Part I: True or False. Write TRUE if the statements is correct or FALSE for incorrect statement.

One (1 point per item)

1. Cost of field servicing and handling complaints would be classified as an external failure
cost on a quality cost report?
2. Technical support provided to suppliers would be classified as a prevention cost on a
quality cost report?
3. Repairs and replacements beyond the warranty period would be classified as an external
failure cost on a quality cost report?
4. Debugging software errors would be classified as a prevention cost on a quality cost
report?
5. Lost sales arising from a reputation for poor quality would be classified as a prevention
cost on a quality cost report?
6. Customer returns arising from quality problems would be classified as an external failure
cost on a quality cost report?
7. Maintenance of test equipment would be classified as an appraisal cost on a quality cost
report?
8. Net cost of spoilage would be classified as an appraisal cost on a quality cost report?
9. Quality improvement projects would be classified as an internal failure cost on a quality
cost report?
10. Depreciation of test equipment would be classified as an internal failure cost on a quality
cost report?

Part II: Straight Problem: Encircle and double rule final answers. Five (5) points per question.
1-2: A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
Selling price ....................................... P120
Units in beginning inventory ....................... 150
Units produced ..................................... 4,850
Prime cost 53
Conversion cost 15
Contribution Margin 62
Variable costing unit cost 56
Fixed costs: Fixed manufacturing overhead..... P26,675
Fixed selling and administrative .................. P9,250
Absorption Costing operating income is P385.00 less than Variable costing’s.

1. What is the total period cost for the month under the absorption costing approach?

2. What is the operating income computed under Variable Costing?

3-4: A manufacturing company that produces a single product has provided the following data
concerning its most previous and current year of operations:
2018 2019
Units produced 3,280 4,250
Inventory, End 900 180
Total fixed manufacturing cost P13,776 P17,000

3. How much is the difference of the operating income for the current year under absorption
costing compared to variable costing operating income? Is the amount greater than or less than
operating income under variable costing?

4. Reconcile the difference.

Questions 5 through 6 are based on the following annual flexible budget which has been
prepared for use in making decisions relating to Product X.
Budgeted units 100,000 150,000 200,000
Sales Volume P800,000 P1,200,000 P1,600,000
Manufacturing costs:
Variable P300,000 P 450,000 P 600,000
Fixed 200,000 200,000 200,000
P500,000 P 650,000 P 800,000
Selling expenses:
Variable P200,000 P 300,000 P 400,000
Fixed 160,000 160,000 160,000
P360,000 P 460,000 P 560,000
Income (or loss) (P60,000) P 90,000 P 240,000

The 200,000-unit budget has been adopted and will be used for allocating fixed manufacturing
costs to units of Product X. At the end of the first six months the following information is
available:
Units Production completed 120,000
Sales 60,000

All fixed costs are budgeted and incurred uniformly throughout the year and all costs incurred
coincide with the budget.

Over- and underapplied fixed manufacturing costs are deferred until year-end. Annual sales
have the following seasonal pattern:
Portion of Annual Sales
First quarter 10%
Second quarter 20%
Third quarter 30%
Fourth quarter 40%

5. The amount of over-applied or under-applied fixed factory costs to product during the
first six months under direct costing would be
6. Assuming that 90,000 units of Product X were sold during the first six months and that
this is to be used as a basis while production remained at the same pace, the amount of net
income (or loss) for the second six months under absorption costing would be

7. A company manufactures a single product for its customers by contracting in advance of

production. Therefore, the company only produces units that will be sold by the end of each
period. During the last period, the following sales were made and costs incurred:

Sales P40,000
Direct materials 9,050
Direct labor 6,000
Rent (9/10 factory, 1/10 office) 3,000
Depreciation on factory equipment 2,000
Supervision (2/3 factory, 1/3 office) 1,500
Salespeople’s salaries 1,300
Insurance (2/3 factory, 1/3 office) 1,200
Office supplies 750
Advertising 700
Depreciation on office equipment 500
Interest on loan 300

Based on the above data, the gross margin percentage for the last period (rounded to
nearest percent) was

8. During May, the sales clerks in Division M received salaries totalingP25,000. Assume
that during June the salaries of these sales clerks are discontinued and instead they are paid a
commission of 18% of sales. If sales in Division L increase byP35,000, the June segment margin
for Division L should be:

9. Domingos Company has two product lines, C and J. Line C has sales ofP100,000 during
March, a contribution margin ratio of 19%, and total fixed expenses ofP20,000. The company as
a whole had a contribution margin ratio of 25% andP105,000 in total contribution margin while
segment margin is 10%. Controllable fixed cost for Line J is P32,000. Based on this information,
total controllable costs for product C must have been:

10. Insider Company has two divisions, J and K. During March, the contribution margin in J
wasP30,000. The contribution margin ratio in K was 40%, its sales wereP125,000, and its
segment margin wasP32,000. The common fixed expenses in the company wereP40,000 which
is allocated using the contribution margin as the base, and the company's net operating income
wasP18,000. The total fixed cost for Division J was:

11. Davison Inc. consists of two districts, A and B. The company as a whole had sales
ofP400,000, a contribution margin ratio of 25% and a combined segment margin
totalingP35,000. District A had sales ofP90,000 during May, a contribution margin ratio of 45%,
and a segment margin ofP16,000. If the net operating income of Davison Inc. for May isP12,000,
the total fixed expenses in Davidson must have been:
12. The following information relates to last year's operations at the Paper Division of
Germane Corporation:
Minimum required rate of return ............... 15%
Return on investment (ROI) ...................... 18%
Sales ........................................... P810,000
Turnover (on operating assets) .................. 5 times

What was the Paper Division's net operating income last year?

13. A proposal has been made that will lower variable costs in Division M to 37% of sales.
The reduction can be accomplished only if Division M's traceable fixed costs are allowed to
increaseP12,000. If this proposal is implemented, and if sales remain constant, overall company
net operating income should:

14. What is the full name of your professor in this subject? Follow the format (Family name,
First Name, Middle name). (5 points)