Solutions. A1

Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314
ASSIGNMENT 1
Theoretical Analysis: Multiple Choice
1. You are given the cost and volume information below:

Volume Cost
1 unit P 15
10 units P 150
100 units P 1,500
What type of a cost is given?

(a) fixed cost
(b) variable cost
(c) step cost
(d) mixed cost
(e) rent cost
2. Matt Company estimated its material handling costs at two activity levels as follows:
Kilos Handled Cost
80,000 P 160,000
60,000 132,000
What is Matt’s estimated cost of handling 75,000 kilos?
(a) P 150,000
(b) P 153,000
(c) P 157,500
(d) P 132,000
(e) P 140,000
In this problem, we will use the High-Low method to get the answer. This method resides on
the assumption that any change in total cost is attributable to the change in variable cost.
So, we will find first the variable cost component by dividing the change in costs over the
related change in base. After the variable cost rate is calculated, total fixed cost is
determined by getting the difference between the total costs and variable costs.
To answer the problem, our formula is:

𝑽𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝑪𝒐𝒔𝒕 𝑹𝒂𝒕𝒆 = 𝑪𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝑪𝒐𝒔𝒕 ÷ 𝑪𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝑼𝒏𝒊𝒕𝒔
𝑽𝑪𝑹 = (𝟏𝟔𝟎, 𝟎𝟎𝟎 − 𝟏𝟑𝟐, 𝟎𝟎𝟎) ÷ (𝟖𝟎, 𝟎𝟎𝟎 − 𝟔𝟎, 𝟎𝟎𝟎)

= 𝟐𝟖, 𝟎𝟎𝟎 ÷ 𝟐𝟎, 𝟎𝟎𝟎
= 𝟏. 𝟒
Then we will have a cost function of y = a + 1.4 x or simply stated as total cost = fixed cost
+ 1.4 x number of units
Using the 80,000 kilos handled, we will solve for the fixed cost.
𝟏𝟔𝟎, 𝟎𝟎𝟎 = 𝒂 + 𝟏. 𝟒 (𝟖𝟎, 𝟎𝟎𝟎)
Managerial Accounting. 1st Sem 2021-2022 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY
City of Olongapo
GORDON COLLEGE
Tel. No. (047) 224-2089 loc. 314
𝟏𝟔𝟎, 𝟎𝟎𝟎 = 𝒂 + 𝟏𝟏𝟐, 𝟎𝟎𝟎

𝒂 = 𝟏𝟔𝟎, 𝟎𝟎𝟎 − 𝟏𝟏𝟐, 𝟎𝟎𝟎
𝒂 = 𝟒𝟖, 𝟎𝟎𝟎
To prove, let us use the 60,000 kilos handled.

𝟏𝟑𝟐, 𝟎𝟎𝟎 = 𝒂 + 𝟏. 𝟒 (𝟔𝟎, 𝟎𝟎𝟎)
𝟏𝟑𝟐, 𝟎𝟎𝟎 = 𝒂 + 𝟖𝟒, 𝟎𝟎𝟎
𝒂 = 𝟏𝟑𝟐, 𝟎𝟎𝟎 − 𝟖𝟒, 𝟎𝟎𝟎
𝒂 = 𝟒𝟖, 𝟎𝟎𝟎
Applying the formula, the estimated cost of handling 75,000 kilos is:
𝒚 = 𝟒𝟖, 𝟎𝟎𝟎 + 𝟏. 𝟒 (𝟕𝟓, 𝟎𝟎𝟎)
𝒚 = 𝟒𝟖, 𝟎𝟎𝟎 + 𝟏𝟎𝟓, 𝟎𝟎𝟎
𝒚 = 𝟏𝟓𝟑, 𝟎𝟎𝟎
Charity Company wants to analyze the behavior of its selling costs for budgeting purposes. Cost
drivers (activity measures) and costs incurred in the first quarter and the first month of the second
quarter as follows:
January February March April
Selling costs:
Sales salaries P42,500 P42,500 P42,500 P51,000
Commissions 15,000 17,500 14,000 16,000
Shipping costs 34,000 38,000 32,400 35,600
Advertising 20,000 20,000 25,000 20,000
Cost drivers:
Peso sales P300,000 P350,000 P280,000 P320,000
Sales in Units 30,000 35,000 28,000 32,000
Sales orders 150 175 140 160
The sales staff are paid monthly salaries plus commission. Advertising expenses are charged subject
to the discretion of management. The increase in sales salaries in April is due to the increase in the
sales staff, from five to six persons.
3. In relation to the appropriate cost drivers, how should the company’s selling costs be
classified?
Sales Salaries Commissions Shipping Costs Advertising
(a) Variable Variable Variable Variable
(b) Fixed Variable Variable Fixed
(c) Fixed Variable Mixed Fixed
(d) Mixed Variable Mixed Fixed
(e) Mixed Mixed Mixed Mixed
Sales salaries – Fixed; the increase in April salaries is due to increase in sales staff, not to the
change in the given cost drivers.
Commissions – Variable; 5% of sales
City of Olongapo
GORDON COLLEGE
Tel. No. (047) 224-2089 loc. 314
Shipping Cost – Mixed; total amounts are not constant, therefore, not fixed. Although total
cost amounts change with the change in the number of units sold, the shipping cost per unit are
not constant. (Hint: try using the high-low method)
Advertising – Discretionary fixed cost; the increase in advertising expenses in March was due
to management’s decision, not due to the change in any of the given cost driver.
4. Using the mixed cost function, the cost formula for the shipping costs may be expressed as:
(a) y = 10,000 + 0.80x
(b) y = 0.80 + 10,000x
(c) y = 10,000 + 0.80
(d) y = 10,000 + 5,600
(e) y = 0.80 + 5,600 x
𝑽𝑪𝑹 = (𝟑𝟖, 𝟎𝟎𝟎 − 𝟑𝟐, 𝟒𝟎𝟎) ÷ (𝟑𝟓, 𝟎𝟎𝟎 − 𝟐𝟖, 𝟎𝟎𝟎)

= 𝟓, 𝟔𝟎𝟎 ÷ 𝟕, 𝟎𝟎𝟎
= 𝟎. 𝟖𝟎
Using the February information:

𝟑𝟖, 𝟎𝟎𝟎 = 𝒂+. 𝟖𝟎 (𝟑𝟓, 𝟎𝟎𝟎)
𝟑𝟖, 𝟎𝟎𝟎 = 𝒂 + 𝟐𝟖, 𝟎𝟎𝟎
𝒂 = 𝟑𝟖, 𝟎𝟎𝟎 − 𝟐𝟖, 𝟎𝟎𝟎
𝒂 = 𝟏𝟎, 𝟎𝟎𝟎
Cost function: y = 10,000 + .80x
5. If the company plans to sell 36,000 units in May and fixed costs will remain at the April level,
the total selling costs for May would be
(a) P 122,600
(b) P 125,500
(c) P 127,800
(d) P 81,000
(e) P 100,000
Sales salaries P 51,000

Commissions (36,000 units x P10 x 5%) 18,000
Shipping Costs (P10,000 + .80 x 36,000) 38,800
Advertising 20,000
Total selling costs in May P 127,800
City of Olongapo
GORDON COLLEGE
Tel. No. (047) 224-2089 loc. 314
Maco Corporation’s Research and Development Department was able to develop a new product –
a flashlight powered by solar energy. After reviewing the data prepared by the company’s
controller, Maco’s management is confident that the new product will contribute profit to the
company.
The data prepared by the controller are as follows:

Suggested selling price P 200
Costs: Materials 60
Costs: Parts Fabrication (P10 per hour) 40
Costs: Assembly (P6 per hour) 18
Costs: Variable overhead (P4 per hour) 28
Costs: Fixed Overhead (P3 per hour) 21
Total cost P 167
The total research and development costs incurred to develop the new product amounted to
P200,000. The company is planning to spend half of this amount for promotion and advertising.
The company’s fixed overhead includes rent, equipment depreciation, and salaries of factory
supervisors.
6. For Maco’s new flashlight, total prime costs amount to

(a) P 118
(b) P 167
(c) P 146
(d) P 107
(e) P 100
Materials P 60
Parts Fabrication 40
Assembly 18
Prime Cost P 118
7. The difference between the flashlight’s suggested selling price of P200 and the total cost of
P167 represents each flashlight’s
(a) gross profit
(b) contribution margin
(c) net profit
(d) operating income
(e) variable cost
8. The total overhead cost of P49 per unit is a

(a) prime cost
(b) variable cost
(c) mixed cost
(d) fixed cost
(e) period cost
City of Olongapo
GORDON COLLEGE
Tel. No. (047) 224-2089 loc. 314
9. The total research and development cost of P200,000 incurred to develop the new product is
a(n)
(a) relevant cost
(b) sunk cost
(c) avoidable cost
(d) postponable cost
(e) irrelevant cost
10. The costs included in Maco’s fixed overhead are

(a) prime costs
(b) discretionary costs
(c) committed costs
(d) variable costs
(e) conversion costs
11. The planned spending on promotion and advertising for the flashlight is a
(a) variable cost
(b) discretionary cost
(c) sunk cost
(d) past cost
(e) fixed cost
Problem Solving
A B C
Beginning Balance 40,000 19,000 35,000
Ending Balance 32,000 16,000 33,000
Transferred In 53,000 8,000 8,000
Transferred Out 61,000 11,000 10,000
To complete the table, let us use the formula:
Beginning Balance + Transferred In = Transferred Out + Ending Balance
Or
Beginning Balance
Add: Transferred In
Total Goods Available for Sale
Less: Transferred Out
Ending Balance
City of Olongapo
GORDON COLLEGE
Tel. No. (047) 224-2089 loc. 314
By substitution, answers for the above are:
A. 40,000 + Transferred In = 61,000 + 32,000

Transferred In = 93,000 – 40,000
Transferred In = 53,000
B. Beginning Balance + 8,000 = 11,000 + 16,000

Beginning Balance = 27,000 – 8,000
Beginning Balance = 19,000
C. 35,000 + 8,000 = 23,000 + Ending Balance

Ending Balance = 43,000 -10,000
Ending Balance = 33,000
TOP Pickups is an up-scale, higher priced, specialty pick-up truck maker based in Binan,
Laguna. The management accountant for TOP Pickups compiled information for various levels
of pick-up truck output:
Pick-up Truck Output 3,000 Trucks 6,000 Trucks 9,000 Trucks
Variable production cost 29,640,000 59,280,000 88,920,000

Fixed production cost 39,200,000 39,200,000 39,200,000
Variable selling cost 4,500,000 9,000,000 13,500,000
Fixed selling cost 13,660,000 13,660,0000 13,660,000
Total costs 87,000,000 121,140,000 155,280,000
Selling price per truck 46,000 40,100 35,900

Unit cost 29,000 20,190 17,253
Profit per truck 17,000 19,910 18,647
To find variable production cost, let us find first the variable production cost per unit to be
multiplied to the levels of output.
Using the information for 3,000 trucks:
Variable Production Cost per Truck = 29,640,000 ÷ 3,000

= P 9,880 / truck
*6,000 trucks
9,880 x 6,000 = P 59,280,000
City of Olongapo
GORDON COLLEGE
Tel. No. (047) 224-2089 loc. 314
*9,000 trucks
9,880 x 9,000 = P 88,920,000
For the fixed production cost, the amount of P39,200,000 will still be the same for the 3,000
trucks and 9,000 trucks.
As for the variable selling cost, the same process for the variable production cost will be used.
Hence, using the information for 3,000 trucks:
Variable Selling Cost per Truck = 4,500,000 ÷ 3,000

= P 1,500 / truck
*6,000 trucks
1,500 x 6,000 = P 9,000,000
*9,000 trucks
1,500 x 9,000 = P 13,500,000
As for the fixed selling cost, the amount of P13,660,000 will still be the same for 9,000 trucks.
Total Costs is the sum of all the costs presented.
*3,000 Trucks
Variable production cost P 29,640,000
Fixed production cost 39,200,000
Variable selling cost 4,500,000
Fixed selling cost 13,660,000
Total costs P 87,000,000
*6,000 Trucks
*9,000 Trucks
To get the unit cost, total costs must be divided over the level of output.
Unit Cost per Truck = Total Costs ÷ Number of Trucks
City of Olongapo
GORDON COLLEGE
Tel. No. (047) 224-2089 loc. 314
*6,000 Trucks
Unit Cost per Truck = 121,140,000 ÷ 6,000
Unit Cost per Truck = P 20,190 / truck
*9,000 Trucks
Unit Cost per Truck = 155,280,000 ÷ 9,000
Unit Cost per Truck = P 17,253 / truck
Profit is computed by deducting the unit cost from the selling price per truck.
Thus, profit for each level of output is:
*3,000 Trucks
Selling Price P 46,000
Unit Cost 29,000
Profit P 17,000
*6,000 Trucks
Unit Cost 20,190
Profit P 19,910
*9,000 Trucks
Unit Cost 17,253
Profit P 18,647
Tsokolate Corp. is a cookie company in Batangas City that produces and sells chocolate chip
cookies with extremely high quality and service. The owner would like to identify the various
costs incurred during each year in order to plan and control the costs in the business. Tsokolate’s
costs are the following (in thousands of pesos)
Utilities for the bakery P 2,100

Paper used in packaging product 90
Salaries and wages in the bakery 19,500
Cookie ingredients 35,000
Bakery labor and fringe benefits 1,300
Administrative costs 1,000
Uniforms 400
Insurance for the bakery 900
Rent for administration offices 17,200
Advertising 1,900
Boxes, bags, and cups used in the bakery 1,100
Manager’s salary 13,000
Bakery equipment maintenance 800
City of Olongapo
GORDON COLLEGE
Tel. No. (047) 224-2089 loc. 314
Depreciation of bakery plant and equipment 2,000

Overtime premiums 2,600
Idle time 500
1. What is the total amount of product costs?

Paper used in packaging product 90
Idle time 500
Total Product Cost P 65,890
2. What is the total amount of period costs?

Administrative costs P 1,000
Uniforms 400
Rent for administration offices 17,200
Advertising 1,900
Manager’s salary 13,000
Total Period Costs P 33,500
3. What is the amount of prime costs?

Paper used in packaging product P 90
Idle time 500
Total Prime Costs P 58,990
4. What is the amount of conversion costs?

City of Olongapo
GORDON COLLEGE
Tel. No. (047) 224-2089 loc. 314

Idle time 500
Total Conversion Costs P 30,800
Following are costs incurred by Abtina Manufacturing Corporation during the previous month:
Direct materials 5,000

Indirect materials 2,000
Direct labor 6,000
Indirect labor 1,000
Factory utilities 4,000
Advertising costs 8,000
Sales commissions 12,000
Insurance administration building 6,000
Depreciation on factory building 3,000
Salaries of administrative personnel 20,000
Depreciation – delivery equipment 2,000
Overtime pay – factory workers 1,500
Rework cost on defective products 2,500
discovered during quality inspection
5. What is the total amount of product costs?

Direct materials P 5,000
Indirect materials 2,000
Direct labor 6,000
Total Product Costs P 25,000
6. What is the total amount of period costs?

Advertising costs P 8,000
Sales commissions 12,000
Insurance administration building 6,000
Salaries of administrative personnel 20,000
Depreciation – delivery equipment 2,000
Total Period Costs P 48,000
City of Olongapo
GORDON COLLEGE
Tel. No. (047) 224-2089 loc. 314
7. What is the amount of prime costs?

Direct materials P 5,000
Direct labor 6,000
Total Prime Costs P 15,000
8. What is the amount of conversion costs?

Indirect materials P 2,000
Direct labor 6,000
Total Conversion Costs P 20,000
Cliff Lawrence owns CL Skating, an ice-skating rink that accommodates 200 people. Cliff
charges P10 per hour to skate. The cost of attendants to staff CL Skating is P100 per day.
Utilities and other ﬁxed costs average P2,000 per month. Recently, the manager of an out-of-
town hockey team approached Cliff concerning renting the rink for a full day of practice on an
upcoming Sunday for the lump sum of P1,000. Attendants would not be needed. CL’s normal
operating hours on Sunday are 10 AM to 7 PM, and the average attendance is 10 skaters per
hour.
9. What is the opportunity cost of accepting the offer?

10 skaters x 9 hours x P10 / per hour = P900 income
P900 income – P100 / day cost of attendant = P800 opportunity cost
Zappa, a mechanic, left his P25,000-a-year job at Joe’s Garage to start his own body shop.
Zappa now draws an annual salary of P15,000. Identify his opportunity costs.
10. What is the opportunity cost of Zappa?

Opportunity cost is his P25,000-a-year-job

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Republic of the Philippines

Theoretical Analysis: Multiple Choice

1. You are given the cost and volume information below:

What type of a cost is given?

To answer the problem, our formula is:

𝑽𝑪𝑹 = (𝟏𝟔𝟎, 𝟎𝟎𝟎 − 𝟏𝟑𝟐, 𝟎𝟎𝟎) ÷ (𝟖𝟎, 𝟎𝟎𝟎 − 𝟔𝟎, 𝟎𝟎𝟎)

𝟏𝟔𝟎, 𝟎𝟎𝟎 = 𝒂 + 𝟏𝟏𝟐, 𝟎𝟎𝟎

To prove, let us use the 60,000 kilos handled.

𝑽𝑪𝑹 = (𝟑𝟖, 𝟎𝟎𝟎 − 𝟑𝟐, 𝟒𝟎𝟎) ÷ (𝟑𝟓, 𝟎𝟎𝟎 − 𝟐𝟖, 𝟎𝟎𝟎)

Using the February information:

Cost function: y = 10,000 + .80x

Sales salaries P 51,000

The data prepared by the controller are as follows:

6. For Maco’s new flashlight, total prime costs amount to

8. The total overhead cost of P49 per unit is a

10. The costs included in Maco’s fixed overhead are

To complete the table, let us use the formula:

Beginning Balance + Transferred In = Transferred Out + Ending Balance

By substitution, answers for the above are:

A. 40,000 + Transferred In = 61,000 + 32,000

B. Beginning Balance + 8,000 = 11,000 + 16,000

C. 35,000 + 8,000 = 23,000 + Ending Balance

Pick-up Truck Output 3,000 Trucks 6,000 Trucks 9,000 Trucks

Variable production cost 29,640,000 59,280,000 88,920,000

Selling price per truck 46,000 40,100 35,900

Using the information for 3,000 trucks:

Variable Production Cost per Truck = 29,640,000 ÷ 3,000

Hence, using the information for 3,000 trucks:

Variable Selling Cost per Truck = 4,500,000 ÷ 3,000

Unit Cost per Truck = Total Costs ÷ Number of Trucks

Thus, profit for each level of output is:

Utilities for the bakery P 2,100

Depreciation of bakery plant and equipment 2,000

1. What is the total amount of product costs?

2. What is the total amount of period costs?

3. What is the amount of prime costs?

4. What is the amount of conversion costs?

Boxes, bags, and cups used in the bakery 1,100

Direct materials 5,000

5. What is the total amount of product costs?

6. What is the total amount of period costs?

7. What is the amount of prime costs?

8. What is the amount of conversion costs?

9. What is the opportunity cost of accepting the offer?

10. What is the opportunity cost of Zappa?

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