kupdf com mas test bank question

Next year’s sales data about its product are as follows: Variable manufacturing costs per unit 22.50 Fixed operating costs 60% is manufacturing cost P148,500 12.. The fixed operating cos

MANAGEMENT ADVISORY SERVICES TEST BANK

COSTS AND COST CONCEPTS

ITEMS 1 AND 2 ARE BASED ON THE FOLLOWING:

Castelo, Villasin and Barrera is a large, local accounting firm located in Cebu Belle Castelo,one of the Firm’s founders, appreciates the success her firm has enjoyed and wants to givesomething back to her community She believes that an inexpensive accounting servicesclinic could provide basic accounting services for small businesses located in the province.She wants to price the services at cost

Since the clinic is brand new, it has no experience to go on Belle decided to operate theclinic for two months before determining how much to charge per hour on an ongoing basis

As a temporary measure, the clinic adopted an hourly charge of P50, half the amountcharged by Castelo, Villasin and Barrera for professional services

The accounting services clinic opened on January 1 During January, the clinic had 120hours of professional service During February, the activity was 150 hours Costs for thesetwo level of activity usage are as follows:

Salaries:

ExpectedActivity

Room and meals P150 per dayRadiology P95 per imagePharmacy P28 per physician orderChemistry lab P85 per test

Operating room P550 per operating room hourThe records of two representative patients were analyzed, using the activity rates The activityinformation associated with the two patients are as follows:

Cost Driver Predetermined Overhead RateTanning Department Square-feet of leather P3 per square-foot

Assembly Department Machine time P9 per machine hour

Saddle Department Direct-labor time P4 per direct labor hourThe company’s deluxe saddle and accessory set consists of handmade saddle, twosaddlebags, a belt, and a vest, all coordinated to match The entire set uses 100 square-feet of leather from the Tanning Department, 3 machine hours in the AssemblyDepartment, and 40 direct-labor hours in the Saddle Department The company isprocessing Job No 20 consisting of 20 deluxe saddle and accessory sets

How much is the applied manufacturing overhead in Assembly Department for Job No 20?

Page 3

7 If activity-based costing is implemented in an organization without any other changes being effected, total overhead costs will

a be reduced because of the elimination of non-value-added activities

b be reduced because organizational costs will not be assigned to products or services

c be increased because of the need for additional people to gather information on costdrivers and cost pools

d remain constant and simply be spread over products differently

CVP AND BREAKEVEN ANALYSIS

8 Harry Manufacturing incurs annual fixed costs of P250,000 in producing and selling a singleproduct Estimated unit sales are 125,000 An after-tax income of P75,000 is desired bymanagement The company projects its income tax rate at 40 percent What is themaximum amount that Harry can expend for variable costs per unit and still meet its profitobjective if the sales price per unit is estimated at P6?

9 For its most recent fiscal year, a firm reported that its contribution margin was equal to 40percent of sales and that its net income amounted to 10 percent of sales If its fixed costsfor the year were P60,000, how much was the margin of safety?

10 Sam Company manufactures a single product In the prior year, the company had sales ofP90,000, variable costs of P50,000, and fixed costs of P30,000 Sam expects its coststructure and sales price per unit to remain the same in the current year, however totalsales are expected to increase by 20 percent If the current year projections are realized,net income should exceed the prior year’s net income by:

The company’s expected margin of safety is

Page 4ITEMS 12 to 13 ARE BASED ON THE FOLLOWING INFORMATION:

A company is making plans for next year, using cost-volume-profit analysis as its planningtool

Next year’s sales data about its product are as follows:

Variable manufacturing costs per unit 22.50

Fixed operating costs (60% is manufacturing cost) P148,500

12 How much should sales be next year if the company wants to earn profit after tax ofP22,440, the same amount that it earned last year?

13 Assume that the company’s management learned that a new technology that will increasethe quality of its product is available If implemented, its projections for next year will bechanged:

1 The selling price of the product will increase to P75 per unit

2 Fixed manufacturing costs will increase by 20%

3 Additional advertising costs will be incurred to promote the higher-qualityproduct This will increase fixed non-manufacturing cost by 10%

4 The improved product will require a new material that will increase directmaterials cost by P4.50

If the new technology is adapted, how much sales should the company make to earn a tax profit of 10% on sales?

14 As projected net income increases the

a degree of operating leverage declines c break-even point goes down

b margin of safety stays constant d contribution margin ratio goes up

15 Yamyam Company is considering introducing a new product that will require a P250,000investment of capital The necessary funds would be raised through a bank loan at aninterest rate of 8% The fixed operating costs associated with the product would beP122,500 while the variable cost ratio would be 58% Assuming a selling price of P15 perunit, determine the number of units (rounded to the nearest whole unit) Yamyam wouldhave to sell to generate earnings before interest and taxes (EBIT) of 32% of the amount ofcapital invested in the new product

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STANDARD COSTS AND VARIANCE ANALYSIS

16 The materials mix variance for a product is P450 unfavorable and the materials yieldvariance is P150 unfavorable This means that

a the materials price variance is P600 unfavorable

b the materials quantity variance is P600 unfavorable

c the total materials cost variance is definitely P600 unfavorable

d the materials price variance is also unfavorable, but the amount cannot bedetermined from the given information

17 Samson Company uses a standard costing system in the production of its only product The84,000 units of raw materials inventory were purchased for P126,000 and 4 units of rawmaterials are required to produce one unit of final product In October, the companyproduced 14,400 units of product The standard cost allowed for materials was P72,000,and there was an unfavorable usage variance of P3,000

The materials price variance for the units used in October was

a P15,000 unfavorable c P3,000 unfavorable

b P15,000 favorable d P3,000 favorable

18 The standard direct materials cost to produce a unit of a product is four meters of materials

at P2.50 per meter During June, 2015, 4,200 meters of materials costing P10,080 werepurchased and used to produce 1,000 units of the product What was the materials pricevariance for June, 2015?

19 Buchoy Company manufactures one product with a standard direct manufacturing labor cost

of four hours at P12.00 per hour During June, 1,000 units were produced using 4,100hours at P12.20 per hour The unfavorable direct labor efficiency variance was:

Page 6

ITEMS 20 TO 24 ARE BASED ON THE FOLLOWING:

Vhong, Inc evaluates manufacturing overhead in its factory by using variance analysis Thefollowing information applies to the month of July:

Number of units produced 19,000 20,000

Variable overhead costs P4,100 P2 per direct labor hour

20 The controllable variance amounts to

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PRODUCT COSTING

25 A basic tenet of variable costing is that period costs should be currently expensed What isthe rationale behind this procedure?

a Period costs are uncontrollable and should not be charged to a specific product

b Period costs are generally immaterial in amount and the cost of assigning theamounts to specific products would outweigh the benefits

c Allocation of period costs is arbitrary at best and could lead to erroneous decision bymanagement

d Because period costs will occur whether production occurs, it is improper to allocatethese costs to production and defer a current cost of doing business

26 The following information regarding fixed production costs from a manufacturing firm isavailable for the current year:

Fixed costs in the beginning inventory P16,000

Fixed costs incurred this period 100,000

Which of the following statements is not true?

a The maximum amount of fixed production costs that this firm could deduct usingabsorption costs in the current year is P116,000

b The maximum difference between this firm's the current year income based onabsorption costing and its income based on variable costing is P16,000

c Using variable costing, this firm will deduct no more than P16,000 for fixedproduction costs

d If this firm produced substantially more units than it sold in the current year,variable costing will probably yield a lower income than absorption costing

27 If a firm produces more units than it sells, absorption costing, relative to variable costing,will result in

a higher income and assets c lower income but higher assets

b higher income but lower assets d lower income and assets

Page 8

ITEMS 28 TO 30 ARE BASED ON THE FOLLOWING:

The following information is available for X Co for its first year of operations:

Manufacturing costs:

Net income (absorption method) P30,000

28 What would X Co have reported as its income before income taxes if it had used variablecosting?

31 Which of the following is an advantage of using variable costing?

a Variable costing complies with Generally Accepted Accounting Principles

b Variable costing complies with the National Internal Revenue Code

c Variable costing is most relevant to long-run pricing strategies

d Variable costing makes cost-volume-profit relationships more easily apparent

32 In its first year of operations, Nasty Company had the following costs when it produced100,000 units and sold 80,000 units of its only product:

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DIFFERENTIAL COSTS ANALYSIS

33 Ning Company has only 25,000 hours of machine time each month to manufacture its twoproducts Product X has a contribution margin of P50, and Product Y has a contributionmargin of P64 Product X requires 5 hours of machine time, and Product Y requires 8 hours

of machine time If Ning Company wants to dedicate 80 percent of its machine time to theproduct that will provide the most income, the company will have a total contributionmargin of

34 Mangit Company is currently operating at a loss of P15,000 The sales manager hasreceived a special order for 5,000 units of product, which normally sells for P35 per unit.Costs associated with the product are: direct material, P6; direct labor, P10; variableoverhead, P3; applied fixed overhead, P4; and variable selling expenses, P2 The specialorder would allow the use of a slightly lower grade of direct material, thereby lowering theprice per unit by P1.50 and selling expenses would be decreased by P1 If Mangit wants thisspecial order to increase the total net income for the firm to P10,000, what sales price must

be quoted for each of the 5,000 units?

a increase by P150,000 c decrease by P155,000

b decrease by P 75,000 d decrease by P215,000

36 The opportunity cost of making a component part in a factory with excess capacity forwhich 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

Page 10

ITEMS 37 TO 40 ARE BASED ON THE FOLLOWING:

Schundel Hair Care Company produces shampoo with conditioner This is the company’sonly product, which it sells under the name “Shamcon.”

The manufacturing cost data for Shamcon are as follows:

Quantity required Current market price

Variable overhead – P2.00 per direct labor hour

Fixed overhead – 4.00 per direct labor hour

Clever Company, owner and operator of a chain of hotels, asked Schundel Hair CareCompany to submit a bid for 500 boxes of Shamcon Each box will contain 24 bottles PerClever’s specifications, its order should be different in chemical composition from the regularShamcon According to Schundel Company’s production manager, Clever’s specificationscan be met if an additional chemical, Chem 4 would be used Schundel Company has60,000 ml of this chemical Chem 4 was used by the company in one of its brands that itdecided to eliminate The remaining inventory of Chem 4 was not sold or discardedbecause it does not deteriorate and the company has adequate space for its storage.Schundel Company can sell Chem 4 at the prevailing market price of P0.40 per ml lessP0.10/ml selling and handling costs Clever’s order would require 5 ml of Chem 4 perbottle

The company has a stock of Chem 5 This was used by Schundel Hair Care for itsmanufacture of another product that is no longer being produced Chem 5, which cannot

be used in Shamcon, can be substituted for Chem 1 on a one-for-one basis withoutaffecting the quality of the Clever order There is no problem about the supply of Chem 1

At present, the company has 20,000 ml of Chem 5 in its inventory, which has a salvagevalue of P6,000

The production of the Clever’s order would require the same direct labor hours per bottle as

in the regular Shamcon However, at present, the company has only 20,000 direct laborhours available The Clever order can be produced if the workers would work overtime,although an overtime premium of 30% of the regular rate should be paid

Schundel Hair Care Company’s policy is to price new products at 130% of full manufacturingcost

37 If Schundel Company bids this month for the special one-time order of 500 boxes of theproduct, the special order’s total direct materials cost will be

38 If Schundel Hair Care Company bids this month for the special one-time order of 500 boxes

of the product, the special order’s total relevant conversion cost will be

Page 11

ITEMS 41 and 42 ARE BASED ON THE FOLLOWING INFORMATION:

Jane Corporation produces wood glue that is used by furniture manufacturers The companynormally produces and sells 10,000 gallons of the glue each month White Glue is sold for P280 pergallon, variable costs is P168 per gallon, fixed factory overhead cost totals P460,000 per month, andthe fixed selling costs totals P620,000 per month

Labor strikes in the furniture manufacturers that buy the bulk of White Glue have causedthe monthly sales of Jane Corporation to temporarily decrease to only 15% of its normalmonthly volume Jane Corporation’s management expects that the strikes will last forabout 2 months, after which, sales of White Glue should return to normal However, due

to the dramatic drop in the sales level, Jane Corporation’s management is considering toclose down its plant during the two-moth period that the strikes are on

If Jane Corporation will temporarily shut down its operations, it is expected that the fixedfactory overhead costs can be reduced to P340,000 per month and that the fixed sellingcosts can be reduced by P62,000 per month Start-up costs at the end of the shut-downperiod would total P56,000 Jane Corporation uses the JIT system, so no inventories are

a Continue, because the expected sales is above the shutdown point

b Shut down, because the expected sales is above the shutdown point

c Continue, so that the shutdown costs may be avoided

d Shut down, because the shutdown costs is less than the contribution margin undercontinued operations

43 Spikey Company produces two products: Pat and Chin The projected income for thecoming year, segmented by product line, follow:

Pat Chin Total

The selling prices are P30 for Pat and P50 for Chin

Spikey company can increase the sales of Pat with increased advertising The extraadvertising would cost an additional P245,000, and some of the potential purchasers of Chinwould switch to Pat In total, sales of Pat would increase by 25,000 units, and sales of Chinwould decrease by 5,000 units This strategy would

a increase Spikey’s total sales by P750,000

b decrease Spikey’s total contribution margin by P300,000

c increase Spikey’s total income by P55,000

d not affect Spikey’s total fixed costs