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MANAGEMENT ADVISORY SERVICES PROBLEMS 1. A company has the following cost components for 100,000 units of product for the year: Materials P200,000 Labor 100,000 Manufacturing overhead 200,000 Selling and administrative expenses 150,000 All costs are variable except for P100,000 of manufacturing overhead and P100,000 of selling and administrative expenses. The total costs to produce and sell 110,000 units for the year are: a. P540,000 c. P715,000 b. P695,000 d. P650,000 Answer: B Variable cost: M
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  MANAGEMENT ADVISORY SERVICES   PROBLEMS 1. A company has the following cost components for 100,000 units of product for the year: Materials P200,000 Labor 100,000 Manufacturing overhead 200,000 Selling and administrative expenses 150,000  All costs are variable except for P100,000 of manufacturing overhead and P100,000 of selling and administrative expenses. The total costs to produce and sell 110,000 units for the year are: a. P540,000 c. P715,000 b. P695,000 d. P650,000  Answer: B  Variable cost: Materials and labor [(P200,000+P100,000)/100,000] x 110,000 P330,000 Overhead (P100,000/100,000) x 110,000 110,000 Selling and adm. expenses (P50,000/100,000) x 110,000 55,000 Fixed cost (P100,000 + P100,000) 200,000 Total P695,000  2. A manufacturing company employs variable costing for internal reporting and analysis purposes. However, it converts its records to absorption costing for external reporting. The accounting department always reconciles the two operating income figures to assure that no errors have occurred in the conversion. Financial data for the year are presented below. The fixed manufacturing overhead cost per unit was based on the planned level of production of 480,000 units. Budgeted and Actual Levels for Sales and Production Budget Actual Sales (in units) 495,000 510,000 Production (in units) 480,000 500,000 Standard Unit Manufacturing Costs  Variable Absorption Costing Costing  Variable costs P10.00 P10.00 Fixed manufacturing overhead 0 6.00 Total unit manufacturing costs P10.00 P16.00 The difference between the operating income calculated under the variable costing method and the operating income calculated under the absorption costing method would be a. P120,000 c. P60,000 b. P90,000 d. P57,600  Answer: C Change in inventory (500,000 – 510,000) 10,000 x Fixed overhead cost per unit P6 Difference in income P60,000 5. A manufacturer can sell its single product for P660. Below are the cost data for the product: Direct materials P170 Direct labor 225 Manufacturing overhead 90  MANAGEMENT ADVISORY SERVICES  Page 2 of 25 pages The relevant margin amount when beginning a theory of constraints (TOC) analysis is a. P175 c. P345 b. P265 d. P490  Answer: D Selling price P660 Less direct materials 170 Margin P490 Items 6 and 7 are based on the following information: Blackhall Corporation produces chemicals used in the cleaning industry. During the previous month, Blackhall incurred P300,000 of joint costs in producing 60,000 units of  AR-01 and 40,000 units of JZ-02. Blackhall uses the units-of-production method to allocate joint costs. Currently, AR-01 is sold at split-off for P3.50 per unit. Franck Corporation has approached Blackhall to purchase all of the production of AR-01 after further processing. The further processing will cost Blackhall P90,000. 6. Concerning AR-01, which one of the following alternatives is most advantageous? a. Blackhall should process further and sell to Franck if the selling price is greater than P3.00, which covers the joint costs. b. Blackhall should continue to sell at split-off unless Franck offers at least P4.50 per unit after further processing, which covers Blackhall’s total costs. c. Blackhall should process further and sell to Franck if the selling price is greater than P5.00. d. Blackhall should process further and sell to Franck if the selling price is greater than P5.25, which maintains the same gross profit percentage.  Answer: C Selling price at split off P3.50  Add further processing cost (P90,000÷60,000) 1.50 Break-even price P5.00  7. Assume that Blackhall Corporation agreed to sell AR-01 to Franck Corporation at P5.50 per unit after further processing. During the first month of production, Blackhall sold 50,000 units with 10,000 units remaining in inventory at the end of the month. With respect to  AR-01, which one of the following statements is true? a. The operating profit last month was P50,000, and the inventory value is P15,000. b. The operating profit last month was P50,000, and the inventory value is P45,000. c. The operating profit last month was P125,000, and the inventory value is P30,000. d. The operating profit last month was P200,000, and the inventory value is P30,000.  Answer: B Selling price P5.50 Less costs: Joint cost (P300,000 ÷ 100,000) P3.00 Further processing cost 1.50 4.50 Profit P1.00 Profit (50,000 x P1.00) P50,000 Inventory (10,000 x P4.50) P45,000  8. Meemon Manufacturing, which is subject to a 40% income tax rate, had the following operating data for the period just ended: Selling price per unit P60  Variable costs per unit P22 Fixed costs P504,000 Management plans to improve quality of its sole product by (1) replacing ta component that costs P3.50 with a higher-grade unit that costs P5.50, and (2) acquiring a P180,000  MANAGEMENT ADVISORY SERVICES  Page 3 of 25 pages packaging machine. Meemon will depreciate the machine over a 10-year life with no estimated salvage value by the straight-line method of depreciation. If the company wants to earn after-tax income of P172,800 in the upcoming period, it must sell a. 19,300 units. c. 22,500 units. b. 21,316 units. d. 23,800 units.  Answer: C Fixed cost [P504,000 + (P180,000÷10)] P522,000 Desired profit (P172,800 ÷ 60%) 288,000 Contribution margin P810,000 ÷ Contribution margin per unit (P60 – <P22 + P2>) P36 Required sales in units 22,500 9. Given the following data, what is the marginal propensity to consume? Level of Level of Disposable income Consumption P40,000 P38,000 48,000 44,000 a. 1.33 c. 0.95 b. 1.16 d. 0.75  Answer: D Change in consumption (P44,000 – P88,000) P6,000 ÷ Change in disposable income (P48,000 – P40,000) 8,000 Marginal propensity to consume 0.75 Items 10 and 11 are based on the following information: JSR Manufacturing has assembled the data appearing below pertaining to two products. Past experience has shown that the unavoidable fixed manufacturing factory overhead included in the cost per machine hour averages P10. JSR has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Total machine capacity is 50,000 hours. Blender Electric Mixer Direct materials P 6 P11 Direct labor 4 9 Manufacturing overhead at P16/hr 16 32 Cost if purchased from outside supplier 20 38  Annual demand (units) 20,000 28,000 10. If JSR Manufacturing desires to follow an optimal strategy, it should produce a. 25,000 electric mixers and purchase all other units as needed. b. 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed. c. 20,000 blenders and purchase all other units as needed. d. 28,000 electric mixers and purchase all other units as needed.  Answer: B Blender Electric Mixer Relevant cost to make: Materials and labor (P6 + P4) P10 (P11+P9) P20 Overhead (P16 – P10*) 6 (P32 – P20*) 12 Total P16 P32 Purchase price 20 38 Savings if made P 4 P 6 ÷ Hours per unit (P16÷P16) 1 (P32÷P16) 2 Savings per hour P 4 P 3 *Fixed overhead (P10 x 1 hr/unit = P10; P10 x 2hrs/unit = P20)  MANAGEMENT ADVISORY SERVICES  Page 4 of 25 pages Blender’s savings per hour is higher than that of Mixer. The available 50,000 hrs should be used to produce 20,000 units of Blenders and 15,000 units [(50,000 – 20,000) ÷ 2 hours] of Electric mixers. 11. With all other things constant, if JSR Manufacturing is able to reduce the direct materials for an electric mixer to P6 per unit, the company should a. produce 25,000 electric mixers and purchase all other units as needed. b. produce 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed. c. produce 20,000 blenders and purchase all other units as needed. d. purchase all units as needed.  Answer: A Blender Electric Mixer Relevant cost to make: Materials and labor (P6 + P4) P10 (P6+P9) P15 Overhead (P16 – P10*) 6 (P32 – P20*) 12 Total P16 P27 Purchase price 20 38 Savings if made P 4 P11 ÷ Hours per unit (P16÷P16) 1 (P32÷P16) 2 Savings per hour P 4 P5.5 *Fixed overhead (P10 x 1 hr/unit = P10; P10 x 2hrs/unit = P20) Mixer’s savings per hour is higher than that of Blender. The available 50,000 hrs should be used to produce 25,000 units of Mixers (50,000 hrs ÷ 2 hrs/unit) and purchase all the other additional units required.  12. Listed below are selected line items from the Cost of Quality Report for Watsup Products for last month: Rework P 725 Equipment maintenance 1,154 Product testing 786 Product repair 695 What is Watsup’s total prevention and appraisal cost for last month? a. P786 c. P1,940 b. P1,154 d. P2,665  Answer: C Prevention cost (preventive equipment maintenance) P1,154  Appraisal cost (product testing) 786 Total prevention and appraisal cost P1,940  13. Donnie Auto has developed the following production plan: January 10,000 February 8,000 March 9,000  April 12,000 Each unit contains 3 kilograms of direct materials. The desired direct materials ending inventory each month is 120% of the next month’s production, plus 500 kilograms. (The beginning inventory meets this requirement.) Donnie has developed the following direct labor standards for production of these units. Department 1 Department 2 Hours per unit 2.0 0.5 Hourly rate P7.25 P12.00 Donnie Auto’s total budgeted direct labor pesos for February usage should be a. P164,000. c. P184,500. b. P174,250. d. P221,400.
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