The
following information pertains to Sharapova Corporation:
Beginning inventory 0
units
Ending inventory 5,000
units
Direct labor per unit P10
Direct materials per unit 8
Variable overhead per unit 2
Fixed overhead per unit 5
Variable selling costs per unit 6
Fixed selling costs per unit 8
What is the value of ending inventory usingthe variable costing method?
A. P155,000 C. P100,000
B. P125,000 D. P195,000
Answer: C
Direct materials P 8
Direct labor 10
Variable overhead 2
Total unit cost- variable
costing P20
Value of ending inventory (5,000 x
P20) P100,000
Absorption costing
Gross margin
[i]. A company manufactures a single product for its customers by contracting in advance of production. Therefore, the company only produces units that will be sold by the end of each period. During the last period, the following sales were made and costs incurred:
Sales P40,000
Direct
materials 9,050
Direct
labor 6,000
Rent
(9/10 factory, 1/10 office) 3,000
Depreciation
on factory equipment 2,000
Supervision
(2/3 factory, 1/3 office) 1,500
Salespeople’s
salaries 1,300
Insurance
(2/3 factory, 1/3 office) 1,200
Office
supplies 750
Advertising 700
Depreciation
on office equipment 500
Interest
on loan 300
Based on the above data, the gross margin percentage for the last
period (rounded to nearest percent) was
A. 41% C. 46%
B. 44% D. 49%
Answer: C
Sales P40,000
Cost of goods sold
Direct materials P9,050
Direct labor 6,050
Rent (0.9 x P3,000) 2,700
Depreciation 2,000
Supervision (2/3 x P1,500) 1,000
Insurance (2/3 x P1,200) 800 (21,600)
Gross margin P18,400
Gross margin percentage (P18,400 ÷
P40,000) 46%
Variable costing vs.
Absorption costing
Unit
costs
[ii]. During May, Roy Co. produced 10,000 units of Product X. Costs incurred by Roy during May were as follows
Direct materials P10,000
Direct labor 20,000
Variable manufacturing overhead 5,000
Variable selling and general 3,000
Fixed manufacturing overhead 9,000
Fixed selling and general 4,000
Total P51,000
What are the unit costs under absorption and variable costing
methods, respectively?
A. P5.10; P3.80 C. P4.40;
P3.50
B. P3.80 P5.10 D. P3.50:
P4.40
Answer: C
Direct materials P10,000
Direct labor 20,000
Variable overhead 5,000
Total variable product cost P35,00
Variable unit cost (P35,000 ÷
10,000) P3.50
Add Fixed overhead per unit
(P9,000 ÷ 10,000) 0.90
Absorption unit cost P4.40
Difference
in income
[iii]. Consider the
following:
Sales price, per unit P18
per unit
Standard absorption cost rate P12 per unit
Standard variable cost rate P8 per unit
Variable selling expense rate P2 per unit
Fixed selling and administrative expenses P40,000
Fixed manufacturing overhead P60,000
Last period, 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?
A. The
variable-costing income exceeded absorption-costing income by P4,000.
B. The
absorption-costing income exceeded variable-costing income by P8,000.
C. The
variable-costing income exceeded absorption-costing income by P6,000.
D. Net
income will not be different between the two methods.
Answer
Answer: B
Fixed overhead
rate per unit: P12 – P8 P4
Difference in
income: 2,000
x P4 P8,000
During the
current year, the company’s production equaled the budgeted. The inventory increased. Therefore, absorption costing income is
higher than the variable costing income.
[iv]. The Blue Company has failed to reach its planned activity level during its first two years of operation. The following table shows the relationship between units produced, sales, and normal activity for these years and the projected relationship for Year 3. All prices and costs have remained the same for the last two years and are expected to do so in Year 3. Income has been positive in both Year 1 and Year 2.
|
|
Units
Produced
|
Sales
|
Planned
Activity
|
|
Year
1
|
90,000
|
90,000
|
100,000
|
|
Year
2
|
95,000
|
95,000
|
100,000
|
|
Year
3
|
90,000
|
90,000
|
100,000
|
Because Blue Company uses an absorption costing system, one would
predict gross margin for Year 3 to be
A. Greater than Year 1. C. Equal to Year 1.
B. Greater than Year 2. D. Equal
to Year 2.
Answer: C
The production and unit sales
during year 3 matched with year 1.
Reconciliation
Income under absorption costing
[v]. A company had income of P50,000 using direct costing for a given period. Beginning and ending inventories for that period were 13,000 units and 18,000 units, respectively. Ignoring income taxes, if the fixed overhead application rate were P2.00 per unit, what would the income have been using absorption costing?
A. P40,000
B. P50,000
C. P60,000
D. Cannot be determined from the information
given.
Answer: C
The income under
absorption costing is higher by P10,000 because the amount of fixed overhead
that related to unsold units was deferred and was included as cost of finished
goods inventory. The variable costing
income statement immediately wrote the entire fixed overhead that was incurred
during the year as period cost.
Fixed overhead
deferred as product cost: 5,000 x
P2 P10,000
Absorption income (P50,000 + P10,000) P60,000
Income
under variable costing
[vi]. Luna Company had income of P65,000 using absorption costing for a given period. Beginning and ending inventories for that period were 13,000 units and 18,000 respectively.
Ignoring income taxes, if the fixed overhead application
rate were P2.50 per unit, what would the income have been using variable
costing?
A. P 77,500 C. P 52,500
B. P 60,000 D. P 20,000
Answer: C
Absorption income 65,000
Less Fixed Overhead in decrease in inventory (18,000 – 15,000) x 2.50 12,500
Income, Variable costing 52,500
Unit
contribution margin
[vii]. The following information was extracted from the first year of absorption-based accounting records of Soulmate Co.
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 P
12
Based on variable costing, if Soulmate Co. had sold 12,001
units instead of 12,000, its income before taxes would have been
A. P 9.50 higher C. P11.00 higher
B. P 8.50 higher D. P 8.33
higher
Answer: B
CMR per unit = Selling Price – Unit variable cost
P8.50 = P12.00 – P3.50
Variable Cost Per unit
Product: (50,000 – 30,000) / 20,000 =
P1.00
Selling & Adm. (variable period costs) 30,000/12,000 2.50
Total variable cost/unit P3.50
* Total variable costs – variable period cost
(selling & adm.) =
variable product cost.
[viii]. At its present
level of operations, a small manufacturing firm has total variable costs equal
to 75% of sales and total fixed costs equal to 15% of sales. Based on variable costing, if sales change by
P1.00, income will change by
A. P 0.25 C. P 0.75
B. P 0.12 D. P 0.10
Answer: A
1.00 - (1.00 x .75) = P0.25
Segmented Income
Statement
Effect of dropping a department
[ix]. Zambales Mining
Co. mines three products. Gold Ore sells
for P1,000,000 per ton, variable costs are P600,000 per ton, and fixed mining
costs are P5,000,000. The segment margin
for 2005 was P(1,000,000). The
management of Zambales Mining was considering dropping the mining of Gold
Ore. Only one-half of the fixed expenses
are direct and would be eliminated if the segment was dropped. If Gold Ore were dropped, net income for
Zambales Mining would
A. Increase by P1,000,000 C. Decrease by P1,000,000
B. Increase by P1,500,00 D. Decrease
by P1,500,000
Answer: A
The only relevant information to compute the effect of dropping the
mining of gold ore is the negative segment margin. If the product line is dropped, the company
can avoid the negative margin of P1 million.
[x]. Aging Company
plans to discontinue a segment with a P32,000 segment margin. Common expenses allocated to the segment
amounted to P45,000, of which P20,000 cannot be eliminated if the segment were
closed. The effect of closing down the
segment on Aging Company’s before tax profit would be
A. P12,000 decrease C. P 7,000
decrease
B. P12,000 increase D. P 7,000 increase
Answer: C
Avoidable common expenses P 25,000
Segment margin lost 32,000
Decrease in profit P( 7,000)
Use
this data to respond to questions 16 through 17.
Omid Publishing Company has three divisions: A, B, and C. The revenues of these divisions are P29,000, 48,000, and 63,000 respectively. Variable costs of these divisions amount to 57%, 59%, and 64% of the given revenues. The divisions' short-term controllable fixed costs are P4,200, 5,200, and 6,200 respectively. The divisions' long-term controllable fixed costs amount to P3,800, 4,900, and 5,700 in the order given. The company's uncontrollable costs amount to P7,150, and income tax is at 20% of operating income.
[xi]. Long-term controllable margin for division A
amounts to
A. P4,470 C. P12,470
B. P8,270 D. P16,470
Answer: A
Revenues P29,000
Variable
cost (P29,000 x 0.57) 16,530
Contribution
margin 12,470
Less Short-term
controllable fixed cost 4,200
Short-term
controllable margin 8,270
Long-term
controllable fixed cost 3,800
Long-term
controllable margin P 4,470
[xii]. Short-term controllable margin for division B
amounts to
A. P9,580 C. P19,680
B. P14,480 D. P23,580
Answer: B
Revenues P48,000
Variable
cost (P48,000 x 0.59) 28,320
Contribution
margin 19,680
Short-term
controllable fixed cost 5,200
Short-term
controllable margin – Div B P14,480
Comprehensive
Questions
10 through 13 are based on the following annual flexible budget which has been
prepared for use in making decisions relating to Product X.
|
Budgeted
units
|
100,000
|
150,000
|
200,000
|
|
Sales
Volume
|
P800,000
|
P1,200,000
|
P1,600,000
|
|
Manufacturing
costs:
|
|
|
|
|
Variable
|
P300,000
|
P 450,000
|
P 600,000
|
|
Fixed
|
200,000
|
200,000
|
200,000
|
|
|
P500,000
|
P 650,000
|
P 800,000
|
|
Selling
expenses:
|
|
|
|
|
Variable
|
P200,000
|
P 300,000
|
P 400,000
|
|
Fixed
|
160,000
|
160,000
|
160,000
|
|
|
P360,000
|
P 460,000
|
P 560,000
|
|
Income
(or loss)
|
(P60,000)
|
P 90,000
|
P 240,000
|
The
200,000-unit budget has been adopted and will be used for allocating fixed
manufacturing costs to units of Product X.
At the end of the first six months the following information is
available:
Units
Production completed 120,000
Sales 60,000
All
fixed costs are budgeted and incurred uniformly throughout the year and all
costs incurred coincide with the budget.
Over-
and underapplied fixed manufacturing costs are deferred until year-end. Annual sales have the following seasonal
pattern:
Portion
of Annual Sales
First quarter 10%
Second quarter 20%
Third quarter 30%
Fourth quarter 40%
100%
[xiii]. The amount of fixed factory costs applied to
product during the first six months under absorption costing would be
A. Overapplied by P20,000. C. Underapplied
by P40,000.
B. Equal to the fixed costs incurred. D. Underapplied by P80,000
Answer: A
Budgeted actual
fixed overhead (0.5 x P200,000)
P100,000
Applied fixed
overhead (120,000 x P1.00) 120,000
Overapplied
fixed overhead (favorable volume
variance) P
20,000
[xiv]. Reported net income (or loss) for the first
six months under absorption costing would be
A. P160,000 C. P
80,000
B. P 40,000 D. P (40,000)
[xv]. Reported net income (or loss) for the firs
six months under direct costing would be
A. P144,000. C. P
72,000
B. P0 D.
P(36,000)
[xvi]. Assuming that 90,000 units of Product X were
sold during the first six months and that this is to be used as a basis, the
revised budget estimate for the total number of units to be sold during this
year would be
A. 360,000. C. 240,000
B. 200,000. D. 300,000
[i]. Answer: C
Sales P40,000
Cost of goods sold
Direct materials P9,050
Direct labor 6,050
Rent (0.9 x P3,000) 2,700
Depreciation 2,000
Supervision (2/3 x P1,500) 1,000
Insurance (2/3 x P1,200) 800 (21,600)
Gross margin P18,400
Gross margin percentage (P18,400 ÷
P40,000) 46%
[ii]. Answer: C
Direct materials P10,000
Direct labor 20,000
Variable overhead 5,000
Total variable product cost P35,00
Variable unit cost (P35,000 ÷
10,000) P3.50
Add Fixed overhead per unit
(P9,000 ÷ 10,000) 0.90
Absorption unit cost P4.40
[iii]. Answer:
B
Fixed overhead
rate per unit: P12 – P8 P4
Difference in
income: 2,000
x P4 P8,000
During the
current year, the company’s production equaled the budgeted. The inventory increased. Therefore, absorption costing income is
higher than the variable costing income.
[v]. Answer: C
The income under
absorption costing is higher by P10,000 because the amount of fixed overhead
that related to unsold units was deferred and was included as cost of finished
goods inventory. The variable costing
income statement immediately wrote the entire fixed overhead that was incurred
during the year as period cost.
Fixed overhead
deferred as product cost: 5,000 x
P2 P10,000
Absorption income (P50,000
+ P10,000) P60,000
[vi]. Answer: C
Absorption income 65,000
Less Fixed Overhead in decrease in inventory (18,000 – 15,000) x
2.50 12,500
Income, Variable costing 52,500
[vii]. Answer: B
CMR per unit = Selling Price – Unit variable cost
P8.50 = P12.00 – P3.50
Variable Cost Per unit
Product: (50,000 – 30,000) / 20,000 =
P1.00
Selling & Adm. (variable period costs) 30,000/12,000 2.50
Total variable cost/unit P3.50
* Total variable costs – variable period cost
(selling & adm.) =
variable product cost.
[ix]. Answer: A
The only relevant information to compute the effect of dropping the
mining of gold ore is the negative segment margin. If the product line is dropped, the company
can avoid the negative margin of P1 million.
[x]. Answer: C
Avoidable common expenses P 25,000
Segment margin lost 32,000
Decrease in profit P( 7,000)
[xi]. Answer:
A
Revenues P29,000
Variable
cost (P29,000 x 0.57) 16,530
Contribution
margin 12,470
Less Short-term
controllable fixed cost 4,200
Short-term
controllable margin 8,270
Long-term
controllable fixed cost 3,800
Long-term
controllable margin P 4,470
[xii]. Answer:
B
Revenues P48,000
Variable
cost (P48,000 x 0.59) 28,320
Contribution
margin 19,680
Short-term
controllable fixed cost 5,200
Short-term
controllable margin – Div B P14,480
[xiii]. Answer:
A
Budgeted actual
fixed overhead (0.5
x P200,000) P100,000
Applied fixed
overhead (120,000 x P1.00) 120,000
Overapplied fixed
overhead (favorable volume
variance) P 20,000
[xiv]. Answer:
B
Sales (60,000 x
P8) P480,000
Cost of goods
sold (60,000 x P4) 240,000
Gross profit 240,000
Selling and other
expenses (60,000 x 2) + P80,000 200.000
Absorption profit P 40,000
[xv]. Answer:
B
Total
contribution margin (60,000 x P3) P180,000
Less: Fixed manufacturing OH P100,000
Fixed selling and other expenses 80,000 180,000
Variable costing
profit NIL
CM per unit (P1.6M – P0.6M – P0.4M) ÷ 200,000) P3.00
[xvi]. Answer:
D
The sales pattern
indicated that sales for the first semester was 30%. The assumption was that the pattern was still
valid. Therefore the assumed 90,000
units would be 30 percent of expected annual sales.
(90,000
÷ 0.3) = 300,000 units
No comments:
Post a Comment