THEORIES

1 A cost that would be included in product costs under both absorption costing and variable costing would be:
equipment depreciation
supervisory salaries.
variable manufacturing costs.
variable selling expense

2 The opportunity cost of making a component part in a factory with no excess capacity is the:
fixed manufacturing cost of the component.
net benefit foregone from the best alternative use of the capacity required.
variable manufacturing cost of the component.
cost of the production given up in order to manufacture the component.

3 CLAN Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually.
Currently CLAN produces 40,000 valves and is thinking about increasing production to 45,000 valves
next year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs
given this change?
Total manufacturing costs will stay the same and unit manufacturing costs will stay the same.
Total manufacturing costs will stay the same and unit manufacturing costs will decrease.
Total manufacturing costs will increase and unit manufacturing costs will decrease.
Total manufacturing costs will increase and unit manufacturing costs will stay the same.

4 A plant operating at capacity would suggest that:

every machine and person in the plant is working at the maximum possible rate.
only some specific machines or processes are operating at the maximum rate possible.
managers should produce those products with the highest contribution margin in order to deal with the constrained resource.
fixed costs will need to change to accommodate increased demand.
5 What factor is the cause of the difference between net income as computed under absorption costing
and net income as computed under variable costing?
Absorption costing includes all fixed manufacturing costs in product costs, but variable costing expenses all fixed manufacturing costs.
Absorption costing includes all variable manufacturing costs in product costs, but variable costing considers variable
manufacturing costs to be period costs.
Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories, and variable costing
considers all fixed manufacturing costs as period costs.
Absorption costing considers all manufacturing costs in the determination of net income, whereas variable costing considers only prime costs.

6 What will be the difference in net income between variable costing and absorption costing if the number
of units in work in process and finished goods inventories increase?
Net income computed using variable costing will be higher.
There will be no difference in net income.
Net income computed using variable costing will be lower.
The difference in net income cannot be determined from the information given

7 In considering a special order that will enable a company to make use of presently idle capacity, which of the following costs would be irrelevant?
Depreciation
Variable Overhead
Materials
Direct Labor

8 FALSE
supervisory salaries.
variable selling expense
equipment depreciation
variable manufacturing costs

9 In order to avoid pitfalls in relevant-cost analysis, management should focus on

long-run fixed costs of each alternative.
 variable cost items that differ for each alternative.
anticipated fixed costs and variable costs of all alternatives.
anticipated revenues and costs that differ for each alternative.

10 Ipit Company uses a calendar-year and prepares a cash budget for each month of the year. Which one of the following items should be
considered when developing July's cash budget?
Quarterly cash dividends scheduled to be declared on July 15 and paid on August 6 to shareholders of record as of July 25.
Recognition that 0.5% of the July sales on account will be uncollectible.
Property taxes levied in the last calendar year scheduled to be paid quarterly in the coming year during the last month of each calendar quarter.
Income tax and social security tax withheld from employees' June paychecks to be remitted to the bureau in July.

11 Which of the following is true of budgets when they are administered thoughtfully?
They are a substitute for planning and coordination function of management
They eliminate the subjectivity in performance evaluation.
They can eliminate the uncertainty faced by a company
They promote coordination within the subunits of a company.

12 The following normally occupies a staff position except:.

Vice president of marketing
Treasurer
Accounting manager
Staff accountant

13 For a multiple-product company, a shift in sales mix from products with high contribution-margin percentages toward products with low
contribution-margin percentages causes the breakeven point to be
unchanged
lower
different but undeterminable.
higher
14 The major objective of preparing a scatter-diagram is to
find the high and low points to use for the high-low method of estimating costs
determine the relevant range
develop an equation to predict future costs
perform regression analysis on the results

15 Company's inventory increased during the year. On the basis of this information, income reported under absorption costing:
will be the same as that reported under variable costing.
will differ from that reported under variable costing, the direction of which cannot be determined from the information given.
will be lower than that reported under variable costing.
will be higher than that reported under variable costing.

16 The proponents of throughput costing

treat all costs except those related to variable direct materials as costs of the period in which they are incurred.
argue that only direct materials and direct labor are "truly variable" and all indirect manufacturing costs be written off in the
period in which they are incurred
maintain that it provides more incentive to produce for inventory than do either variable or absorption costing.
maintain that variable costing undervalues inventories.

17 If a division is set up as an autonomous profit center, then goods should not be transferred
in or out at cost-based transfer price.
to other divisions in the same company.
in at a cost-based transfer price.
out at a cost-based transfer price.

18 When an organization allows divisional managers to be responsible for short-term loans and credit, the division's
invested capital should be measured by
 average total assets minus average current liabilities.
average total assets minus average total liabilities
average total liabilities minus average current assets.
total assets minus total liabilities.

19 Management accountants are concerned with incremental unit costs. These costs are similar to the following except
The cost to produce an additional unit.
The economic marginal cost.
The manufacturing unit cost.
The variable cost

20 Ola waits two hours in line to buy a ticket to an NCAA Final Four Tournament. The opportunity cost of buying the P500 ticket
Ola’s best alternative use of the P500.
Ola’s best alternative use of the two hours it took to wait in line
Ola’s best alternative use of both the P500 and the two hours spent in line.
the value of the P500 to the ticket agent.

21 In analyzing whether to build another regional service office, the salary of the Chief Executive Officer (CEO) at the corporate headquarters is
Irrelevant since another imputed costs for the same will be considered.
Irrelevant because it is future cost that will not differ between the alternatives under consideration.
Relevant because salaries are always relevant
Relevant because this will probably change if the regional service office is build

22 Accounting report that includes the firm’s critical success factors in four areas is also known as:
Balanced scorecard
Business Process reengineering
Total quality management
Strategic management reporting
23 A very high degree of operating leverage indicates a firm
has high variable costs
is operating close to its breakeven point
has high fixed costs
has a high net income

24 Ms. Dina Garal asked your help to help her investigate and identify the cost classifications incurred by his company.
Based on the data provided by her former accountant, the company incurred P800,000 in labor cost, of which 60% was
related to production and the balance was evenly distributed to selling and administrative. Also, the company’s rental
expense was P1,200,000 for the entire year, of which 30% was related to administrative, 30% for their showroom, while
the balance was for their production area. The report also noted that all company machines, which 80% of the machines
was used in production, were depreciated under straight line method and incurred P500,000 as depreciation expense. It
was also noted in the report that all factory employees were paid on a daily basis while all sales and office staff were
paid on a monthly basis. The cost that could classified as variable cost would be
All the labor costs of the sales staff and the office staffs, rent and depreciation.
Only the direct labor cost of the company
Only the entire labor cost of the company
All the cost mentioned in the case

25 Net profit under absorption costing may differ from net profit determined under the direct costing. How is this difference calculated?
Change in the quantity of all units in inventory times the relevant fixed costs per unit.
Change in the quantity of all units produced times the relevant variable cost per unit.
Change in the quantity of all units produced times the relevant fixed costs per unit
Change in the quantity of all units in inventory times the relevant variable cost per unit.

26 Consider the following statements about absorption- and variable-costing net income:
I. Yearly income reported under absorption costing will differ from income reported under variable costing if production and sales volumes differ
II. Long-run, total income reported under absorption costing will often be close to that reported under variable costing.
III. Differences in income under absorption and variable costing can often be reconciled by multiplying the change in inventory
(in units) by the variable manufacturing overhead cost per unit.
 Which of the above statements is (are) true?
I only.
I and II
II only.
III only.

27 The Standards of Ethical Conduct for Management Accountants developed by the Institute of Management Accountants
contain a policy regarding confidentiality that requires management accountants to refrain from disclosing confidential
information acquired in the course of their work:
except when authorized by management.
in all cases not prohibited by law.
except when authorized by management, unless legally obligated to do so.
in all situations

28 A decrease in the margin of safety would be caused by a(n):

increase in total revenue (sales)
decrease in the break-even point
increase in the total fixed cost
ecrease in the variable cost per unit.

29 Ms. Dina Garal asked your help to help her investigate and identify the cost classifications incurred by his company.
Based on the data provided by her former accountant, the company incurred P800,000 in labor cost, of which 60% was
related to production and the balance was evenly distributed to selling and administrative. Also, the company’s rental
expense was P1,200,000 for the entire year, of which 30% was related to administrative, 30% for their showroom, while
the balance was for their production area. The report also noted that all company machines, which 80% of the machines
was used in production, were depreciated under straight line method and incurred P500,000 as depreciation expense. It
was also noted in the report that all factory employees were paid on a daily basis while all sales and office staff were
paid on a monthly basis. The cost that would be classified as part of product cost would be
40% of the labor cost, 60% of rental and 20% of depreciation
60% of the labor cost, 60% of rental and 80% of depreciation
60% of the labor cost, 40% of rental and 80% of depreciation
 All the cost mentioned in the case

30 Which of the following is true of a company that uses absorption costing?

Unit product costs can change as a result of changes in the number of units manufactured.
Net operating income fluctuates directly with changes in sales volume.
Variable selling expenses are included in product costs
Fixed production and fixed selling costs are considered to be product costs.

31 Which of the following describes the goal that should be pursued when setting transfer prices?
Allow top management to become actively involved when calculating the proper dollar amounts.
Maximize profits of the buying division.
Maximize profits of the selling division.
Establish incentives for autonomous division managers to make decisions that are in the overall organization's best interests

32 When the majority of authority is maintained by top management personnel, the organization is said to be
composed of cost centers.
engaged in transfer pricing activities
centralized.
decentralized.

33 Opportunity costs:
Are treated as period costs under variable costing
Do not vary among alternative courses of action.
Are benefits that could have been obtained by following another course of action.
Have already been incurred as a result of past action.

34 The relevance of a particular cost to a decision is determined by

Number of decision variables.
Riskiness of the decision.
 Amount of the cost
Potential effect on the decision

35 The distinction between avoidable and unavoidable costs is similar to the distinction between
variable costs and mixed costs
variable costs and fixed costs.
discretionary costs and committed costs.
step-variable costs and fixed costs
ABEL CO

For the year ended December 31, 2022, Abel Co. incurred direct costs of P500,000
based on a particular course of action during the year. If a different course of action
had been taken, direct costs would have been P400,000. In addition, Abel’s 2022
fixed costs were P90,000. The incremental cost was

incurred direct costs 500,000

Direct cost would have been 400,000
fixed cost 90,000

incurred direct costs 500,000

Direct cost would have been 400,000
Incremental Cost 100,000
CLAY CO

Clay Co. has considerable excess manufacturing capacity. A special job order’s cost sheet includes the
following applied manufacturing overhead costs:
Fixed costs 21,000
Variable costs 33,000

Fixed cost allocation 3,700

External design cost 7,750
The fixed costs include a normal P3,700 allocation for inhouse design costs, although no in-house design
will be done. Instead the job will require the use of external designers costing P7,750. What is the total
amount to be included in the calculation to determine the minimum acceptable price for the job?

Variable costs 33,000

External design cost 7,750
40,750
COCO CO
Coco Co. plans to discontinue "Probinsyano" department that has a P48,000
contribution margin and P96,000 of fixed costs. Of these fixed costs, P42,000
cannot be avoided. What would be the effect of this discontinuance on Coco's
overall net operating income?

Contribution Margin 48,000 Increase of P48,000

Unavoidable Fixed Cost 42,000 Decrease of P48,000
Net Income 6,000 Increase Increase of P6,000
Decrease of P6,000

96000
-42000
Avoidable 54000
CM 48000
Increase due to discontinuaion 6000
DIVISION P OF TURBO
Division P of Turbo Corporation has the capacity for making 75,000 wheel sets per year and regularly
sells 60,000 each year on the outside market. The regular sales price is P100 per wheel set, and the
variable production cost per unit is P65. Division Q of Turbo Corporation currently buys 30,000 wheel
sets (of the kind made by Division P) yearly from an outside supplier at a price of P90 per wheel set.
If Division Q were to buy the 30,000 wheel sets it needs annually from Division P at P87 per

Wheel sets per year 75,000.00

Regularly sells 60,000.00 P600,000.
Sales price 100.00 P225,000
Prod cost per unit 65.00 P135,000.
Currently buys 30,000.00 P750,000.
Price per wheelk 90.00
Division Q buy 30,000.00
Per unit income 87.00

Sales price 100.00

Prod cost per unit 65.00
35.00

Currently buys 30,000.00

15,000.00
15,000.00

Prod cost per unit 65.00

17.50
82.50

Price per wheelk 90.00

82.50
7.50
30,000.00
225,000.00
DIVISION A

Division A of Harkin Company has the capacity for making 3,000 motors per month
and regularly sells 1,950 motors each month to outside customers at a contribution
margin of P62 per motor. Division B of Harkin Company would like to obtain 1,400
motors each month from Division A. What should be the lowest acceptable transfer
price from the perspective of Division A?

Capacity of motors 3,000.00 P26.57

Regularly sells 1,950.00 P15.50
Contribution margin 62.00 P62.00
VC 35.70 P35.70
Division B obtain 1,400.00

Capacity of motors 3,000.00 Capacity of motors 3,000.00

Regularly sells 1,950.00 Regularly sells 1,950.00
Idle Capacity 1,050.00 Idle Capacity 1,050.00

Division B obtain 1,400.00 Division B obtain 1,400.00

VC 35.70 VC
49,980.00 0.00

Division B obtain 1,400.00 Division B obtain 1,400.00

Idle Capacity 1,050.00 Idle Capacity 1,050.00
350.00 350.00

350.00 350.00
Contribution margin 62.00 Contribution margin 62.00
21,700.00 21,700.00

21,700.00 21,700.00
49,980.00 0.00
71,680.00 21,700.00
Division B obtain 1,400.00 Division B obtain 1,400.00
51.20 15.50
Pag meron VC Pag walang VC
DIVISION X

Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below:

Selling price to outside customers 50

Variable cost per unit 30
Total fixed costs 400,000
Capacity in units 250,000

Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division Y
currently purchases a similar part made by an outside company for P49 per unit and would substitute the part made by
Division X. Division Y requires 5,000 units of the part each period. Division X has ample excess capacity to handle all of
Division Y's needs without any increase in fixed costs and without cutting into outside sales. According to the transfer
pricing formula, what is the lower limit on the transfer price?

0 30
5,000 50
0 46
30 49
30
ISKATI

Iskati Corporation operates two stores: A and B. The following information relates to store A:
Sales revenue 900,000
Variable operating expenses 400,000
Fixed expenses:
Traceable to A and controllable by A 275,000
Traceable to A and controllable by others 120,000
A's segment profit margin is:

Sales revenue 900,000

Variable operating expenses 400,000
Traceable to A and controllable by A 275,000 675,000
225,000
KEATING

Keating Co. is considering disposing of equipment that cost $50,000 and has $40,000 of accumulated
depreciation to date. Keating Co. can sell the equipment through a broker for $25,000 less a 5% commission.
Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $48,750. Keating will
incur repair, insurance, and property tax expenses estimated at $8,000 over the five-year period. At lease-end,
the equipment is expected to have no residual value. The net differential profit or loss from the sell alternative is a

Cost 50,000.00
Acc Dep 40,000.00
Sell Equipment 25,000.00
Commission 5.00%
Lease equipment 48,750.00
years 5.00
Property tax 8,000.00
years 5.00

Sell Equipment 25,000.00

Commission 5.00%
1,250.00

25,000.00
1,250.00
Net income of Equipment 23,750.00

Lease equipment 48,750.00

Property tax 8,000.00
Net income on lease 40,750.00

Net income on lease 40,750.00

Net income of Equipment 23,750.00
Net differential income 17,000.00 LOSS
Last Period

Consider the following:

Sales price, per unit 18 per unit
Standard absorption cost rate 12 per unit
Standard variable cost rate 8 per unit
Variable selling expense rate 2 per unit
Fixed selling and administrative expenses 40,000
Fixed manufacturing overhead 60,000

Last Period Units were produced 13,000 unit

current period produced 15,000 unit
each period sold 13,000 unit
Lastperiod,13,000 units were produced. In the current period, 15,000 units were produced. In each period, 13,000
units were sold. What is the difference in reported income under absorption and variable costing for the current
period?

The variable-costing income exceeded absorption-costing income by P6,000.

The variable-costing income exceeded absorption-costing income by P4,000.
The absorption-costing ikncome exceeded viariable costing income by 8,000
Net income will not be different between the two methods.

60,000
15,000
4
Ending inventory 2,000
difference in income 8,000
Produced > sold = Absorption income > Variable income
LIM

1 The following information has been extracted from the financial records of Lim
Corporation for its first year of operations:

Units produced 10,000

Unit Sold 7,000
Variable costs per unit:
Direct material 8
Direct labor 9
Manufacturing overhead 3
SG&A 4
Fixed costs:
Manufacturing overhead 70,000
SG&A 30,000
Based on absorption costing, the Cost of Goods Manufactured for LIM
Corporation's first year would be

Direct Material 80,000

Direct Labor 90,000
Variable Manufacturing OH 30,000
Fixed Manufacturing OH 70,000
270,000
LOLOGADO

The Lologado Company has 400 obsolete desk calculators that are carried in inventory at a total cost of P26,800. If
these calculators are upgraded at a total cost of P10,000, they can be sold for a total of P30,000. As an alternative,
the calculators can be sold in their present condition for P11,200.

Obsolete Desk Calculator 400

inventory at a total cost 26,800
Upgrade Cost 10,000
Can be sold 30,000
Alternative can be sold 11,200

1 What is the net advantage or disadvantage to the company from upgrading the calculators?
30,000 8,800 advantage
11,200 8,000 disadvantage
10,000 21,200 20,000 advantage
8,800 18,000 disadvantage
2 Assume that the company decides to upgrade the calculators. At what selling price per unit would
the company be as well off as if it just sold the calculators in their present condition?
11,200
10,000
21,200
400
53
3 The sunk cost in this situation is:
26,800

Sunk cost means a cost that has been incurred. In this case carrying
value of the calculator will be the sunk cost. So the sunk cost is $
26800
MAGALANG

The following information was extracted from the first year absorption-based
accounting records of Magalang Industries.

Total fixed costs incurred 100,000

Total variable costs incurred 50,000
Total period costs incurred 70,000
Total variable period costs incurred 30,000
Units produced 20,000
Units sold 12,000
Unit sales price 12
https://www.coursehero.com/file/p70q4ip/The-following-information-was-extracted-from-the-first-year-absorption-based/

If Magalang Industries had used variable costing in its first year of operations, how
1 much income (loss) before income taxes would it have reported?

Sales 144,000
Less: Variable Costs
Manufacturing (20k *60%) 12,000
Period Cost 30,000
Contributiion Margin 102,000
Fixed Cost 100,000
Variable Costing Net Income 2,000

2 How much inventory was deferred by Galang Industries under absorption costing 60,000

Unit Fixed Manufacturing Cost 7.5

Units in ending Inentory 8,000
60,000
Multiply the unit fixed manufacturing overhead cost to the number of units in ending inventory.
3 What is Cost of Goods Sold for Magalang Industries.’s first year? 48,000

Total variable manufacturing costs

Total variable costs incurred 50,000
Total variable period costs incurred 30,000
20,000
Total fixed period costs incurred
Total period costs incurred 70,000
Total variable period costs incurred 30,000
40,000
Total fixed manufacturing costs
Total fixed costs incurred 100,000
Total fixed period costs incurred 40,000
60,000
Total manufacturing costs
Total fixed manufacturing costs 60,000
Total variable manufacturing costs 20,000
80,000
Percent of goods sold:
Units sold 12,000
Total variable manufacturing costs 20,000
60.00%
Total manufacturing costs 80,000
48,000
RECALDE

Recalde has a potential client that has offered to buy 1,500 tons at P450 per ton.
Assume that all of the company’s costs would be at the same levels and rates as
last year. What net income after taxes would Recalde make if it took this order and
rejected some business from regular customers so as not to exceed capacity?

P246,500
P211,500
P246,750
P211,750
REFIGERATOR

Refrigerator Company manufactures ice-makers for installation in refrigerators.

The costs per unit, for 20,000 units of ice-makers, are as follows.

Direct materials 7
Direct labor 12
Variable overhead 5
Fixed overhead 10
Total costs 34

Cool Compartments Inc. has offered to sell 20,000 ice-makers to Refrigerator Company for
28 per unit. If Refrigerator accepts Cool Compartments’ offer the plant would be idled and fixed overhead amounting to
6 per unit could be eliminated. The total relevant costs associated with the manufacture of ice-makers amount to

Total Costs 34
Fixed Overhead 10
24
Units 20,000
480,000

Eliminated 6
Units 20,000
120,000

480,000
120,000
Relevant Costs 600,000
REPLAY

Replay Corporation manufactures clubs. Relay can manufacture 300,000 clubs a year at a variable
cost of P750,000 and a fixed cost of P450,000. Based on Replay's predictions for next year, 240,000
clubs will be sold at the regular price of P5.00 each. In addition, a special order was placed for 60,000
clubs to be sold at a 40% discount off the regular price. Total fixed costs would be unaffected by this
order. By what amount would the company's net operating income be increased or decreased as a
result of the special order?

60,000 decrease.
Variable Cost 750,000 30,000 increase
Clubs 300,000 36,000 increase.
2.5 180,000 increase.
Special order 60,000
Variable Cost 150000

Regular Price 5
Special Order 60,000
300,000
60%
Selling Price 180000

Selling Price 180000

Variable Cost 150000
30000 Increase
SAVORY

Last year, Savory Company produced 10,000 units and sold 8,000 units at a price of P24. Costs for last year were as follows:
Direct materials 25,000
Direct labor 35,000
Variable factory overhead 12,000
Fixed factory overhead 37,000
Variable selling expense 9,000
Fixed selling expense 7,500
Fixed administrative expense 15,500
Fixed factory overhead is applied based on expected production. Last year, Savory expected to produce 10,000 units.

1 Assuming that beginning inventory was zero, what is the value of ending inventory under absorption costing?

Direct Costs 60,000

Variable FOH 12,000
Fixed FOH 37,000
Product Cost @ Absorption 109,000
Units Produced 10,000
Cost Per Unit 10.90

Units Produced 10,000

Units Sold 8,000
Ending Inventory 2,000
Cost Per Unit 10.90
Ending Inventory Value Absorption 21,800

2 Assuming that beginning inventory was zero, what is the value of ending inventory under variable costing?

Direct Costs 60,000

Variable FOH 12,000
 Product Cost @ Absorption 72,000
Units Produced 10,000
Cost Per Unit 7.20

Units Produced 10,000

Units Sold 8,000
Ending Inventory 2,000
Cost Per Unit 7.20
Ending Inventory Value 14,400

3 Assuming that beginning inventory was zero, how much is the net income under absorption costing?

Direct Costs 60,000

Variable FOH 12,000
Fixed FOH 37,000
Product Cost @ Absorption 109,000
Unit Produced 10,000
Cost Per Unit 10.90

Cost 87,200 (10.90 x 8k)

Sales 192,000
Gross Profit 104,800
Expenses 32,000
Net Income under Absorbtion 72,800
SEBASTIAN

Sebastian Enterprises sells a product for P25 per unit and has the following costs for
the product

Selling price per unit 25

Direct Material 10
Direct Labor 5
Variable Overhead 3
Fixed Overhead 2
Total 20

Special order 100 units

Order cost required 200
charge special order 300

The company received a special order for 100 units of the product. The order would require rental of
a special tool which costs P200. What is the minimum price per unit that Sebastian Enterprises
should charge for this special order if they wish to earn a P300 profit on this order? Assume there is
sufficient idle capacity to accept this order.

Direct Material 1000

Direct Labor 500
Variable Overhead 300
Order cost required 200
charge special order 300
2300
Special order 100
Per unit price 23
WHEEL AND TIRE
Wheel and Tire Manufacturing currently produces 1,000 tires per month.
The following per unit data apply for sales to regular customers:

Direct materials 20
Direct manufacturing labor 3
Variable manufacturing overhead 6
Fixed manufacturing overhead 10

The plant has capacity for 3,000 tires and is considering expanding production to
2,000 tires. What is the total cost of producing 2,000 tires?

Direct materials 20
Direct manufacturing labor 3
Variable manufacturing overhead 6
29
Units 2,000
58,000

Fixed manufacturing overhead 10

Units 1,000
10,000

58,000
10,000
Total Cost 68,000
WIDGEON

Widgeon Co. manufactures three products: Bales, Tales, and Wales. The selling prices are $55, $78, and $32, respectively.
The variable costs for each product are $20, $50, and $15, respectively. Each product must go through the same processing
in a machine that is limited to 2,000 hours per month. Bales take 5 hours to process; Tales 7 hours; and Wales 1 hour.
Bales Tales Wales
Selling price 55 78 32
Variable cost -20 -50 -15
Contribution margin per unit 35 28 17
Contribution margin per machine hr 5 7 1
Contribution per hr 7 4 17

Contribution margin per unit 35 28 17

Machine Hour 7 4 1
5 7 17
The following information was extracted from -2,000
the first year absorption-based
accounting records of Magalang Industries.
Total fixed costs incurred P100,000 Sales 144,000
Total variable costs incurred 50,000 Manufacturing 12,000
Total period costs incurred 70,000 Period 30,000
Total variable period costs incurred 30,000 CM 102,000
Units produced 20,000 Fixed Costs 100,000
Units sold 12,000 VC Net Income (2,000)
Unit sales price P12
If Magalang Industries had used variable
costing in its first year of operations, how
much income (loss) before income taxes
would it have reported?

Refrigerator Company manufactures 600,000

ice-makers for installation in refrigerators.
The
costs per unit, for 20,000 units of ice-makers, Total relevant cost of making the product is
are as follows.
Direct materials P7 = (cost per unit - unavoidable fixed cost per
Direct labor 12 unit ) × 20,000 units
Variable overhead 5
Fixed overhead 10 = ($34 - $4 ) × 20,000 units
Total costs $34
Cool Compartments Inc. has offered to sell = $600,000
20,000 ice-makers to Refrigerator
Company for P28 per unit. If Refrigerator
accepts Cool Compartments’ offer the plant
would be idled and fixed overhead amounting
to P6 per unit could be eliminated. The
total relevant costs associated with the
manufacture of ice-makers amount to

The following information was extracted from 60,000

the first year absorption-based
accounting records of Magalang Industries.
Total fixed costs incurred P100,000
Total variable costs incurred 50,000
Total period costs incurred 70,000
Total variable period costs incurred 30,000
Units produced 20,000
Units sold 12,000
Unit sales price P12
How much inventory was deferred by
Galang Industries under absorption
costing?
Sebastian Enterprises sells a product for P25 23
per unit and has the following costs for
the product
Direct Materials P10 10 + 5 + 3 = 18
Direct Labor 5 18 x 100 = 1,800
Variable Overhead 3 1,800 + 200 + 300 = 2,300
Fixed Overhead 2 2,300/100 = 23
Total P20
The company received a special order for
100 units of the product. The order would
require rental of a special tool which costs
P200. What is the minimum price per unit
that Sebastian Enterprises should charge
for this special order if they wish to earn a
P300 profit on this order? Assume there is
sufficient idle capacity to accept this
order.

Recalde has a potential client that has offered 211,500

to buy 1,500 tons at P450 per ton.
Assume that all of the company’s costs would 1,500 x 450= 675,000
be at the same levels and rates as last 1,500 x 500= 750,000
year. What net income after taxes would 1,425,000 total sales
Recalde make if it took this order and Variable cogs 55% x 500= 275
rejected some business from regular Total variable cogs 3,000 x 275= 825,000
customers so as not to exceed capacity? Contribution margin 600,000
1,425,000
- 600,000
825,000
Operating income 600,000-247,500= 352,500
Net Income 352,500 (1.0-0.4=0.6)= 211,500

The Lologado Company has 400 obsolete 53

desk calculators that are carried in
inventory at a total cost of P26,800. If these 11,200/400 = 28
calculators are upgraded at a total cost of 10,000/400 = 25
P10,000, they can be sold for a total of 28+25 = 53
P30,000. As an alternative, the calculators
can be sold in their present condition for
P11,200.
Assume that the company decides to
upgrade the calculators.
At what selling price per unit would the
company be as well off as if it just sold the
calculators in their
present condition?

Replay Corporation manufactures clubs. 30,000 increase

Relay can manufacture 300,000 clubs a
year at a variable cost of P750,000 and a
fixed cost of P450,000. Based on Replay's
predictions for next year, 240,000 clubs will
be sold at the regular price of P5.00
each. In addition, a special order was placed
for 60,000 clubs to be sold at a 40%
discount off the regular price. Total fixed costs
would be unaffected by this order. By
what amount would the company's net
operating income be increased or
decreases as a result of the special order?

Clay Co. has considerable excess 40,750

manufacturing capacity. A special job order’s
cost 33,000 + 7,750
sheet includes the following applied
manufacturing overhead costs:
Fixed costs P21,000
Variable costs 33,000
The fixed costs include a normal P3,700
allocation for inhouse design costs, although
no in-house design will be done. Instead the
job will require the use of external
designers costing P7,750. What is the total
amount to be included in the calculation
to determine the minimum acceptable price
for the job?

The following information has been extracted 270,000

from the financial records of Lim
Corporation for its first year of operations:
Units produced 10,000 = 100,000 x 2 = 200,000 + 70,000
Units sold 7,000
Variable costs per unit:
Direct material P8
Direct labor 9
Manufacturing overhead 3
SG&A 4
Fixed costs:
Manufacturing overhead P70,000
SG&A 30,000
Based on absorption costing, the Cost of
Goods Manufactured for LIM
Corporation's first year would be

Wheel and Tire Manufacturing currently 68,000

produces 1,000 tires per month. The
following per unit data apply for sales to
regular customers:
Direct materials 20
Direct manufacturing labor 3
Variable manufacturing overhead 6
Fixed manufacturing overhead 10
The plant has capacity for 3,000 tires and is
considering expanding production to
2,000 tires. What is the total cost of
producing 2,000 tires?

Last year, Savory Company produced 10,000 21,800

units and sold 8,000 units at a price of
P24. Costs for last year were as follows: 25,000/10,000 = 2.5
Direct materials P25,000 35,000/10,000 = 3.5
Direct labor 35,000 12,000/10,000 = 1.2
Variable factory overhead 12,000 37,000/10,000 = 3.7
Fixed factory overhead 37,000 Total 10.9 x 2,000
Variable selling expense 9,000
Fixed selling expense 7,500 = 21,800
Fixed administrative expense 15,500

Fixed factory overhead is applied based on

expected production. Last year, Savory
expected to produce 10,000 units.
Assuming that beginning inventory was
zero, what is the value of ending inventory
under absorption costing?

The Lologado Company has 400 obsolete 8,800 advantage

desk calculators that are carried in
inventory at a total cost of P26,800. If these
calculators are upgraded at a total cost of
P10,000, they can be sold for a total of
P30,000. As an alternative, the calculators
can be sold in their present condition for
P11,200.
What is the net advantage or disadvantage
to the company from upgrading the
calculators?

The Lologado Company has 400 obsolete 26,800

desk calculators that are carried in
inventory at a total cost of P26,800. If these
calculators are upgraded at a total cost of
P10,000, they can be sold for a total of
P30,000. As an alternative, the calculators
can be sold in their present condition for
P11,200.
The sunk cost in this situation is:

A cost that would be included in product costs variable manufacturing costs.

under both absorption costing and
variable costing would be:
CLAN Manufacturing produces a unique Total manufacturing costs will increase
valve, and has the capacity to produce and unit manufacturing costs will
50,000 valves annually. Currently CLAN decrease.
produces 40,000 valves and is thinking about
increasing production to 45,000 valves next
year. What is the most likely
behavior of total manufacturing costs and
unit manufacturing costs given this
change?

A plant operating at capacity would suggest only some specific machines or

that: processes are operating at the maximum
rate possible.

What factor is the cause of the difference Absorption costing allocates fixed
between net income as computed under manufacturing costs between cost of
absorption costing and net income as goods sold and inventories, and variable
computed under variable costing? costing considers all fixed manufacturing
costs as period costs.

Ipit Company uses a calendar-year and Income tax and social security tax
prepares a cash budget for each month of withheld from employees' June paychecks
the year. Which one of the following items to be remitted to the bureau in July.
should be considered when developing
July's cash budget?

What will be the difference in net income Net income computed using variable
between variable costing and absorption costing will be lower
costing if the number of units in work in
process and finished goods inventories
increase?

Which of the following is true of budgets They promote coordination within the
when they are administered thoughtfully? subunits of a company.

In order to avoid pitfalls in relevant-cost anticipated revenues and costs that differ
analysis, management should focus on for each alternative.

The opportunity cost of making a component net benefit foregone from the best
part in a factory with no excess capacity alternative use of the capacity required.
is the:

In considering a special order that will enable Depreciation

a company to make use of presently
idle capacity, which of the following costs
would be irrelevant?
Keating Co. is considering disposing of 17,000 loss
equipment that cost $50,000 and has
$40,000 of accumulated
depreciation to date. Keating Co. can sell the
equipment through a broker for $25,000 less
a 5%
commission. Alternatively, Gunner Co. has
offered to lease the equipment for five years
for a total of
$48,750. Keating will incur repair, insurance,
and property tax expenses estimated at
$8,000 over the
five-year period.
At lease-end, the equipment is expected to
have no residual value. The net differential
profit or loss from the sell alternative is a

Widgeon Co. manufactures three products: $17

Bales, Tales, and Wales. The selling prices
are $55, $78,
and $32, respectively. The variable costs for
each product are $20, $50, and $15,
respectively. Each
product must go through the same
processing in a machine that is limited to
2,000 hours per month.
Bales take 5 hours to process; Tales 7 hours;
and Wales 1 hour.

The Standards of Ethical Conduct for Except when authorized by management,

Management Accountants developed by the unless legally obligated to do so
Institute of Management Accountants contain
a policy regarding confidentiality that
requires management accountants to refrain
from disclosing confidential information
acquired in the course of their work:

A decrease in the margin of safety would be increase in the total fixed costs.
caused by a(n):

Ms. Dina Garal asked your help to help her 40% of the labor cost, 60% of rental and
investigate and identify the cost 20% of depreciation
classifications incurred by his company.
Based on the data provided by her former
accountant, the company incurred P800,000
in labor cost, of which 60% was related
to production and the balance was evenly
distributed to selling and administrative.
Also, the company’s rental expense was
P1,200,000 for the entire year, of which 30%
was related to administrative, 30% for their
showroom, while the balance was for their
production area. The report also noted that all
company machines, which 80% of the
machines was used in production, were
depreciated under straight line method and
incurred P500,000 as depreciation expense.
It was also noted in the report that all
factory employees were paid on a daily basis
while all sales and office staff were paid
on a monthly basis.
The cost that would be classified as part of
product cost would be

Which of the following is true of a company Unit product costs can change as a result
that uses absorption costing? of changes in the number of units
manufactured

The proponents of throughput costing treat all costs except those related to
variable direct materials as costs of the
period in which they are incurred.

Which of the following describes the goal that Establish incentives for autonomous
should be pursued when setting division managers to make decisions that
transfer prices? are in the overall organization's best
interests

When the majority of authority is maintained centralized

by top management personnel, the
organization is said to be

Opportunity costs: Are benefits that could have been

obtained by following another course of
action

The relevance of a particular cost to a Potential effect on the decision

decision is determined by

The distinction between avoidable and variable costs and fixed costs.
unavoidable costs is similar to the distinction
between

Division A of Harkin Company has the 15.50

capacity for making 3,000 motors per month
and regularly sells 1,950 motors each month
to outside customers at a contribution
margin of P62 per motor. Division B of Harkin
Company would like to obtain 1,400
motors each month from Division A. What
should be the lowest acceptable transfer
price from the perspective of Division A?

Division X makes a part that it sells to P30

customers outside of the company. Data
concerning this part appear below:
Selling price to outside customers P50
Variable cost per unit P30
Total fixed costs P400,000
Capacity in units 25,000
Division Y of the same company would like to
use the part manufactured by Division
X in one of its products. Division Y currently
purchases a similar part made by an
outside company for P49 per unit and would
substitute the part made by Division X.
Division Y requires 5,000 units of the part
each period. Division X has ample excess
capacity to handle all of Division Y's needs
without any increase in fixed costs and
without cutting into outside sales. According
to the transfer pricing formula, what is
the lower limit on the transfer price?

For the year ended December 31, 2022, Abel P100,000

Co. incurred direct costs of P500,000
based on a particular course of action during 500,000 - 400,000
the year. If a different course of action
had been taken, direct costs would have
been P400,000. In addition, Abel’s 2022
fixed costs were P90,000. The incremental
cost was

Consider the following: The absorption-costing income exceeded

Sales price, per unit P18perunit variable-costing income by P8,000.
Standard absorption cost rate P12perunit
Standard variable cost rate P8perunit
Variable selling expense rate P2perunit
Fixed selling and administrative expenses
P40,000
Fixed manufacturing overhead P60,000
Lastperiod,13,000 units were produced. In
the current period, 15,000 units were
produced. In each period, 13,000 units were
sold. What is the difference in reported
income under absorption and variable
costing for the current period?

Iskati Corporation operates two stores: A and P225,000.

B. The following information relates to
store A:
Sales revenue P900,000
Variable operating expenses 400,000
Fixed expenses:
Traceable to A and controllable by A 275,000
Traceable to A and controllable by others
120,000
A's segment profit margin is:

The opportunity cost of making a component net benefit foregone from the best alternative
part in a factory with no excess capacity use of the capacity required.
is the:

The following information was extracted from 48,000

the first year absorption-based
accounting records of Magalang Industries. Total variable manufacturing costs = $50,000
Total fixed costs incurred P100,000 - 30,000 = $20,000Total fixed period costs
Total variable costs incurred 50,000 incurred = $70,000 - 30,000 = $40,000Total
Total period costs incurred 70,000 fixed manufacturing costs = $100,000 -
Total variable period costs incurred 30,000 40,000 = $60,000Total manufacturing costs
Units produced 20,000 = $60,000 + $20,000 = $80,000Percent of
Units sold 12,000 goods sold:12,000/20,000 = 60%$80,000 *
Unit sales price P12 60% = $48,000
What is Cost of Goods Sold for Magalang
Industries.’s first year?

What will be the difference in net income Net income computed using variable costing
between variable costing and absorption will be lower.
costing if the number of units in work in
process and finished goods inventories
increase?

What factor is the cause of the difference Absorption costing allocates fixed
between net income as computed under manufacturing costs between cost of goods
absorption costing and net income as sold and inventories, and variable costing
computed under variable costing? considers all fixed manufacturing costs as
period costs.

In order to avoid pitfalls in relevant-cost anticipated revenues and costs that differ for
analysis, management should focus on each alternative.

Ipit Company uses a calendar-year and Income tax and social security tax withheld
prepares a cash budget for each month of from employees' June paychecks to be
the year. Which one of the following items remitted
should be considered when developing to the bureau in July.
July's cash budget?

Which of the following is true of budgets They promote coordination within the
when they are administered thoughtfully? subunits of a company.

The following normally occupies a staff Vice president of marketing

position except:

For a multiple-product company, a shift in higher

sales mix from products with high
contribution-margin percentages toward
products with low contribution-margin
percentages causes the breakeven point to
be:

The major objective of preparing a develop an equation to predict future costs

scatter-diagram is to

If a division is set up as an autonomous profit out at a cost-based transfer price.

center, then goods should not be
transferred

When an organization allows divisional average total assets minus average current
managers to be responsible for short-term liabilities.
loans and credit, the division's invested
capital should be measured by

Management accountants are concerned with The manufacturing unit cost.

incremental unit costs. These costs
are similar to the following except

Ola waits two hours in line to buy a ticket to Ola’s best alternative use of both the P500
an NCAA Final Four Tournament. The and the two hours spent in line.
opportunity cost of buying the P500 ticket is

In analyzing whether to build another regional Irrelevant because it is future cost that will not
service office, the salary of the Chief differ between the alternatives under
Executive Officer (CEO) at the corporate consideration.
headquarters is

Company's inventory increased during the will be higher than that reported under
year. On the basis of this information, variable costing.
income reported under absorption costing: