106 Cos t Accounting

Problem 4
The company*s tOtBt fixsd
Green Meadows makes three types poGabl8 CO
gfS. g/ gg »ges of e4Ch typt
Ot

eOSt P1,d80,000. Selling prices, variab le costs, and sal es p

G t

of cooler follow:'
RIArBLE
VAcos SALES
MODEL SELLING
PRICE
vix
P 30%
X 100 p 8,800
7,600 50%
X950 14,860
12,000 20%
C 800 24,600
20,000

1. Whal is the company’s break-even point in units and pesos?

2. lf the company has a target of 1 M how many of each of cooler must
units type
be sold

Problem 5
Alonzo osvns a barber where he eiiiploys five barbers and pays each a base rale o£
P2,000 per month. One of the barbers act as the manager and receives aia extra
P3,000 per month. lii addition to the base rate, each barber is paid a commission
of
P20 per haircut. A barber can do an ax'erage of 6 haircuts a day'. The barber shop
is open 24 days a month. Other costs incurred are as
follows: Advertising P 1 ,000 per
month Rent 4,000 per
month
Barber supplies 400 per month
UtilitiCS 1,750 per month and
25 per haircut
Magazines 250 per mom
Cleaning Supplies 15 per haircut
Curently Alonzo charges Pl00 per
haircut

Required
I.
Compute the break-even point ns a) nambe r of hairc• @
(b) total pesos
s»d 1f1
2. In March, 1400 hairCLttS were giv en, C ompUt f2 tl1e at e t i n c
om e
3. Alonzo wants a net income of must be given P2 ,0 00, GO mpute
the n umber
of haircuts that
4. lf Alonzo wants a net income of P40,000, a n d 1,500
haircu tS „,p re giv it, how
much must be the amount charged per
haircut
Chapter 4 COst Yol ume Pr oñ t Analysis 107
Problem 6

Guiller Company’s projected profit for the comilag year follows

Sales TOTAL PER UNIT

Variable P2,480,000 P 20.00
costs t,488,0tj9 12.00
Co»0ibutiOx margin 992,000 P 8.00
Fixed cost 626.400
P 365.600

Required
I.Compute the break-even poii1! in
units 2.Compute the break-even point
in pesos 3.Compute tile contribution
margin ratio
4.Using the projected sales 5or the coining year, compute the margin of safety and -
margin of safety ratio.

Problem 7
Statement of Comprehensive Income for Brooklyn Company for the current year is

Sales P 750,000
Variable cost 600,000
Contribution margin 150,000
Fixed cost 100,000
Operating income

Required
1.Compute the break-even
poiiit 2.Compute the margi n
of safety 3.Compute the
margin of safety
4.
Com pute the degree of operating leverage
Suppose the company experiences a 30% increase in revenues, compute for the
5.

percentage change in profits

 108 Cost Accountipg

LT&LE CHOICE - T IUL$

. The systematic exaitlination of ilie tion5hip p,qoilg selling prices, volume of
rela
sales and production cosis and proflts IS Galled
a. contribution margin analysis
b. cost-volume-profit eialysis
c. budgetaly analysis
d. gross profit analysis
fitability of a
2. CVP ali al3'sis allow's inanageiaient to de term ine the t‘elat ive pro
product by
a. determiHllig potential boitleiaecfis in the production process
b. determining the contribuiicn margin per unit and projected profits at d ifferent
leve(s of production.
c. assigning costs to a product in a manner . that maximiz es the contribut ion
margir
d. keeping fixed costs in an absolute niinifllLll22

3.
The most ilnportant iltformatioit derived froln a breakeven chart is the
a. amount of sales needed to cover the variable cost
b. amount of sales needed io cover the fixed cost
c. relationship among revenues, variable costs, fixed costs at diNerent levels of
activity.
d. volume or output level at >'liicli the enterprise breaks ei/en
4.
Companies with a high Jegree of op«rai ilag lcverage
a. wil! have a more sltik in inccmc a.t SaleS volume changes
significant
b. have fewer fixed costs’
c. have lov•- contribution margin ratios
d. are less dependent on volume to add profits

5.A co,mpany’s break-even poirt would be increased ba

a. an increase in fixed costs
b. a decrease in contribution margin ratio
c. a decrease in selling,price
d. a decrease in variable cost per unit
 Chapter 4 Cost Volume Profit A
109
nalysis

6. If the variable cost per unit decreases while selling price decreases, the nsw
variable cost ratio in relation TO
the O ld 'V ariable cost ratio tvill be
a. higher
b. losver
c. the same
d. ñot enough i nformation provided

7. CVP analysis is a simpte but pon'erfuI tool to assist management at different

stages of the decision maling process, Which of the following does not
represent a primary of the CVP inodel>
a. Ability to compute the breok point
even
b. Abillty to find target sales volume
c. Aids in e ° <* '>fl t a x p Winning alternatives
d. Aids in determin i ng pJj at pf iCing policies

8, A decrease in the margin of safety would be caused

by a.an increase in total fixed cost
b.in increase in total actual sales
c.a decrease in s'ariable cost per unit
d.a decrease iii the selllng price pei unit

' 8. If the fixed cost for a product decrease and ihe varialsle cost (as a percentage
of peso sales) decrease, what wil l be the effect on the contribution margin
ratio and the break-even point respectively
Contribution margin ratio Break-es'en point
a. Deceased lncrease’d
b. Increased Decreased
c. Decreased Decreased
d. Increased Increased

1 0. If the s,ales mix shifls toward the higher contribution mar5in products, what
w'ould happen tp lhe bfeak-even point
a. decreases
b. increases
c. remains constant
d. requires add itional i n?ormatior
 c »o Accounting

MULTIPLE CHOICE — PROBLE MS

S
is trying to do GOSH JO • s' ••'y
e t
The Avengers Company " •"' h• e

following information for the month of AUQ8S1

p i, 100,00 0
Sales
280,000
Total Fixed cost
Total variable costs 660,000
40
Unit price

1. The operating income of the Avengers Com

pany is
a. Pl60,000
b. Pl90,000
c. P240,000
d. P440,000

2. What ts the break-even point in units?

a. 14,000 uxiu
b. 25,000 i«sits
c. 28,000 units
d. 35,000 units

3. If the company desires a profit of P80,000, hon' many must be sold?

a. 30,000 units
b. 35,000 units
c. 36,000
units d,
45,000 units

4. The margin of safety is

a. Pl00,000
b. P200,000
c. P300,000
d. P400,000

.The Orange Company plans to sell a new The selllpt price is expected tO
product.
be P 150 per unit. The company is able to 15,000 unig but the Com pany’s
produce
marketing manager feels that a more realistic level of sales would be units.
12,000
Variable coN is estimated at P70 per un it. TOtal fixed costs >’ill be P 900,000
Chapter 4 Cost Vof ume Profit 111
Analysis

5. The break-even sales

a. 10,000 units
b. 11,250 units
c. I 6,000 units
d. 18,000 uitits

6. How much is i^Co me (loss) if the company sells all the units it can produce
the
a. P (87,500)
b. Pl22,500
c. P300,000
d. P330,000

7. If the company desires to eana P400,000 before tax at full capacity', what
selling pricg must be charged
a. P 80.00
b. P 90.00
c. P 95.00
d. P100.00

&nna Company manufactures and sells tw’o products: Product A and Product
B. The two products have the following characteristics
Product A Product B
Selling price per unit P 50.00 P30.00
'Sales revenue 750,000 900,000
Variable cost per unit 39.09 24,00

Total fixed cost for the 0OlT1 dH}’ W'as P320,000 but increase to P400,000 at
production levels over 100,000. Sell ing price and variable cost per unit are the
same at all production levels
8. Assuming a consent product mix, w!* ft h is the break-even in units?
a. 10,000 units
b, 16,000 units
c. 23,000 units
d. 30,000 units
 Cost Acco unting
1i2
jpg a GOH t Pr Od C* *** l *.
9. Por the company to earn a pro£it Of P4 00,00
0, aS U*
how maziy units must be sold
a. 25,000 units
b. 37,500 units
c. 50,000 units
d. 75,000 units ot30,000 un its
te d baa d on S ales
The following costs have been estini il
le
Total itnnua l Pe rcent
cost p Variab
direct materials
Direct fiabor 300,000 100%
Manufacturing overhead q50,000 100
Sellilng and adlYliRlstrative 250,000 50
130,000 30
10. What selling price ss'ill result iia a 40% coñ t fl bU ii • = a gr l•

a. P33.2S
b. P39.J8
c. P52.78
@ P60.00

11. *ñ'hat selling price will yield u projected income of P50,000?

a. P35.20
b. P36.94
é. P4
1.80 d.
P42.25

Happy Face Company has fixed cost of per J'ear, t'ariable cost of P30
P500,000 per unit, and a selling Jirice of P50
per anit.
12. At a production level of 30,000 units, how ffltlCh is the operating income?
a. P 50s000
b. P I 00.000
c. P 150,000
d. P 200,000

13. The break-eveti sales iii itiaits

a. 10,000 u its
b. ?5,000 units
‘c. 27,500 units
d. ii0.000 units
 cs apter 4 Cost Volu me Pr»fit Analysis 113

i4. The number of units the company must sell to earn an income of P100,000?
a. 10,000 urits
b. 25,000 unita
c. 27,500 units
d. 30,000 uRi8

›tlexis Company’ operated normal capacit)' during the current year producing
at
50,000 of its single product.. Sales 40,000 units at a selling price of P20
totaled
per unit. Variable manufactu ring were P8 per unit and variable selling and
cost
admin isYative were P 4 per utlit. cost were incurred uniformly throughout
Fixed
the year and amounted to P188,000 for manufacturing and P64,000 for P64,000 for
selling and adm\nistrative.

15. The break-even point in pesos

is a. P 420,000
b. P 470,000
c. P 630,000
d. P 732,000

The Presley Company manufactures two products, Product X and Product Y..
The following are projections for the coming year,

Fixed P 20,000 P 24,000

Variable 60,000 75,000
Projected profit 20.000 14,000

16. Assuming that the fac ilities are not jointly' used, the breakeven
output (in tlnits)for Product X wou ld be
a. 8,000
b. 7,000
c. 6,000
d. 5,000
 c ost Accounting
114
The vanablC cost is
The Power Company sells its ,‹Pls.0o per »n:i.
sales anu t(}3ted to P45,000
p j2, 000. Cunent
PS.09 per unit. Total fixed coS1 l8 *
, pp¢¿ „ pJ3 «d eXpe n S e S hftYC th be
X
l7,If sales deer e>xc bj' 500 uisits,
by h fi
izfiuced to maintain the GtllTClat net income?
a. P7,500
b. P6,000
c. P3,000

P400 and the fixet5 costs

1B.At a break-es'en poiul‘of 400 units, the variable costs
profit Afore tax?
were P2O0. ,What x•ill the 40\“ unit soil contrib ute to
a. P o
b. PO.60.
c. PI.00
d. PI iO

The statement of comprehensive income for Blanche Company' for the curent
yeur is presented below
Sales P 400,000
Vwiable costs 12i,000
Contribtltion margin fi7S.000
Fixed costs 200.000
Income before tax p 75.000
19. What is the degree of operating leverage of Blanche Company
a.3.67
b.1.45
c. 5.33
d. 1.67

The following information pertains to Ellery Company. Budge@ s»les

d
,000,000, break even sales — P700,000, budgeted Cont ributi
— Pl on
mwgin — P600,000.
20. The margin of safety for %e Ellery Company is
a. P300,000
b. P400.000
c. P500,000
d, P600,000
 JOB ORDER COSTING
LEARNING OBJECTIVES
Upon completion of this chapfer, you should be able to
• Define job order costing and identify the ly pes of ind ustries that wou ld be
most to ttse tlils SJ'stem.
• Dentt»tistrste tl1c ytechacics of a job order costing system.
• Differentiate among the forms used in the purch ase and issuance Of
materials such as a purchase requisition, a purchase order, a receiving
repo«, and a materials requisitloR,
• Distinguish between the perlodic and perpet ual cost accumulation systems
used to account f9r materials issued to product ion and for ending materials
inventory.
• Prepare a job order cost sheet

The job order cost procedure keeps the costs of various jobs or contracts separate
during their manufacture or construction. The method is applicable to job order
work in factories, workshops, and repair shops as well as to work by brii!ders,
cons4uction engineefs, sJii builders, and printers. The cost unit is the job, the
work order, or the contract; and the records will show the cost o¥ each. The
method presupposes the possibility' of physically ide ntifying the jobs produced and
of charging each with its o¥m cost.

A variation of the job order cost method is that GOStlD g Drders by lots. A
lot is
of the quantity oP product that can economicalt y be produced and
conveniently and
coxted. For example, in the shoe ma indust ry’, a contract is divided into
nufacturing
lots, each lot being from 100 to 250 pairs of one size and style of shoe. The costs
are ihen accumulated for each lot.

In job order costing,

each facory overhead
job is an accounti ng unit to material s, labor,
costs are umbCFS. The costend a(
which
assigned by means of job order
aaCh order produced for a givcx customer or the of each lot to be placed in
cost
Stock IS recorded
on a summary sheet called a job order COSt sheet or
theet. This mater sheet is designed to merely
the a cop
costs materials, laJj
collect of
factory overhead applicable to a apeciftc job or, md
 Product X Product Y
Sales P 100,000 P 112,500
$ales in units 10,000 7,S00
Expenses