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E. All of The Above. A. Total Revenue Equals Total Cost
E. All of The Above. A. Total Revenue Equals Total Cost
Which of the following would produce the largest increase in the contribution
margin per unit?
A. A 7% increase in selling price.
B. A 15% decrease in selling price.
C. A 14% increase in variable cost.
D. A 17% decrease in fixed cost.
E. A 23% increase in the number of units sold.
A company that desires to lower its break-even point should strive to:
A. decrease selling prices.
B. reduce variable costs.
C. increase fixed costs.
D. sell more units.
E. pursue more than one of the above actions.
Ribco Co., makes and sells only one product. The unit contribution margin is $6
and the break-even point in unit sales is 24,000. The company's fixed costs
are:
A. $4,000.
B. $14,400.
C. $40,000.
D. $144,000.
The contribution income statement differs from the traditional income statement in
which of the following ways?
A. The traditional income statement separates costs into fixed and variable
components.
B. The traditional income statement subtracts all variable costs from sales to
obtain the contribution margin.
C. Cost-volume-profit relationships can be analyzed more easily from the
contribution income statement.
D. The effect of sales volume changes on profit is readily apparent on the
traditional income statement.
E. The contribution income statement separates costs into product and
period categories.
Gleason sells a single product at $14 per unit. The firm's most recent income
statement revealed unit sales of 80,000, variable costs of $800,000, and
fixed costs of $560,000. Management believes that a $3 drop in selling price
will boost unit sales volume by 20%. Which of the following correctly depicts
how these two changes will affect the company's break-even point?
Drop in Increase in
Sales Sales Volume
Price
A. Increase Increase
B. Increase Decrease
C. Increase No effect
D. Decrease Increase
E. Decrease Decrease
O'Dell sells three products: R, S, and T. Budgeted information for the upcoming
accounting period follows.
Pines Company has a higher degree of operating leverage than Tagaytay Company.
Which of the following is true?
A. Pines has higher variable expense.
B. Pines is more profitable than Tagaytay Company’s.
C. Pines is more risky than Tagaytay is.
D. Pines' profits are less sensitive to percentage changes in sales.
An organization's break-even point is 4,000 units at a sales price of P50 per unit,
variable cost of P30 per unit, and total fixed costs of P80,000. If the company
sells 500 additional units, by how much will its profit increase?
A. P25,000 C. P10,000
B. P15,000 D. P12,000
The Hard Company sells widgets. The company breaks even at an annual sales
volume of 80,000 units. At an annual sales volume of 100,000 units the
company reports a profit of P220,000. The annual fixed costs for the Hard
Company are:
A. P 880,000 C. P 800,000
B. P1,100,000 D. P1,000,000
At a break-even point of 5,000 units sold, variable expenses were P10,000 and
fixed expenses were P50,000. The profit from the 5,001st unit would be?
A. P10 C. P15
B. P50 D. P12
The following is the Lux Corporation's contribution format income statement for last
month:
Sales P2,000,000
Less variable expenses 1,400,000
Contribution margin 600,000
Less fixed expenses 360,000
Net income P 240,000
The company has no beginning or ending inventories. A total of 40,000 units
were produced and sold last month. What is the company's degree of operating
leverage?
A. 0.12 C. 2.50
B. 0.40 D. 3.30
Menor Company sells two products with the following per unit data:
Standard Deluxe
Selling price/unit P75 P120
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.C. 9,000 standard and 6,000 deluxe.
B. 3,600 standard and 2,400 deluxe.D. 21,000 standard and 14,000 deluxe.
The following information pertains to Hennin Corporation for the year ending
December 31, 2006:
Budgeted sales P1,000,000
Breakeven sales 700,000
Budgeted contribution margin 600,000
Cashflow breakeven 200,000
The margin of safety for the Hennin Corporation is:
A. P300,000 C. P500,000
B. P400,000 D. P800,000
Solar Company sells two products, Biggs and Boggs. Last year, Solar Company
sold 12,000 units of Biggs and 24,000 units of Boggs.
Dierich Company uses an activity-based costing system with three activity cost
pools. The company has provided the following data concerning its costs and its
activity based costing system:
Costs:
Manufacturing overhead $600,000
Selling and admin. expenses $220,000
Total $820,000
Distribution of resource consumption:
Activity Cost Pools
Order Customer Other Total
Size Support
Manufacturing overhead 15% 75% 10% 100%
Selling and admin. 60% 20% 20% 100%
Expenses
The "Other" activity cost pool consists of the costs of idle capacity and organization-
sustaining costs. You have been asked to complete the first-stage allocation of
costs to the activity cost pools.
How much cost, in total, would be allocated in the first-stage allocation to the Order
Size activity cost pool?
A. $123,000 C. $307,500
B. $222,000 D. $492,000
A company has identified the following overhead costs and cost drivers for the
coming year.
Overhead Item Cost Driver Budgeted Cost Budgeted Activity
Level
Machine setup No. of setups $ 20,000 200
Inspection No. of inspections $130,000 6,500
Material No. of material$ 80,000 8,000
handling moves
Engineering Engineering hours $ 50,000 1,000
$280,000
The following information was collected on three jobs that were completed during
the year:
Job 101 Job 102 Job 103
Direct materials $5,000 $12,000 $8,000
Direct labor $2,000 $ 2,000 $4,000
Units completed 100 50 200
Number of setups 1 2 4
Number of inspections 20 10 30
Number of material 30 10 50
moves
Engineering hours 10 50 10
Budgeted direct labor cost was $100,000, and budgeted direct material cost was
$280,000.
If the company uses activity-based costing, how much overhead cost should be
allocable to Job 101?
A. $1,300 C. $5,000
B. $2,000 D. $5,600
If the company uses activity-based costing, compute the cost of each unit of Job
102.
A. $340 C. $440
B. $392 D. $520
The company prices its products at 140% of cost. If the company uses activity-
based costing, the price of each unit of Job 103 would be
A. $98 C. $116
B. $100 D. $140
moving
When there is one scarce resource, the product that should be produced first is the
product with
A. the highest demand
B. the highest contribution margin per unit
C. the highest sales price per unit of scarce resource
D. the highest contribution margin per unit of the scarce resource
Julius International produces weekly 15,000 units of Product JI and 30,000 units of
JII for which P800,000 common variable costs are incurred. These two products
can be sold as is or processed further. Further processing of either product does
not delay the production of subsequent batches of the joint products. Below are
some information:
JI JII
Unit selling price without further processing P24 P18
Unit selling price with further processing P30 P22
Total separate weekly variable costs of further P100,000 P90,000
processing
To maximize Julius’ manufacturing contribution margin, the total separate variable
costs of further processing that should be incurred each week are
A. P90,000 C. P100,000
B. P95,000 D. P190,000
Chow Foods operates a cafeteria for its employees. The operations of the cafeteria
requires fixed costs of P470,000 per month and variable costs of 40% of sales.
Cafeteria sales are currently averaging P1,200,000 per month. The company
has the opportunity to replace the cafeteria with vending machines. Gross
customer spending at the vending machines is estimated to be 40% greater
than the current sale because the vending machines are available at all hours.
By replacing the cafeteria with vending machines, the company would receive
16% of the gross customer spending and avoid cafeteria costs. A decision to
replace the cafeteria with vending machines will result in a monthly increase
(decrease) in operating income of
A. P18,800 C. P258,800
B. P182,000 D. (P588,000)
Tyler Company currently sells 1,000 units of product M for $1 each. Variable
costs are $0.40 and avoidable fixed costs are $400. A discount store has
offered $0.80 per unit for 400 units of product M. The managers believe that if
they accept the special order, they will lose some sales at the regular price.
Determine the number of units they could lose before the order become
unprofitable.
A. 267 units. C. 600 units.
B. 500 units. D. 750 units
The following information pertains to Bala Co. for the year ended December 31,
1991:
Sales $600,000
Income 100,000
Capital investment 400,000
Which of the following equations should be used to compute Bala’s return on
investment?
A. (4/6) x (1/6) = ROI C. (6/4) x (1/6) = ROI
B. (4/6) x (6/1) = ROI D. (6/4) x (6/1) = ROI
ABC Corp. is composed of three operating divisions. Overall, the ABC Corp. has
a return on investment of 20 percent. Division A has a return on investment of
25 percent. If ABC Corp. evaluates its managers on the basis of return on
investment, how would the Division A manager and the ABC Corp. president
react to a new investment that has an estimated return on investment of 23
percent?
A. B. C. D.
Division A Accept Accept Reject Reject
manager
ABC Corp. Accept Reject Accept Reject
president
Performance evaluation
10. JLC Inc. has these selected data:
Units to be sold 25,000
Total cost of the units P 500,000
Fixed capital investment 1,000,000
Variable capital on sales 20%
What should be the unit selling price to have a 20% return on investment?
A. P28.00 C. P30.80
B. P29.17 D. None of these
If Division C has a 10% return on sales, income of $5,000, and an investment
turnover of 4 times, its ROI is
A. 10% C. 100%
B. 40% D. 500%
Largo Company recorded for the past year sales of $750,000 and average operating
assets of $375,000. What is the margin that Largo Company needed to earn in
order to achieve an ROI of 15%?
A. 2.00% C. 9.99%
B. 7.50% D. 15.00%
Sales and average operating assets for Company P and Company Q are given
below:
Sales Average Operating Assets
Company P $20,000 $ 8,000
Company Q $50,000 $10,000
What is the margin that each company will have to earn in order to generate a
return on investment of 20%?
A. 2.5% and 5%. C. 12% and 16%.
B. 8% and 4%. D. 50% and 100%.
Reed Company's sales last year totaled $150,000 and its return on investment
(ROI) was 12%. If the company's turnover was 3, then its net income for the
year must have been:
A. $2,000. C. $12,000
B. $6,000. D. $18,000.
The Millard Division's operating data for the past two years are provided below:
Year 1 Year 2
Return on investment 12% 36%
Stockholders' equity $ 800,000 $ 500,000
Net operating income ? 360,000
Turnover ? 3
Margin ? ?
Sales 3,200,000 ?
Millard Division's margin in Year 2 was 150% of the margin in Year 1.
James Webb is the general manager of the Industrial Park Division, and his
performance is measured using the residual income method. Webb is reviewing
the following forecasted information for the division for next year.
Category Amount (thousands)
Working capital $ 1,800
Revenue 30,000
Plant and equipment 17,200
If the imputed interest charge is 15% and Webb wants to achieve a residual
income target of $2,000,000, what will costs have to be in order to achieve the
target?
A. $9,000,000 C. $25,150,000
B. $10,800,000 D. $25,690,000
Dzyubenko Co. reported these data at year-end:
Pre-tax operating income $4,000,000
Current assets 4,000,000
Long-term assets 16,000,000
Current liabilities 2,000,000
Long-term liabilities 5,000,000
The long-term debt has an interest rate of 8%, and its fair value equaled its book
value at year-end. The fair value of the equity capital is $2 million greater than its
book value. Dzyubenko’s income tax rate is 25%, and its cost of equity capital is
10%.
In gross profit analysis, if the cost price variance is zero, such variance indicates
that (3)
A. Manufacturing management was able to control production costs at budgeted
costs.
B. Manufacturing management was unable to keep production costs at budgeted
costs.
C. Manufacturing management was able to control production cost below
budgeted costs.
D. Manufacturing management was not able to control production at budgeted
costs but purchasing was able to keep at budgeted price.
The receipt of raw materials used in the manufacture of products and the shipping
of finished goods to customers is under the control of the warehouse supervisor,
whose time is spent approximately 60% on receiving and 40% on shipping
activities. Separate staffs for these operations are employed. The labor-related
costs for the warehousing function are as follows:
Warehouse supervisor’s salary $
40,000
Receiving clerk’s wages 75,000
Shipping clerk’s wages 55,000
Employee benefit costs (30% of wage and salary 51,000
costs)
$221,00
0
The company employs a responsibility accounting system for performance
reporting purposes. Costs are classified as period or product costs. What is the
total of labor-related costs reported as product costs under the control of the
warehouse supervisor?
A. $97,500 C. $130,000
B. $128,700 D. $169,000
Mr. Jun Iglesias is the manager of Profit Center #5. His unit reported the following
the period just ended:
Contribution margin: P350,000
Period expenses:
Manager’s salary P100,000
Depreciation expense 40,000
Allocated administrative 25,000 165,000
costs
Profit center # 5 income P185,000
Of the foregoing, in all likelihood, Mr. Iglesias controls
A. P100,000 C. P185,000
B. P165,000 D. P350,000
Leis Retail Company has two Stores, M and N. Store N had sales of $180,000
during March, a segment margin of 30%, and traceable fixed expenses of
$26,000. The company as a whole had a contribution margin ratio of 25% and
$120,000 in total contribution margin. Based on this information, total variable
expenses in Store M for the month must have been:
A. $140,000. C. $300,000.
B. $260,000. D. $360,000.
Reardon Retail Company consists of two stores, A and B. Store A had sales of
$80,000 during March, a contribution margin ratio of 30%, and a segment
margin of $11,000. The company as a whole had sales of $200,000, a
contribution margin ratio of 36%, and segment margins for the two stores
totaling $31,000. If net income for the company was $15,000 for the month, the
traceable fixed expenses in Store B must have been:
A. $16,000. C. $28,000.
B. $20,000. D. $31,000.
When standard costs are used in a process-costing system, how, if at all, are
equivalent units involved or used in the cost report at standard?
A. Equivalent units are not used.
B. Equivalent units are computed using a “special” approach.
C. The actual equivalent units are multiplied by the standard cost per unit.
The absolute minimum cost possible under the best conceivable operating
conditions is a description of which type of standard?
A. Currently attainable (expected) C. Theoretical
B. Normal D. Practical
Standards that represent levels of operation that can be attained with reasonable
effort are called:
A. Theoretical standards C. Variable standards
B. Ideal standards D. Normal standards
Which of the following is the most probable reason with a company would
experience an unfavorable labor rate variance and a favorable labor efficiency
variance?
A. The mix of workers assigned to the particular job was heavily weighted
toward the use of higherly paid, experienced individuals.
B. The mix of workers assigned to the particular job was heavily weighted
toward the use of new, relatively low paid, unskilled workers.
C. Because of the productive schedule, workers from other production areas
were assigned to assist in this particular process.
D. Defective materials caused more labor to be used in order to produce a
standard unit.
El Andre Co. uses a standard costing system in connection with the manufacture of
a line of T-shirts. Each unit of finished product contains 2.25 yards of direct
material. However, a 25 percent direct material spoilage calculated on input
quantities occurs during the manufacturing process. The cost of the direct
materials is P150 per yard. The standard direct material cost per unit of finished
product is
A. P 253 C. P 450
B. P 422 D. P 405
Blake Company has a standard price of P5.50 per pound for materials. July’s
results showed an unfavorable material price variance of P44 and a favorable
quantity variance of P209. If 1,066 pounds were used in production, what was
the standard quantity allowed for materials?
A. 1,104 C. 1,066
B. 1,074 D. 1,100
During March, Lumban Company’s direct material costs for the manufacture of
product T were as follows:
Actual unit purchase price P6.50
Standard quantity allowed for actual production 2,100
Quantity purchased and used for actual production 2,300
Standard unit price P6.25
Lumban’s material usage variance for March was:
A. P1,250 unfavorable C. P1,250 favorable
B. P1,300 unfavorable D. P1,300 favorable
Samson Candle Co. manufactures candles in various shapes, sizes, colors, and
scents. Depending on the orders received, not all candles require the same
amount of color, dye, or scent materials. Yields also vary, depending upon the
usage of beeswax or synthetic wax. Standard ingredients for 1,000 pounds of
candles are:
Input: Standard Standard Cost per
Mix Pound
Beeswax 200 lbs. 1.00
Synthetic wax 840 lbs. 0.20
Colors 7 lbs. 2.00
Scents 3 lbs. 6.00
Totals 1,050 lbs. 9.20
Standard 1,000 lbs.
output
Price variances are charged off at the time of purchase. During January, the
company was busy manufacturing red candles for Valentine’s Day. Actual
production then was:
Input: In Pounds
Beeswax 4,100
Synthetic wax 13,800
Colors 2,200
Scents 60
Total 20,160
Actual output 18,500
The material yield variance is:
A. P 280 unfavorable C. P 280 favorable
B. P3,989 unfavorable D. P3,989 favorable
Clean Harry Corp. uses two different types of labor to manufacture its product. The
types of labor, Mixing and Finishing, have the following standards:
Labor Type Standard Mix Std Hourly Standard
Rate Cost
Mixing 500 hours P10 P5,000
Finishing 250 hours P5 P1,250
Yield: 4,000 units
During January, the following actual production information was provided:
Labor Type Actual Mix
Mixing 4,500 hours
Finishing 3,000 hours
Yield: 36,000 units
What is the labor mix variance?
A. P2,500 F C. P2,500 U
B. P5,000 F D. P5,000 F
How much labor yield variances should be reported?
A. P6,250 U C. P5,250 F
B. P6,250 F D. P5,250 U
The Islander Corporation makes a variety of leather goods. It uses standards costs
and a flexible budget to aid planning and control. Budgeted variable overhead
at a 45,000-direct labor hour level is P27,000.
During April material purchases were P241,900. Actual direct-labor costs
incurred were P140,700. The direct-labor usage variance was P5,100
unfavorable. The actual average wage rate was P0.20 lower than the average
standard wage rate.
The company uses a variable overhead rate of 20% of standard direct-labor cost
for flexible budgeting purposes. Actual variable overhead for the month was
P30,750.
What were the standard hours allowed during the month of April?
A. 50,250 C. 58,625
B. 48,550 D. 37,520
Information on Barber Company’s direct labor costs for the month of January is as
follows:
Actual direct labor hours 34,500
Standard direct labor hours 35,000
Total direct labor payroll P241,500
Direct labor efficiency variance – favorable P 3,200
What is Barber’s direct labor rate variance?
A. P17,250 U C. P21,000 U
B. P20,700 U D. P21,000 F
The overhead variances for Big Company were:
Variable overhead spending variance: P3600 favorable.
Variable overhead efficiency variance: P6,000 unfavorable.
Fixed overhead spending variance: P10,000 favorable.
Fixed overhead volume variance: P24,000 favorable.
What was the overhead controllable variance?
A. P31,600 favorable C. P24,000 favorable
B. P13,600 favorable D. P 7,600 favorable
The standard factory overhead rate is P10 per direct labor hour (P8 for variable
factory overhead and P2 for fixed factory overhead) based on 100% capacity of
30,000 direct labor hours. The standard cost and the actual cost of factory
overhead for the production of 5,000 units during May were as follows:
Standard: 25,000 hours at P10 P250,000
Actual: Variable factory overhead 202,500
Fixed factory overhead 60,000
What is the amount of the factory overhead volume variance?
A. 12,500 favorable C. 12,500 unfavorable
B. 10,000 unfavorable D. 10,000 favorable
The following data are the actual results for Wow Company for the month of May:
Actual output 4,500 units
Actual variable overhead P360,000
Actual fixed overhead P108,000
Actual machine time 14,000 MH
Standard cost and budget information for Wow Company follows:
Standard variable overhead rate P6.00 per MH
Standard quantity of machine hours 3 hours per unit
Budgeted fixed overhead P777,600 per year
Budgeted output 4,800 units per month
The overhead efficiency variance is
A. P3,000 Favorable C. P3,000 Unfavorable
B. P5,400 Favorable D. P5,400 Unfavorable
Using the information presented below, calculate the total overhead spending
variance.
Budgeted fixed overhead P10,000
Standard variable overhead (2 DLH at P2 per DLH)P4 per unit
Actual fixed overhead P10,300
Actual variable overhead P19,500
Budgeted volume (5,000 units x 2 DLH) 10,000 DLH
Actual direct labor hours (DLH) 9,500
Units produced 4,500
A. P 500 U C. P1,000 U
B. P 800 U D. P1,300 U
Wala Company applies overhead on a direct labor hour basis. Each unit of product
requires 5 direct labor hours. Overhead is applied on a 30 percent variable and
70 percent fixed basis; the overhead application rate is P16 per hour. Standards
are based on a normal monthly capacity of 5,000 direct labor hours.
During September 2006, Wala produced 1,010 units of product and incurred
4,900 direct labor hours. Actual overhead cost for the month was P80,000.
What is total annual budgeted fixed overhead cost?
A. P 56,000 C. P672,000
B. P 56,560 D. P678,720
Safin Corporation’s master budget calls for the production of 5,000 units of product
annually. Safin considers indirect labor to be a variable cost. During the month
of April, 4,500 units of product were produced, and indirect labor costs of
Budgeted variable overhead for the level of production achieved is 40,000 machine-
hours at a budgeted cost of P62,000. Actual variable overhead at the level of
production achieved was 38,000 hours at an actual cost of P62,400. What is the
total variable overhead variance?
A. P400 favorable C. P3,100 unfavorable
B. P400 unfavorable D. P3,100 favorable
Garch, Inc. analyzes manufacturing overhead in the production of its only one
product, CD. The following set of information applies to the month of May, 2006:
Budgeted Actual
Units produced 40,000 38,000
Variable manufacturing OH P 4/DLH P16,400
Fixed manufacturing overhead P20/DLH P88,000
Direct labor hours 6 min/unit 4,200 hr
What is the fixed overhead spending variance?
A. P4,000 Favorable C. P8,000 Unfavorable
B. P8,000 Favorable D. P4,000 Unfavorable
i
How much was the variable overhead spending variance?
A. P 400 Favorable C. P400 Unfavorable
B. P1,200 Favorable. D. P1,200 Unfavorable
ii
How much overhead efficiency variance resulted for the month of May?
A. P1,600 Favorable C. P1,600 Unfavorable
B. P 800 Favorable D. P800 Unfavorable
i
ii