1. Which of the following is not a characteristic of relevant costing information? It is
a.
b.
c.
d.
associated with the decision under consideration.
significant to the decision maker.
readily quantifiable.
related to a future endeavor.
2. For many years XYZ Company has purchased the starters that it installs in its standard line of
garden tractors. Due to a reduction in output, the company has idle capacity that could be used to
produce the starters. The chief engineer has recommended against this move, however, pointing
out that the cost to produce the starters would be greater than the current P10.00 per unit
purchase price. The company’s unit product cost, based on a production level of 60,000 starters
per year, is as follows:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead, traceable
Fixed manufacturing overhead, common (allocated
based on direct labor hours)
Total production cost
P4.00
2.75
.50
3.00
2.25
P180,000
135,000
P12.50
An outside supplier has offered to supply the starter to XYZ for only P10.00 per starter. Onethird of the traceable fixed manufacturing costs represent supervisory salaries and other costs
that can be eliminated if the starters are purchased. The other two-thirds of the traceable fixed
manufacturing costs is depreciation of special manufacturing equipment that will be eliminated if
the components are purchased. The decision would have no effect on the common fixed costs of
the company and the space being used to produce the parts would be idle.
What is the maximum price (total) that XYZ should pay for the starters?
DM
DL
VOH
FOH AVOIDABLE
MAX. PRICE
The correct answer is: 495000
4.00
2.75
0.50
1.00
8.25
XYZ Corporation manufactures two products, Simple and Complex. The following annual
information was gathered:
Simple
Complex
Selling price per unit
P47.00
P26.00
Variable cost per unit
42.00
22.00
Total annual fixed costs are P18,000. Assume XYZ Corporation can produce and sell any mix of
Simple or Complex at full capacity. It takes one hour to make one unit of Complex. However,
Simple takes 50% longer to manufacture when compared to Complex. Only 120,000 hours of
plant capacity are available. How many units of Simple and Complex should XYZ Corporation
produce and sell in a year to maximize profits?
SIMPLE
CM
MH
CM/MH
PRIORITY
COMPLEX
4.00
1.00
4.00
1ST
5.00
1.50
3.33
2ND
PRODUCTION
0
120,000.00
The correct answer is: 0 SIMPLE & 120,000 COMPLEX
XYZ Company currently produces a key part at a total cost of P200,000. Annual variable costs
are P160,000. Of the annual fixed costs, P10,000 relate specifically to this part. The remaining
fixed costs are unavoidable.
Another manufacturer has offered to supply the part annually for P210,000. The facilities
currently used to manufacture the part could be used to manufacture a new product with an
expected contribution margin of P30,000 per year. Alternatively, the facilities could be rented
out at P60,000 per year. Given all of these alternatives, what is XYZ Company's lowest net
relevant cost for the parts? The correct answer is: 150,000
Cost to make:
VC
160,000.00
FC
10,000.00
TOTAL
170,000.00
Cost to buy:
PP
210,000.00
OC
60,000.00
TOTAL
150,000.00
XYZ makes an electric skateboard-like scooter that is small enough to fit into a school locker.
Production for the year 2014 is budgeted at 20,000 scooters. Currently, XYZ makes all of the
parts for manufacturing the scooter. However, an outside source has offered to make and sell
XYZ 20,000 steering columns for P90 each. The controller of XYZ has researched the cost to
produce the steering column in house and has found the following cost structure:
Variable costs:
Direct materials
Direct labor
Overhead
Total variable cost per unit
P48
23
16
P87
Fixed costs of P40,000 represents depreciation on special equipment designed to make the
steering columns. The equipment cannot be used for any other purpose. The supervisory salary
of P70,000 is for the supervisor of the assembly line where the steering columns are made. The
supervisor is not involved with the manufacture of any other parts. Therefore, his salary can be
eliminated if the steering columns are purchased. The other fixed costs of P2,000 are allocated
costs and cannot be eliminated.
1. Determine the additional profit or (loss) of buying from the outside supplier.
2. Determine the minimum number of units wherein it would be worthwhile for XYZ to make
the units.
1.PP
VC TO MAKE
DIFF.
X NO. OF UNITS
AVOIDABLE FC
DIFF.
70.00
67.00
3.00
60,000.00
70,000.00
10,000.00
2. AVOIDABLE FC
DIFFERENCE
MIN. NUMBER
70,000.00
3.00
23,333.33
The correct answer is: 1. 10,000; 2. 23,333.33 UNITS
XYZ Pharmaceuticals is a research-based company which manufactures a wide variety of drugs
for use in hospitals. The purchasing manager has recently been approached by a new
manufacturer based in a newly industrialised country who have offered to produce three of the
drugs at their factory. The following cost and price information has been provided.
Fairyoxide
20,000
.80
Production (units)
Direct material cost,
per unit
Direct labour cost, per 1.60
unit
Direct expense cost, per 0.40
unit
Fixed cost per unit
0.80
Selling price each
4.00
Imported price
2.75
Spriteolite
40,000
1.00
Goblinex
80,000
.40
1.80
.80
0.60
0.20
1.00
5.00
4.20
0.40
2.00
2.00
Required
1. Recommend to the management whether any drugs should be purchased on the basis of cost
only.
2. How will your recommendation in (b) above affect the profit and by how much?
1.
Production (units)
Direct material cost, per unit
Direct labour cost, per unit
Direct expense cost, per unit
TOTAL
Imported price
DIFFERENCE
Fairyoxide
20,000
0.8
1.6
0.4
2.8
2.75
0.05
Spriteolite
40,000.00
1.00
1.80
0.60
3.4
4.20
(0.80)
BUY FAIRYOXIDE
2. DIFF. IN COST
NO. OF UNITS
TOTAL SAVINGS
0.05
20,000.00
1,000.00
The correct answer is: 1. BUY FAIRYOXIDE; 2. 1,000 INC.
Goblinex
80,000
0.4
0.8
0.2
1.4
2
(0.60)