Prelim Seatwork

Problem 1
Cruda Company, which has only one product, has provided the following data concerning its most
recent month of operations:
Selling price 120
Units in beginning inventory 100
Units produced 3,900
Units sold 3,600
Units in ending inventory 400
Variable cost per unit:
Direct materials 31
Direct Labor 54
Variable manufacturing overhead 5
Variable selling and administrative 8
Fixed costs:
Fixed manufacturing overhead 54,600
Fixed selling and administrative 21,600

The company produces the same number of units every month, although the sales in units vary from
month to month.
The company’s variable costs per unit and total fixed costs have been constant from month to month.

Requirements:
1. What is the unit product cost for the month under variable costing?
2. What is the unit product cost for the month under absorption costing?
3. Prepare an income statement for the month using the contribution format and the variable costing
method.
4. Prepare an income statement for the month using the absorption costing method.
5. Reconcile the variable costing and absorption costing net operating incomes for the month.
Problem 2
Projected cost information for a new product of Chichi Manufacturing with a selling price of P60 is as
follows:
Expected variable unit costs:
Direct materials 10.90
Direct labor 7.18
Overhead 1.92
Selling costs 4.00
Annual fixed costs:
Taxes on property used 8,840
Depreciation on building and equipment 18,920
Advertising 38,840
Requirements:
1. Compute the break-even point in units and in peso.
2. Compute the number of units that must be sold if advertising costs rise by P12,120 and a targeted
profit of P120,000 is to be obtained.
3. Independent case: With a sales of 10,000 units, compute the new selling price that the company
must set to obtain a profit of P200,000.
Problem 3
Champoy Company has developed a new product that will be marketed for the first time during the
next fiscal year. Although the Marketing Department estimates that 35,000 units could be sold at P34
per unit, Champoy’s management has allocated only enough manufacturing capacity to produce a
maximum of 25,000 units of the new product annually. The fixed expenses associated with the new
product are budgeted at P450,000 for the year. The variable expenses of the new product are P16
per unit.

Requirements:
1. How many units of the new product must Champoy sell during the next fiscal year in order to break
even on the product?

2. The Marketing Department would like more manufacturing capacity to be devoted to the new
product. What would be the percentage increase in net operating income for the new product if its unit
sales could be expanded by 10% without any increase in fixed expenses and without any change in
the unit selling price and unit variable expense?

3. Champoy’s management has stipulated that the new product must earn a profit of at least
P125,000 in the next fiscal year. What unit selling price would achieve this target profit if all of the
manufacturing capacity allocated by management is used and all of the output can be sold at that
selling price?

4. Independent case: What is the profit Champoy would earn on the new product if all of the
manufacturing capacity allocated by management is used and the product is sold for P40 per unit?

5. Independent case: What is the degree of operating leverage for the new product if 25,000 units are
sold for P42 per unit?
Problem 4
Paimon Manufacturing Company is planning to produce Almond Tofu, Jade Parcels, and Mondstadt
Hash Brown. The Marketing Department estimated to sell the following for the entire year:
 23,000 of Almond Tofu
 16,000 of Jade Parcels
 11,000 of Mondstadt Hash Brown
The common fixed costs is P1,034,750.

Additional data are as follows:

Requirements:
1. Find the weighted average contribution margin per unit.
2. Find the break-even point for each product.
3. Determine the overall margin of safety.
4. Prepare an income statement using the original data.
5. Prepare an income statement using the break-even units.