CVP Analysis

1. Pirindot Corp had the following economic information for the year 2017:
Sales (50,000 units @ P20) P1,000,000
Variable manufacturing costs 400,000
Fixed costs 250,000
Income tax rate 40 percent
Pirindot Corp. budgets its 2018 sales at 60,000 units or P1,200,000. The company anticipates an increased
competition; hence, an additional P75,000 advertising costs is budgeted in order to maintain its sales target for
2018. What is the amount of peso sales needed for 2018 in order to equal the after-tax income in 2017?
A. P1,125,000 B.P1,325,000B. C.P1,187,500D. P1,387,500
2 , Fashion Goddess Inc. had the following sales results for 2017:
Denim Tank Tops Statement Shirts
Peso sales component ratio 0.30 0.30 0.40
Contribution margin ratio 0.40 0.40 0.60
Fashion Goddess, Inc had fixed costs of P2,400,000.
The break-even sales in pesos for Fashion Goddess, Inc.are:
Denim Tank Tops Statement Shirts
A. P1,800,000 P1,800,000 P3,600,000
B. P1,800,000 P1,800,000 P1,600,000
C. P1,500,000 P1,500,000 P2,000,000
D. P1,531,915 P1,531,915 P2,042,553 .
3. Finger Ringer, Inc. manufactures and sells key rings embossed with college names and slogans. Last year,
the key rings sold for P75 each, and the variable costs to manufacture them were P22.50 per unit. The company
needed to sell 20,000 key rings to break-even. The net income last year was P50,400. The company expects
the following for the coming year:
 The selling price of the key rings will be P90.
 Variable manufacturing costs per unit will increase by one-third.
 Fixed costs will increase by 10%.
 The income tax rate will remain unchanged.
For the company to break-even the coming year, the company should sell
A. 2,600 units. C. 21,250 units.
B. 19,250 units. D. 21,600 units.
VARIABLE/ ABSORPTION COSTING
The next four items are based on the following information:
Casquijo Corporation provides the following information for the month of February based on the production of
20,000 units:
Direct materials P 50,000
Direct labor 30,000
Variable factory overhead costs 20,000
Fixed factory overhead costs 25,000
Variable selling and administrative expenses 40,000
Fixed selling and administrative expenses 15,000
4.Under full costing, what is the costs of goods manufactured if work-in-process inventory increased by P
15,000?
A. P140,000 B. P85,000 C. P115,000 D.P110,000
5.What selling price will earn a gross profit of P 2.50 per unit under absorption costing?
A. P10.50 B. P8.55 C. P3.75 D. P8.75
6. What is the unit product cost under variable costing?
A. P8.00 B. P7.00 C. P5.00 D. P6.25
7. How many units were sold if variable costing profit is higher than absorption costing profit by P 2,500?
A. P22,000 B. P18,000 C. P18,889 D. P21,111
BUDGETING
8. Albatross Company started its commercial operations on September 30 of the current year. Projected
manufacturing costs for the first three months of operations are P1,568,000, P1,952,000, and P2,176,000,
respectively. Depreciation, insurance, and property taxes represent P288,000 of the estimated manufacturing
costs. Insurance was paid on September 30, and property taxes will be paid in July next year. Seventy-five
percent of the remainder of the manufacturing costs are expected to be paid in the month in which they are
incurred, with the balance to be paid in the following month. The cash payments for manufacturing costs in
the month of November are:
A.P1,568,000 B.P1,664,000 C.P1,952,000 D. P1,856,000
9. Lorie Company plans to sell 400,000 units of finished product in July an anticipates a growth rate in sales
of 5% per month. The desired monthly ending inventory in units of finished product is 80% of the next
month’s estimated sales. There are 300,000 finished units in the inventory on June 30. Each unit of finished
product requires four pounds of direct materials at a cost of P2.50 per pound. There are 800,000 pounds of
direct materials in the inventory on June 30. How many units should be produced for the three-month period
ending September 30?
A. 1,260,000 B.1,331,440 C.1,328,000 D. 1,424,050
10. Grant Company estimates its sales at 60,000 units in the first quarter and that sales will increase by 6,000
units each quarter over the year. It has, and desires, a 25% ending inventory of finished goods. Each unit sells
for $25. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is
received in the quarter following sale. What is the budgeted cash collections for the third quarter?
A. P2,052,000 B. P1,017,000 C. P1,476,000 D. P1,773,000
11. Apple Shoe Shop is preparing its cash budget for the month of May. Apple pays 60% of purchases in the
month of purchase and the remainder the next month. Operational information follows:
Beginning inventory, May 1 P 20,000
Estimated May cost of goods sold 100,000
Estimated May ending inventory 35,000
April purchases 90,000
What are Apple’s estimated cash payments for shoes in May?
a. P 115,000 b. P 105,000 c. P 87,000 d. P 70,000
RELEVANT COSTING
12. Relay Corporation manufactures batons. Relay can manufacture 300,000 batons a year at a variable cost of
P750,000 and a fixed cost of P450,000. Based on Relay’s predictions, 240,000 batons will be sold at the regular
price of P5.00 each. In addition, a special order was placed for 60,000 batons to be sold at a 40 percent discount
off the regular price. The unit relevant cost per unit for Relay’s decision is
A. P3.00 B. P4.00 C. 1.50 D. P2.50
13. Stine Company incurs the following costs in producing 50,000 units of product:
Direct materials P100,000
Direct labor 50,000
Variable manufacturing overhead 100,000
Fixed manufacturing overhead 300,000
An outside supplier has offered to supply the 50,000 units at P7.00 each. All of Stine's related variable costs, but
only P200,000 of the fixed costs would be eliminated if the offer is accepted. Acceptance will result in a
A. savings of P200,000. b. loss of P100,000. c. savings of P100,000. d. loss of P200,000.
14. Part BX is a component that Motors and Engines Co. uses in the assembly of motors. The cost to produce
one BX is presented below:
Direct materials P 4,000
Materials handling (20% of direct materials) 800
Direct labor 32,000
Overhead (150% of direct labor) 48,000
Total manufacturing costs P84,800
Materials handling which is not included in manufacturing overhead, represents the direct variable costs of
the receiving department that are applied to direct materials and purchased components on the basis of their
cost.
The company’s annual overhead budget is one-third variable and two-thirds fixed. Pre-casts Co., offers to
supply BX at a unit price of P60,000. Should the company buy or manufacture?
A. Buy, due to advantage of P12,800 per unit.
B. Buy, due to advantage of P24,800 per product.
C. Manufacture, due to advantage of P7,200 per unit.
D. Manufacture, due to advantage of P19,200 per unit.
15. 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 P3.50
Labor 1.50
Variable overhead 1.50
P6.50
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. P6.83 C. P7.17
B. P7.00 D. P7.25
16. Hacienda Luciana produces pesticides that is intended only for rats. The company normally produces and
sells 10,000 packs of the pesticide each month. "X" pesticide is sold for P280 per pack with variable cost of
P168 per pack, fixed factory overhead cost of P460,000 per month and fixed selling cost of P620,000 per
month.
60% of the local farmers used their products and are happy that they have fruitful harvest with the
occurence of rat attacks are reduced to zero. However, the local residents together with concerned
environmental organizations petitioned to boycott the product because of its harmful effects to human, animals
and plants. With that, monthly sales of Hacienda Luciana have dwindled to only 15% of its normal monthly
volume. Hacienda Luciana's management expects that the boycotting of their products will only be temporary
and they will seek remedies to enlighten the public of their products and it would take two months to resume to
its normal state. However, due to the dramatic drop in the sales level, Hacienda Luciana's management is
contemplating to shutdown its plants during the two-month period that the boycott is on.
If Hacienda Luciana will temporarily shutdown its operations, it is expected that the fixed factory overhead
costs can be decreased to P340,000 per month and that the fixed selling costs can be reduced by P62,000
monthly. On its resumption of operations, it would incur P56,000. Hacienda Luciana uses Just-in-Time system.
The shutdown point in units is
A. P1,100 B. P9,642.86 C. P3,250 D.2,750
ABC COSTING
Use the following information to answer questions
Kingfisher Plaids Corporation has the following overhead costs and cost drivers. Direct labor hours are
estimated at 100,000 for the year.
Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity
Ordering and Receiving Orders P 120,000 500 orders
Machine Setup Setups 297,000 450 setups
Machining Machine hours 1,500,000 125,000 MH
Assembly Parts 1,200,000 1,000,000 parts
Inspection Inspections 300,000 500 inspections
17. If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is
A. P9.60. B. P12.00. C. P15.00. D. P34.17.
18. If overhead is applied using activity-based costing, the overhead application rate for ordering and receiving
is
A. P1.20 per direct labor hour B. P240 per order. C. P0.12 per part. D. P6,834 per order.
19. Bed and Butter Inc. manufactures mattresses for the hotel industry. It has two products, Downy and
Firmantel, and total overhead is P790,000. The company plans to manufacture 400 Downy mattresses and 100
Firmantel mattresses his year. In manufacturing the mattresses, the company must perform 600 material moves
for the Downy and 400 for the Firmantel; it processes 900 purchase orders for the Downy and 700 for the
Firmantel; and the company’s employees work 1,400 direct labor hours on the Downy product and 3,400 on the
Firmantel. Bed and Butter’s total material handling costs are P500,000 and its total processing costs are
P290,000. Using ABC, how much overhead would be assigned to the Downy product?
A. P395,000 b. P463,125 c. P326,875 d. P559,583
20. Faleeda Company uses an activity-based costing system with three activity cost pools. The company has
provided the following data concerning its costs and its activity based costing system:
Costs:
Manufacturing overhead P600,000
Selling and admin. expenses P220,000
Total P820,000
Distribution of resource consumption:
Activity Cost Pools
Order Size Customer Other Total
Support
Manufacturing overhead 15% 75% 10% 100%
Selling and admin. 60% 20% 20% 100%
Expenses
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have
been asked to complete the first-stage allocation of costs to the activity cost pools. How much cost, in total,
would be allocated in the first-stage allocation to the Customer Support activity cost pool?
A. P164,000 C. P494,000 B. P389,500 D. P 615,000
Capital Budgeting
21. The McNally Co. is considering an investment in a project that generates a profitability index of 1.3. The
present value of the cash inflows on the project is P44,000. What is the net present value of this project?
A. P10,154 C. P33,846
B. P13,200 D. P57,200
22. You have deposited P7,620 in a special account that has a guaranteed interest rate of 19% per year. If you
are willing to completely exhaust the account, what is the maximum amount that you could withdraw at the end
of each of the next 7 years? Select the amount below that is closest to your answer.
A. P1,295 B. P2,056 C. $2,219 D. P1,089
(Ignore income taxes in this problem.) Hosquini Centrum, Inc., has an antiquated high-capacity printer that
needs to be upgraded. The system either can be overhauled or replaced with a new system. The following data
have been gathered concerning these two alternatives:
Overhaul
Present Purchase
System New System
Purchase cost when new............. P300,000 P400,000
Accumulated depreciation.......... P220,000 —
Overhaul costs needed now........ P250,000 —
Annual cash operating costs........ P120,000 P90,000
Salvage value now...................... P90,000 —
Salvage value in ten years........... P30,000 P80,000
Working capital required............ — P50,000
The company uses a 10% discount rate and the total-cost approach to capital budgeting analysis. The working
capital required under the new system would be released for use elsewhere at the conclusion of the project. Both
alternatives are expected to have a useful life of ten years.
23. The net present value of the overhaul alternative (rounded to the nearest hundred dollars) is:
A. P(750,300) B. P(725,800) C. P(975,800) D. P(987,400)
24. The net present value of the new system alternative (rounded to the nearest hundred dollars) is:
A. P(862,900) B. P(552,900) C. P(758,400) D) P(987,400)
25. Consider a project that requires cash outflow of P50,000 with a life of eight years and a salvage value of
P5,000. Annual before-tax cash inflow amounts to P10,000 assuming a tax rate of 30% and a required rate of
return of 8%. Salvage value is ignored in computing depreciation. The project has a payback period of
A. 5.0 years C. 6.0 years
B. 5.6 years D. 6.6 years
FINANCIAL STATEMENT ANALYSIS
26. Brava Company reported the following on its income statement:
Income before taxes P400,000
Income tax expense 100,000
Net income P300,000
An analysis of the income statement revealed that interest expense was P100,000. Brava Company’s times
interest earned (TIE) was
A. 5 times C. 3.5 times
B. 4 times D. 3 times
27. Kansas Office Supply had $24,000,000 in sales last year. The company’s net income was $400,000, its total
assets turnover was 6.0, and the company’s ROE was 15 percent. The company is financed entirely with
debt and common equity. What is the company’s debt ratio?
A. 0.20 C. 0.33
B. 0.30 D. 0.60
28. A fire has destroyed many of the financial records of R. Son & Co. You are assigned to put together a
financial report. You have found the return on equity to be 12% and the debt ratio was 0.40. What was the
return on assets?
A. 5.35% C. 7.20%
B. 6.60% D. 8.40%
29. Millennium Hover Corporation’s stockholders’ equity at December 31, 2007 consists of the following:
6% cumulative preferred stock, P100 par, liquidating value
was P110 per share; issued and outstanding 50,000 shares P5,000,000
Common stock, par, P5 per share; issued and
outstanding, 400,000 shares 2,000,000
Retained earnings 1,000,000
Total P8,000,000
Dividends on preferred stock have been paid through 2006.
At December 31, 2007, Millennium Hover Corporation’s book value per share was
A. P5.50 C. P6.75
B. P6.25 D. P7.50
30. Selected information from the accounting records of Petals Company is as follows:
Net sales for 2007 P900,000
Cost of goods sold for 2007 600,000
Inventory at December 31, 2006 180,000
Inventory at December 31, 2007 156,000
Petals’ inventory turnover for 2007 is
A. 5.77 times C. 3.67 times
B. 3.85 times D. 3.57 times
QUANTITATIVE TECHNIQUES
31. A construction company has just completed a bridge over the Visayan area. This the first bridge the
company ever built and it required 100 weeks to complete. Now having hired a bridge construction crew with
some experience, the company would like to continue building bridges. Because of the investment in heavy
machinery needed continuously by this crew, the company believes it would have to bring the average
construction time to less than one year (52 weeks) per bridge to earn a sufficient return on investment. The
average construction time will follow an 80% learning curve. To bring the average construction time (over all
bridges constructed) below one year per bridge, the crew would have to build approximately
A. 2 additional bridges. C. 3 additional bridges.
B. 7 additional bridges. D. 8 additional bridges.
32. Phil-Fuji Co. manufactures two types of electronic components, both of which must pass through the
Assembly and Finishing Departments. The following constraints apply:
Unit Contribution Hrs Required per unit
Product Selling Margin per Unit Assembly Finishing
Price
Component 818 P120 P30 3 4
Component 810 P180 P45 4 6
Demand for Component 818 far exceeds the company’s capacity, but the company can only sell 60 units of
component 810 each week. Workers in the Assembly department work a total of 200 hours per week, and
workers in the Finishing department work a total of 250 hours per week. The company wants to know how
many units of each component to produce to maximize profit. If X represents the number of units of
Component 818 and Y represents the number of units of Component 810, the objective function would be
A. Maximize 30X + 45Y C. Minimize 30X + 45Y
B. Maximize 120X + 180Y D. Minimize 90X + 135Y
Questions 33 and 34 are based on the following information.
D Company has available production capacity of 180,000 hours. This can be used to produce 3 products in any
combination. Total fixed cost is P180,000, other facts are:
PRODUCTS
X Y Z
Selling price P 8 P 23 P 5
Variable cost 7 12 2
No. of hours per 1 hr. 10 hrs. 2 hrs.
unit
Market limits 5,000 50,000

33. The best possible combination of product is:

A. B. C. D.
Product X 4,000 30,000 30,000 80,000
Product Y 4,000 3,000 5,000 0
Product Z 50,000 50,000 50,000 50,000
34. The net profit associated with the best combination of products is:
A. P33,000 C. P54,000
B. P50,000 D. P55,000
STANDARD COSTING
The Murray Company makes and sells a single product. The company recorded the following activity and cost
data for May:
Number of units completed 45,000 units
Standard direct labor-hours allowed per unit of product 1.5 DLHS
Budgeted direct labor-hours (denominator activity) 72,000 DLHS
Actual fixed overhead costs incurred P66,000
Volume variance P4,275 U
The fixed portion of the predetermined overhead rate is $0.95 per direct labor-hour.
35.The fixed overhead budget variance for May was:
A. P2,400 F. C. P6,000 F.
B. P2,400 U. D. P6,000 U.
36. The amount of fixed manufacturing overhead cost applied to work in process during May was:
A. P42,750. C. P62,700.
B. P61,725. D. P64,125.
37. The amount of fixed overhead contained in the company's overhead flexible budget for May was:
A. P64,125. C. P68,400.
B. P67,500. D. P70,275.
38. The following information is available from the Tyro Company:
Actual factory overhead P15,000
Fixed overhead expenses, actual P 7,200
Fixed overhead expenses, budgeted P 7,000
Actual hours 3,500
Standard hours 3,800
Variable overhead rate per DLH P 2.50
Assuming that Tyro uses a three-way analysis of overhead variances, what is the spending variance?
A. P 750 F C. P 950 F
B. P 750 U D. P1,500 U
39. Liftanol Corp. had an P18,000 unfavorable volume variance, a P25,000 unfavorable variable overhead
spending variance, and P2,000 total under applied overhead. The fixed overhead budget variance is:
A. P41,000 favorable C. P45,000 favorable
B. P41,000 Unfavorable D. P45,000 Unfavorable
RESPONSIBILITY ACCOUNTING AND TRANSFER PRICING
40. The First Division of Furrow Company produces Part 1 that is used by OQS’s as a key part in their
products. Costs and sales data of Part 1 are as follows:
Selling price per unit P100
Variable cost per unit 60
Fixed cost per unit (Based on 40,000 units capacity per 24
annum)
Furrow Company’s Second Division is introducing a new product that will use Part 1. An outside supplier has
quoted Second Division a price of P96 per unit. This represents the usual P100 price less a quantity discount
due to the large number of Second Division’s requirement.
If the Second Division would buy 15,000 units of Part 1 from the First Division, the effect on the corporate
profits would be
A. Reduce by P60,000. C. Increase by P240,000.
B. Increase by P210,000. D. Increase by P1,500,000.
41.Meridith Dachshund is the general manager of the Pencil Lane Division, and her performance is measured
using the residual income method. Dachshund is reviewing the following forecasted information for the division
for next year.
Category Amount (thousands)
Working capital P 1,800
Revenue 30,000
Plant and equipment 17,200
If the imputed interest charge is 15% and Dachshund wants to achieve a residual income target of P2,000,000,
what will costs have to be in order to achieve the target?
A. P9,000,000 C. P25,150,000
B. P10,800,000 D. P25,690,000
42. Rampardos Company has two divisions, O and E. During the year just ended, Division O had a segment
margin of P9,000 and variable costs equal to 70% of sales. Traceable fixed costs for Division E were P19,000.
Rampardos Company as a whole had a contribution margin of 40%, a segment margin of P25,000, and sales of
P200,000. Given this data, the sales for Division E for last year were:
A. P50,000. C. P116,667.
B. P87,500. D. P150,000.