Review 1

1.
The following data were taken from the records of Best Company:
Inventories: 08/31/2008 09/30/2008

Raw Mat. P ? P 50,000
Work-in-Process 80,000 95,000
Finished goods 60,000 78,000
Raw Materials purchases, P46,000. Selling and Administrative Expenses, 12.5% of sales,
P25,000 Factory Overhead, 75% of direct labor cost, P63,000 Net Income for September, 2008, P25,000
What is the cost of Raw Materials Inventory on August 31,2008?
A. P 30,000 B. P46,000
C. 40,000 D. 50,000
2. Fixed cost per unit is P9 when 20,000 units are produced and P6 when 30,000 units are produced. What is the total fixed cost when nothing
is produced?
a. P 0 c. P150,000
b. P 270,000. d. P180,000 YES! Either $9 x 20,000 = $180,000 or $6 x 30,000 = $180,000
3. Wombat Ltd requires sales of $2,000,000 to cover its fixed costs of $900,000 and to earn net profit of $400,000. What percent are variable
costs of sales?
a. 20% c. 45%
b. 35% d. 65% Section “Target profit” – Variable costs are 35% of sales (($2,000,000 – (900,000 +400,000))/2,000,000).
Problems 4 and 5: During January 200A, Liquigan Inc. produced 1,000 units of Product A with costs as follows:
Materials PHP 6,000.00

Labor 3,300.00
Variable Factory Overhead 2,500.00
Fixed Factory Overhead 1,500.00
Total Manufacturing Costs PHP 13,300.00
Selling and administrative costs incurred during the month were:
Variable selling and administrative PHP 3,000.00

Fixed selling and administrative 2,000.00 Selling price per unit PHP 20.00
The company does not keep inventories in stock.
4. What is the product cost per unit under variable costing?
a. P13.30 c. P 11.80
b. P18.30 d. P 14.80
5. Under absorption costing , income for January 200A was:
a. P8,200 c. P6,700
b. P5,200 d. P1,700
6. Hershey Company has budgeted sales of 90,000 units in January; 120,000 units in February; and 180,000 units in March. The company has
20,000 units on hand on January 1. If Hershey Company requires an ending inventory of finished goods equal to 20% of the following month’s
sales, the budgeted production during February should be:
a. P96,000.00 b. P108,000 c. P 120,000 d. P132,000
7. A company plans to discontinue a division with a P50,000 contribution to overhead. Overhead allocated to the division is P80,000 of
which P35,000 cannot be eliminate. The effect of this discontinuance on the company’s income before tax is a/an.
a. increase of P5,000 c. increase of P30,000

b. decrease of P5,000 d. decrease of P30,000
Items 8 to 9 are based on the following information:
Iking Corporation produces “Sticky,” its only product. Annual production capacity is 100,000 units, although annual demand is only 80,000
units. Sticky is sold for P20 per unit. Manufacturing, administrative, and selling costs are as follows:
Variable per unit:

Materials P3.00
Direct Labor 5.00
Variable manufacturing overhead 1.50
Variable selling 4.10
Fixed costs (per year)

Factory Overhead P200,000
Selling and Administrative 100,000
One machine hour is required to produce one unit of Sticky.
8. Stickier Company offers to make and ship 30,000 units of Sticky directly to Iking Corporation’s customers. If Iking Corporation accepts this
offer, it will continue to produce and sell the remaining 50,000 units. Iking Corporation’s fixed factory overhead will decrease by P20,000. Its
fixed selling and administrative costs will remain unchanged. Variable selling costs will decrease to P1.10 per unit for the 30,000 units produced
and shipped by Stickier Company. What’s the maximum amount per unit that Iking Corporation should pay Stickier Company for producing and
shipping the 30,000 units?
a. P13.17 c. P20.00
b. P13.60 d. P11.27
9. Iking Corporation receives a one-time special order for 10,000 units of Sticky at P13 per unit. Acceptance of this order would not affect
the regular sales of 80,000 units. Variable selling costs for each of these 10,000 units will be P2.00. If the special order is accepted, Iking
Corporation’s income will increase (decrease) by:
a. P14,000 c. P35,000
b. P15,000 d. (70,000)
10. Hershey Company has budgeted sales of 90,000 units in January; 120,000 units in February; and 180,000 units in March. The company
has 20,000 units on hand on January 1. If Hershey Company requires an ending inventory of finished goods equal t0 20% of the following
month’s sales, the budgeted production during February should be:
a. 96,000 c. 120,000
b. 108,000 d. 132,000
11. Tasyo Company has budgeted sales of 90,000 units in January; 120,000 units in February; and 180,000 in March. The company has
20,000 units of finished goods and 35,000 pieces of materials on hand on January 1. Each unit of product requires 5 pieces of materials. The
desired inventory of finished goods and materials at the end of each month is as follows:
Finished goods - 20% of the next month’s sales
Materials - 25% of the next month’s production needs
How many pieces of materials should the company plan to purchase in
January? a. 600,000 c.
468,000
b. 567,000 d. 552,500
12: Annely Dolls, Inc. manufactures a talking doll which has the following production cost data for each unit of doll:
Materials: Voice box assembly purchased from
outside source P100
Other materials 400
Labor- 8 hours at P30 per hour 240
Variable factory overhead (8 hours @ P20 per hour) 160
Total variable cost per doll P900
Fixed factory overhead – P10,000,000 per month
Budgeted sales of dolls for the last 3 months of the year are as follows:
October 30,000
November 40,000
December 70,000
As much as possible, the company does not want to stock finished goods inventory, so it produces exactly the same quantity as the
budgeted sales each month. However, in order to avoid stock-out problems in December, it plans to have a December 1 inventory
balance of 30% of December’s budgeted sales. What is the budgeted production cost in November?
a. P54,900,000 c. P46,000,000
b. P56,800,000 d. P64,900,000
1. C 2. D 3. B 4. C 5. D 6. D 7. B 8. D 9. B 10. D 11. A 12. D

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1.

Inventories: 08/31/2008 09/30/2008

Materials PHP 6,000.00

Selling and administrative costs incurred during the month were:

Variable selling and administrative PHP 3,000.00

The company does not keep inventories in stock.

4. What is the product cost per unit under variable costing?

5. Under absorption costing , income for January 200A was:

a. P96,000.00 b. P108,000 c. P 120,000 d. P132,000

a. increase of P5,000 c. increase of P30,000

Items 8 to 9 are based on the following information:

Variable per unit:

Fixed costs (per year)

One machine hour is required to produce one unit of Sticky.

How many pieces of materials should the company plan to purchase in

1. C 2. D 3. B 4. C 5. D 6. D 7. B 8. D 9. B 10. D 11. A 12. D

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