of the selling price is paid on each unit sold. The contribution margin per unit is: A. P24. C. P30. B. P36. D. P54.

xxxvi.

Seal Yard Ornaments sells lawn ornaments for P15 each. Seal's contribution margin ratio is 40%. Fixed costs are P32,000. Should fixed costs increase 30%, how many additional units will Seal have to produce and sell in order to generate the same net profit as under the current conditions? A. 1,600. C. 6,933. B. 5,333. D. 1,067.

xxxvii.

At a break-even point of 5,000 units sold, variable expenses were P10,000 and fixed expenses were P50,000. The profit from the 5,001st unit would be? C. P15 A. P10 B. P50 D. P12

xxxviii.

Galactica Company has fixed costs of P100,000 and breakeven sales of P800,000. Based on this relationship, what is its projected profit at P1,200,000 sales? A. P 50,000 C. P150,000 B. P200,000 D. P400,000

xxxix.

The sales price per unit will increase from P32 to P40. The variable cost per unit will remain at P24, and the fixed costs will remain unchanged at P400,000. How many fewer units must be sold to break-even at the new sales price of P40 per unit? A. 25,000 C. 10,000 B. 2,500 D. 12,500

xl.

The Hard Company sells widgets. The company breaks even at an annual sales volume of 80,000 units. At an annual sales volume of 100,000 units the company reports a profit of P220,000. The annual fixed costs for the Hard Company are: A. P 880,000 C. P 800,000 B. P1,100,000 D. P1,000,000

xli.

Albatross Company has fixed costs of P90,300. At a sales volume of P360,000, return on sales is 10%; at a P600,000 volume, return on sales is 20%. What is the break-even volume? A. P225,000 C. P301,000 B. P258,000 D. P240,000

xlii.

An entity has fixed costs of P200,000 and variable costs per unit of P6. It plans on selling 40,000 units in the coming year. If the entity pays income taxes on its income at a rate of 40%, what sales price must the firm use to obtain an after-tax profit of P24,000 on the 40,000 units? C. P12.00 A. P11.60 B. P11.36 D. P12.50

xliii.

The following is the Lux Corporation's contribution format income statement for last month: Sales P2,000,000 Less variable expenses 1,400,000 Contribution margin 600,000 Less fixed expenses 360,000 Net income P 240,000 The company has no beginning or ending inventories. A total of 40,000 units were produced and sold last month. What is the company's degree of operating leverage? A. 0.12 C. 2.50 B. 0.40 D. 3.30

xliv.

Delmar Company has the opportunity to increase its annual sales by P125,000 by selling to a new, riskier group of customers. The uncollectible expense is expected to be 10%, and collection costs will be 10%. The company’s manufacturing and selling expenses are 70% of sales, and its effective tax rate is 40%. If Delmar were to accept this opportunity, the company’s after tax profits would increase by A. P 7,500 C. P12,500 B. P 6,000 D. P15,000

xlv.

In 2017 Lucia Company had a net loss of P8,000. The company sells one product with a selling price of P80 and a variable cost per unit of P60. In 2018, the company would like to earn a before-tax profit of P40,000. How many additional units must the company sell in 2017 than it sold in 2017? Assume that the tax rate is 40 percent. A. 1,600 C. 2,000 B. 2,400 D. 5,400

xlvi.

Bulusan Company has sales of P400,000 with variable costs of P300,000, fixed costs of P120,000, and an operating loss of P20,000. How much increase in sales would Bulusan need to make in order to achieve a target operating income of 10% of sales? A. P400,000 C. P500,000

B.

P462,000

D.

P800,000

xlvii.

The following data apply to Diva Corporation for the year 2017: Total variable cost per unit P3.50 Contribution margin/sales 30% Breakeven sales (present volume) P1,000,000 Diva wants to sell an additional 50,000 units at the same selling price and contribution margin per unit. By how much can fixed costs increase to generate a gross margin equal to 10% of the sales value of the additional 50,000 units to be sold? A. P 50,000 C. P 67,500 B. P 57,500 D. P125,000

xlviii.

Marsman Company had a margin of safety ratio of 20%, variable costs of 60% of sales, fixed costs of P240,000, a break-even point of P600,000, and an operating income of P60,000 for the current year. What are the current year's sales? C. P 750,000 A. P 500,000 B. P 600,000 D. P 900,000

xlix.

Regal, Inc. sells Product M for P5 per unit. The fixed costs are P210,000 and the variable costs are 60% of the selling price. What would be the amount of sales if Regal is to realize a profit of 10% of sales? A. P700,000 C. P525,000 B. P472,500 D. P420,000

l.

The following economic data were provided by the corporate planning staff of Heaven, Inc.: Sales volume 30,000 units Sales price per unit P30 Unit variable costs: Variable manufacturing P13 Other variable costs 8 Unit variable costs P21 Unit contribution margin P 8 Fixed costs: Manufacturing P150,000 Other fixed costs P 50,000 Total fixed costs P200,000 The management is considering installing a new, automated manufacturing process that will increase fixed costs by P50,000 and reduce variable manufacturing cost by P3 per unit. The management set a target a profit of P70,000 before and after the acquisition of the automated machine. After installation of the automated machine, what will be the change in the units required to achieve the target profit? C. 3,333 unit decrease A. 6,667 unit increase B. 5,667 unit decrease D. 4,333 unit decrease

li.

In planning its operations for next year based on a sales forecast of P6,000,000, Herran, Inc. prepared the following estimated costs and expenses: Variable Fixed Direct materials P1,600,000 Direct labor 1,400,000 Factory overhead 600,000 P 900,000 Selling expenses 240,000 360,000 Administrative expenses 60,000 140,000 P3,900,000 P1,400,000 What would be the amount of peso sales at the breakeven point? A. P2,250,000. C. P4,000,000. B. P3,500,000. D. P5,300,000.

lii.

The Expressive Company currently has fixed cost of P770,500. This cost is expected to increase by P103,500 if the c ompany expands its production facilities. Currently, it sells its product for P47. The product has a variable cost per unit of P24. How many more units must the company sell to break even, at the current sales price per unit, than it did to break even prior to the increase in fixed cost? C. 4,500 A. 3,500 B. 4,000 D. 6,000

liii.

The Tanker Company estimated the following data for the coming year: Fixed manufacturing costs Variable prod...