QUIZ #8
Chapter 11 Relevant Costing
40,000 calculators
x (23 – 16 – 3) special order price less variable cost
160,000 increase
[(26000 x 2) + 20000 – (400000+160000)]
÷ 1,000 kids
= 16 per kids
Leis Manufacturing Co. uses 10 units of Part Number WS73 each month in the production of computer
printer. The unit cost to manufacture one unit of WS73 is presented below.
Direct materials
Materials handling (20% of direct material cost)
Direct labor
Manufacturing overhead (150% of direct labor)
Total manufacturing cost
P 1,000
200
8,000
12,000
P 21,200
Material handling represents the direct variable costs of the Receiving Department that are applied to
direct materials and purchased components on the basis of their cost. This is a separate charge in
addition to manufacturing overhead. Leis' annual manufacturing overhead budget is one-third variable
and two-thirds fixed. Garland Company, one of Leis' reliable vendors, has offered to supply part WS73
at a unit price of P 15,000.
If Leis purchases the WS73 units from Garland, the capacity being used by Leis to manufacture these
parts would be idle. Should Leis decide to purchase the parts from Garland, the unit cost of WS73 would
Increase by P 4,800
15000 x 1.2 additional 20% for materials handling
+ 12000 x 2/3 fixed OH
= 26,000 unit cost less 21,200 total manufacturing cost
=4,800 increase
III & V are true
15+10+7+3+2
= 37
(15000 units x 20)
= 300,000
(67,500 – 45,000)
= 22,500
Total purchase cost
= 322,500
90,000+112,500+48,750+45,000 = 296,250
Disadvantage
= 26250
2+2.4+1.6 + (2.50 * 0.30) = 6.75
10 reduced price
- 8.75 (5+3+0.75) DM, DL & VMOH
= 1.25
X 6,000 units
= 7,500 increase
Sales Price x Probabilities
P 5,000 x 40%
= 2,000
10,000 x 20
= 2,000
12,000 x 30
= 3,600
30,000 x 10
= 3,000
10,600
The cost of 60,000 zippers is P36,000 (60,000 x 0.60).
The monthly cost is P3,000 (5000 x 0.60). Because the
company wants to purchase the items monthly. It will
invest at least P3,00 in January. Thus the incremental
advance purchase will only be P33,000. The incremental
investment will decline at a constant rate of P3,000 per
month. Accordingly, assuming consumption is uniform,
the average incremental investment during the year will
be P16,500 (33000 ÷ 2) if one time purchase is made.
16,500 x 8% = 1320
Materials
P20
Labor
10
Factory overhead
(24 x 500,000)
12,000,000
Less: FOH
5,000,000
VOH
7,000,000
÷ normal volume
500,000
VOH rate
14
Selling and administrative
(15 x 500,000)
7,500,000
Less: Fixed S&A
3,000,000
Variable S&A
4,500,000
÷ normal volume
500,000
Variable S&A
9
X (1 – 1/3)
2/3
Variable S&A for special order
6
Total cost of special order
50
60 – 50 = 10 x 80,000 = 800,000
Variable: Food
P 300,000
Labor
250,000
Overhead 150,000
700,000
29 unit cost
Less: FC
VC
8 (400,000/50,000)
21
Less:
4 (2.50+1.50)
Cost SO
17
CM of SO
5.50 (22.50 – 17)
X units
15,000
= CM
82,500
Less: Add’l cost
30,000
Profit from SO
52,500
Less: dec.
2000 x (39-22.50)
33,000
Increase by
19,500
Plastic
Metal
RC – make
11.00
13.00
- RC – Buy
15.50
17.50
Additional Cost-Buy 4.50
4.50
Hours required/unit ÷ 3
÷ 4.5
Additional cost /hr. 1.50
1.0
Priority
MH used
1st Plastic (7,000 x 3)
21,000
2nd Available MH to Metal
27,000
Capacity (machine hours) 48,000
27,000 ÷ 4.50 = 6,000 units Metal to be produced
11,000 – 6,000 = 5,000 units of Metal will be purchased
X = 50/25 = 2 CM per min.
Y = 90/50 = 1.80 CM per min.
Z = 112.50/75 = 1.50 CM per min
Capacity (7days x 10hrs x 60 mins)
4200 minutes
X = 60 units x 25 mins = 1,500
Y = 40 units x 50 mins = 2,000
Z = (4200 – 1500 – 2000) 700 ÷ 75 mins = 9.333 units
2200+(Mat. Handling (50/500)x2200)+(1900*0.60) 3,560
Less: (500+50+950+1900)
3,400
Disadvantage
160
X units
500
Insource
80,000
2200+(Mat. Handling (50/500)x2200)+(1900*0.60) 3,560
Less: (500+50+950+1900)
3,400
Disadvantage
160
X units
500
Additional cost
80,000
Less: Rent Income
100,000
Outsource
20,000
1. 40 variable manufacturing cost
+
8 additional cost overtime
= 48 special order cost per unit
58 -48 = 10 x 50,000 = 500,000
20000 x (100-40) = -1,200,000
Decrease
= 700,000
1.
Product C – the product with the lowest product margin.
2.
Product margin of A and B
(11,250 + 10,000)
21,250
Less: NEW total allocated fixed costs
(25,000 x 70%)
New total income before tax
17,500
3,750
5% Commissions
50,000 per salesperson + 2% Commission
Sales
1,200,000 x 50vans
60,000,000
60,000,000 1,200,000 x 50vans
Less: cost
5% x 1,200,000 x
50 vans
3,000,000
3,200,000
57,000,000
56,800,000
Operating Income
(50,000 x 40 salesperson) +
(2% x 1,200,000 x 50 vans)
1. 5% flat rate, by P200,000 (57,000,000 less 56,800,000)
2. 1,200,000 x - .05(1,200,000x) = 1,200,000x – (50,000
multiply by 40) - .02(1,200,000 x)
1,140,000 x = 1,176,000x - 2,000,000
2,000,000 = 36,000x
x = 55.56 vans or 56 vans
if there is a maximum demand
(market limit) and limited resources,
the company will produce
according to the product which
give them high CM per limited
resources up to its limit or full
capacity.
If the is no market limit,
choose the product with
highest CM per limited
resources.
Selling price per unit
Variable cost per unit
Contribution Margin per unit
Machine hours required per unit
Contribution Margin per Machine hour
Limited Units
Product 4 (250 units x 3 Machine Hrs)
Product 2 (remaining Machine hrs.
divided by 5 Machine hours required to
produce Product 2 = 90 units)
Product 1 Product 2 Product 3 Product 4
75
90
100
125
35
55
50
80
40
35
50
45
8
5
25
3
5
7
2
15
Product 1 Product 2
500
300
450
Product 3
No limit
Product 4
250
Machine Hours
1,200
750
-750
-450
0
1. Your scores for #1 Question will be corrected. The
Correct Answer should be Letter B instead of A.
Direct materials
Direct labor
Variable manufacturing overhead
Shipping and handling
Variable Costs
CM displaced
total cost of special order
Divided by number of units of the special order
Minimum unit price of the special order
20
15
12
3
50 x 1,000 units
50,000
10,000
60,000
1,000
60
Solution to Question #1
A
Unit Sales per Year
Selling Price per unit
Variable Cost Per unit
Unit Contribution Margin
Current Profits
If Product C will be dropped
Profits will increase by
300
8
3.20
4.80
1,440
1,440
B
C
600
9
6.00
3.00
1,800
1,800
Total
200
6
6.50
-0.50
-100
3,140
3,240
100
Solution to Question #2
A
Unit Sales per Year
Selling Price per unit
Variable Cost Per unit
Unit Contribution Margin
Current Profits
If product B's production is
increased to 700 units per
year, but B's selling price on
all units of B is reduced to
$8.00
Profits will decrease by
B
C
Total
300
8
3.20
4.80
1,440
600
9
6.00
3.00
1,800
200
6
6.50
-0.50
-100
1,440
1,400
-100
3,140
2,740
-400
Solution to Question #3
Unit Sales per Year
Selling Price per unit
Variable Cost Per unit
Unit Contribution Margin
Current Profits
selling price of Product C is
increased to P7.00 with a
reduction in annual sales to
150 units
Profits will increase by
A
B
300
8
3.20
4.80
1,440
600
9
6.00
3.00
1,800
C
200
6
6.50
-0.50
-100
1,440
1,800
75
Total
3,140
3,315
175
Sales
Variable costs
Contribution margin
Direct fixed costs
Store margin
Indirect fixed costs, allocated
based on peso sales
Operating income
Manila Store Quezon City Store
400,000
600,000
160,000
420,000
240,000
180,000
100,000
200,000
140,000
-20,000
20,000
120,000
30,000
-50,000
Total
Manila Store Quezon City Store Closed
1,000,000
320,000
580,000
128,000
420,000
192,000
300,000
100,000
60,000
120,000
92,000
-60,000
50,000
70,000
50,000
42,000
-60,000
Manila Store Closed
Sales
Variable costs
Contribution margin
Direct fixed costs
Store margin
Indirect fixed costs, allocated
based on peso sales
Operating income
Total
320,000
128,000
192,000
160,000
32,000
50,000
-18,000
Quezon City Store
600,000
420,000
180,000
30,000
200,000
-30,000
-20,000
Total
600,000
420,000
180,000
230,000
-50,000
50,000
-70,000
50,000
-100,000
-30,000
Neither of the two stores should be closed because if QC
Store in closed and maintain the Manila Store, Manila
Store sales will decrease by 20% operating income will
decrease from 70,000 to operating loss 18,000 while if
Manila Store is closed and QC Store is maintained, the
closing of Manila Store will not affect the sales of QC Store
but the operating profit will decrease from 70,000 to
operating loss of 100,000. Please take note that 30% of the
direct fixed costs will not be eliminated even if the stores
are closed.
Sales
Variable costs
Contribution margin
Direct fixed costs
Store margin
Indirect fixed costs, allocated
based on peso sales
Operating income
Manila Store Quezon City Store
400,000
600,000
160,000
420,000
240,000
180,000
100,000
200,000
140,000
-20,000
20,000
120,000
30,000
-50,000
Total
Manila Store Quezon City Store Closed
1,000,000
320,000
580,000
128,000
420,000
192,000
300,000
100,000
60,000
120,000
92,000
-60,000
50,000
70,000
50,000
42,000
-60,000
If the Quezon City Store is closed, the company's total
income would increase (decrease) by
-88,000
Total
320,000
128,000
192,000
160,000
32,000
50,000
-18,000
Your scores for #3 Question will be
corrected. The Correct Answer
should be Letter B instead of C.
Sales
Variable costs
Contribution margin
Direct fixed costs
Store margin
Indirect fixed costs, allocated
based on peso sales
Operating income
Manila Store QC Store
400,000
600,000
160,000
420,000
240,000
180,000
100,000
200,000
140,000
-20,000
20,000
120,000
30,000
-50,000
promotional campaign
Total
VS Manila Store QC Store
1,000,000
400,000
720,000
580,000
160,000
504,000
420,000
240,000
216,000
300,000
100,000
500,000
120,000
140,000
-284,000
50,000
70,000
20,000
120,000
30,000
-314,000
*600,000*(1 + .20 for the 20% increase in sales
**(Variable Costs/Sales )*new Sales
*200000+300000 campaign cost
If promotional campaign for Quezon City Store is implemented, the
company's total income would increase (decrease) by -264,000
Total
1,120,000
664,000
456,000
600,000
-144,000
50,000
-194,000
Sales
Variable costs
Contribution margin
Direct fixed costs
Store margin
Indirect fixed costs, allocated
based on peso sales
Operating income
Manila Store QC Store
400,000
600,000
160,000
420,000
240,000
180,000
100,000
200,000
140,000
-20,000
20,000
120,000
30,000
-50,000
stop selling
Total
VS Manila Store QC Store
1,000,000
400,000
480,000
580,000
160,000
336,000
420,000
240,000
144,000
300,000
100,000
170,000
120,000
140,000
-26,000
50,000
70,000
20,000
120,000
30,000
-56,000
Total
880,000
496,000
384,000
270,000
114,000
50,000
64,000
*600,000*(1 - .20) for the 20% decrease in sales
**(Variable Costs/Sales )*new Sales
*200000 * 0.85
If it stop selling, the company's total income would increase (decrease) by -6,000
Sales
Variable costs
Contribution margin
Direct fixed costs
Store margin
Indirect fixed costs, allocated
based on peso sales
Operating income
Manila Store QC Store
400,000
600,000
160,000
420,000
240,000
180,000
100,000
200,000
140,000
-20,000
20,000
120,000
30,000
-50,000
a promotional campaign for the whole co
Total
VS Manila Store QC Store
Total
1,000,000
480,000
720,000 1,200,000
580,000
192,000
504,000
696,000
420,000
288,000
216,000
504,000
300,000
100,000
200,000
300,000
120,000
188,000
16,000
204,000
50,000
70,000
40,000
148,000
60,000
-44,000
100,000
104,000
* Increase sales in both stores by 20%;
* Double the total indirect fixed costs.
promotional campaign for the whole company, the company's total income would
increase (decrease) by 34,000
This problem will not be included in the total number of
items.
Therefore this quiz is 48 points only.