TAKE HOME LONG QUIZ
LONG QUIZ #1
ACC411
INSTRUCTIONS: Read each question carefully. Write your Answers in a yellow sheet of paper. Use front page only. No erasures
Allowed. Show solutions.
1.
Bolsa Co. estimates that 60,000 special zipper will be used in the manufacture of industrial bags during the next year.
Sure Zipper Co. has quoted a price P6 per zipper. Bolsa would prefer to purchase 5,000 units per month but Sure is unable to
guarantee this delivery schedule. In order to ensure the availability of these zippers, Bolsa is considering the purchase of all
60,000 units at the beginning of the year. Assuming that Bolsa can invest cash at 12%, the company's opportunity cost of
purchasing the 60,000 units are the beginning of the year is
a.
P21,600
c.
P19,800
b.
P43,200
d.
P39,600
2.
Chow Inc. has its own cafeteria with the following annual costs
Food
P 400,000
Labor
300,000
Overhead
440,000
Capital
P 1,140,000
The overhead is 40% fixed. Of the fixed overhead, P100,000 is the salary of the cafeteria supervisor. The remainder of the fixed
overhead has been allocated from total company overhead. Assuming the cafeteria supervisor will remain and that Chow will
continue to pay said salary, the maximum cost Chow will be willing to pay an outsider firm to service the cafeteria is
a.
P1,140,000
c.
P700,000
b.
P1,040,000
d.
P964,000
3.
Listed below are a company's monthly unit costs to manufacture and market a particular product.
Unit costs
Variable cost
Fixed costs
Direct materials
P 2.00
Direct labor
2.40
Indirect manufacturing
1.60
P 1.00
Marketing
2.50
1.50
The company must decide to continue making the product or buy it from an outside supplier. The supplier has offered to make
the product at the same level of quality that the company can make it. Fixed marketing costs would be unaffected, but variable
marketing costs would be reduced by 30% if the company were to accept the proposal. What is the maximum amount per unit
that the company can pay the supplier without decreasing its operating income?
a.
P8.50
c.
P7.75
b.
P6.75
d.
P5.25
4.
Picnic Items, Inc. manufactures coolers of 10,000 units that contain a freezable ice bag. For an annual volume of 10,000
units, fixed manufacturing costs of P500,000 are incurred. Variable costs per unit amount are direct materials - P80; direct labor
-P15; and variable factory overhead – P20.
Bags Corp. offered to supply the assembled ice bag for P40 with a minimum order of 5,000 units. If Picnic accepts the offer, it
will be able to reduce variable labor and overhead by 50%. The direct materials for the freezable bag will cost Picnic P20 if it
will produce it. Considering Bags Corp. offer, Picnic should
a.
Buy the freezable ice bag due to P150,000 advantage.
b.
Produce the freezable ice bag due to P25,000 advantage.
c.
Produce the freezable ice bag due to P50,000 advantage.
d.
Buy the freezable bag due to P50,000 advantage.
5.
Savage Industries is a multi-product company that currently manufactures 30,000 units of Part QS42 each month for
use in production. The facilities now being used to produce Part QS42 have fixed monthly cost of P150,000 and a capacity to
produce 84,000 units per month. If Savage were to buy Part QS42 from an outside supplier, the facilities would be idle, but its
fixed costs would continue at 40% of their present amount. The variable production costs of Part QS42 are P11 per unit.
If Savage Industries is able to obtain Part QS42 from an outside supplier at a unit purchase price of P12.875, the monthly usage
at which it will be indifferent between purchasing and making Part QS42 is
a.
30,000 units
c.
80,000
b.
32,000 units
d.
48,000
6.
Tyler Company currently sells 1,000 units of product M for P1 each. Variable costs are P0.40 and avoidable fixed costs
are P400. A discount store has offered P0.80 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
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7.
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 12% 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 36% 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.
P182,000
c.
P(588,000)
b.
P258,800
d.
P18,800
8.
ABC Company receives a one-time special order for 5,000 units of Kleen. Acceptance of this order will not affect the
regular sales of 80,000 units. The cost to manufacture one unit of this particular product is:
Variable costs (per
Fixed costs (per
unit)
year)
Direct materials
P 1.50
Direct labor
2.50
Overhead
.0.80
P 100,000
Selling and administrative
3.00
50,000
Variable selling costs for each of these 5,000 units will be P1.00. What is the differential cost to ABC Company of accepting this
special order?
a.
P39,000
c.
P30,250
b.
P34,000
d.
P29,000
9.
PQR Company expects to incur the following costs at the planned production level of 10,000 units:
Direct materials
P 100,000
Direct labor
120,000
Variable Overhead
60,000
Fixed overhead
30,000
The selling price is P50 per unit. The company currently operates at full capacity of 10,000 units. Capacity can be increased to
13,000 units by operating overtime. Variable costs increase by P14 per unit for overtime production. Fixed overhead costs
remain unchanged when overtime operations occur. PQR Company has received a special order from a wholesaler who has
offered to buy 2,000 units at P45 each.
What is the incremental cost associated with this special order?
a.
P84,000
c.
P62,000
b.
P31,000
d.
P42,000
10.
Clay Co. has considerable excess manufacturing capacity. A special job order's cost sheet includes the following applied
manufacturing overhead costs: fixed costs - P21,000, and variable costs - P33,000.
The fixed costs include a normal P3,700 allocation for in-house design costs, although no in-house design will be done. Instead,
the job will require the use of external designers costing P7,750. What is the total amount to be included in the calculation to
determine the minimum acceptable price for the job?
a.
P36,700
c.
P54,000
b.
P40,750
d.
P58,050
11.
Sandow Co. is currently operating at a loss of P15,000. The sales manager has received a special order for 5,000 units
of product, which normally sells for P35 per unit. Costs associated with the product are: direct material, P6; direct labor, P10;
variable overhead, P3; applied fixed overhead, P4; and variable selling expenses, P2. The special order would allow the use of a
slightly lower grade of direct material, thereby lowering the price per unit by P1.50 and selling expenses would be decreased by
P1. If Sandow wants this special order to increase the total net income for the firm to P10,000, what sales price must be quoted
for each of the 5,000 units?
a.
P23.50
c.
P27.50
b.
P24.50
d.
P34.00
12.
Tagaytay Open-Air Flea Market is along the highway leading to Taal Vista Lodge. Arnel has a stall which specializes in
hand-crafted fruit baskets that sell for P60 each. Daily fixed costs are P15,000 and variable costs are P30 per basket. An average
of 750 baskets are sold each day, Arnel has a capacity of 800 baskets per day. By closing time, yesterday, a bus load of teachers
who attended a seminar at the Development Academy of the Philippines stopped by Arnel's stall. Collectively, they offered Arnel
P1,500 for 40 baskets. Arnel should have
a.
Rejected the offer since he could have lost P500.
b.
Rejected the offer since he could have lost P900.
c.
Accepted the offer since he could have P300 contribution margin.
d.
Accepted the offer since he could have P700 contribution margin.
13.
Ysabelle Industries, Inc. has an opportunity to acquire a new equipment to replace one of its existing equipment. The
new equipment would cost P900,000 and has a five-year useful life, with a zero terminal disposal price. Variable operating costs
would be P1 million per year. The present equipment has a book value of P500,000 and a remaining life of five years. Its disposal
price now is P50,000 but would be zero after five years. Variable operating costs would be P1,250,000 per year. Considering the
five years in total, but ignoring the time value of money and income taxes. Ysabelle should
a.
Replace due to P400,000 advantage.
b.
Not replace due to PIS0,000 disadvantage.
c.
Replace due to P3S0,000 advantage.
d.
Not replace due to P100,000 disadvantage.
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14.
Data covering QMB Corporation's two product lines are as follows:
Product “W”
Product “Z”
Sales
P 36,000
P 25,200
Income before income tax
15,936
(8,388)
Sales price per unit
30.00
14.00
Variable cost per unit
8.50
15.00
The total unit sold of "W'' was 1,200 and that of "Z" was,1,800 units. If Product "Z" is discontinued and this results in a 400 units
decrease in sales of Product "W", the total effect on income will be
a.
P13,600 decrease
c.
P8,600 decrease
b.
P6,800 decrease
d.
P5,000 decrease
Questions 15 through 17 are based on the following information.
The owners of Dynamics, Inc. have engaged you to assist them in arriving at certain decisions. Dynamics maintains its home
office in Manila and rents factory plants in Bulacan, Laguna and Naga, all of which produce the same product. The management
of Dynamics provided you with a projection of operations for 1981 as follows:
Sales
Variable costs
Fixed costs:
Factory
Administrative
Allocated home office costs
Total costs
Net profit from operations
The sales price per unit is P12.50.
TOTAL
P 2,200,000
725,000
Bulacan
P 1,100,000
332,500
Laguna
P 700,000
212,500
Naga
P 400,000
180,000
550,000
175,000
250,000
1,700,000
500,000
280,000
105,000
112,500
830,000
270,000
140,000
55,000
87,500
495,000
205,000
130,000
15,000
50,000
375,000
25,000
Due to the poor results of operations of the plant in Naga, Dynamics has decided to cease operations and offer the plant's
machinery and equipment for sale by the end of 1980. The company expects to sell these assets at a good price to cover all
termination costs. Dynamics, however, wishes to continue serving its customers in Naga and is considering one of the following
three alternatives:
1.
Expand the operations of Laguna plant by using space presently idle. This move would result in the following changes
in that plant operations;
Increase over plant’s current operations
Sales
50%
Fixed costs – factory
20%
– administrative
10%
Under this proposal, variable costs would be P4.00 per unit sold.
2.
Enter into a long-term contract with another company who will serve the area's customers. This company will pay
Dynamics a royalty of P2.00 per unit based upon an estimate of P30,000 units being sold.
3.
Close the Naga plant and not expand the operations of the Laguna plant.
The total home office costs of P250,000 will remain the same under each situation.
15.
The estimated net profit from total operations of Dynamics, Inc. that would result from expansion of Laguna plant
(Alternative 1) is
a.
P425,000
c.
P535,000
b.
P485,000
d.
P618,000
16.
The estimated net profit from total operations of Dynamics, Inc. that would result from negotiation of long-term contract
on a royalty basis (Alternative No.2) is
a.
P425,000
c.
P535,000
b.
P485,000
d.
P618,000
17.
The estimated net profit from total operations of Dynamics, Inc. that would result from shutdown of Naga plant with no
expansion of other locations (Alternative No.3) is
a.
P425,000
c.
P535,000
b.
P485,000
d.
P618,000
18.
A company considers a project that will generate cash sales of P50,000 per year. Fixed costs will be 10,000 per year,
variable costs will be 40% of sales, and depreciation of the equipment in the project will be P5,000 per year. Taxes are 40%.
The expected cash flow to the company resulting from the project is:
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a.
b.
P15,000
P9,000
c.
d.
P19,000
P14,000
19.
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 processing
P100,000
P90,000
To maximize Julius' manufacturing contribution margin, the total separate variable costs of further processing that should be
incurred each week are
a.
P95,000
c.
P100,000
b.
P90,000
d.
P190,000
20.
A manufacturing company's primary goals include product quality and customer satisfaction. The company sells a
product, for which the market demand is strong, for P50 per unit. Due to the capacity constraints in the Production Department,
only 300,000 units can be produced per year. The current defective rate is 12% (i.e., of tile 300,000 units produced, only 264,000
units are sold and 36,000 units are scrapped). There is no revenue recovery when defective units are scrapped. The full
manufacturing cost of a unit is P29.50, including
Direct materials
P17.50
Direct labor
4.00
Fixed manufacturing overhead
8.00
The company's designers have estimated that the defective rate can be reduced to 2% by using a different direct material.
However, this will increase the direct materials cost by P2.50 per unit to P20 per unit. The net benefit of using the new material
to manufacture the product will be
a.
P(120,000)
c.
P750,000
b.
P120,000
d.
P1,425,000
21.
A company produces, and sells three products:
Products
C
J
P
Sales
P200,000
P150,000
P125,000
Separable (product) fixed costs
60,000
35,000
40,000
Allocated fixed costs
35,000
40,000
25,000
Variable costs
95,000
75,000
50,000
The company lost its lease and must move to a smaller facility. As a result, total allocated fixed costs will be reduced by 40%.
However, one of its products must be discontinued in order for the company to fit in the new facility. Because the company's
objective is to maximize profits, what is its expected net profit after the appropriate product has been discontinued?
a.
P10,000
c.
P20,000
b.
P15,000
d.
P25,000
Questions 22 and 23 are based on the following information.
Henno Company has just completed a hydro-electric plant at a cost of P21,000,000 The plant will provide the company's power
needs for the next 20 years. Hermo will use only 60% of the power output annually. At this level of capacity, Hermo's annual
operating costs will amount to P1,800,000, of which 80% are fixed.
Quigley Company currently purchases its power from MP Electric at an annual cost of P1,200,000, Hermo could supply this
power, thus increasing output of the plant to 90% of capacity. This would reduce the estimated life of the plant to 14 years.
22.
If Hermo decides to supply power to Quigley, it wants to be compensated for the decrease in the life of the plant and the
appropriate variable costs. Hermo has decided that the charge for the decreased life should be based on the original cost of the
plant calculated on a straight-line basis. The minimum annual amount that Hermo would charge Quigley would be
a.
P450,000
c.
P990,000
b.
P630,000
d.
P800,000
23.
a.
b.
c.
d.
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The maximum amount Quigley would be willing to pay Hermo annually for the power is
P600,000
P1,050,000
P1,200,000
P1,000,000
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24.
Kirklin Co. is a manufacturer operating at 95% of capacity. Kirklin has been offered a new order at P7.25 per unit
requiring 15% of capacity. No other use of the 5% current idle capacity can be found. However, if the order were accepted, the
subcontracting for the required 10% additional capacity would cost P7.50 per unit. The variable cost of production for Kirklin
on a per-unit basis follows:
Materials
P 3.50
Labor
1.50
Variable overhead
1.50
P 6.50
In applying the contribution margin approach to evaluating whether to accept the new order, assuming subcontracting, what is
the average variable cost per unit?
a.
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P6.83
b. 7.00
c. 7.17
d. 7.25
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