I.

THEORY QUESTIONS: This will help you indicate the classification of

cost.

Instructions: Answer the following questions and provide the necessary

requirements.

DIRECT OR INDIRECT COST (6 points)

Classify the following expenses as direct or indirect:

a) factory rental
b) insurance of machinery used for one product only
c) warehouse rental
d) insurance of office buildings
e) costs of a canteen for employees
f) Petrol for delivery vehicles.

II. PROBLEM SOLVING: This will help you develop your analytical
capabilities and judgment.

Instructions: Read each problem carefully and provide the necessary

requirements.

Problem 1. Classify each of the following costs of Bug Company in two ways:
(a) as variable (V) fixed costs (F); (b) as inventoriable costs (I) or period costs
(P): (20 points)

Example: Direct labor V I

1. Salary of company controller
2. Fire insurance on direct
materials
3. Property taxes on finished
goods held for sale
4. Direct materials used
5. Factory rent
6. Sales Commissions
7. Overtime premium of machine
operators
8. Straight-line depreciation of
Factory equipment
9. Straight-line depreciation of
trucks used for delivery
of sales to customers
10. Salary of factory supervisor
 Problem 2 (20 points)
The financial statements of BBM Company included these items:
Marketing costs P160,000
Direct labor cost 245,000
Administrative costs 145,000
Direct materials used 285,000
Fixed factory overhead costs 175,000
Variable factory overhead costs 155,000

Compute and show the solutions:

Prime cost
Conversion cost
Total inventoriable/product cost
Total period cost

Problem 3 (10 points)

SahBong Corporation estimated its unit costs of producing and selling
12,000 units per month as follows:
Direct materials used P32.00
Direct labor 20.00
Variable manufacturing overhead 15.00
Fixed manufacturing overhead 6.00
Variable marketing costs 3.00
Fixed marketing costs 4.00
Estimated unit cost P80.00

Compute and show the solutions:

Total variable costs per month
Total fixed costs per month
 Problem 4 (40 points)
Dutertz Ltd recorded the following costs for the past six months:

Month Activity Total

level cost
Units K’000
(000)
1 40 6,586
2 30 5,826
3 36 6,282
4 38 6,396
5 42 6,700
6 33 6,052
Required with SOLUTIONS:
A. Using High-Low Method and Least Square Method.
Estimate the fixed cost per month
Estimate the total costs for the following activity levels in a month 75 units
90 units

Problem 5 (10 points)

LacSott Company is preparing a flexible budget for the next year and requires a
breakdown of the factory maintenance cost into the fixed and variable elements.

The maintenance costs and machine hours (the selected cost driver) for the past six
months are as follows:
Maintenance Costs Machine Hours
January P15,500 1,800
February 10,720 1,230
March 15,100 1,740
April 15,840 2,190
May 14,800 1,602
June 10,600 1,590

Required with SOLUTIONS: Compute the following:

Estimated variable rate
Annual Fixed Costs
 Problem 6 (15 points)
MoOng Company produces and sells rattan baskets. The number of units produced
and the corresponding total production costs for six months, which are representatives
for the year, are as follows:
Months Units Produced Production Costs
April 500 P4,000
May 700 8,000
June 900 6,000
July 600 7,500
August 800 8,500
September 550 7,250

Based on the given information and using least-squares method of computation , select the
best answer for each question, where:
Y= total monthly production costs
X= number of units produced per month
a= fixed production cost per moth
b= variable production cost per month
n= number of months
∑=summation

Required with SOLUTIONS: Compute the following:

Variable cost per unit
Monthly Fixed Cost per unit
Cost Function

Problem 7 (15 points)

PacSon Motors Co. makes motorcycles. Management wants to estimate overhead
costs to plan its operations. A recent trade publication revealed that overhead costs tend
to vary with machine hours. To check this, they collected the following data for the past 12
months.
Months Machine Hours Overhead Costs
1 175 P4,500
2 170 4225
3 160 4,321
4 190 5,250
5 175 4,800
6 200 5,100
7 160 4,450
8 150 4,200
9 210 5,475
10 180 4,760
11 170 4,325
12 145 3,975
Requirements with SOLUTIONS:
Use the High-low method to estimate the fixed and variable portion of overhead costs based on
machine hours.
If the plant is planning to operate at a level of 200 machine hours next period, what would be the
estimated overhead costs?
Use the method of Least-Squares to estimate the fixed and variable portion of overhead costs
Problem 8 (12 points)
based onGiven
machine
the hours.
following facts, complete the requirements
below: Sales price P200 per unit
Fixed costs:
Marketing and administrative 24,000 per period
Manufacturing overhead 30,000 per period
Variable costs:
Marketing and administrative 6 per unit
Manufacturing overhead 9 per unit
Direct labor 30 per unit
Direct Materials 60 per unit
Units produced and sold 1,200 per period

Compute and show the solutions:

Variable manufacturing cost per unit
Variable cost per unit
Full manufacturing cost per unit
Full cost to make and sell per unit