1.

Clone Machinery had the following experience regarding power costs:

Month Machine hours Power cost
Jan. 300 P680
Feb. 600 720
Mar. 400 695
Apr. 200 640
Assume that management expects 500 machine hours in May. Using the high-low method,
calculate Clone's power cost using machine hours as the basis for prediction.
A. P 700
C. P 710
B. P 705
D. P1,320

Answer: A
b = (720 – 640) ÷ (600 - 200)
80 ÷ 400
= P0.20
a = 720 – (600 x .2)
720 – 120
= P600
Total Cost for month of May
Y = 600 + (500 x 0.2)
= P700

2. At a sales level of P300,000, Java Company's gross margin is P15,000 less than its
contribution margin, its net income is P50,000, and its selling and administrative expenses
total P120,000. At this sales level, its contribution margin would be:
A. P250,000
B. P155,000
C. P170,000
D. P185,000

Answer: D
Net income P 50,000
Add Fixed Costs: ManufacturingP 15,000
Selling and administrative 120,000 135,000
Total Contribution Margin = P185,000

3. Sams Company. wants to develop a single predetermined overhead rate. The company's
expected annual fixed overhead is P340,000 and its variable overhead cost per machine hour is
P2. The company's relevant range is from 200,000 to 600,000 machine hours. SamsCompany
 expects to operate at 425,000 machine hours for the coming year. The plant's theoretical
capacity is 850,000. The predetermined overhead rate per machine hour should be
A. P2.40.
C. P2.80.
B. P2.57.
D. P2.85.
Answer: C
Variable OH rate P 2.00
Fixed OH rate (340,000 ÷ 425,000) 0.80
Total OH rate = P 2.80

4. Data to be used in applying the high-low method shows the highest cost of P69,000 and the
lowest cost of P52,000. The data shows P148,000 as the highest level of sales and P97,000 as the
lowest level. What is the variable cost per peso sales?
A. P0.33.
C. P0.54.
B. P0.47.
D. P3.00
Answer: A
= Change in cost / Change in sales = Variable cost per peso sale
= (P69,000 – P52,000) ÷ (P148,000 – P97,000)
P17,000 / P51,000 = P0.333

5. In the Omara Manufacturing Company, at an activity level of 80,000 machine hours, total
overhead costs were P223,000. Of this amount, utilities were P48,000 (all variable) and
depreciation was P60,000 (all fixed). The balance of the overhead cost consisted of maintenance
cost (mixed). At 100,000 machine hours, maintenance costs were P130,000. Assume that all of
the activity levels mentioned in this problem are within the relevant range.

5.A. The variable cost for maintenance per machine hour is:
A.P1.30.
C.P0.75.
B.P1.44.
D.P1.35.

Answer: C
b = (P130,000 – P115,000) ÷ (100,000 – 80,000)
= P15,000 ÷ 20,000
= P0.75
5.B. The total fixed overhead cost for Omara is:
A.P115,000.
C.P 60,000.
B.P130,000.
D.P 55,000.

Answer: A
a = P130,000 – (10,000 x P0.75)
a = P55,000
Total fixed overhead:
Maintenance Cost P 55,000
Depreciation 60,000
Total P115,000

5.C. If 110,000 machine hours of activity are projected for the next period, total expected overhead cost
would be:
A.P256,000.
B.P263,500.
C.P306,625.
D.P242,500.

Answer: B
Utilities 110,000 x P0.6 P 66,000
Maintenance P55,000 + (110,000 x P0.75) 137,500
Depreciation 60,000
Total P263,500

6. Tomas Ocampo has just been appointed chairperson of the Accountancy Department of ADEB
College. In reviewing the department’s cost records, Tomas has found the following total cost
associated with MAS Part 2 subject over the last several terms:
Semester/Term Number of Subjects OfferedTotal Cost
AY2004, First Semester 4 P10,000
AY2004, Second Semester 6 14,000
AY2004, Summer 2 7,000
AY2005, First Semester 5 13,000
AY2005, Second Semester 3 9,500

6.A. Tomas knows that there are some variable costs, such as amounts paid to student assistants,
associated with the course. He would like to have variable and fixed cost components separated for
planning purposes. Using the least-squares method, what is the variable cost per section of MAS?
A. P1,750
C. P1,200
B. P1,500
D. P 900

Answer: A
∑X = 20
∑Y = 53,500
∑XY = 231,500
∑X2 = 90
53,500 = 5a + 20b
231,500 = 20 + 90b
214,000 = 20a + 80b
17,500 = 10b
b = P1,750

7. The Caterpillar company s expecting an increase of fixed costs by P78,750 upon

moving their place of business to the downtown area. The company anticipates that the
selling price per unit and the variable expenses will not change. At present, the sales volume
necessary to breakeven is P750,000 but with the expected increase in fixed costs, the sales
volume necessary to breakeven would go up to P975,000.

8. Mercado, Inc. had the following economic data for 2007:

Net sales P400,000
Contribution margin 160,000
Margin of safety 40,000
8.A. What is Mercado’s breakeven point in 2007?
A. P360,000
C. P320,000
B. P288,000
D.P 80,000
Answer: A
Margin of Safety = Budgeted sales – Break Even sales
Margin of Safety: P400,000 – P40,000
= P360,000

9. Below is the income statement for Blender Co. for 2007:

Sales P400,000
Variable costs (125,000)
Contribution margin P275,000
Fixed costs ( 200,000)
Profit before tax P 75,000
What is the degree of operating leverage for Blender Company for 2007?
A.3.67
C.5.33
B.1.45
D.1.67

Answer: A
DOL = CM/OP
= 275,000/75,000
= 3.67 times

10. The XY Company's product mix includes P720,000 in sale of X and P640,000 in sale of Y. in sale
of product Y's is 40% of sales. Fixed costs amount to P505,880. Y's sale at breakeven point should
amount to

11. At 40,000 units of sales, Benevolent Corporation had an operating loss of P3.00 per unit. When
sales were 70,000 units, the company had a profit of P1.20 per unit. The number of units to
breakeven is
A. 35,000
B. 52,500
C. 45,000
D. 57,647

Answer: D
UCM = (70,000 x 1.20)+(40,000 x 3) / 70,000 – 40,000
= P6.80
FC = Units(UCM – profit per unit)
= 70,000(6.80 – 1.20)
= P392,000
BEU = 392,000/6.80
= 57,647

12. Dela Rosa Company sells two products with the following per unit data:
Standard Deluxe
Selling price/unit P75 P 120
Variable costs/unit 45 60
Contribution margin/unit P30 P 60

Sales mix 3 2
If fixed costs are P630,000, the number of standard and deluxe units that Menor must sell to
break even is
A.1,800 standard and 1,200 deluxe.
B.3,600 standard and 2,400 deluxe.
C.9,000 standard and 6,000 deluxe.
D.21,000 standard and 14,000 deluxe.

Answer: C
WACM = (30 x 0.6) + (60 x 0.4) P42
Breakeven units: 630,000/42 15,000
Breakdown:
Product Standard 15,000 x 0.6 9,000
Product Deluxe 15,000 x 0.4 6,000

13. Last month, Zamora Company had an income of P0.75 per unit with sales of 60,000 units.
During the current month when the unit sales are expected to be only 45,000, there is a loss of
P1.25 per unit. Both the variable cost per unit and total fixed costs remain constant. The fixed
costs amounted to
A.P 80,000
B.P247,500
C.P360,000
D.P210,000

Answer: C
UCM = (60,000 x 0.75)+(45,000 x 1.25) / 60,000 – 45,000
= 6.75
Fixed cost = (60,000 x 6.75)-(60,000 x 0.75)
= P360,000

14. During 2010, St. Paul Lab supplied hospitals with a comprehensive diagnostic kit for P120. At a
volume of 80,000 kits, St. Paul had fixed costs of P1,000,000 and operating income before
income taxes of P200,000. Because of an adverse legal decision, St. Paul’s 2007 liability insurance
increased by P1,200,000 over 2006. Assuming the volume and other costs are unchanged, what
should the 2007 price be if St. Paul is to make the same P200,000 operating income before
income taxes?
A. P120
B. P135
C. P150
D. P240

Answer: B
The additional fixed costs of P1,200,000 should be fully covered by the same amount as additional sales
(also additional contribution margin) through an increase in selling price.
Increased price P120 +(1.20M/80,000)
= P 135
 15. The Oregano Watch Company manufactures a line of ladies’ watches which are sold through
discount houses. Each watch is sold for P1,500; the fixed costs are P3,600,000 for 30,000
watches or less; variable cost is P900 per watch.
What is Oregano’s degree of operating leverage at sales of 12,000 watches?
A.2.0X
B.5.0X
C.0.5X
D.0.2X

Answer: A
Contribution margin 12,000 x (1,500 – 900) P7,200,000
Fixed costs 3,600,000
Operating profit P3,600,000
DOL: 7.2/3.6 = 2 times

16. Arid Company produces products BH and XP. The direct cost of BH is P250 per unit and XP is
P350 per unit. Fifty units of BH and 150 units of XP were produced. Overhead amounting to
P130,000 is allocated to products using direct costs as the relevant cost driver. The cost of XP per
unit amounts to
A. P750
B. P1,000
C. P1,050
D. P1,250
Answer: C
BH: (50 x P250) P 12,500
XP: (150 x P350) 52,500
Total direct costs P 65,000
Allocated OH to XP based on direct costs: (52,500 ÷ 65,000 x P130,000) P105,000
Unit cost – Product XP:
Direct cost P 350
overhead (P105,000 ÷ 150) 700
Total P1,050

17. Toylandia Company manufactures two products, X-MAN and Machman. Toylandia's overhead
costs consist of setting up machines, P400,000; machining, P900,000; and inspecting,
P300,000.
Information on the two products is:
X-MAN Machman
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700

17.A. Overhead applied to X-MAN using traditional costing is

A. P600,000.
B. P768,000.
C. P832,000.
D. P960,000.

Answer : A
Total overhead costs: (P400,000 + P900,000 + P300,000) 1,600,000
Overhead applied to X-MAN using direct labor hours
(15,000/400,000) x P1,600,000
= P600,000

17.B. Overhead applied to Machman using activity-based costing is

A. P 640,000.
B. P 768,000.
C. P 832,000.
D. P1,000,000

Answer: B
Activity Rates:
Setups (400,000/1,000 setups) P400 per set up
Machine hours (900,000/50,000 MH) P 18 per MH
Inspection (300,000/1,500 inspection) P 200 per inspection
Overhead assigned to Machman using ABC:
(400 x P400) + (26,000 x P 18) +(700 x P200)
= 768,000

18. Special Products recently installed an activity-based relational data base.

Using the information contained in the activity relational table, the following
pool rates were computed:
P200 per purchase order
P12 per machine hour, process A
P15 per machine hours, process B
P40 per engineering hour
Two products are produced by Special Products: A and B. Each product has an
area in the plant that is dedicated to its production.
The plant has two manufacturing processes, process A and process B. Other processes include
engineering, product handling, and procurement.
The product relational table for Special is as follows:
Name
Product A: Product B:
Name Activity Usage Activity Driver #
Units 200,000 25,000
Purchase orders 250 125
Machine hours 80,000 10,000
Engineering hours 1,250 1,500

18.A. How much overhead cost will be assigned to product B using process B?
A. P1,200,000
B. P960,000
C. P120,000
D. P150,000

Answer: D
OH assigned to Product B: 6,000 MH x P15 per MH = P150,000

18.B. What is the unit cost of Product A?

A. P4.71
B. P252.00
C. P4.80
D. P5.30

Answer: D
Purchasing cost (250 x P200) P 50,000
Processing costs (80,000 x P 12) P 960,000
Engineering cost (1,250 x P 40) P50,000
Total costs assigned to Product A P 1,060,000
Unit cost: (P 1,060,000 / 200,000)
= P 5.30

19. Hughes Company produces three products with the following production and cost information:
Model A Model B Model C
Units produced 2,000 6,000 12,000
Direct labor hours (total) 4,000 2,000 4,000
Number of setups 100 150 250
Number of shipments 200 225 275
Engineering change orders 15 10 5
Overhead costs include setups P90,000; shipping costs P140,000; and engineering costs P180,000.
19. A What would be the per unit overhead cost for Model A if direct labor hours were the allocation
base?
A. P20.50
B. P41.00
C. P82.00
D. P76.00

19.B. What would be the per unit overhead cost for Model A if activity-based costing were used?
A. P20.50
B. P74.00
C. P82.00
D. P76.00

20. The overhead rate for Machine Setups is P100 per setup. Products A and B have 80 and 60
setups, respectively. The overhead assigned to each product is
A. Product A P8,000, Product B P8,000
B. Product A, P6,000, Product B P6,000
C. Product A P8,000, Product B P6,000
D. Product A, P6,000, Product B P8,000

Answer: C
Overhead allocated to:
Product A: (80 x P100) P 8,000
Product B: (60 x P100) P 6,000