EXERCISES: STANDARD COSTING 1. Materials and Labor Variance Analysis Kanon Company uses a standard cost system and has established the following standards for one unit of its main product, The Wonder Camera Tripod: Inputs Direct Materials Direct Labor

Standards 3 metal bars per tripod at 2.00 per bar ½ labor hour per tripod at10 per hour

At the start of the month, the budget includes a planned production of 1oo units of tripod based on normal capacity; at the end of the month, actual production was 120 units of tripod, which resulted to using 400 bars of metal purchased at a cost of 2.10 per bar.

REQUIRED: 1.

2. 3.

4.

5.

Based on the BUDGETED production of 100 units: A. How many metal bars must the company plan to use? (Budgeted (Budgeted quantity) B. How much materials cot is included included in the budget? budget? (Budgeted cost) Determine the actual cost cost of materials used. used. (Actual (Actual cost) cost) Based on the the ACTUAL ACTUAL production of 120 units: units: A. How many metals bars should have have been used? (Standard quantity) B. How much materials cot should have been incurred? (Standard materials cost) C. How many labor labor hours should have have been spent? (Standard hours) hours) D. How much labor cost should have been incurred? (S tandard Labor cost) Determine the following: A. Materials budget variance B. Materials standard cost variance C. Materials quantity and price variance During the month, a total payroll of P540 was paid paid to labourers, working 45 hours to produce the 120 units of Tripod. Determine the following: A. Total labor variance B. Labor efficiency efficiency variance variance C. Labor rate variance

2. Materials Price Usage Variane Vs. Materials Purchase Price Variance The standard cost of direct materials used by SM Company for its lone product is P 3 per unit. During the month, 500 units of materials were purchased at a total cost of P 1, 400 while only 400 units of materials were used; the standard quantity allowed for actual production is 380 units. REQUIRED: Determine the following: 1. Total Materials Variance 2. Materials Quantity Variance 3. Materials Price Usage Variance 4. Materials Purchase Price Variance

3. Factory Overhead Budget Trinoma Company shows the following data regarding its factory overhead: Standard per unit of product: 4 labor hours @ P 3.00* per hour Normal capacity: 2,500 units Budgeted (Denominator) Hours: hours Fixed Overhead (FFOH) Variable Overhead (VFOH) Total Budgeted Overhead

P 20,000 _ ___________ ___________

Fixed Overhead (FR) Variable Overhead (VR) Standard Overhead Rate (SR)

_ ___________ _____________ P 3.00 *

REQUIRED: Fill- in the blanks. 4. Factory Overhead Varinace Analysis, Two- Variance Method The normal capacity of Greenbelt Company is 12,000 labor hours per month. At normal capacity, the standard factory overhead rate is P 13 per labor hour based on P 96,000 of budgeted fixed cost per month and a variable cost rate of P 5 per labor hour. During January, the company operated at 12,500 labor hours, with actual factory overhead of P 166,000. The number of standard labor hours allowed for the production actually attained is 11,000. REQUIRED:

Determine (1) the overall factory over head variance (2) overhead controllable variance (3) volume variance.

5. Factory Overhead Variance Analysis, Two, Three. Four- Way Variance Method Market-Market Company provides the following production data: Total standard overhead cost per unit of product: 4 hours at 3.00 per hour = P 12. 00 per unit Budgeted fixed factory overhead Normal production Actual production Actual hours Actual factory overhead incurred (75% fixed)

P 20,000 2,500 units 2,000 units 7,500 hours P 26,000

REQUIRED: Determine the following 1. Budgeted factory overhead 2. Standard factory overhead 3. Budgeted FOH based on actual hours 4. Budgeted FOH based on standard hours 5. Controllable variance

6. Volume Variance 7. Spending Variance 8. Variance efficiency variance 9. Variable spending variance 10. Fixed spending variance

6. Factory Overhead Variance Analysis (Budget, Variable, Fixed Variances) Assume the same data in item number 5 One –way AFOH: P 26,000 SFOH: P 24,000 FOH Variance: P 2,000 U

Two-way “Con” “Vol” P 2,000 U

Three-Way S = E (V) = Vol = P 2,000 U

Four-way S (V) = S (F) = E (V) = V (F) = P 2,000 U

Additional Requirements: 11. Budget (flexible) variance (2-way) 12. Budget (flexible)2 variance (3-way) 13. Varible controllable variance

14. Fixed volume variance 15. Variable FOH variance 16. Fixed FO variance

7. Materials, Labor nd Overhead Variances (Compute for the missing amounts) Standard variable cost per unit: A. Materials: 4 pounds @ P B. Direct labor: hours @ P 12.00 C. Variable overhead: P 8 per direct labor hour Production Materials purchases, 32,000 pounds Materials used at standard prices, 31,200 pounds hours Direct labor (actual) Material purchase price variance Material use variance Direct Labor rate variance Direct labor efficiency variance Variable overhead spending variance Variable overhead efficiency variance Actual variable overhead cost

P P 6.00 P 8,000 units P 62, 000 P P 47,200 P 2,000 adverse P P 2,000 favorable P P 1,500 credit P P

8. Materials Price, Mix and Yield Variances Bonarita Merger products the popular Walangkati face powder and has in its budget the following standards for one kilo of the face powder: Ingredients Standard Quantity (Input) (Grams) Standard Unit Cost Standard Cost Paminta (20%) 200 P 3.00 P 600 Gawgaw (70%) 700 P 4.00 P 2,800 Atsuete (10%) 100 P 5.00 P 500 TOTAL 1,000 P 3,900 The company reported the following production and cost data for t he period: Ingredients Standard Quantity (Input) (Grams) Standard Unit Cost Standard Cost Paminta 45,000 P 4.00 P 180,000 Gawgaw 125,000 P 3.00 P 375,000 Atsuete 30,000 P 6.00 P 180,000 TOTAL 200,000 P 735,000 Walangkati face powder production totalled 190 kilos. REQUIRED: 1. Total materials cost variance 2. Materials price variance 3. Materials mix variance 4. Materials yield variance

MS- 07: RESPONSIBILITY ACCOUNTING AND TRANSFER PRICING

EXERCISES: RESPONSIBILITY ACCOUNTING AND TRANSFER PRICING 1. RESPONSIBILTY CENTERS Indicate how each of the business situations below is most likely to be organized: cost center (CC), revenue center (RC), profit center (PC), or investment center (IC). A. The accounting department of Banco De Orocan. B. The Magnolia product division of San Miguel Corporation. C. The Ayala Mall car park ticket outlets. D. The repairs and maintenance department of Philippine Airlines. E. The Recto Branch of Starbox Coffee. F. The College of Business and Economics of De La Salle University. G. The parts department of Toyota Cars Cor poration. H. The convenience store that is owned by a chain organization; the head office supplies all the goods To be sold and determines the selling prices. 2. CONTROLLABLE/ NON-CONTROLLABLE COSTS, DIRECT/INDIRECT COSTS The supervisor of the Painting department of Honda Motors is in -chargeof purchasing supplies, authorizing Repairs, and hiring labor for the department. Var ious costs are given: (1) (2) (3) A. Sales, salaries and commission P 18,200 B. Salary, supervisor of Painting department 2, 500 C. Factory heat and light 3,900 D. General office salaries 11,000 E. Depreciation factory 1,800 F. Supplies, painting department 1,500 G. Repairs and maintenance, painting department 1,400 H. Factory insurance 2,100 I. Labor cost, Painting Department 15,600 J. Salary of factory supervisor 2,700

Total: REQUIRED: 1. How much is the total costs controllable by the supervisor of the Painting department? 2. .How much is the total costs direc tly identifiable with the painting department? 3. How much is the total costs that will have to be allocated to the factory department? 4. How much is the total costs that do not pertain t factory operations? 3. SEGMENTED INCOME STATEMENT The following data pertain to Zesto Airlines Operations for the year 2012: TOTAL NORTWEST Division CENTRAL Division Amount % Amount % Amount % Sales P 1,000,000 (100%) (100%) ( ) Less: Variable expenses ( ) ( ) ( ) Contribution margin ( ) P 360,000 ( ) ( ) Less: Traceable fixed expenses ( ) ( P 150,000 ) ( ) ( P 200,000 )( ) Division segment margin ( ) ( ) (P 120,000) ( ) Less: Common fixed expenses ( ) Income P 40,000 ( ) REQUIRED: Fill-in missing data.

(4)

4. RETURN ON INVESTMENT VS. RESIDUAL INCOME For each of the following independent cases, the m inimum desired return on Investment (RoI) is 20%

Sales Operating Income Operating Assets Margin Turnover Return on Investment Residual Income

Division A1

Division B2

Division C3

P 400,000 (1) (2) 15% (3) 30% (4)

(5) (6) P 300,000 8% 3 times (7) (8)

P 700,000 P 42,000 (9) (10) (11) (12) P 22,000

REQUIRED: Compute for each division’s missing terms. 5. SERVICE COST ALLOCATION The Star Cinema has two service departments (A and B) and two producing departments (X and Y).

Direct costs Services performed by Dept. A Services performed by Dept. B

Service Departments A B P 150 P300 40% 20%

Operating Departments X Y 40% 70%

20% 10%

REQUIRED: 1. Direct Method 2. Step-down method (cost of department A is allocated first) 3. Step-down method (cost of department B is allocated first) 4. Reciprocal method 6. TRANSFER PRICING Yuseco Company’s Division A (Aldayag) produces a new product a small tool used by other companies as a key part in their products. Cost and sales data re lating to the small tool are given below: Selling price per unit P 50 Variable costs per unit P 30 Fixed Costs per unit P 12 *Based on Aldyag divisio’s capacity of 40,000 tools per year . The company’s Division B (Bonarita) is introducing a new product that will use a tool such as the one produced by Division A. An outside supplier has quoted the Division B a price of P 48 per tool. Division B would like to purchase the tools from Division A, if an acceptable transfer price can be worked out.

REQUIRED: 1. Determine the lower limit of the transfer price assuming that: A. Division A ham ample idle capacit y to handle all the Division B’s need B. Division A is presently selling all the tools it c an produce outside customers 2. From the standpoint of the entire company, should the Division B purchase the tools from the Division A (operating at capacity) of from outside supplier? Why?

3. Assume that the Division B requires 10,000 tools per year and the Division A is presently selling 36,000 tools per year to outside customers: A. Determine the lower limit of the transfer price. B. What would be overall effect on company profits if all 10,000 tools were ac quired from the Division A rather than from the outside suppliers?

7. PRICE SETTING METHODS The Indian Spirit Company is operating with two divisions. Division H is produsing a product line that is required as a component part of the product being manufactured by Division W. For Division H, the costs of producing the c omponent part per unit are: Direct Materials P 10 Direct labor P8 Variable Factory Overhead P5 Fixed Factory overhead P2 The product of Division H is being sold n a highly competitive market for P30 per unit. Division W is currently buying 80% of the production output of Division H at a negotiated price of P 28 per unit. It is Expected tat 25,000 units of product will be produced by Division H. With emphasis on divisional welfare rather than the company’s welfare, a new transfer price must be developed. It is suggested that a 40% mark-up on cost will be added when transferring the product from Division H to Division W.

An additional processing cot for Division W is P 8 per unit. The selling price of the product of Division W is P 45 per unit.

REQUIRED: Determine the gross profit per unit of the product from Division W under each of the following independent assumptions: A. Transfer price is full-cost based. B. Transfer price is cost-based plus mark-up. C. Transfer price is based on negotiated price. D. Transfer price is mark-based.

MS- 08: ACTIVITY- BASED COSTING AND BALANCED SCORECARD

EXERCISES: ACTIVITY BASED COSTING AND BALANCED SCORECARD 1. ACTIVITY LEVELS Determine the appropriate level for eac h of the following activities. Indicate whether the ac tivity is unit level (UL), Batch level (BL), product-level (PL), facility-level (FL). A. Equipment setups B. Plant Supervision C. Prime Cost D. Packaging and shipment E. Heating, Lighting, and security F. Designing, changing and advertising G. Product order processing

2. TRADITIONAL COSTING VS. ABC Batak Company incurs P 800,000 in manufacturing overhead costs. The c ompany has been allocating overhead To individual product lines based on direct labor hours. Cost Driver Direct labor hours Number of batches Number of shipments Total overhead costs

Amount in Cost Pool P 300,000 300,000 200,000 800,000

Amount of Activity 40,000 1,500 500

Two products have the following characteristics: Product X 2,000 20 2

Direct labor hours Number of batches Number of shipments

Product Y 1,000 100 150

REQUIRED: Determine the overhead costs to be allocated to each product using: A. Traditional costing (based on direct labor hours) B. Activity-based costing (ABC) 3. APPLICATION OF OVERHEAD COSTS A) Osama Company uses predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. Estimated and actual data for direct labor and manufacturing overhead last year are as follows.

Direct labours hours Manufacturing overhead

ESTIMATED

ACTUAL

600,000 720,000

550,000 680,000

The manufacturing overhead for Osama Company for last year was a. Over-applied P 40,000 b. Under-applied P 40,000

c. Over-applied P 20,000 d. Under-applied P 20,000

B) Push Company uses activity-based costing to compute product costs exter nal reports. The company has three activity centers and applies overhead using predetermined overhead rate s for each activity center. Estimated costs and activities for the current year are presented for the tree activity centers:

Activity 1 Activity 2 Activity 3

Estimated Overhead Cost P 61,387 P 34,076 P 69,075

Estimated Activity 2,300 2,800 2,500

Actual costs and activities for the curre nt year were as follows:

Activity 1 Activity 2 Activity 3

Actual Overhead Cost P 61,392 P 33,941 P 69,080

Actual Activity 2,290 2,795 1,340

The amount of overhead applied for Activity 2 during the year was: a. P 74.15 over-applied b. P 74.15 under-applied

c. P 135.00 over-applied d. P 135.00 under-applied

C) The most common treatment of under-applied and over-applied overheard costs is to close it out to a. Work in process c. Cost of goods sold b. Retained earnings d. Finished goods

4. MANUFACTURING CYCLE EFFICIENCY Democraps Company keeps careful track of the time related to orders and their production. During the most recent quarter, the following average times were recorded for each unit or order. Wait time Inspection time Process time Move time Queue time

7 days 4/10 of a day 2 days 6/10 of a day 15 days

REQUIRED: 1. How long (in days) is the velocity of production (throughout time)? 2. What is the manufacturing cycle efficiency ratio? 3. What percentage of the production time is spent on non-value –added activities? 4. How long (in days) is the delivery cycle time? 5. QUALITY COSTS A) The four categories quality costs are a. Internal failure, external failure, carrying and ordering costs b. Prevention, appraisal, internal failure and external failure costs c. Product liability, warranty, appraisal an training costs d. Training, testing, failure, and conformance cost

B) Conformance costs, incurred to keep defective products from failing into the hands of customers are composed of a. Prevention and appraisal cost c. Appraisal and internal failure costs b. Prevention and internal failure cost d. Internal and external failure costs C) Non-conformance costs, incurred because defects are produced despite efforts to void them, are c omposed of a. Prevention and appraisal cost c. Appraisal and internal failure cost b. Prevention and internal failure cost d. Internal and external failure cost

6. MARKETING EFFECTIVENESS Independent Company is planning to sell 1,600 units at P 25 contribution margin per unit (estimated market size for the year was 32,000 units.) At the end 2of the year, the company to sold 3,000 units at P 35 contribution margin per unit (actual total market was determined to be 100,000 units) REQUIRED: Determine the following 1. Sales Volume variance 2. Market size variance 3. market share variance

MS- 09: QUANTITTATIVE TECCHNIQUES

EXERCISES: INVENTORY MODELS 1. Shirley Company requires 40,000 shells for its P 100-siganture product, “Pearly Shirl.” The shells, which are purchased from outside suppliers, will be used evenly throughout the year. The cost to place one order is P 20, while the cost to corry the shells in inventory for one year is P 0.40.

REQUIRED: A) The optimal order quantity (economic order quantity) B) The number times the company should place orders within a year. C) The average inventory 2. Based on an EOQ analysis, the optimal order quantity is 3,000 units. Annual inventory carrying cots equal 30% of the average inventory level. The company pays P 5 per unit to buy the product and P 112.50 to place an order. The monthly demand for the product is 5,000 units.

REQUIRED: A) Annual inventory carrying cost B) Annual inventory ordering cost C) Total inventory Cost 3. Bonitafe subsidiary purchased 7,500 units of bleaching soap per annum. The average purchase lead time is 7 working days. Maximum lead time is 10 working days. The company works 300 days per year. REQUIRED: A) How many units should Bonitafe maintain as safety stock? B) what is Bonitafe’s reorder point for bleaching soap? 4. Each stock-out of a product sold by Geor ge Company P2,000 per occurrence. The carrying cost per unit of inventory is P5 per year and the company orders 1,500 units of product 18 times a tear at a cost of P200 per order. The probability f a stock out at various levels of safe ty stocks is: Units of Safety Stock Probability of a Stock-Out 0 50% 200 30% 400 14% 600 5% 800 1% The optimal level of safety stock for the company is a. 200 units b. 400 units

c. 600 units d. 800 units

EXERCISES: LINEAR PROGRAMMING 1. Following are the data about Maximin Company’s two products that if produces through its production facilities: Product A Product B Contribution Margin per unit P3 P4 Materials Used: Material X 2 pieces 5 pieces Material Y 4 pieces 2 pieces Available Quantity of Materials Material X 120 pieces Material Y 80 meters REQUIRED: Determine: A) Objective Function – involving maximization of the company’s contribution margin B) Constraint Function for Material X C) Constraint Function for Material Y D) Optimal product mix 2. Erin n Neo Corporation produces a product in 50-gallon batches. The basic ingredients used for the material B are costing P 20 per gallon and for Material A, costing P 10 per gallon. No more than 1 galloon of A can be used, and at least 15 gallons of B must be used.

REQUIRED: How would the objective function (minimization of product cost) be expressed?

MS10: CAPITAL BUDGETING 1. NET INVESTMENTS FORR DECISION MAKING The Wob Company plans to replace a unit of equipment that was acquired 3 years ago and is now recorded at a net book value of P65,000. This equipment can be sold now for P75,000. Tax rat e is 25%. New equipment can be acquired from Cool-Bee Company at a list price of P200,000. Cool-Bee will grant 2% cash discount if the equipment is paid within 30 days from acquisition date. Shipping, installation and testing charges to be paid are estimated at P14,000. Other assets with a book value of P12,000 that are to be retired as a result of the acquisition of the new machine can e salvaged and sold for P10,000. Additional working capital of P23,000 will be needed to support operations planned with the new equipment. The annual cash flow after income tax from the operation of the new equipment has been estimated at P50,000. The equipment is expected to have a useful life of 5 years with a salvage value of P4,000 at the end of 5 years. REQUIRED:

What is the initial cost of net investments for decision-making? 2. WEIGHTED AVERAGE COST OF CAPITAL (WACC) Bag-you Company wants to determine the weighted average cost of capital that it can use to evaluate capital investment proposals. The company’s capital structure with corresponding market values follows: 8% Term Bonds P600,000 5% Preferred stock (100 par) 200,000 Common Stock (no par, 10,000 shares outstanding) 400,000 Retained Earnings 800,000 Total P 2 000 000 Additional data: Current Market price per share: Preferred Stock P50 Common Stock P40 Expected common dividend : P2 per share Dividend growth rate:4% Corporate tax rate: 30% REQUIRED:

A) Given an operating income of P500,000, how much is the earnings per share B) Determine the weighted average cost of capital 3. NET RETURNS (INCREASE IN REVENUE) The management of Star-Luck Cinema plans to install coffee vending machine costing P200,000 in its movie house. Annual sales of coffee are estimated at 10,000 cups at a price of P15 per cup. Variable costs are estimated at P6 per cup, while incremental fixed cash costs, excluding depreciation, at P20,000 per year. The machines are expected to have a service life of 5 years, with no salvage value. Depreciation will be computed on straight-line basis. The company’s income tax is 30%. REQUIRED:

A) The increase in annual income B) The annual cash inflows that will be gener ated by the project.

4. NET RETURNS (COST SAVINGS) Moon Corporation is planning to buy cleaning equipment that can reduce car wash service cost and other cash expenses by an average of P70,000 per year. The new cleaning equipment will cost P100,000 and will be depreciated for 5 years on a straight-line basis. No salvage value is expected at the end of the equipment’s life. Income tax is estimated at 32% of income before tax. REQUIRED:

Determine the net cash inflows that will be generated by the project 5. PAYBACK PERIOD & ACCOUNTING RATE OF RETURN (WITH EVE CASH FLOWS) Blue Company considers the replacement of some old equipment. The cost of the new equipment is P90,000 with a useful life estimate of 8 years and a salvage value of P10,000. The annual pre-tax cash savings from the use of the new equipment is P40,000. The old equipment has zero market value and is fully depreciated. The company uses cost of capital of 25%. REQUIRED: Assuming that the income tax rate 40%, compute: A) Paybak period B) Accounting rate of return on original investment C) Accounting rate of return on average investment 6. PAYBACK PERIOD & ACCOUNTING RATE OF RETURN (WITH UNEVEN CASH FLOW) Pole Company has an investment opportunity costing P90,000 that is expected to yield the following cash flows over the next five years: (assume a cut off of 30%) Year Amount 1 P40,000 2 35,000 3 30,000 4 20,000 5 10,000 REQUIRED:

A) Payback period in months B) Book rate of return 7. BAIL-OUT PAYBACK PERIOD A project costing P80,000 will produce the following annual cash flows and salvage value: Year Cash Flows Salvage Values 1 P50,000 P65,000 2 50,000 50,000 3 50,000 35,000 4 50,000 20,000 REQUIRED:

Bail-out payback period.

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