STRATEGIC COST MANAGEMENT

MIDTERM EXAMINATION
SY 2021-2022 FIRST SEMESTER

PROBLEMS: WRITE THE ANSWERS ONLY ON YOUR ANSWER SHEET

Items 1-4 :
During January, Liquids, Inc. produced 1,000 units of Product A with costs as follows:
Materials - P6,000 Variable factory overhead- P2,500
Labor- P3,300 Fixed factory overhead- P1,500
Selling and administrative costs incurred during the month were:
Variable selling and administrative- P3,000 Fixed selling and administrative- P2,000
Liquids, Inc. uses the JIT system. It does not keep inventories in stock. Selling price per unit is P20.

1) What amount should be considered as unit product cost under absorption costing?
2) What is the product cost per unit under variable costing?
3) What is the variable cost per unit for purposes of computing the contribution margin?
4)Under absorption costing, income for January was ___________________________.

Items 5-8:
VV Corp produces a single product that sells for P13.50 per unit. The company uses an actual (historical)
cost system. During 2019, 150,000 units were produced and 135,000 units were sold. There was no WIP
inventory at Jan. 1, 2019.Manufacturing costs and selling and administrative expenses for 2019 were as
follows: Fixed Variable
Raw materials - P3.50 per unit produced
Direct Labor - P2.50 per unit produced
Factory overhead P195,000 P1.00 per unit produced
Selling and administrative P140,000 P1.20 per unit sold
5) What amount would be VV Corp's operating income for 2019 using variable costing?
6) What would be VV Corp's operating income for 2019 using absorption costing?
7) The cost of the ending inventory under absorption costing is _________________________
8) The cost of the ending inventory under variable costing is ____________________________

Items 9-10:
AA Corp. produced 5,000 units of a new product. The new product's variable and fixed mfg. cost per unit
were P5 and P3, respectively. At the end of the period, the new product's inventory consisted of 800 units.
9) Income under variable costing would be (higher or lower) than income under absorption costing.
10) The difference in net income would be P___________.

Item 11:
All sales of Paige Company are on account. Budgeted sales for the first quarter of the year are:
January- P96,000 February - P168,800 March- P158,400
Based on the company's collection experience, 60% of the sales is collected in the month after the sale,
36% is collected in the second month following the sale, and the balance is uncollectible.
The budgeted cash receipts for March is _______________________________.

Item 12:
Barney Corp.is planning its advertising campaign for 2020. It has prepared the following budget
data based on a zero advertising expenditure:

Normal plant capacity- 200,000 units

Sales- 150,000 units
Selling price- P40 per unit
Variable factory costs - P20 per unit
Fixed manufacturing costs- P900,000
Fixed selling and administrative costs-P700,000
Variable selling and administrative expenses- P5 per unit

An advertising agency claims that an aggressive advertising campain would enable Barney to increase
its unit sales by 20%. What is the maximum amount that Barney can pay for advertising and obtain
an operating profit of P500,000?

Item 13:
The Fresh Company is preparing its cash budget for May. Fresh Co.'s actual credit sales for April
amounted to P150,000. The following estimated data for May is available concerning its accounts
receivable: Credit sales for May P200,000
Collections in May for credit sales in May 20%
Collections in May for credit sales in April 70%
Collections in May for credit sales prior to April P12,000
Write-offs in May for uncollectible credit sales P8,000
Provision for bad debts in May for May credit sales P7,000
What is the estimated cash receipts from accounts receivable in May? ___________________________

Item 14:
Honey Company desires an ending inventory of P140,000. It expects sale of P800,000 and has a beginning
inventory of P130,000. Cost of sales is 65% of sales. Budgeted purchases will cost ________________________.

Items 15-18:
Data pertaining to the product of the Men's Belt Division of Leather Goods Corp. are as follows:
Per unit
Selling price P150
Manufacturing costs: Prime costs 75
Variable factory overhead 15
Fixed factory overhead (Total - P80,000) 8
Selling and administrative costs: Variable 18
Fixed (Total- P60,000) 6
During the period, the division produced 10,000 units and sold 9,000 units, both as budgeted. There was no
beginning and ending work in process, nor beginning finished goods inventory during the period.

There was no difference between the total budgeted and actual fixed costs. Central administration costs are
allocated to the different divisions of the company. For this period, central administration cost allocated to the
Men's Belt division totaled P150,000.
15) How much is the Men's Belt Division's manufacturing margin?
16) Men's Belt Division's contribution margin was _______________
17) Assume that 40% of the Division's total fixed cost is controllable by the division manager. How much was
the division's segment margin?
18) How much was the division's operating income during the period? ______________________

Item 19:
Red Corporation's costs were as follows:
Prime costs 400,000
 Depreciation of factory building 60,000
Depreciation of factory equipment 40,000
Janitor's salaries for cleaning factory premises 12,000
Salesmen's commissions 20,000
Depreciation of delivery van 15,000
How much should be included in the inventoriable cost for external reporting purposes?

Items 20-21:
Total factor productivity is computed by dividing the units of output by the cost of all inputs. It varies with input
prices, quantities,input mix and output levels. It is computed for purposes of control and performance
evaluation.

Assumed that Rosal Company produced 1,152 units of its Product X last month. The inputs in the production
process of Product X were:
Material A (360 kgs at P1.20 per kg) 432
Material B (240 units @ P2.20 per unit) 528
Direct Labor (240 hours at P12 per hour) 2,880
3,840

20) The total factor productivity for Rosal Company's Product X is P_____ per peso input.
21) If a supervisor's primary responsibility in the production of Product X is employee supervision and his/her
productivity is measured based on output per labor hour, such supervisor's productivity measure is ____
per hour.

Items 22-24:
A company produces and sells a single product. For 2020, its first year of operations, the following were
the planned and actual costs.
Planned Actual
Production 10,000 units 11,000 units

Costs: Per unit Total Total

Manufacturing:
Variable P48 480,000 530,000
Fixed P32 320,000 360,000

Non-manufacturing:
Variable P40 400,000 420,000
Fixed P24 240,000 240,000

During the year, the company sold 150,000 units at P150 per unit. All variances from standard manufacturing
costs are closed to cost of goods sold at end of the year.
22) How much were the standard manufacturing cost variance?
Variable Fixed
a) P50,000 unfavorable P40,000 unfavorable
b) P70,000 uinfavorable P40,000 unfavorable
c) P2,000 unfavorable P8,000 unfavorable
d) P48,000 unfavorable P32,000 unfavorable

23) The operating income under absorption costing method would be _________________.
24) The operating income under variable costing method would be __________________
Item 25:
The company's management accountant prepared the following Cost of Quality Report for the years
2019 and 2020: 2019 2020
Prevention costs 125,000 187,500
Appraisal costs 131,250 196,875
Internal failure costs 118,750 71,250
External failure costs 750,000 388,125
1,125,000 843,750

Based on the above data, which of the following would be most likely correct?
a) Quality costs, such as repair or replacement of returned units, increased by 40%
b) Quality costs, such as cost of downtime on machinery while rework is being done, increased by 48%
c) An increase in prevention costs was solely responsible for the decrease in quality costs.
d) An increase in conformance costs resulted in a decrease in failure costs and a higher quality product.

Item 26:
A corporation is planning to produce a product that is expected to have a two-year life cycle. The estimated
whole-life costs for a budgeted production of 160,000 units is as follows:
Upstream costs (research and development, design) 1,600,000
Production costs 2,400,000
Downstream costs ( marketing, distribution, customer service) 900,000
Total life cycle costs 4,900,000
After-purchase costs ( operating, support, repair and disposal) incurred 700,000
by customers
Total whole life cost 5,600,000

If the product is to be priced at 130% of the whole life unit cost, the budgeted selling price is ___________.

Item 27:
RR Corporation is composed of three operating divisions. Overall, the corporation has a return on investment
of 25%. Division 1 has a return on investment of 30%. If RR Corporation evaluates its managers on the basis
of return on investment, how would the Division 1 manager and RR Corporation's president react to a new
investment proposal that has an estimated return on investment of 28%?
Division 1's Manager - reject or accept? RR Corp's President- reject or accept?

Items 28-30:
Santos Company's vice president for finance has decided to use delivery performance measures to evaluate
performance. He requested the production manager to submit data that will be used for the evaluation.

The production manager submitted the following, which accordingly, is typical of the time involved to complete
orders: Waiting time from orders being placed to start of production 6 days
Waiting time from start of production to completion 2 days
Process time 1 week
Move time 4 days
Inspection time 1 day
The company operates 7 days a week.
28) The value added production time is _______ days.
29) What is the delivery cycle efficiency?
30) What is the manufacturing cycle efficiency?