210220830-Relevant-Costing-by-A-Bobadilla.doc

Incremental AnalysisMODULE 6 24. One of the behavioral problems with relevant cost analysis is the overemphasis on short-term goals, which can lead to neglect of: A. sales promotion C. quarterly net income results B. expense control D. long-term strategic goals INCREMENTAL ANALYSIS Basic concepts Steps in decision making process 5. What is the first step in the decision making process? A. Specify the criteria by which the decision is to be made. B. Consider the strategic issues regarding the decision context. C. Perform an analysis in which the relevant information is developed and analyzed. D. Compare the alternatives. Incremental analysis 25. Incremental analysis is the process of identifying the financial data that: A. do not change under alternative courses of action B. are mixed under alternative courses of action C. change under alternative courses of action D. no correct answer is given 7. A major accounting contribution to the managerial decision-making process in evaluating possible courses of action is to A. assign responsibility for the decision. B. provide relevant revenue and cost data about each course of action. C. determine the amount of money that should be spent on a project. D. decide which actions that the management should consider. 48. Incremental analysis is most useful A. in evaluating the master budget. B. in choosing between the net present value method and the internal rate of return method. C. in developing relevant information for management decisions. D. as a replacement technique for variance analysis. Relevant information 2. Predicted future cost and revenue data that will differ among alternative courses of action are known as A. relevant information C. marginal costs B. direct information D. incremental costs 8. An analysis of relevant costs and relevant revenues A. Will enable the decision maker to assess a decision’s impact on profit B. Is useful in assessing a variety of alternative decisions C. Provides sufficient and complete evidence with which to make a decision D. Answers a. and b. are correct 4. Which of the following is described as data that are pertinent to a decision? A. qualitative characteristics C. timely information B. accurate information D. relevant information Pitfalls in decision making 1. When discussing the pitfalls to be avoided in decision-making, four reminders usually emerge. Which is NOT one of those reminders? A. Ignore sunk costs. B. Beware of allocated fixed costs; identify the avoidable costs. C. Pay special attention to identifying and including opportunity costs. D. Do not overlook the time value of money in short-run decisions. 6. Which of the following best describes relevant information? A. Focused on the past and differs between the alternatives under consideration. B. Focused on the past and not related to the decision under consideration. C. Focused on the future and differs between the alternatives under consideration. D. Focused on the future and not related to the decision under consideration. 19. Which one of the following is not a common mistake in a decision-making process? A. Considering sunk costs as relevant. B. Considering opportunity cost, an imputed cost, being relevant. C. Considering fixed costs as avoidable fixed costs. D. Unitizing fixed costs. Application of incremental analysis 3. Incremental analysis would not be appropriate for A. a make or buy decision. B. an allocation of limited resource decision. C. elimination of an unprofitable segment. 11 Incremental Analysis D. analysis of manufacturing variances. Relevant costs 16. Relevant costs are A. all fixed and variable costs B. all costs that would be incurred within the relevant range of production C. past costs that are expected to be different in the future D. anticipated future costs that will differ among various alternatives Irrelevant costs Sunk costs 9. The kind of cost that can be ignored in a short-term decision making is a(an) A. differential cost C. sunk cost B. incremental cost D. joint cost 14. The Health Care Division of Piedmont 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. Auto Division would like the Health Care Division to process approximately 2,000 claims. Property Division would like the Health Care Division to process approximately 5,000 claims. The Health Care Division would be compensated by Auto Division or Property Division for processing these claims. Assume that these are mutually exclusive alternatives. Claims processor salary cost is relevant for A. Auto Division alternative only B. Property Division alternative only C. both Auto Division and Property Division alternatives D. neither Auto Division nor Property Division alternatives 30. Sunk costs are A. Costs that increase due to a higher volume of activity or the performance of an additional activity B. Costs that a company must incur to perform an activity at a given level, but will not be incurred if a company reduces or discontinues the activity C. The profits that a company forgoes by following a particular course of action D. Costs that were incurred prior to making a decision 33. A sunk cost is: A. a cost incurred in the past and not relevant to any future course of action. B. an opportunity cost. C. useful in analysis of alternative courses of action. D. relevant to current decision making. Differential costs 31. The difference in cost between or among various alternative courses of action appropriately describes a(an): A. differential cost C. constraint B. ad hoc discount D. scarce resource 13. Which of the following is least likely to be a relevant item in deciding whether to replace an old machine? A. acquisition cost of the old machine B. outlay to be made for the new machine C. annual savings to be enjoyed on the new machine D. life of the new machine Opportunity cost 10. An important concept in decision making is described as “the contribution to income that is forgone by not using a limited resource in its best alternative use.” This concept is called A. Marginal cost C. Incremental cost B. Cost outlay D. Opportunity cost Unit costs 22. Unit costs can mislead decision makers. Which of the following situations dealing with unit costs are not expected to result in a faulty analysis? A. Unit costs used in make-or-buy decisions might include costs such as avoidable fixed costs. B. Variable unit cost directly varies with the changes in production units. C. Total fixed costs increase as more units are produced within the relevant range. D. Contribution margin on products that can be manufactured in using the freed capacity is irrelevant in the decision. 11. An A. B. C. D. “opportunity cost” is the difference in total costs that results from selecting one alternative instead of another the profit forgone by selecting one alternative instead of another a cost that may be saved by not adopting an alternative a cost that may be shifted to the future with little or no effect on current operations 12. The best characterization of an opportunity cost is that it is A. relevant to decision making but is not usually reflected in accounting records 12 Incremental Analysis B. not relevant to decision making and is not usually reflected in accounting records C. relevant to decision making and is usually reflected in accounting records D. not relevant to decision making and is usually reflected in accounting records B. II 29. Avoidable costs are A. Costs that increase due to a higher volume of activity or the performance of an additional activity B. Costs that a company must incur to perform an activity at a given level, but will not be incurred if a company reduces or discontinues the activity C. The profits that a company forgoes by following a particular course of action D. Costs that were incurred prior to making a decision 18. The potential benefit that may be obtained from following an alternative course of action is called A. opportunity benefit C. relevant cost B. opportunity cost D. sunk cost 26. Opportunity cost is the A. cash outlay required to implement an alternative. B. difference in total costs between the alternatives. C. maximum available contribution to profit that is given up when using limited resources for another purpose. D. fixed cost avoided when a product, department, or business unit is abandoned. Out-of-pocket costs 23. Which of the following is a cost that requires a future outlay of cash that is relevant for future decision-making? A. Opportunity cost C. Out-of-pocket cost B. Relevant benefits D. Incremental revenue 28. Opportunity costs are A. Costs that increase due to a higher volume of activity or the performance of an additional activity B. Costs that a company must incur to perform an activity at a given level, but will not be incurred if a company reduces or discontinues the activity C. The profits that a company forgoes by following a particular course of action D. Costs that were incurred prior to making a decision Sensitivity analysis 20. Sensitivity analysis is useful in decision making when: A. there is a degree of uncertainty about the relevant data. B. there is an opportunity cost included in the analysis. C. sunk cost is included in the analysis. D. the analysis is subject to a review by the management. 21. To determine the possible outcome in a decision analysis if a key prediction or assumption proves to be wrong, managers will use: A. sensitivity analysis. C. incremental analysis. B. total analysis. D. regression analysis. 27. Using opportunity cost to analyze the income effects of a given alternative is referred to as A. engineering analysis C. account analysis B. mixed-cost analysis D. differential analysis Avoidable 15. A fixed cost is relevant if it is A. future cost B. sunk D. II and III Make-or-buy decision Qualitative Considerations 38. Which of the following elements of the value chain should be considered when deciding whether to make or buy a component needed for production? A. Marketing C. Manufacturing B. Distribution D. all of these choices C. avoidable D. a product cost 17. Which of the following is (are) a true statement(s) about cost behaviors in incremental analysis? I. Fixed costs will not change between alternatives. II. Fixed costs may change between alternatives. III. Variable costs will always change between alternatives. A. I C. III Make decision 34. Manufacturing parts internally by a company causes: A. the company to be dependent upon suppliers for timely delivery of parts B. the quality of the parts to be under the control of the company 13 Incremental Analysis C. lower parts costs to be assured D. a company's operations to be more efficient than when the parts are purchased from suppliers D. Only conversion costs are relevant. Opportunity costs 39. In a make-or-buy decision, which of the following is true? A. Variable costs are the only relevant costs. B. Allocated fixed costs are relevant. C. Alternative uses of space and machinery are relevant. D. Making the product is the correct decision when there is idle capacity. 44. A company should decide to make, rather than buy, a part required for their product, if A. The company’s production facility is at full capacity B. The relevant cost per-unit of making the part exceeds the per-unit relevant costs of purchasing the part C. The supplier of the part can produce a higher-quality part D. The supplier of the part has questionable reliability 40. The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is A. the total manufacturing cost of the component. B. the total variable cost of the component. C. the fixed manufacturing cost of the component. D. zero. Buy decision 35. In any make or buy decision confronting a company, which of the following factors should be considered? A. Can the supplier provide a sufficient quantity to meet the company's current and future needs? B. Do the supplier's items meet product and quality specifications? C. Is the supplier reliable? D. All of the above should be considered. 46. The cost of not receiving rent from a space because you decide to make the part rather than buying it from an outside supplier is considered a(an) A. sunk cost C. opportunity cost B. future cost D. fixed cost 41. Which of the following qualitative factors favors the buy choice in a make or buy decision for a part? A. maintaining a long-term relationship with suppliers B. quality control is critical C. utilization of idle capacity D. part is critical to product 47. In a make-or-buy decision, an opportunity cost that should be considered is the: A. income that could be generated from idle production space. B. total costs to produce the item C. variable costs to produce the item D. fixed costs to produce the item Relevant costs Fixed costs 36. Within the context of the make or buy decision, when are fixed costs relevant? A. Fixed costs are always relevant B. Fixed costs are never relevant C. Fixed costs are relevant when they differ among alternatives D. It cannot be determined without closely examining each particular situation Decision rule 42. Haribon Company is faced with a make-or-buy decision. Haribon should agree to buy the part from a supplier provided the price is less than Haribon’s A. total costs B. variable production costs plus avoidable fixed production costs C. total manufacturing costs D. variable costs 37. In a make or buy decision: A. Only variable costs are relevant. B. Fixed costs that can be avoided in the future are relevant. C. Fixed costs that will continue regardless of the decision are relevant. 84. A company owns equipment that is used to manufacture important parts for its production process. The company plans to sell the equipment for P10,000 and to select one of the following alternatives: (1) acquire new equipment for P80,000 14 54. value of full employment C. D. in the long run. additional fixed cost that is related to the increased output D. Materials C. B. must be enough to cover what type of costs? A. B. All of the above Opportunity costss 50. An opportunity cost commonly associated with a special order is A. all variable costs and incremental fixed costs associated with the special order minus foregone contribution margin on regular units not produced. limited variable costs associated with the special order. B. C. the sales price of the product or service B. greater than both the cost to buy the boxes and the cost to leave the plant idle. B. and the additional business will not use up the remainder of the plant capacity? A. which one should be ignored in a decision to produce additional units of product for a factory that is operating at less than 100% capacity. the variable costs of the order C. any of the above Special order decision Process 49. Fixed selling expenses B. The marginal cost of producing the order. Which of the following factors should be considered in deciding whether to accept a special order? A. greater than the cost to leave the plant idle and lower than the cost to buy boxes from a Relevant costs Long-run decision 58. Marketing costs D. consider additional overhead cost. D. Designing costs C. C. The direct material and labor costs in producing the order. to the cost of buying the parts less P10. Given the following list of costs. B. The company should quantitatively analyze the alternatives by comparing the cost of manufacture the parts A. opportunity cost arising from lost sales B. the impact on regular customers D.000. Depreciation D. Green Giant Foods has some excess manufacturing capacity that it can leave idle. In making a special order decision. the production capacity of the company C. variable and incremental fixed costs associated with the special order and a profit margin. the minimum special order price should be high enough to cover: A. It will be more profitable for Green Giant to process the competitor’s frozen foods as long as the net cost is A. B. To the cost of buying the parts. which of the following costs would be irrelevant. Direct labor B. management should: A. neither variable nor fixed costs associated with the special order.000 to the cost of buying the parts less P10. 53. The fixed costs incurred in producing the order. Variable selling expenses 57. the contribution margin on lost sales B. C. Production of a special order will increase gross profit when the additional revenue from the special order is greater than A. C. Direct labor cost per hour D. The nonvariable costs incurred in producing the order. All of the above. less than the cost to leave the plant idle and greater than the cost to buy the boxes. In considering a special order that will enable a company to make a use of presently idle capacity. time value of money D. The sales price of a product. or use to process another company’s frozen foods. need for good management 52. D. Less P10.000. If the firm is operating under capacity. consider normal and relevant costs. use to produce its own boxes for frozen foods. Operating at or near full capacity will require a firm considering a special order to recognize the: A. Plus P80. A. Direct material cost per unit C.Incremental Analysis (2) purchase the important parts from an outside company at P4 per part. Servicing costs 15 . Variable OH 51. all of these choices Decision rule 82.000 to the cost of buying the parts. C. compute a reasonable sales price for items not normally produced. D. Irrelevant cost 83. total fixed selling and administrative expenses. Total selling and administrative expenses plus desired profit. C. If a firm is at full capacity. and Relevant costs Incremental revenue 32. D. At full capacity 56. a concession based on competitive influences. variable costs associated with the special order. C. D. D. absorption costs. Desired profit. Total cost concept. additional revenue across decision choices from potential sales. joint products. marketing and distribution D. Managers who often make special pricing decisions are more likely to use which of the following cost concepts in their work? A.Incremental Analysis supplier. Total cost. C. variable costs and incremental fixed costs associated with the special order plus the contribution margin usually earned on regular units. a price is pre-set by market conditions. Fixed cost concept. 63. If there is excess capacity.fixed. the minimum acceptable price for a special order must cover A. D. desired profit. all of the above Product pricing Variable cost approach 60. a markup is added to variable cost. Cost-plus approach 59. less than both the cost to leave the plant idle and the cost to make or buy the boxes. cooperative products. The concept of target pricing is employed when: A. Product cost. D. B. full costs. D. research and development and design B. variable and fixed manufacturing costs associated with the special order. a company wishes to set price in order to capture a predetermined market share. a difference in costs between two decisions. A product life cycle includes the phases of A. C. Total fixed manufacturing costs. the difference between selling price and variable costs. a markup is added to total cost. variable and incremental fixed costs associated with the special order. Incremental revenue is: A. B. All of the above. In using the variable cost concept of applying the cost-plus approach to product pricing. a markup is added to product cost. C. the minimum special order price must cover A. B. B. Two or more manufactured products that have significant sales values and are not uniquely identifiable as individual products until the split-off point are called A.is called the percentage of A. B. B. B. In contrast to the total product and variable cost concepts used in setting seller's prices. D. common products. The cost-plus pricing formula that takes into consideration all costs -. D. what is included in the markup? A. 16 . Product cost concept. Total costs plus desired profit. purchasing and production Target pricing 43. Variable cost concept. Minimum acceptable price With excess capacity 55. 62. Product life cycle 45. C. D. B. variable costs and incremental fixed costs associated with the special order plus foregone contribution margin on regular units not produced. C. the target cost approach assumes that: A. and manufacturing. C. variable. Target cost approach 61. Which of the following is NOT a cost concept commonly used in applying the cost-plus approach to product pricing? A. B. C. a company wishes to meet marketing goals. Variable cost. variable and fixed manufacturing costs associated with the special order. C. variable and incremental fixed costs associated with the special order. B. as well as selling and administrative costs -. selling price is set by the marketplace. co-mingled products. variable costs associated with the special order. Sell-as-is-or-process further Joint products 67. D. variable manufacturing costs. D. Fixed cost. C. total variable costs. the product should be processed further. As long as its marginal cost is lower than its marginal revenue. B. Short-run profit maximization Factors affecting sales mix 70. C. C. a company should A. organizational sales force compensation plan C. Irrelevant cost 80. Unavoidable costs B. Which of the following costs is relevant in deciding whether to sell joint products at split-off or process them further? A. services. Joint costs. Which of the following is an important factor affecting the sales mix of any company? A. C. D. If the costs to process further exceed the costs of current production. increase in sales revenues. reduction in total costs. If the costs to process further exceed the costs of current production. Goal 78. potential impact on remaining products or services B. growth potential of the firm D. decrease in direct fixed costs. Separable costs. impact on employee morale C. Influencing the sales volume mix of the products to minimize cost. B. engage in additional production and sales activities. perform a cost-benefit balance analysis before producing and selling additional products. The cost of materials used to make the joint products. The goal in deciding whether to add or drop products. Decision rule 79. If the revenues generated by processing the product further exceed the revenues from selling the product “as is. examine cost behaviors and develop a cost function to measure the cost of future production. the company should opt for further processing. Producing the maximum amount of items that carry the lowest per-unit cost. B. All of the above Keep-or-drop decision Strategic considerations 66. The decision to keep or drop products or services involves strategic consideration of the: A. D. Retraining employees and shifting them from the bottleneck D. C. C. Severance costs. or departments is to obtain the greatest A. Working overtime at the bottleneck operation C. The unavoidable costs of further processing. How does a company determine whether to sell a product “as is” or process it further? A. Producing the maximum amount of items that provide the highest contribution margin. only Decision rule 76. C. What are the manufacturing costs incurred beyond the split-off point called? A.” B. A and B.Incremental Analysis D. Decision rule 64. Nonfinancial impacts of the decision 68. Outsourcing all or part of the bottleneck operation B. All of the above answers are correct To relax a constraint 73. D. The variable costs of operating the joint process. organizational advertising expenditures B. Common costs. product selling price D. suspend additional production and sales activities. A product mix decision involves A. Which of the following will relax a constraint? A. Influencing the sales volume mix of the products to maximize revenue. If the increase in revenue from selling the product after further processing is greater than the additional costs incurred in further processing. Cost to process further 65. D. Avoidable costs C. 17 . the product should be sold ‘as is. B. Which of the following should not enter into decision of whether to drop product? A. Revenue that would be lost D. contribution possible to cover unavoidable costs. D.” the company should process further. The additional costs of further processing. B. Luzon prefers to purchase 5. it is generally best to focus production and sales on the product with the highest: A. total benefit A. the product that should be produced first is the product with the highest A. P 72. In addition. P( 40. Salmo’s fixed costs during the fiscal year were P110. Sieney & Company has 24. P264. demand.000 77.000 C. sales price per unit of scarce resource. A company should advertise those products that A. P 96. If Sieney reworks the defective units.000 D. D. Assuming Luzon can invest cash at 8%. These units can be reworked for P2 per unit and sold at their full price of P12 each. its inability to recognize financing costs of the production in question.Incremental Analysis 71. Each product has sufficient orders to utilize the entire manufacturing capacity. Opportunity cost 2 .000 based on a particular course of action. selling price B. Margin of Safety D. its failure to recognize depreciation expense. Inc.000 D. D. Its supplier quoted a price of P60 per component.000 B. When there is only one production constraint and excess demand.000 C. 75. 72.000. Lower total manufacturing costs for the manufacturing capacity. Contribution margin in pesos B. Have the largest total contribution margin after deducting the cost of the ad campaign Minimum price 4 . The major pitfall in the contribution margin approach to pricing is 18 . For short-run profit maximization. Require the lowest commitment of resources to produce B. In order to ensure availability of these components. Lower total variable manufacturing costs for the manufacturing capacity. contribution per unit of scarce resource D. and can be sold for P4 per unit. C. B. contribution margin per unit of the scarce resource. net profit per unit of product B. Luzon Fabricators. P(150. P150. P 48.000.000 units per month. Can be outsourced D. The incremental (decremental) cost was: A. Uranus should manufacture the product with the A.000 units at the beginning of the year. Profit can be maximized by producing products with the highest A.000 B. P 150. Contribution per unit of scarce resource C.000 74. B. C. Greater contribution margin per hour of manufacturing capacity. For the year ended April 30. Have the largest total contribution margin C.000 B.000 defective units of a product that cost P8 per unit to manufacture.000) 69. but its supplier could not guarantee this delivery schedule. contribution margin per unit. the company’s opportunity cost of purchasing all the 60. Joji Company manufactures and sell FM radios.000) D. B.000 C. contribution margin per unit of items that are best sellers D. its inability to control waste. P144. PROBLEMS: Incremental (decremental) cost 1 . Luzon is considering the purchase of all the 60. Operating Leverage its failure to recognize fixed costs.000 special components will be used in the manufacture of a specialty steel window for the whole next year. Salmo Company incurred direct costs of P800. When there is one scarce resource. D. A useful device for solving production problems involving multiple products and limited resources is: A. Had a different course of action been taken. Information on last year’s operations (sales and production of the 2006 model) follows: Selling price P300 Pitfall 81. 2007. P132. C. how much incremental net income will result? A. gross sales per unit of product C. P144. estimates that 60. Uranus Company has 2 products that use the same manufacturing facilities and cannot be subcontracted. contribution per unit of the constraining resource Defective/obsolete inventory Incremental net income 3 . Greater gross profit per hour of manufacturing capacity. P 40.000 units at the beginning of the year is A. direct costs would have been P650. contribution margin C. P14. A foreign firm is willing to purchase the obsolete products at a net price of P140 each. P 30 D.50 each was received by Venus in April. the purchasing manager predicts that the price will be P8. the special job will require the use of external designers costing P13.000 units by operating overtime.000 Fixed overhead 30. Any order of the Nitrocide must be in 5. P42.300 B.000. has considerable excess manufacturing capacity. what is the minimum price the company would accept for the radios? A. the production would have to be done by the present work force on an overtime-basis at an estimated additional cost of P1. Venus Company would have a unit relevant cost of A. P270 B. including a share of the monthly fixed costs of P180.50 per lamp.000 B. P 40 The special order requires 1. P62.500 At this time (May 2007).750. A special order offering to buy 40. Balagtas & Company expects to incur the following costs at the planned production level of 10. when normal restocking takes place. P 40 B.250 Fixed costs 45.00 D.000 bearings at P40 each.50 B.30.800 allocation for in-house design costs.000 D. P 50 Total relevant cost 7 .10 per kilogram. The current stock of Nitrocide is 8.000 kilograms. P 9. Bearings normally sell for P60 each.000 D. the 2007 model is in production and it renders the 2006 model radio obsolete. P101. What is the minimum acceptable price for the job? A.000 kilograms at a book value of P8. What is the incremental cost associated with this special order? A. P 70.000 Variable overhead 60. management is considering accepting the order. Balagtas has received a special order from Florante.500 Incremental cost 8 . If the remaining 500 units of the 2006 model radios are to be sold through regular channels. P 20 C.000 Direct labor 120. but operates at 90% of capacity.000 The selling price is P50 per unit.00 C.000 Special order Unit relevant cost 5 .000 units. P 8. Venus Company.700 C.000 lamps at P20 per unit for the year. although no inhouse design will be done. What is the relevant cost of powdered Nitrocide to be included in the special order? A.250 B. P 8.50 6 . 10 .000 The fixed costs include a normal P6. If the special order is accepted.000 Sales in units 9.000 units at P45 each. P 63. P10. the assistant controller is compiling the relevant costs of producing the order.050 C. P43.000 lamps for P11. What is the relevant cost per unit? A. however.000 bearings. Intellectual Co. Venus has sufficient plant capacity to manufacture the additional quantity of lamps. The cost to produce 24. P13. Capacity can be increased to 13. Variable costs increase by P14 per unit for overtime production.Incremental Analysis Cost per unit: Direct materials 70 Direct labor 40 Overhead (50% variable) 60 Selling costs (40% variable) 100 Production in units 10. budgeted sales of 400. the firm will be forced to restock powdered Nitrocide earlier than expected. at a predicted cost of P8. P31. Without the special order.000 kilograms of powdered Nitrocide. who has offered to buy 2. A special job order’s cost sheet includes the following applied manufacturing overhead costs: Variable costs P56.70 per kilogram. and fixed manufacturing costs at P 5 per unit.000 units at 70% capacity consists of: 19 .000 C. Venus will not incur any selling expenses as a result of the special order. Variable manufacturing costs were budgeted at P8 per unit. P 8. The company currently operates at full capacity of 10. P300 C. recently received an order for a product that it does not normally produce. In analyzing the decision. a manufacturer of lamps. Fixed overhead costs remain unchanged when overtime operations occur. P108. Instead.300 D. and cost an average of P50 to make. a solid chemical regularly used in the company’s products.200 Wawa Enterprises has the capacity to produce 10. P180 D. P84. Brace Co. Inc. Since the company has excess production capacity. Minimum acceptable price 9 .000 units: Direct materials P100. Ilog Corp has offered to buy 1. Filamer Company currently sells 1.000 units of product M for P2 each. P24. It has received a special.Incremental Analysis Direct materials Direct labor Factory overhead. P6.50 12 . P29. Variable costs are P1. thereby lowering the price per unit by P1. variable overhead. what sales price must be quoted for each of the 5. P4.000 units from a foreign customer.00 Overhead (80% fixed) 7.000. P26. 500 units B. If Chrisy is able to sell all of the current production domestically. all fixed Selling expense (35% variable. If Chua accepted the order.00 Chrisy received a special order for 1.50. one-time. is a manufacturer of industrial components.70 per unit for 400 units of product M.500 .000 240.00 Direct labor 2. Costs associated with the product are: direct material.000. is currently operating at a loss of P15.50 D. P 18 C.000 units per month are: Manufacturing costs Direct materials P39 Direct labor 6 Variable overhead 8 Fixed overhead 9 Selling expenses Variable 30 Fixed 11 The company desires to seek an order for 5. P3. Chua could accept a special order for 1. P 84 14 . P 50 13 P360. P100 11 . De Silva Co. what would be the minimum sales price that Chrisy would consider for this special order? A. P 17 B.00 Total P10. The variable selling expenses will be reduced by 40%. Chrisy Company sells a product for P18 per unit and the standard cost card for the product shows the following costs: Direct materials P 1. The managers believe that if they accept the special order. resulting in a contribution margin of P10.000 540. P 19 D. P 75 D. The next best alternative use of the excess capacity is to produce LB46. they will lose some sales at the regular price. P2. Sylvania Company. 0 units 16 . Domestic sales will not be affected by the order. how many units could it lose at the regular price before the decision become unwise? A. P 69 B.000 sale of 1. P 11 Maximum lost regular sales 15 .000 units at P14. 65% fixed) What unit price would the company have to charge to make P22. P 87 D.000 290. The minimum price that is acceptable for this one-time special order is A.000 units of product. and variable selling expenses. P 70 B. A discount store has offered P1.50 and selling expenses would be decreased by P1. The only additional cost to Chrisy would be foreign import taxes of P1 per unit.000 KB69 parts. Chua Company sells a product for P20 with variable cost of P8 per unit. One of their products that is used as a subcomponent in auto manufacturing is KB69.000 units of the product. This product has the following financial structure per unit: Selling price P150 Direct materials P 20 Direct labor 15 Variable manufacturing overhead 12 Fixed manufacturing overhead 30 Variable shipping and handling 3 Fixed selling and administrative 10 Total P 90 De Silva is operating at full capacity.00 B. P 60 C.50 C. 200 units D. If Sylvania wants this special order to increase the total net income for the firm to P25.500 on a additional units that would be shipped out of the normal market area? A. which normally sells for P35 per unit. direct labor.000. P10. but the fixed costs for obtaining the order will be P20. P 71 C.000 units? A. P18. applied fixed overhead. order for 1. Kaila Company’s unit cost of manufacturing and selling a given item at an activity level of 10. 20 . The minimum break-even price per unit to be considered on this special sale is A. P 51 C.000 units C. The sales manager has received a special order for 5. P 41 B. P 56 D. The special order would allow the use of a slightly lower grade of direct material. 1.000. P16. it must design a special label for Garrison at a cost of P5. You decide to accept this order. After July.000. D. Garrison Co.Incremental Analysis Determine the number of units they could lose before the order become unprofitable.750 C.000 decrease D. Unit production costs (based on capacity production of 100.000 when 10. B. Louderhead Company makes bull-repellent scent according to a traditional Western recipe. 500 units production of 30. acceptance of the special order would affect net income as follows: A. rent. This product is seasonal. A. Direct materials P 4 Direct labor 12 Variable manufacturing overhead 6 Fixed manufacturing overhead 8 The company has the capacity to produce 40. Fixed manufacturing costs were P240. 400 units. accept the order.000 of such products by the firm will not change. The product regularly sells for P40. If the firm accepts the special order the effect on its operating income would be a A. Income would increase by P210. offers to buy 1. Assuming that excess capacity is available.000 units at P70 each in a foreign market. P 81 B. The Thermo Company has received a special order for 300 units of product X for P6 a unit.750 D. You currently sell this item for P39 a unit. The cost also includes P3 in manufacturing overhead. 160 units. Further analysis reveals that you will not be paying sales commission of P2. KC Industries manufactures a product with the following costs per unit at the expected 21 . P20. accepting the order will increase A. increase profit by P16. What is the minimum price that the division would consider on a “special order” of 1. Alejar Company manufactures a product with a unit variable cost of P50 and a unit sales price of P88. utilities and supervisor's salary. and this order requires a mold that costs P150.000 increase B.50 a unit. In November.500 C. 19 .000. accept the order. You have been approached by a foreign customer who wants to place an order for 15. The latter’s (supervisor's salary) accounts for one-half of this amount.000 ounces monthly. and the item has a cost of P29 a unit. Income would decrease by P 12.250 B. gain by P225 B. 68 and 69 are based on the following information: The Disk Division of Systems Specialist Company produces a high quality computer disks. reject the order. 22 . P4.250 18 . demand for this product drops to 6. P 78 D. D. B.000 ounces per month.000 for the production of 50.50 per unit. which normally sells at P90 per unit. P 6 20 . It usually sells for P9. 200 units. Each label will cost P2. at a loss of P23.000 units per year) follow: Direct materials P50 Direct labor 20 Overhead (20% variable) 10 Other information: Sales price 100 SG & A costs (40% variable) 15 The Disk Division is operating at a level of 70. However.000. Normal production volume is 10. the additional graphics required on this job will cost you P30. P 0 effect Effect on profit of accepting the order 17 .50 rather than the regular price of P39 a unit. Note also that fixed costs amounting to P400. loss by P375 D. reject the order. P 72 C. but another customer who buys an average of 2.000. decrease profit by P52. Louderhead should: A. Income would increase by P 12. A wholesaler has offered to pay P32 a unit for 2.000 increase C. at a loss of P18.500 21 .50 a unit inclusive of 75 cents a unit as sales commission that will not be paid on this order.50 a unit on this sales and its packaging requirement will save you an additional P1.000. was two-third of which is for the fair share of depreciation. This special sale would not affect its present sales. gain by P375 Question Nos.000. at a gain of P11.000 units.000. Profit will A.500 ounces for P60. at a gain of P6. increase profit by P52.000 units. If the company has sufficient capacity to produce the additional units. of which P20 is direct material and P10 is variable conversion cost. C. The company has a one-time opportunity to sell an additional 3.000 units were produced and sold. loss by P225 C.500 D.50 a unit with a cost of P7. Income would increase by P 60. Average cost is P50 per ounce.000 disks to be distributed through normal channels? A. increase profit by P19.500 B. If Louderhead accepts the order.000 units. C.50 to make and apply.000 chips per year.000 units for the period wants to pay you P22.000 units of Product C at P22. 00 Marketing Costs: Variable 2.000. P7. 4) Four of the people who work in the electric motor manufacturing department would be terminated and given eight weeks of separation pay. and 5 B. the company is indifferent between making or buying the part.000 chips on which no variable period costs would be incurred? A.00 P150. 2. factory overhead is applied at P10 per standard machine hour. P100 C.00 47. however.75 B. P5.00 for Beta and P127. and 4 D.50 C. If cost minimization is the major consideration and the company would prefer to buy the 22 . The following are a company’s monthly unit costs to manufacture and market a particular product. 1.00 20. Which of the items above are relevant to the decision that the controller has to make? A. ELM Electronics has the following standard costs and other data: Part Beta Part Zeta Direct materials P 4.50 The company must decide to continue making the product or buy it from an outside supplier. P30. Accordingly.00 for Zeta D. P50.00 Factory overhead 40.000 Machine hours per unit 4 2 Unit cost if purchased P50.00 Units needed per year 6. P 90 producing the parts.000 Direct Labor 16.00 Unit standard cost P54. some of the parts must be purchased from outside suppliers.50. but variable marketing costs would continue at 30% if the company were to accept the proposal. the controller of the JLO Company is reviewing the decision to continue to make the small motors and has identified the following facts: 1) The equipment which is used to manufacture the electric motors has a book value of P1.000 unsecured note is still outstanding on the equipment that is being used in the manufacturing process. the JLO Company has produced the small electric motors that fit into its main product line of dental drilling equipment. 1. What is the maximum amount per unit that the company can pay the supplier without decreasing its operating income? A. 3. P 72 D.00 In the past years. Sinta Company could avoid P6.00 for Zeta B. Fixed marketing costs would be unaffected. this year only 30.000 Variable Overhead 8. Fixed capacity costs that will not be affected by any make-or-buy decision represent 60% of the applied overhead. In 27 . 3.000 8. 3) Comparable units can be purchased from an outside supplier for P597. P6. What is the minimum selling price that the division would consider on a “special order” of 1.40 Variable indirect 1. ELM has manufactured all of its required components.000 units externally for P104. P8.00 for Beta and P150. An analysis shows that at this external price.000 units of a necessary component with the following costs: Direct Materials P64. and 4 Maximum buy price 26 . The available 30. 2) The space being occupied now by the electric motor manufacturing department could be used to eliminate the need for storage space which is presently being rented.50 Fixed 1.00 P147. For the past 12 years.000 machine hours are to be scheduled so that ELM realizes maximum potential cost savings. P54. P 94 B.00 for Zeta C. 5) A P750.000 hours of otherwise idle machine time can be devoted to the production of components.60 Fixed indirect 1.000 Fixed Overhead ? The company can purchase the 1. 2. The supplier has offered to make the product at a level of quality that the company prescribes.000 in fixed overhead costs if it acquires the components externally. 1.00 Direct labor 2. Sinta Company can make 1.25 Relevant cost to make 25 .Incremental Analysis 23 . Assuming that that the Disk Division is producing and selling at capacity. P14.00 P80. 4. 3.75 D. and 5 C.000. The relevant unit production costs that should be considered in the decision to schedule machine time are: A.500.00 for Beta and P147.00 for Beta and P135. Manufacturing Costs: Direct materials P2.00 for Zeta Make-or-buy decision Relevant costs 24 .00 Direct labor 10. 4. As materials costs have steadily increased. P 96. Cannot be determined. Buy and save P20. If 30. Sisa's Shop can make 1. If the part is purchased.000 units of a necessary component with the following costs: Direct Materials P64. fixed costs of P8. P 88. C.000 D.000. An analysis shows that at this external price. Decrease profit by P4. Buy and save P8.000 D.000 units of a part in this plant. P102.000.000 units of product Whirl which costs P16 a unit or buy it from outside for P15 a unit.000 If Alfaro's Manufacturing Company can purchase the component externally for P145. What are the fixed overhead costs of making the component? A. P150.000 units of a necessary component with the following costs: Direct Materials P64. The balance is for the section supervisor's salary. P21.000. If the part is purchased. P150.000 units externally? A. If Sylvan Processing Company purchased the product Whirl. P110. not including fixed costs.000 if the components were acquired externally.000 in depreciation and common overhead allocation of P150.000 in fixed overhead inclusive of P45. increase. C. what is the maximum external price that Almeda Company would be willing to accept to acquire the 1. P104. P11.000 cost decrease D. The unit cost for the business to make the part is P20.000 to make 15. C. the space could be rented out for P6.000.000 Fixed Overhead ? The company can purchase the 1.000 C.000.000 B.000. variable overhead of P15.000. A business is operating at 90% of capacity and is currently purchasing a part which is being used in its manufacturing operations for P15 per unit. what is the correct “make or buy” decision? A.000 cost increase 33 .000 units of the part are normally purchased during the year but could be manufactured using unused capacity. If the product is outsourced. the space released can be rented for P65. B.000. Increase profit by P4. If the product is outsourced. P4.000 Direct Labor 13. increase or decrease. P 86. Sylvan Processing Company is considering whether to make 2.000. and P12. including fixed costs.000 Variable Overhead 8.000. 28 . If cost minimization is the major consideration and the company would prefer to buy the components.000.000 34 . A further analysis shows that if product Whirl is outsourced.000 cost increase C. fixed costs of P8.000 attributable to this product will be reduced by 25%. P16.000 if the units are purchased externally.000 and only P4.000. None of Almeda Company's fixed overhead costs can be reduced. D.000 Fixed Overhead 27. It costs P450. Sylvan will A.000 B.000 D. B. Decrease profit by P2.000 Direct Labor 16.000 B. Increase profit by P2. P2. gain P20.000 units externally for P104. what is the maximum external price that Sinta Company would accept to acquire the 1. P4.000.000 Fixed Overhead ? The company can purchase the 1. lose P20. and P225. P 90.000 units externally? A.000.000 units externally for P104.000 attributable to this product will be reduced by 25%. what would be the amount of differential cost.000 C. D. but another product could be made that would increase profit contribution by P16.000 cost decrease B.000 30 .000 Variable Overhead 40.000. Make and save P8.000 C. Sylvan Processing Company is considering whether to make 2.000. D.Incremental Analysis components. increase. The part can be purchased for P20 a unit. the company is indifferent between making or buying the part.000 Effect of make decision 29 .000. P 94. This cost includes material of P90.000 23 . decrease. Almeda's Shop can make 1. On income 32 . B. profit would A. The unavoidable fixed costs are P5. Effect of buy decision On fixed overhead cost 31 . P2. from making the part rather than purchasing it? A.000.000 units of product Whirl which costs P16 a unit or buy it from outside for P15 a unit.000 of the fixed costs can be avoided. Make and save P20. P 96. A further analysis shows that if product Whirl is outsourced.000 Variable Overhead 8. decrease. P 90. Alfaro's Manufacturing Company can make 100 units of a necessary component part with the following costs: Direct Materials P80.000 C.000 Direct Labor 16. direct labor of P120. the company will A.000. The cost per unit if 20.000 Materials handling (20% of direct material cost) 200 Direct labor 8. If Migs currently has idle capacity that cannot be used. increase by P 1. Migs Corporation currently manufactures all component parts used in the manufacture of various hand tools. one of Leis’ reliable vendors. not change C.000 D. has offered to supply 20.000 units of part No.000 Total manufacturing cost P21.000 24 .000 manufacture these parts would be idle. Another manufacturer has offered to supply Lane with the 5. 575 would have to be A. B. Furthermore.000 units of Part No.000 units of the handle to Migs for P12. P9 per unit of the fixed overhead applied would be totally eliminated. Lane has incurred P10 in fixed costs and P8 in variable costs. The Rainbow Company manufactures Part No.200 B.000 Variable overhead 5. If Rural Cooperative purchases 1.000 39 .50. Leis Manufacturing Co. The cost to buy the cartridges would be P15 each. Inc. Increase the handle unit cost by P1.00 Sans Steel. The budgeted costs per unit based on 20.000 for Rainbow. P 80. C. lose P45. manufactures ballpoint pens. the capacity being used by Leis to 40 . 498 for use in its production cycle. the unit cost of WS73 would A. its net income will: A. It is estimated that 20% of the fixed overhead being assigned to Part M will no longer be incurred if the company purchases the part from the outside supplier. D. 498 to Rainbow for P60 per unit. Inc.000 Direct labor 5. P125.000 B.000 Manufacturing overhead (150% of direct labor) 12. produces 1. Decrease the handle unit cost by P0. its monthly operating income will A.50 each delivered. decrease by P35.000 36 . P140.000 Direct labor 5.000 B.Incremental Analysis B. 498 are manufactured are as follows: Direct materials P6 Direct labor 30 Variable overhead 12 Fixed overhead applied 16 Total unit cost P64 The Reeves Company has offered to sell 20.00 Total unit cost P13. Garland Company. In order to have a savings of P25.000 units of Part M per month. Rainbow will make the decision to buy the part from Reeves if there is a savings of P25. accepting the offer will A. increase by P20.200 D. 575.50.000 units of Part M per month.50. Inc. P 85.00 Direct labor 4. decrease by P 4.000 Total manufacturing cost P50. Decrease the handle unit cost by P1. The total manufacturing costs of the part are as follows: Direct materials P10.000 ink cartridges that it needs annually. Should Leis decide to purchase the parts from Garland. Decrease by P3. The total manufacturing costs of the part are as follows: Direct materials P10.000 D.000 C. If Lane buys the cartridges.00 Fixed overhead 2. Leis’ annual manufacturing overhead budget is one-third variable and two-thirds fixed. gain P45. The Minolta. The Rural Cooperative.000 C. In producing its own cartridges. increase by P35. Decrease by P6.800 C.000 D.800 35 . Increase the handle unit cost by P0. Increase by P1. the amount of the relevant costs that would be saved by using the released facilities in the manufacture of Part No. uses 10 units of Part Number WS73 each month in the production of computer printer.00 Variable overhead 1. If Rainbow accepts Reeves’s offer. A steel handle is used in three different tools.000 D. has offered to supply part WS73 at a unit price of P15.000. Lane Co.000 Fixed overhead 30.50.000 units are: Direct material P6. produces 1. Rainbow has determined that the released facilities could be used to save relevant costs in the manufacture of part No. This is a separate charge in addition to manufacturing overhead. 37 . decrease by P20.000 units of Part M from the outside supplier. If Leis purchases the WS73 units from Garland.000 An outside supplier has offered to supply the part at P30 per unit. increase by P25. Direct materials P 1. The unit cost to manufacture one unit of WS73 is presented below.000 B.000 38 .200 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.000. Increase by P4. 000 B.000 D.000 P40. If Bulacan accepts Pampanga’s offer.50 Fixed overhead 1. If Mars were to buy Part QS42 from an outside supplier. In addition.000 units B.500 C.000 and a capacity to produce 84. P5 per unit of the fixed overhead applied to part G would continue. Increase by P11. No.500. The variable production costs of Part QS42 are P11 per unit. If Mars Industries is able to obtain Part QS42 from an outside supplier at a unit purchase price of P12. Bulacan Company manufactures part G for use in the production of its principal product.25 per unit on a continuing basis. D.000) Gross margin P 2. One-third of the Blades Division’s output is sold to the Lawn Products Division of Dana.500 43 .000 per year. decrease by P 4.000 The Lawn Products Division has an opportunity to purchase 10. D.000 identical quality blades Point of indifference . The costs per unit for 10. It is estimated that 20% of the fixed overhead assigned to Part M will no longer be incurred if the company purchases the part from the outside supplier.000 units D.000) Fixed costs (3. then its monthly operating income will A. The Connell Company uses 5. it can eliminate 50 percent of the fixed costs assigned to part 501. increase by P20.000 P15. Yes.000 P15. 48. because buying the blades would save Dana Company P2.500.000 14.00 Total P8.000 Variable costs (10. the remainder is sold to outside customers. because making the blades would save Dana Company P2. decrease by P20.000 units of part G are as follows: Direct materials P 3 Direct labor 15 Variable overhead 6 Fixed overhead 8 Total P32 Pampanga Company has offered to sell Bulacan 10.000 from an outside supplier at a cost of P1. Increase by P 7.000 P10.000 C. because buying the blades would save Dana Company P500. If Connell accepts this offer.000 units of part G for P30 per unit. Furthermore. What alternative is more desirable and by what amount? A. The facilities now being used to produce Part QS42 have fixed monthly cost of P150. Increase by P13. 80.000 Fixed overhead 30. B. annual profits will A.000 20.000) (6. but 60 percent of its fixed costs would not continue. the space devoted to the manufacture of Part 501 would be rented to another company for P6.000 in relevant costs in the manufacture of part H.000 units C. 30. If Connell accepts the offer of the outside supplier.875.000 An outside supplier has offered to supply the part at P30 per unit.75.price 45 .000 Unit sales 10.000 D. The cost of manufacturing one unit Part 501 at this volume is as follows: Direct materials P2.000 units of Part 501 each year.250 41 . Assume that the Blade Division cannot sell any additional products to outside customers. The Blade Division’s estimated sales and standard costs data for the fiscal year ending June 30 are as follows: Lawn Products Outsiders Sales P15. the facilities would be idle. because making the blades would save Dana Company P1.50 An outside supplier has offered to sell Connell unlimited quantities of Part 501 at a unit cost of P7.000 units of Part M from the outside supplier per month. Calero Manufacturing Company can make 100 units of a necessary component part with the 25 .000 units per month. If Minolta purchases 1. C. 32.250 B.000 units of Part QS42 each month for use in the production of its main product. the monthly usage at which it will be indifferent between purchasing and making Part QS42 is A. the released facilities could be used to save P45. B.000 Point of indifference . Increase by P 1.000 Total manufacturing cost P50. No.000) (20. Mars Industries is a multi-product company that currently manufactures 30. Alternative Manufacture Manufacture Buy Buy Amount P10. Blade Division of Dana Company produces hardened steel blades.Incremental Analysis Variable overhead 5.50 Variable overhead 1. C. increase by P 1. and why? A.Units 44 . Yes. Should Dana allow its Lawn Products Division to purchase the blades from the outside supplier.50 Direct labor 3.000 units 42 . soda.000.000 units of Product A. C. 100.000 electric mixers. How many units of X and Y should Hingis Corporation produce? A.000 If Calero Manufacturing Company purchases the component externally.50 P4. Product X 16. Contribution margin per unit is determined as follows: Product X Product Y Revenue P130 P80 Variable costs 70 P38 Contribution margin P 60 P42 Total demand for X is 16. P3.00. 42.000. P3. If 50.000 Fixed Overhead 27.000 Product Y zero 4.000 7.000 electric mixers. D.000 Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages P10.000 blenders and 15. 100.000 Profit maximization Point of indifference 46 .00 P6.00 Variable cost per unit 3. P160. P5.000 blenders and purchase all other units as needed D. The following data are available: Iced Tea Soda Lemonade Sales price per unit P9.000 less if Product A is made.00 Contribution margin per unit P6. Dipsum Soft Drinks makes three products: iced tea. produce 20. Mary Manufacturing has assembled the following data pertaining to two popular products. even if it means purchasing units from outside suppliers.Incremental Analysis 48 following costs: Direct Materials P80.000 units. P133.00 Dipsum is experiencing a bottleneck in one of its processes that affects each product as follows: Iced Tea Soda Lemonade Bottleneck process hours per unit 3 3 4 What price for lemonade would equate its profitability to that of soda? A.000 machine hours available to manufacture a product.000 units of Product A. 50.00 P5.000 units of Product B C. Machine hour is a scarce resource.000 units of Product A. produce 25.000 zero 8. C. P6.000 units and for Y is 8.00 1.000 units of Product B B. D. At what external price for the 100 units is the company indifferent between making or buying? A.000 3. Which of the following will provide the best sales mix of Product A and Product B assuming the market limitation of Product A is 200. Mary has a policy of filling all sales orders. B.000 electric mixers and purchase all other units as needed Optimal mix 47 . Product A sells for P12 per unit and its variable cost per unit is P10.000 units of Product A.000 units of Product B D. 26 .000 8. . C. If there are 1. A company can sell all the units it can produce of either Product A or Product B but not both.50.00.00 P4. P113. 250.50 1. P7. The plant capacity is 350. Product A has a unit contribution margin of P36 and takes two machine hours to make and Product B has a unit contribution margin of P45 and takes three machine hours to make. Blender Electric mixer Direct materials P 6 P11 Direct labor 4 9 Factory overhead @ P16 per hour 16 32 Cost if purchased from an outside supplier 20 38 Annual demand (units) 20.00. income will be A.000. D. The Hingis Corporation manufactures two products: X and Y.000 units of Product B Decision 50 .000 more if Product A is made.000 machine hours and both products require one machine hour to manufacturer.000 Direct Labor 13.000.000 28. produce 28. P153.000 units? A.000 units and the market limitation of Product B is 250. it should A. produce 20.000 machine hours are available during the year. C. Product B sells for P15 per unit and its variable cost per unit is P12. and purchase all other units as needed B. and Mary Manufacturing desires to follow an optimal strategy. and purchase all other units as needed C. P8. 49 . P20.000 machine hours are available. B. B. 250. 300. 200.000 Variable Overhead 40. 150. and lemonade. Product X requires 6 machine hours per unit while product Y requires 3 machine hours per unit.000 of the fixed costs can be avoided. 100.000 machine hours per year that can be dedicated to the production of the bearings.000 units of Product A. Pro Model D. Deluxe model B.0 1. 200. Plastic and Metal. Scarce Company will maximize its net benefits by purchasisng A.75 Total P15. C. 152.5 2. The plant capacity is 350. P210.000 units of Product B C. 46. 6. Direct labor hours A. A A.00 P 9. There is sufficient demand for the additional production of any model in the product line. B 52 . Product A sells for P12 per unit and its variable cost per unit is P10. for its own use in the production of main products. A B. .50 6. A A. A B. If it has excess machine capacity but a limited amount of labor time. 8 hours. 5. 152.000 units and the market limitation of Product B is 250.875 units of Product A. C.000 units of Plastic and manufacturing the remaining bearings. C Machine hours B. Product B sells for P15 per unit and its variable cost per unit is P12. B A. 200. Scarce’s management decided to devote additional machine hours to other product lines resulting to only 48. Which of the following will provide the best sales mix of Product A and Product B assuming the market limitation of Product A is 200.000 units of Metal.0 Machine hours per unit 4. 7. C.000 units of Plastic. B. C. Recently.000 units of Product A. to which product or products should HILO Company devote its excess production? A. 55 . **Fixed manufacturing overhead is applied on the basis of machine hours.50 for Plastic and P17. P240. 11. D. 250.5 2.000 C. Scarce Company has been producing two types of bearings.000 hours of machine time each month to manufacture its two products.000 units of Product B D. B.50 P19.000 units of Metal and manufacturing 7. P3.000 B.75 54 .0 2. Scarce wants to schedule the otherwise idle 48. the same if either product is made. Product X requires 5 machine hours and Product Y. Unit selling prices and unit costs for three different drill models are as follows: Home Model Deluxe Model Pro Model Selling price P58 P65 P80 Direct material 16 20 19 Direct labor (P10 per hour) 10 15 20 Variable overhead 8 12 16 Fixed overhead 16 5 15 Variable overhead is applied on the basis of direct-labor pesos.000 machine hours and Product A requires 48 minutes to complete while Product B requires 75 minutes. C.000 units? A.000 D.0 4.000 27 . it will have a total contribution margin of A.000 machine hours to produce bearings so that the company can minimize its costs (maximize its net benefits). while fixed overhead is applied on the basis of machine hours.Incremental Analysis B.000 units of Plastic and manufacturing the remaining bearings. D. C. The data regarding these two bearings follow: Plastic Metal Machine hours required per unit 3.00 4. B. 250. An outside company has offered to sell Scarce the annual supply of the bearings at prices of P15. D.00 Variable overhead* 3. Home model C. If Dimasalang wants to dedicate 80% of its machine time to the product that will provide the most income. C B.000 less if Product B is made.00 Fixed overhead** 4.000 units of Product B B. C. The production department had met all production requirements for the current month and has an opportunity to produce additional units of product with its excess capacity. Scarce’s annual requirements for these bearings is 7. P200.50 for Metal. Equally A B C Selling price per unit P16 P21 P21 Variable cost per unit 7 11 13 Contribution margin per unit P 9 P10 P 8 Direct labor hours per unit 1. B.5 In what order should the three products be produced if either the direct labor-hours or the machine hours are the company’s production constraint? A. Product X has a contribution margin of P50 and Product Y has a contribution margin of P64.000 units of Plastic and 11. C. Dimasalang Company has only 25. The Baco Company produces three products with the following costs and selling prices: 51 53 .000 units of Product B *Variable manufacturing overhead is applied on the basis of direct labor hours.5 Standard cost per unit Prime costs P 8.000 units of Product A. HILO Company manufactures electric carpentry tools. P250.000 units of Metal and manufacturing the remaining bearings. The unit cost of the unassembled product is P40 and Beal Company would sell it for P90. the company will be better off by P26 per unit. 4.000 C. C. What is the correct decision using the sell or process further decision rule? A.000 B. which is marketed as a silver polish selling for P40 per jar. Ottawa Corporation produces two products from a joint process. 8.000 Decision 57 . 61 . Sell before assembly. P10 B. The unit cost is P5. While most of its products are processed independently. its profit will increase by A. P10. P 3 C. the company will be better off by P18 per unit. These two products can be sold as is or processed further.35 per unit to further process the units will result in the 25. a coarse cleaning powder with many industrial uses. Matador Manufacturing schedules a weekly production of 15. but unlimited demand for the cleaning powder. Which course of action should the company take? A. Costs of other ingredients. The cost to manufacture an unfinished unit is P40 (P30 variable and P10 fixed). Below are some of the information: 62 Unit selling price without further processing 59 . Further processing of either product does not delay the production of subsequent batches of the joint products. P15 D. If 28 M P25 N P19 . D. P12 58 . A. The selling price per unit is P50.000 of additional material costs and another P15.000 units at P7.000 of Mixing Department fixed costs could be avoided. Do further processing on only one-half of the units Total processing cost . B. Sell before assembly.000.75 D. This further processing requires ¼ pound of Grit 337 per jar. labor. Process further.000 units of N for which P800.500 D. Do further processing and sell the units at P8. Finish the product because profits will increase by P12. P16. Finish the product because profits will increase by P25. Which of the following answers is correct? A.000 C.667 Effect of decision 60 .000 common variable costs are incurred. The cost to assemble the product is estimated at P18 per unit and Beal Company believes the market would support a price of P116 on the assembled unit. Snow Clean Corporation produces cleaning compounds and solutions for industrial and household use. Sell the units at the current stage of completion C. costs P16 a pound to make and sells for P20 a pound.Incremental Analysis Aaron finishes the product.000 B. Finish the product because profits will increase by P10. Information about the two joint products follows: Product X Product Y Anticipated production 2. the company will be better off by P26 per unit. Sales of 25.000 at an intermediate stage.90.000 D. Aaron will be able to sell the product for P350. where it is combined with several other ingredients to form a paste.000. and variable overhead associated with this further processing amount to P25 per jar.000 units being sold for P8. Variable selling costs are P3 per jar. Aaron Company produces a product that can be sold for P250. a few are related. When finished. A small portion of the annual production of this product is retained for further processing in the Mixing Department.000 C. Snow Clean has limited production capacity for Grit 337. Beal Company is starting business and is unsure of whether to sell its product assembled or unassembled. P56. If Ottawa makes decision which maximizes profit. 7.000 Sell-as-is-or-process-further Minimum sales 56 . Process further. Grit 337.000 lbs Selling price per pound at split-off P30 P16 Additional processing costs/pound after split-off P15 P30 (all variable) Selling price/pound after further processing P40 P50 The joint cost is P85. The company has unused production capacity and has determined that units could be finished and sold for P65 with an increase in variable costs of 40%. the company will be better off by P8 per unit.75 each. What is the additional net income per unit to be gained by finishing the unit? A.000 units of Product M and 30. Sell now B. Commit its resources to a different product B. Incremental costs of P1. What is the minimum number of jars of silver polish that would have to be sold to justify further processing of Grit 337.600 D.000 in labor and overhead costs.20 per unit are made monthly. Ottawa currently sells both products at the split-off point. If the decision were made to cease production of the silver polish.000 lbs 4. P50. P 4. they will incur P75. 5. decrease of P10. Decrease by P2. P35. P12.000 can be avoided.000 per month. Employment-contract strikes in the companies that purchase the bulk of the E14 have caused Bulusan Company’s sales to temporarily drop to only 9. Due to the current low level of sales. The management of Mina Co. Darren will incur repair.000. P210.000 B. Common expenses allocated to the segment amounted to P45. P10. At what level of unit sales for the two-month period should Bulusan Company be indifferent between temporarily closing the plant or keeping it open? A. and fixed mining costs are P6. Its cost of goods sold is P64. after which time sales of E14 should return to normal.200. Agimat Company plans to discontinue a segment with a P32. Darren Co. Since Bulusan Company uses just-in-time production method.000 P110. 24. Only one-half of the fixed expenses are direct and would be eliminated if the segment was dropped. Bulusan Company estimates that the strikes will last for about two months. Bulusan Company normally produces and sells 30. Increase by P1. and fixed selling costs total P30.000 increase Shutdown point 67 .000 of its indirect expenses are avoidable expenses. of which P20.000. A company is deciding whether or not to eliminate a segment of its business.000 Effect of drop decision 64 . Gold Ore sells for P1. no inventories are on hand.000 66 . Mina Co.000 D. The effect of this discontinuance on Banahaw’s overall net operating income would be a(an) A.000 and a remaining life of 5 years. The segment generates total sales of P104. P105. This segment's avoidable costs are greater than unavoidable costs.000 B. The segment margin for 2007 was P1.000 per month and that fixed selling costs can be reduced by 10%. If Bulusan Company does close down its plant.000 segment margin.000 units per month.000.000. The new machine would cost P90.000.000.000.000 decrease C.000 Equipment replacement 68 . P100.000.000 per month. Variable operating costs would be P125.000.000 C. Keep-or-drop decision Analysis 63 . If Gold Ore were dropped. 10.000 increase 65 .000 and P480. would A.000 B.000 C. P 7. the total separate variable costs of further processing that should be incurred each week are A.000 per year. MNL Company has an opportunity to acquire a new machine to replace one of its present machines. insurance. has offered to lease the equipment for five years for a total of P48.000 increase Lease 69 . and property tax expenses 29 . Darren Co.000 D.000.000 To maximize Matador’s manufacturing contribution margin.000. have a 5-year life and no estimated salvage value. This segment's revenue is greater than its avoidable costs. increase of P30. Decrease by P1. P 7. Banahaw Company plans to discontinue a department that has a contribution margin of P240. but it would be zero after 5 years. Of the fixed costs. however.000 in fixed costs. Bulusan Company is thinking about closing down its own plant during the two months that the strikes are on.000 B. P110.000 D.000. Alternatively.200.000. what would be the difference in profit before income taxes by acquiring the new machine as opposed to retaining the present one? A.000 decrease D. decrease of P30.Incremental Analysis Unit selling price with further processing P31 P23 Total separate weekly variable costs of further processing P100.000 and has P40. Considering the 5 years in total. D. C. The selling price is P22 per unit. mines three products.000 of accumulated depreciation to date.200. fixed manufacturing overhead costs total P150.000. E14 is a small electrical relay used in the automotive industry as a component part in various products.000 B.000 increase B.000 units of E14 each month.000 per year. This segment is a good candidate for elimination. its direct expenses are P22. The present machine has a book value of P50. Ignore income taxes.000 per ton. variable costs are P14 per unit. variable costs are P600. P12.125 D. P40. was considering dropping the mining of Gold Ore. 11. increase of P10. and its indirect expenses are P26. Variable operating costs would be P100. Start-up costs at the end of the shutdown period would total P8.000 per ton.000. 8.000 cannot be eliminated if the segment were closed. is considering disposing an equipment that costs P50.000 C. B. Which of the following is not true? A. The effect of closing down the segment on Agimat Company’s before tax profit would be A. Increase by P2. Six thousand pesos of the direct expenses and P8. P210.000 decrease D. can sell the equipment through a broker for P25.000 C. Minton Co.000 decrease C. Its disposal value now is P5.000 less 5% commission. it is estimated that fixed manufacturing overhead costs can be reduced to P105. P15. This segment has a net loss of P8.750. net income for Mina Co. however. Adrenal Company is unable to purchase more material for the production of CADS.80 C.20 Fixed selling expenses 3. Import duties on the CADS would be P1. P20. Henderson’s manufacturing costs for cylinders are as follows: Direct labor P120. The company expects to produce and sell 800 units.70 72 .50 Variable manufacturing overhead 2. The strike is expected to last for two months. Advantage. Henderson has experienced a significant learning curve on the direct-labor hours needed to produce new cylinders.00 D. The increase in income if the production is increased by 25% is A.000. P12. P20. The company could increase its sales by 25% above the present 60.50 74 . Since the outside manufacturer would pay for all the costs of shipping.000 units each year if it were willing to increase the fixed selling expenses by P80. The company has 1.80 70 .000 D. Advantage.20 73 .55 B. How much is the advantage or disadvantage of closing the plant for the two-month period? A. and costs for permits and licenses would be P9.333 D.35 C.285 direct-labor hours per cylinder.20 per unit shipping cost. say from 25 to 50 units for example.” Due to the deformities.25 direct-labor hours for the 50 cylinders. P15. What is the unit cost figure that is relevant for comparison to whatever quoted price is received from the outside manufacturer? A.65 D.Incremental Analysis estimated at P10. the fixed selling costs would be reduced by 20% while the plant was closed.30 Fixed manufacturing overhead 5.000 CADS on hand that have some deformities and are therefore considered to be “seconds. P 20. P21. P 4.000. P15. C.800 Question Numbers 75 though 77 are based on the following: Henderson Equipment Company has produced a pilot run of 50 units of a recently developed cylinder used in its finished products. the variable selling costs would be only two-thirds of their present amount. fixed overhead costs would continue at 60% of their normal level during the two-month period. Assume again that Adrenal Company has sufficient capacity to produce 90. At lease-end. What is the break-even price on this order? A.000. The company’s unit costs at this level of activity are given below: Direct materials P10. Adrenal Company has enough material on hand to continue to operate at 30% of normal levels for the two months. The only selling costs that would be associated with the order would be P3.95 C. If Adrenal Company accepts this offer.15 B. P 1. P15. B.00 Variable selling expenses 1.35 D. averaging 0.000 B.000. P21. Due to a strike in its supplier’s plant. P25.000 CADS each year. Past experience indicates that learning tends to cease by the time 800 parts are produced. the equipment is expected to have no residual value. Assume that Adrenal Company has sufficient capacity to produce 90.70 Henderson has received a quote of P75 per unit from the Leyte Machine Company for the additional 750 cylinders needed. The company normally produces and sells 60. P108. it will be impossible to sell these units at the normal price through regular distribution channels. D.500. P16. P18.00 per direct labor hour Fixed overhead 166. An outside manufacturer has offered to produce CADS for Adrenal Company and to ship them directly to Adrenal’s customers.000.000 C. As cumulative output doubles. Henderson frequently subcontracts this type of work and has 30 . P 5. the facilities that it uses to produce CADS would be idle.70 per unit.00 per direct labor hour Direct material 40.50 Total cost per unit P26. If the plant were closed. P16. Disadvantage. What unit cost figure is relevant for setting a minimum selling price? A.00 Direct labor 4. P144. the average labor time per unit declines by 20 percent.000 B.00 per hour Variable overhead 100.000 Comprehensive Questions 70 through 74 are based on the following information: Adrenal Company has a single product called a CAD.000 CADS. P130.000. P 25. P28. P144. The net differential income from the lease alternative is: A. B. Disadvantage.000 C.000 CADS each year at a selling price of P32 per unit. P22.50 per unit 71 . fixed overhead costs would be reduced by 75% of their present level. P23. A customer in a foreign market wants to purchase 20. The pilot run required 14.000 CADS each year without any increase in fixed manufacturing overhead costs. Direct labor Total 75 . CLASP offered to sell the reworked machinery to Kay as a special order for P68.470. Kay Corporation.Incremental Analysis always been satisfied with the quality of the units produced by Leyte. Decrease of P22. 79. Kay agreed to pay the price when it takes delivery in two months.300 P6.848 C.452 B. and payment is due no later than 30 days after billing. The allocation rates for manufacturing overhead and fixed selling and administrative costs are as follows: Manufacturing costs: Variable 50% of direct-labor costs Fixed 25% of direct-labor costs Fixed selling and administrative costs 10% of the total manufacturing costs P16.455 4.600 21. The additional identifiable costs to rework the machinery to Kay’s specifications are as follows: Direct materials P2. The sales commission rate on sales of standard models is 2 percent.350 16. while the rate on special orders is 3 percent.560. 93.900 B.948 .1 hours B.676. How many direct-labor hours are expected to be used for the production of 800 cylinders (including the pilot run)? A.052.200 . Tigok declared backruptcy. defaulted on the order. P53. P 9. Henderson Equipment Company has been operating at considerably less than full capacity.7 hours D.400 P10. net/30. 2. This means that a customer receives a 2 percent discount if payment is made within 10 days. Normal time required for rework is one month. Most customers take the 2 percent discount.6 hours A second alternative available to CLASP is to convert the special machinery to the standard model.700 5. C.834 C. CLASP’s manufacturing manager identified the costs already incurred in the production of the special machinery for Tigok as follows: 3. 77 Direct material Direct labor Manufacturing overhead: Variable Fixed Fixed selling and administrative costs Total 4.4 hours C. 67. Recently. Increase of P12. The following additional information is available regarding CLASP’s operations: 1. D. 74. with the remainder due upon delivery.802 D.500. Questions 78 through 81 are based on the following: CLASP Industries received an order for a piece of special machinery from Tigok Company. The additional identifiable costs for this conversion are as follows: Direct materials Direct labor Total 76 . P55.948 D.050 5. How much peso contribution would the sale to Kay Corporation add to CLASP’ before-tax profit? A. 78 Another company. and forfeited the 10 percent deposit paid on the selling price of P72.200 P10.000 down payment.000. Normal credit terms for sales of standard models are 2/10.500. Increase of P 8. However. P55.400 . This buyer has offered a P7.150 A third alternative for CLASP is to sell the machine as is for a price of P52. Increase of P 7. B. P49. the potential buyer of the unmodified machine does not want it for 60 days.850 3. P48.400.405 P59. will buy the special machinery if it is reworked to Kay’s specifications. P52. including the pilot run. which sells for P62. Just as CLASP completed the machine. How much peso contribution would the alternative of converting the special machinery to 31 . requires total incremental costs of: A. P68. The production of 800 cylinders. The effect on profit of producing 750 units instead of buying them from Leyte Machine Company a(an)? A.300 79 P 6. Credit terms for a special order are negotiated with the customer. Department 3 B.700 ( 400) 3.100 4.887 405 . P 7.300 2. How much would the alternative of selling unmodified machinery to the potential buyer contribute to CLASP’s before-tax profit? A. The machines and labor skills required in each department are so specialized that neither machines nor labor can be switched from one department to another. The total Machine Hours required by estimated monthly unit sales are: A.500 ( 300) 2. D E PARTM E NT 1 2 3. Which department has capacity constraint in labor hours? A. 10.600 3 2 2 1 1 2 2 2 1 1 Monthly Unit Sales 500 400 1.740 D. 82 and 85 are based on the following: Constraint Company manufactures and sells three products.440 C. Both labor and machine time are applied to the products as they pass through each department. P49. P49. P10. Department 1 C. The planning is complicated.722 B.500 D. P10.Incremental Analysis standard model add to CLASP’s before-tax profit? A. These data should be valid for the next six months. P 1.000 3.825 B.475 D.750 ( 200) 3.400 C. which are manufactured in a factory with four departments. P12. P52. P52.500 2 1 1 1 2 2 The sales department believes that the monthly demand for the next six months will be as follows: 81 Monthly Capacity Available Norman machine capacity in MH Capacity of machines being repaired in machine hours Available machine capacity in MH Available direct labor hours (DLH) Labor and Machine Time Direct labor hours Machine hours Direct labor hours Machine hours Direct labor hours Machine hours P 7 P 13 P 17 12 21 24 9 27 15 3 P196 6 14 -18 20 10 2 P123 12 14 16 9 25 32 4 P167 82 .200 C.000 3 1 2 1 2 2 Inventory levels are satisfactory and need not be increased or decreased during the next six months.600 32 405 . P54. 3 3.650 Product 401 403 80 . 11.500 3. because there are labor shortages in the community and some machines will be down several months for repairs. P50.700 2. If Kay makes CLASP a counteroffer. P12.600 C.920 B.500 4 3. Department 4 Labor and Machine Specifications per Unit of Product 83 . Department 2 D.000 P R O D U C T S 401 403 Unit costs: Direct material Direct labor Department 1 Department 2 Department 3 Department 4 Variable overhead Fixed overhead Variable selling expenses Unit selling price Management has assembled the following information regarding available machine and labor time by department and the machine hours and direct-labors required per unit of product. Unit price and cost data that will be valid for the next six months are as follows: Constraint Company’s management is planning its production schedule for the next few months. ( 500) 3. what is the lowest price CLASP should accept for the reworked machinery from Kay? A.400 Product 401 403 405 Question Nos. 300 B. The rent is for the building space which has been leased for 10 years at P140.500.000 Question Nos.Incremental Analysis B. The rent and heat and light are apportioned to the product lines based on amount of floor space occupied.000. P779. P 29.000 8. Constraint Company should produce: A.000 8. The total number of labor hours as constraint for a month is: A.000 22. Syjuco will have to spend P40.000 P 160. P250.000 18. P371. P183. P421. What is the full cost of the special order? A.000 P 880. If the product is a success. The product will be sold to wholesalers in boxes of 24 tubes for P800 per box. Syjuco to manufacture 5. All other costs are current expenses identified with the product line incurring them.000 P160. What is the effect on the overall profit if the special order is accepted? A. P( 25.000 12. 86 through 89 are based on the following.000 126. P600. In order to maximize its monthly profit. 13.000 B.000 P 120.000 special units for him.000 per year.000 C.000 D.000 P1.000 B.600 89 . No constraint 86 .000 for a special device which will be discarded when the job is done. 50 C. The amount of opportunity cost of taking the special order is: A.000 Total P1. After considerable research. P 71. A natural area for the company to consider is the production of special lotion and cream to prevent dry and chapped skin. The material cost will be about P40 per unit and the labor will be P72 per unit. P421. Hi accountant prepared the annual income statement shown below: Sales Material Labor Depreciation Power Rent Heat and light Other Total Income Custom Sales P1. However.000 400. A valued custom parts customer has asked Mr. P450. Mr. Mr. has decided to diversify in order to stabilize sales over the year.000 180. P492.340.000 units? A. P124.000 72.000 Standard Sales P500. 500 0 625 87 .000 625 D. The product selected (called Chaps) is a lip balm that will be sold in a lipstick-type tube.000) D. P779. Syjuco is working at capacity and would have to give up some other business to take this 33 . a P10.000 26.000 198.000 14.000 fixed charge will be absorbed by the new product to allocate a fair share of the company’s present fixed costs to it. He manufactures one standard product available from many other similar businesses and he also manufactures products to customer order.000. which produces and sells to wholesalers a highly successful line of summer lotions and insect repellents. C.000 D.000 P 40. However.000 120. The customer is willing to pay P140 for each part. 84 . Verbatim’s president has decided to introduce only one of the new products for this coming rainy season. Because of available capacity.000) B.000 88 .500 business.000 85 .000 14.000 C. a special product line has been developed. 12.000 B. 401 250 250 500 403 0 400 400 405 1.000 D.000 P 200. P651. He cannot renege on custom orders already agreed to but he could reduce the output of his standard product by about one-half for one year while producing the specially requested custom part. no additional fixed charges will be incurred to produce the product.000 P 360.000 C.000 2.100 D. Arnold Syjuco operates a small machine shops. The power charge is apportioned on the estimate of power consumed. P( 85. What is the incremental cost of the special order of 5. further expansion will be initiated in future years.000 20. The depreciation charges are for machines used in the respective product lines.000 P460.000 140.000 C.400 Question Nos.000 580. because of the conservatism of the company management. 90 through 94 are based on the following: The Verbatim Corporation. 750 D.000 1. B. The contract given by the hospital would reimburse the Veterans’ Hospital’s share of March manufacturing costs. P240 D.614 91 .500 500 1. The purchase price of the empty tubes from the cosmetics manufacturer would be P90 per 24 tubes. If the Verbatim Corporation accepts the purchase proposal. Because of an unusually large number of rush orders form their regular customers. what is the impact on its profit if Verbatim were to buy 125. a contract offer is made to Medical Supply Company by the Veterans’ Hospital to supply 500 units for delivery by March 31.000 units per month are show below: P200 per box 300 per box 150 per box P650 per box Unit manufacturing costs: Direct materials Direct labor Variable overhead Fixed overhead Unit marketing costs: Variable Fixed Total unit costs Verbatim has approached a cosmetics manufacturer to discuss the possibility of purchasing the tubes for Chaps.625.000. How much would it cost Verbatim to produce the tubes per box? A. 2. (There would be no variable marketing costs incurred on the hospital’s unit.000 B. P10. because the profit will increase by P 200.400 P4. Referring to Question No.) What impact would accepting the Veterans’ Hospital contract have on 94 .000 97 .625.000.000. a regular selling price of P7. 2. What is the monthly breakeven units for Medical Supply Company? A.000. if the price were ct from P7. Additional profit of P1. B.000 C. P11. assume there is no connection between the situations described in the questions. P 90 B.000 1.000.Incremental Analysis Using the estimated sales and production of 100.400 per unit should be assumed.900 P6. because the profit will decrease by P2. Medical Supply plans to produce 4.000. P12. On March 1.000 units during March. P 85 D. which is well within hoist production capacity limitations. P100 C. P 60 B.000 C. P200 95 . 92 . No.100 Unless otherwise stated.400 to P6. The costs of manufacturing and marketing hydraulic hoists at the company’s normal volume of 3. Ignore income taxes and other costs that are not mentioned in the cost schedule or in a question itself. C. If the Veterans’ Hospital’s order is accepted. which will use all available capacity. Assuming the cost behavior patterns implied by the data in the cost schedule is correct. at an annual rental of P1.000.250. must be acquired to produce this volume? A.000.400. B. No. P300 C. C.950 B. Question Nos. Market research estimates that volume could be increased to 3. Yes. What is the variable overhead rate per box of Chaps? A. 500 units normally sold to regular customers would be lost to a competitor. Unless otherwise stated.689 D.500 units. Additional profit of P375. P11. P120 93 . P 30 96 .000 boxes? A. 2. How much would Verbatim incur by making 125. What is the material cost per box of Chaps saved by purchasing them? A. the accounting department has developed the following costs: Direct labor Direct materials Total overhead Total bedridden patients.000. it is estimated that direct labor and variable overhead costs would be reduced by 10% and direct material costs would be reduced by 20%.000. D.200 500 1. P 50 B. 1.000.000 boxes. assuming that additional equipment. P1. 95 through 101 are based on the following: Medical Supply Company produced hydraulic hoists that were used by hospitals to move 34 . 93. Decrease in profit of P625.500 per unit.200 1. because the profit will increase by P1.200.000.500.000 D. would you recommend this action be taken? A. 90 . D.250.000 boxes of Chaps as the standard volume. P150 D. Yes.500. Additional profit of P1. P 60 C. because the profit will decrease by P1. each is to be treated independently. plus pay a fixed fee (profit) of P500. P 3. Direct material Direct labor Direct machine costs* Variable overhead Fixed overhead Incremental administrative costs Special fee** Material usage Production rate Effective tax rate 100 . These modified hoists could be sold for P9.500 per unit variable manufacturing expense. and reasonable incremental administrative costs associated with the manufacture and sale of the product. P3. What is the minimum price that would be acceptable in selling these units? A. Domestic business would be unaffected by this order. What inhouse unit cost should be used to compare with the quotation received from the supplier? A.000 blankets. Medical Supply’s plant would operate at two thirds of its normal level. P3.000 blankets scheduled for delivery to several military bases. 99 .50 per pound of fibers P 7. No other variable marketing costs would be required on this order. thus idle production facilities could be used without affecting domestic business.350.000 B. and total allocated fixed manufacturing costs for these 1.. while the costs of production would be P5.200 D.00 per hour P10.50 per blanket 6 pounds per blanket 4 blankets per DLH 40% 102 .460 101 P 1. Using the full-cost criteria and the maximum allowable return specified.. cost accountant.290 Question Nos. The contractor has indicated that bids in excess of P25 per blankets are not likely to be considered. P24. Andrea Lighter.00 per blanket P 3.000 units would be cut by 30 percent.500 B.000 blankets P 0. The minimum price per blanket that Marcus Fibers. coats.100 D. P(1. P 500 In order to prepare the bid for the 800. Variable marketing costs would be P1. Inc. P 4.100 C.000 each. has gathered the following information about the cost associated with the production of the blankets. or the inventory will soon be valueless.000 regular units hoists were manufactured or the mix of 2.00 C. Marcus Fibers’ bid price per blanket would be: 35 . An inventory of 230 units of an obsolete model of the hoist remains in the stockroom. Fixed marketing and manufacturing costs would be unchanged whether the original 3. Inc. Assume the same facts as in requirement No. P 5.000 98 .500 C.000) should be willing to pay the outside contractor? A.000.760 C. Full cost has been defined as including all variable costs of manufacturing the product. P3. What is the minimum unit price should Medical Supply Company consider for this order of 1. P 3. P( 850.25 B. An order for 1. Medical Supply’s fixed marketing costs would be unaffected. What is the maximum purchase price per unit that Medical Supply .000 per unit. P 3. Marcus has recently received a request to bid on the manufacture of 800. P 500.790 B. specializes in the manufacturing of synthetic fibers that the company uses in many products such as blankets.750 C.000 units? A.000 regular hoists plus 800 modified hoists were produced. P4.000 D. A proposal is received from an outside contractor who will make and ship 1. P 5. P4. Medical Supply Company has an opportunity to enter a foreign market in which price competition is keen.000 B. but its variable marketing costs would be cut by 20 percent for these 1. An attraction of the foreign market is that demand there is greatest when demand in the domestic market is quite low. The company uses a standard cost system and applies overhead on the basis of direct labor hours. P3.240 B. P3. and uniforms for police and firefighters. Marcus has been in business since 1975 and has been profitable every year since 1983.000 units is being sought at a below-normal price in order to enter this market. P50. The bid must be started at full cost per unit plus a return on full cost of no more than 9 percent after income taxes.000 D. while total costs of obtaining the contract (marketing costs) will be P40.Incremental Analysis March income? A.500 per 1.00 per direct labor hour P 8. Shipping costs for this order will amount to P750 per unit. P21.600 C. These must be sold through regular channels at reduced prices.000 units produced by the contractor. 102 and 103 are based on the following: Marcus Fibers.50 D.25 103 . 101 except that the idle facilities would be used to produce 800 modified hydraulic hoists per month for us in hospital operating rooms. P 5.000 hydraulic hoist units per month directly to Medical Supply’s customers as orders are received from Medical Supply’s sales staff. P40.100. P 1. a reasonable amount of fixed overhead. could bid without reducing the company’s net income is A.000) D.00 per direct labor hour P2. P 3. Incremental Analysis A. P27.00 B. P24.90 C. P26.00 D.90 ANSWER EXPLANATIONS 36 . P29. 600 10.000) P15. 3 .000 (360.000 @ 10) Direct labor (2.000 kg.30) Relevant cost 8.000 2 .750 P70. The sale thru the regular channels involves an opportunity cost of P140.000 P144.000 48. Answer: C Regular variable cost Overtime premium Relevant cost per unit Answer: B Full cost Fixed overhead Relevant unit cost P8.00 1.000 x 8.700 1.000 28. 6 7 8 9 10 .000 x P60 ÷ 2) or P1.000 Answer: B Variable costs Additional fixed costs Minimum bid price Answer: B Direct material Direct labor P56. .50 P9.08).50 .000 84.000) (540. Answer: C Cost of alternative selected Cost of alternative rejected Incremental cost P800.000 4 . the average investment for the inventory is (55.650.00 30.650.000 P150.00 20. 4.000 @ 6) Increase in variable cost due to overtime (2.000(12 – 4) Less Additional cost (24.000/9.000) 50.250 13.000 24.000.000 12.00 22. Variable selling expense (40% x 100) 40 Opportunity cost 140 Total 180 5 .000 @ 14) Incremental cost 20.000 x 0.00 Answer: C Cost of 1.000 @ 12) Variable overhead (2.000-unit monthly purchase.70) Add excess price include on the remaining 4.000 ÷ 24.70 – 8. Hence. Answer: A The company needs to purchase 55. Answer: A Additional revenue after rework (24. Answer: B The only relevant out-of pocket cost is the variable selling expense which is P40.000 x (8.50 (180.000 or (P1. .000 ÷ 24.1 .000 units earlier than their scheduled 5.300 Answer: B Direct materials (2. .000 kg at latest price (1.000 x 2) Additional profit P192.000 650. The opportunity cost is P132. . 500) Answer: B Relevant cost to make and sell: Direct materials Direct labor Variable OH Reduced selling expenses (30 x 0. 14 .00 1. Answer: B The company has no existing capacity.00 26.50 10.00 Lost contribution margin – LB46 (10.00 8. the relevant costs consist of incremental costs plus any opportunity costs.00 Direct labor 15. Contribution margin from special sale 1.000 NIL .000) (22.00 P56.000) 10. Answer: D Direct materials Direct labor Variable overhead Variable selling expense Additional profit (40.Variable selling expenses Total Add Profit per unit Selling price 11 . Answer: C The maximum number of units in regular sales that Benjing could afford to lose equals the quantity that provides regular contribution margin that matches the contribution margin provided by special sale.00 Variable overhead 12. Regular selling price P18 Additional expenses 1 Minimum selling price P19 13 .00 Minimum price 60.000 6. Answer: B 6.000 ÷ 24.000) Required selling price .000 ÷ 1.00 The lost contribution margin on regular sale is relevant because the company is operating at capacity.000 ÷ 5.06) Add’l fixed cost (20.000/5.00 3. The minimum selling price for this special sales should equal the regular selling price plus additional expenses.50 P41.00 15.000 Divided by regularCM (20 – 8) ÷ 12 Maximum Number of units 500 To illustrate the solution: Contribution margin from special sale Less Decrease in regular sales’ contribution margin (500 x 12) Effect on profit 16 4.50 .000) Minimum selling price 3.000 (14 – 8) 6. (84.00 Variable shipping and handling 3.00 39 6 8 18 4 75 12 . In a special sale wherein the company has to give up some of its regular units.500 ÷ 1. 15 Answer: A Direct materials 20. 250 .The maximum decrease in regular sale = Contribution margin from special sale/Unit contribution margin on regular sale (400 x 0.500 Less Additional fixed costs 30.750 6.000 x (70 – 50) = 60. Answer: A Special price Relevant cost: Direct materials Direct labor Variable overhead Unit contribution margin Units ordered Additional profit Answer: A Sales Less: Variable production cost Additional Fixed cost Labeling cost Profit (2.000 20.000 (1.25 P0.000 60.00 -1.500 x 2.75 0. 18 .000 x P5. Answer: A Total contribution margin from special sale(15.750 53.50) 33.500 x 30) (1.50) = 160 17 .00 19 . 21 22 .50 P0.000 3. Answer: B The minimum selling price should equal the relevant cost to produce and sell a unit of product.000 20 .50) 45. Answer: D Additional profit: 3.20) ÷ (2.00 P7.75) P4.50) P82.000 5.500 Please refer to Solution for Number regarding details of contribution margin per unit.000 Profit from special sale P52.2) 2 Selling expense (P15 x 0.500 Less Decrease in contribution margin on regular Sale 2. Direct materials P50 Direct labor 20 Variable overhead (P10 x 0.000(P39 – P22.75 2.75 300 P 225 32 4 12 6 22 10 2. Buy Number of units Increase in profit P6.000 Additional profit P19.50 5. Answer: C Selling price Relevant cost per unit: Regular cost per unit Less: Commission Fixed overhead (P3 x 2/3) Net amount Incremental fixed cost (P150 300) Advantage per unit.4) 6 Minimum selling price P78 . 000 13.000 6.000 . the related cost on outstanding note are irrelevant.000 145.000 8.000 137. is P6.000 40.23 . Selling price P100 Less Avoidable selling expense (P15 x 0. Answer: C The company has no excess capacity to be devoted to the production of additional units for special sale. Any amount higher than P6.75 The maximum purchase price.000 Answer: B Variable cost to make parts Cost buy Cost savings – “Make” decision Answer: A Direct materials Direct labor Variable overhead Avoidable fixed overhead Relevant cost – make Purchase price (30. if ever the company has to decide buying the product.000 94. 25 . 26 27 28 29 30 Answer: D Relevant Costs BetaZetaDirect materials 4.40 Variable overhead 1.00 8. .000 16. In a special sale decision where there is no excess capacity.00 .000 4. . the minimum selling price must be equal to the market price less any avoidable expenses. Answer: B Direct materials Direct labor Variable overhead Avoidable fixed overhead Total relevant cost to make 64.75 Relevant cost Make 7.000 Answer: D Direct materials Direct labor Variable overhead Additional contribution margin Total relevant cost to make 64.60 Avoidable marketing cost (0.4) 6 Minimum selling price P 94 24 .00135. . Answer: D The book value of the old equipment is a sunk cost and therefore not a relevant one.00Direct labor10.000 80.50) 1.75 will necessarily increase the unit cost of the product.75.7 x 2.000 450.000 x 12) (30. .00 47. Answer: C Direct material 2.000 x 15) 360.000 104. They are not affected by a decision.00Relevant Unit costP30.000 16.000 16. Also.000 90.00 80.00 Direct labor 2.000 8.00Factory overhead 40% 16. 000 x P15) Less: Relevant cost to produce (5. .000 @ 120 .000 21. .000 104.000 x P16) – P8.000) P 90.000 Alternative computation for relevant cost to make: Total cost (2.000 @30) (20.000 P( 2.000 P32.000 16.000 x 0.000 320.000 @ 6) (20.000 x P15) Relevant cost – make: Variable cost (2.000 16.000 65.000 300.Buy If the company would purchase the units.000 (20.000 6.000 x P16) Less unavoidable fixed cost (8.000 Avoidable fixed cost (8. 32.000 2.25) Opportunity cost – rent Cost savings – Buy (increase in profit) 26.75) Relevant cost to make 33 34 35 36 .000 64.000 240.000 P 4.000 P35.000 8.000 2.000 Answer: C Relevant costs to make Direct materials Direct labor Variable overhead Supervisor’s salary Opportunity costs.000 P24.000 40.000 x P15) Relevant cost to make: Variable cost (2.000 5. it would save P20. Answer: C Cost of purchase (2.000 88. .000 Answer: B Direct material Direct labor Variable overhead 120. .000 x 0.000 Answer: B Purchase cost (2. rent Total Relevant cost to buy (15.000 Answer: B Cost of ink cartridges (5.000 600.000.000 Avoidable fixed cost (P8.000 P30.25) Additional cost – Buy (Decrease in profit) P30.000 x P8) Additional cost if ink cartridges are purchased P75.000 30.000 120.000 P24.000 x P16) – 8.000 P26.000 P 20.Advantage – Make 31 32 .000 15.000 6. Answer: A Direct materials Direct labor Variable overhead Total variable cost Less Purchase cost Avoidable fixed cost Add unavoidable FC Total fixed overhead 8.000 x 0.000 x P20) Advantage . 000 P 4. (20.225.000 @ 9) 180.00 12.2) Total relevant cost Purchase cost Additional cost if purchased Answer: C Direct materials Direct labor Variable overhead Avoidable fixed cost Total per unit Number of unit P10.000 x 2 ÷ 3) = 8.00 4.000 25.00 x10.000 x 0.50 1.000 4.200 – 8.Avoidable fixed cost Total relevant costs .000 5.000)* Increase in unit cost if goods are purchased 15.000 P26.000 5. .000 .Make Purchase cost Add net savings Total Less: Cost to make Opportunity cost 37 .140.200.000 30.000 @ 60) 1.000 18.00 15.00 11.000 Answer: A Purchase price Handling cost (20% x P15. .200 4.50 10.000 6.000 26.000 1.00 6.000) Total Cost to make (21.800 *Fixed OH (12.00 27.00 3.000 3. Answer: A Cost to make: Direct materials Direct labor Variable overhead Avoidable fixed OH Relevant cost Purchase costs Decrease in profit in profit (20% x 30.000 30.000 3.000 (20.000 5.140.000 6.000) (1.000 @ 30) Answer: B Relevant costs to make per unit: Direct materials Direct labor Variable overhead Relevant cost – “to make” Purchase price per unit Increase in per unit cost if purchased Answer: A Direct materials Direct labor Variable overhead Avoidable fixed overhead (30.000 1.000 38 39 40 41 .000 5.000 1.000 6.000 13.000 85. .00 1. 50.000 x 7.000 (7. Answer: D Though the problem deals with transfer of goods from one division to another division.00Processing hours34CM/Hr1.000 x 30) Advantage “Buy” 270.500 43 .500 17.000) and use the rest of the machine hour capacity to .50) Variable cost per unit Selling price 47 P6.000 45 .000 Decrease in Dana’s profit if goods are purchased 2.Total Add savings from the manufacture of other product Total relevant cost – make Total purchase cost (10. calculated as: Contribution margin per unit (4 hours x P1. 46 .75) Less Relevant cost to make Direct materials @ 2.00Variable cost 1.000 x = 48.00For the Lemonade to be as profitable as Soda. Answer: C Total purchase cost (5.000 13.501.5 Avoidable fixed cost @ 0.000 + 12.000 42 .250) 80.500 2. Answer: D The solution is made in equation form.5 Variable overhead @ 1.005.000 15.00 P7.000 Answer: B SodaLemomadeSelling price6.000) 1.000 153.00 1. Purchase price. outside supplier 1.501.000 300.25 Units to be purchased 10.000 45.500 6.000 + 12.000 + 11x Buy: y = 60.00 . Answer: C Product B has a greater contribution margin per unit (P15 .000 + 11x = 60.875x = 60. Therefore the required selling price for Lemonade is P7.25 Variable cost to make (10.000 40. Answer: C Direct materials Direct labor Variable overhead Avoidable fixed overhead Total relevant cost 46. using y = a + bx for 2 alternatives: Let x = indifference point in units Make: y = 150.00 Additional unit cost to the company 0.P12 = P3) than Product A (P12 . the solution focuses on make on buy decision approach.504. The company should produce the maximum units it can sell of Product B (250.000 20.5 Opportunity cost Net saving – purchase 38.P10 = P2).000 315.000 ÷ 10. its contribution margin per hour should be P1.5 Direct labor @ 3.750 12.00Contribution margin4.000 44 .875x 150.500 7.875x 1. 1.000 13.produce 100.50 P2.50 17. it will produce all of Blender’s requirement and just purchase units of electric mixer that cannot be accommodated by the remaining capacity.000 – (20.000 x 3) Hours available to X Production of X: 18.000) 50 51 .00RC – Buy 15.50Hours required/unit÷ 3 ÷ 4.000MH used . Answer: B Unit contribution margin: Product A P12 – P10 P2 Product B P15 – P12 P3 Contribution margin per hour: Product A Product B P2 ÷ 0.01stC82.000 x 3) 21. 1 hr.03rdB1025.000 60 ÷ 6 = 10 42 ÷ 3 = 14 42.000 .003rd Based on MH ProductsUCMMH/unitCM/MHPriorityA94.50 4.00 13.50) (27.000Available MH to Metal27.50 1.000 18. .000 – 15.56.5 ÷ 2CM/DLH2412 12. Answer: D PlasticMetalRC – make 11.Plastic (7.000 – 6.53. Answer: A CM – Product A CM – Product B Difference in contribution margin 36/2 x 1.000 Answer: A Based on DLH 52 53 54 ProductsUCMDLH/unitCM/DLHPriorityA91.52.04.000 x 4.000MH used .09.000 @ 1)] ÷ 2 Purchase: Electric Mixer (28.50Profitability rank1st3rd2nd .000 15.25 P2. Product: Blender Electric Mixer [50.000 15. Answer: A HomeDeluxeProSelling price586580Direct materials(16)(20)(19)Direct labor(10)(15)(20)Variable overhead( 8)(12) (16)CM/unit241825Processing hour(s) ÷ 1 ÷ 1.Metal (6.01STB101. X Product X: Product Y: Total capacity – MH Machine hours devoted to Product Y (8. 48 49 .50Additional Cost-Buy 4.000) 5.22nd .000 ÷ 6 = 3.000 18. Answer: D Production order: Y.672ndC82. Answer: B Production order: BlenderElectric MixerPurchase price 20 38Variable cost to make: Direct materials 6 11 Direct materials 4 9 Overhead *(16 – 10) @ 6 12 Total( 16) (32)Additional cost if purchased 4 6Additional cost per hour (Blender.5Additional cost /hr.000 45/3 x 1.000 units of Product A.000 24.000 20.8 P3 ÷ 1.000 . Mixer 2 hours) 4 3 Since it will cost Mary P4 per hour to buy Blender and only P3 if Electric Mixer is purchased.0Priority 1st 2ndCapacity (machine hours) 48.000)Purchase of Metal (11.40 .000 3. 8 Available hours for production of Product B Less hours by Product B 152.000 – 250.000 Additional total sales P38.55 Number of units 25.000 P40 P 5 25 3 Minimum number of jars of silver polish to be produced: Avoidable fixed costs ÷ Contribution margin per jar P56.000) P100. 58 . Total contribution margin: (20.000 (160. however.000) 200.000 Product A has higher contribution margin per hour. direct labor and variable OH Variable selling costs Contribution margin per unit 10 8 240.000) (75.000 ÷ P7 33 P 7 8. the company should process further.000 The solution used the selling price of P20 as cost of Grit337 because there was unlimited demand for the cleaning powder.000 152. 59 .000 P 10. .Total capacity in hours Less hours used by Product A 200.20 Additional sales per unit 1.000 90.000) will be devoted to the production of X. The company should produce the maximum units it can sell of Product A and use the rest of the machine hour capacity to produce units of Product A in order to maximize its profit. Answer: B CM per hour: Product X: 50/5 Product Y: 64/8 The 20. Answer: D Additional sales Additional costs Additional profit (350.8 x 25.000) 190. 55 56 . If.000 . 57 .25 Number of units to be produced: Product A Product B 350.750 Increase in profit if the product is processed P 5. Answer: D Increase in selling price Additional processing cost Addition profit per unit 116 – 90 26 18 8 Answer: C Selling price after further processing P8.000 + 15.75 Selling price if not processed further 7. the demand for the cleaning powder is limited.000 Because further processing will provide more profit per unit.000 x 10) + (5. the recommended solution would use P16 as the cost of Grit 337.000 (190.750 Less additional processing costs 33.000 x 1.000 x 8) Answer: A Selling price per unit – silver polish Less variable costs: Grit 337 (P20 ÷ 4) Ingredients.000 hours (0.000 x 0. 00 . This is not the case for this segment. If Mina Co.000 240.000 of income if this segment is eliminated.000 32.’s income. The amount of direct fixed expenses that would be eliminated were previously deducted from contribution margin.000 ÷ (22-14) 11.000 x 4).000. Answer: A Additional Sales Price Additional Cost Additional profit (65 – 50) (30 x 40%) 15.000 – 50.000 (40. drops the Gold Ore. a decrease in Mina Co. Answer: B Avoidable common expenses (45. profit will increase by P16.000 – 20.000 A segment is a potential candidate for elimination if its revenues are less than its avoidable costs.000 78.00030.000 Indifference point 88.000)10.000 ) 5 Less: Additional depreciation (90.000 + P8.000Increase (decrease) in profit(10.200. not considered in the determination of the effect on income.000Additional processing costs100. The company will lose P26.000) Segment margin lost Decrease in profit P 25. 62 63 64 Answer: A XYAdditional sales value1034Additional processing costs1530Incremental (decremental) profit per unit(5) 4If Product Y is processed further. 68 .60 .000 units At 11.000 – 100.000 Avoidable costs: Cost of goods sold P 64.000Total increase in sales90.000 Start up cost (additional fixed expense ( 8.000 P (7.000) Net avoidable costs 88. the contribution margin equals the avoidable costs.000 65 .00 3.00 12.000) Answer: A Avoidable fixed expenses: Manufacturing (150. and therefore. Answer: A Avoidable fixed cost (benefit) Lost contribution margin Decrease in profit 210.000) 125. Answer: D Total Savings 5 year (125.000 x 0. it will lose the segment margin of P1.000 Selling (30.000 (4.000 – 50. 67 .000 Avoidable expenses (P6.000120.10 x 2) 6.000) (45.000) 14.000 unit level (2 months).000 30.000) 2 90. 66 . Answer: C Revenues P104. .000 – 105.000 .000) . Answer: D The question did not require any computation.000110.000) Loss on sale of old machine (5.000 Segment margin P 26. 61 . Answer: C Product to be processed further:Prod MProd NFinal selling price3123Selling price at split-off point2519Increase in selling price64Units15. 30 1.000 Answer: A Additional contribution (60.00 4. 73 .00 4.30 .000 10. are considered irrelevant because they are historical (sunk) costs.95) Differential income –lease 23.000 x 0.000 (15.000 ÷ 6 x 0.70 0.50 2. the variable selling costs the production costs.20) Total Contribution margin if the company has to operate (60.000) Selling (35. Increase in profit 40.000 80.20 Answer: C Direct materials Direct labor Variable OH Variable selling cost Import duties Permits and licenses (9.750 Sale arrangement: Net proceeds (25. Answer: C Avoidable fixed costs: Manufacturing (0.00 14.000 x 0.000 42.000 Answer: A Lease arrangement: Rental income (5 years) Cost of repairs.50 2.000) Minimum selling price 18.00 10. insurance and property taxes Net income 48.69 70 . Answer: A Direct materials Direct labor Variable overhead 20.20 1.00 10.40 x 50. 72 .000 x 0.000 27. closing the plant 74 .750 15.30 3.000 38.45 22.25 x 14) Additional fixed selling costs Additional profit Selling price Variable expenses: Materials Direct labor Variable overhead Variable selling costs Unit contribution margin 71 .20. Answer: D The relevant cost in selling the units on hand (inferior quality) is P1.15 Import duties are assumed to be paid by Adrenal Company because of the nature of the sale.00 4.50 2. 210.000 7. though variable. .000 32.30 x 14) Disadvantage.000 ÷ 20.000) 10.000 130. 95 Answer: A Batch (each 50 units)Cum Ave.400 6. Hrs114.848 62.00) Direct labor (93. .200 2.887 .4 76 77 78 79 80 .340 52.50% Net before – tax contribution Answer: D Cost of rework Direct labor Variable OH (4.100 (12.915 47.200 4.375 9.250 2.40 x 120) Variable OH (93.500 x 0.850 3. .498 7. .100 12.500 1.25) 120 VOH (93.1287.470 68.500 387 12.500 60.97)] Total 30.50) Total Commission [0.250 8.20 x 1 ÷ 3) Relevant cost – Make 75 . 3.03 (12.200 2.296165.40 – 14.500 x 0.25211.75 0.50) Direct labor (93.250 1.200 4.200 x 0.000 7. Answer: D Materials (800 x 40.40 20.052) 53.200 6.650 2.4049. Rework costs: Direct materials Direct labor Variable OH (4200 x 50%) Commission (68.8368 = 93.03) Before – tax peso contribution Answer: A Regular price Deduct: 2% commission (62.Avoidable fixed overhead (0.500) ( 2.75 x 5) Avoidable variable expense (1.300 1.948 Answer: A Production cost – 750 units: Materials (750 x 40.02) Net price Less additional conversion costs: Direct materials Direct labor Variable OH .25) 100 Total Purchase cost (750 x 75) Advantage – make Answer: A Sales price to Kay Corp.40 – 14.208 9.800 52.500 0.02) Sales discount (62.8368 Total Hours required: 16 x 5. .780 56.40 x 100) Total 32.400 x 0.400 11. Product 403 would not use any direct labor hours in Department 3 and so all of the required units for Product 403 can be produced.300Excess (Constraint) 300 200( 750) 300 83 .1002. Any excess direct labor hours in the other departments cannot be switched to Department 3. Dept.7003.800Excess (Constraint) 100 200 700 500 Total machine hours required by monthly unit sales: (2. 3Dept. 4Available DLH3. Dept. The schedule for monthly production should consider maximizing the use of available direct labor hours in Department 3 because it is the only one with constraint. Answer: B The production plan that will maximize monthly profit should be based on the profitability of the three products in terms of the use of direct labor hours in Department 3.000 + 2. all of the units required for Product 405 should be produced.0001.600 84 . Total required units.0002. Answer: C Department 3 has constraint in labor hours of 750.900 + 2.0002. 4Available MH3. P R O D U C T S401403405Selling price per unitP196P123P167Variable unit costsDirect material71317Direct labor663851Variable overhead272025Selling expenses324 Total variable cost1037397Unit contribution marginP 93P 50P 70No.000402 400 400 -8004032.900 + 2.0003. Product 401 Equivalent units based on constraint 750 ÷ 3 Production of Product 401 500 250 250 .500 500402 400 800 -8004032.9002.0002.4004.800) 10.000 Alternative Solution: Since Product 401 is the less profitable per DLH.5001. Product 403 and 405 will be produced in full and Product 401 will be partially produced.0001. 2Dept.0001.560 50.3003.000 x 2 2. Answer: B The table showing the comparison of available hours and required hours to produce all the required units in number 82 indicated that Department 3 is short by 750 hours. 3Dept.000 750 Production units – Product 401 250 x 3 750 Production: Product 401 Product 403 Product 405 250 400 1.750 Hours used by Product 405 Available hours for Product 401 1. Answer: A The available machine hours are sufficient to produce the estimated monthly sales. Available direct labor hours – Department 3 2.03) Net contribution 52.0002.5002. Answer: A Sales price Less: Commission (52.000 Total3. 85 . therefore.7004.9002.7502.5002.000 Total2.81 . of DLH required – Dept 33-2Contribution margin per DLHP 31-P 35Based on the above schedule. 1Dept.440 82 . 2Dept.600DLH required4011.0001.300MH required401 500 5001. 1Dept.000 1.200 x 0. Product 405 is more profitable per hour than Product 401’s and.000 1. rent.000 Power (0.000 Decrease in costs for standard products: Material (0.000 P421.000 x 0.000) P36.000 P 29.250 86 .000 x 0.Alternative question: What is the maximum monthly contribution margin that Constraint Company can earn? Product 401 250 @ P93 P 23.000 Product 405 1.5 x P180.000) 4.000) 10.5 x 160.000) 1.000 40.5 x 8.250 Product 403 400 @ P50 20.5 x P18.000 The amount of fixed costs allocated to special order would be the costs that should have been assigned to the standard sales that would be cancelled. Answer: B Costs incurred to make the order: Material (5.000 51.5 x 72. 88 . 87 . P250.000 Fixed costs: Depreciation (0.5) Opportunity costs 89 90 .000 600.000.5) Labor (180.000 P 71.000 9.000 x 72) Incremental fixed cost (special device) Costs to be incurred P200.50 x 500.5 x 2.000 9. Answer: B Decrease in sales of standard products0. Answer: D Costs to be incurred for special order P600.000 Less variable costs: Material (160.000 boxes 179. There is no information provided as to how power cost was exactly incurred.000 x 40) Labor (5.000 Decrease in costs Net incremental costs P 80.000) Other (0.000 x 0.000 P600.000 360.5) Other (18.000 Total cost P651.5 x 20.000 Answer: D Special sales (5.000 Heat and Light (0. and heat and light are assumed to be not affected by the special order.000 P80.000 ÷ 100.000 90.000 71.000 P150 100 .000) Labor (0.000 100. .000 P179.000 90.000 x 140) Variable costs Contribution margin from special sale Less opportunity costs Increase in profit Answer: C Total overhead rate per box Less fixed overhead allocated per boxP10.000 Rent (0.000 @ P70 70.000 Total contribution margin P113.000 P700.000 The amounts for depreciation. 400 Selling Price Less Variable costs: Direct materials Direct labor Variable overhead Marketing costs Total Unit contribution margin Breakeven units 96 P3. 94 95 .000 11.500 – 3. Answer: C In as much that there would be no change in the amount of fixed costs.900 2.000) 11.000.000 x (7.625.000 x 1.000 x 85 Additional fixed costs Total 10.20 = P 60 92 .800.500 P 3.000 1.000 ÷ 3.000 x 1.500) Contribution margin based on current estimates Decrease 3. . Answer: C The cost of materials saved by a decision of purchasing the tubes: is P300 x 0.000 11.200 3.625.700.900 7.200.400 – 3.800.500.000 units .000 Answer: C Total purchase cost 125.625.000 7. Answer: B Cost of making 125.200. the recommended solution was made by just comparing the amounts of contribution margin based on the revised data and the original information: Contribution margin based on new estimates 3.250.000 P7.000 x 85 Savings if purchased 11.000 P 7.000 1.800.500) Decrease in profit Alternative Solution: Total contribution margin 3.700.000 x (7.000 .000 4.1 x P 50 5 Total savings (relevant cost) P 85 The maximum amount that Verbatim is willing to pay per box of 24 tubes must be P85.000 375.500 500 500 3.500) Less Fixed costs 10. 93 .500 x (6.1 x P200 20 Overhead 0.000 Answer: A Fixed costs: Manufacturing Marketing Total 3.600.000 11.000 x 900 Total cost to make 125.400 P1.000 boxes: Variable costs 125.000 ( 1. Answer: B The relevant cost to make the tubes by Verbatim should equal the amount of cost savings as follows: Savings on materials 0.2 x P300 P 60 Labor 0.400 – 3.Variable overhead rate per box P 50 91 . 000)] ÷ 1.000.000 – 5.000 ( 1.500 500 750 40 3. Answer: C Direct materials Direct labor Variable overhead Shipping cost Cost of obtaining the order 40.000 Maximum purchase price to the cost to make the hoist is the 1.000 ÷ 1.100. Direct materials Direct labor Variable overhead Avoidable fixed overhead 1. Answer: D All the production costs. 97 as follows: ModifiedRegularSales7.000 1. 98 .000 3.30 Avoidable variable marketing cost 500 x 0. the cost must be both valid and relevant. both variable and fixed.000 Minimum selling price 3.900.000 Fixed overhead reimbursement 500 x 1.500 500 100 2.000) Answer: B Fixed fee P 500.790 99 .900) 1.800. Therefore.000 10.900.200.00022. the only relevant cost is the variable marketing cost.000 Total 1.Current profit Total contribution margin at reduced price 3.100 A better understanding of the solution can be made by drawing a schedule to compute income for this alternative and compare it with the income shown in solution for Question No.000 2.000 Less lost contribution margin on regular customers (500 x 3.000 x 3. P500 will be incurred. Answer: D The maximum price at which the price charged by the contractor would indifferent total differential cost or avoidable cost.200 x 0.000 1.200 600. because if the units will be sold through regular channel.000 5.200. Answer: A Direct materials Direct labor Variable overhead Avoidable marketing costs Opportunity cost [800 x (9.000 1. 100 .000 7.500 – 3.000Variable production costs: In house production (2.700.500 x (6.500 – 1. are no longer relevant because they are sunk costs.000 .500. 1.000 Decrease in profit P( 850.950.500) Less Fixed costs Revised profit Current profit Decrease in profit 97 .500 500 360 100 3.200.000) 6.2 Maximum purchase price 101 . To be relevant to a decision.000) The reimbursement for fixed overhead is an income for Medical Hospital Company because the special order does not entail additional fixed overhead.460 1. 000Variable marketing costs Regular (2.000 x 400) 1.00 .25 hr.25 hr.900. Answer: A Direct material (6 lbs. Marcus Fibers’ bid price per blanket would be: Relevant costs (from Requirement 1) P24.  P8) 2.000.09/(1 – 0.000) 800.400.75 10. 7.000.000 + 1.000Profit2.40) = 0. .900.90 *0.000 x 500) + (1.0001.75 2.50) Direct labor (0.000) Minimum bid price P9.90 Bid price P29.800.500)4.00 Allowable return (0.  P7) Direct machine cost (P10/blanket) Variable overhead (0.00 Fixed overhead (0.  P1.00 0.15*  P26) 3.000 Modified (800 x 1.400.000 Contractor’s cost 1.15 .100 5.50 P24.000) 3.  P3) Administrative costs (P2.000 x 5.(800 x 5.500/1.00 Subtotal P26.25 hr. Answer: B Using the full-cost criteria and the maximum allowable return specified.000 102 103 .00 1.000Fixed costs.900.100.000 Total profit (2.