Cost Accounting and Control -2nd Sem AY 21-22

Quiz for Module 2

Name: ___________________

Class Schedule: _______________

Problem 1 – 50 points; show your solutions

XYZ Co., makes small plant stands that sell for P25 each. The company’s annual level of production
and sales is 120,000 units. In addition to P430,500 of fixed manufacturing overhead and P159,050
of fixed administrative expenses, the following per unit costs have been determined for each plant
stand:

Direct material P6.00

Direct labor 3.00
Variable manufacturing OH 0.80
Variable selling expense 2.20
Total variable cost P12.00

1. Prepare a variable costing income statement at the current level of production and sales.
2. Calculate the unit contribution margin in pesos and the contribution margin ratio for a plant
stand.
3. Determine the break-even point in number of plant stands.
4. Calculate the pesos break-even point using the contribution margin ratio.
5. Determine XYZ’s margin of safety in units, in sales pesos, and as a percentage.
6. Compute the company’s degree of operating leverage.
7. If sales increase by 25%, by what percentage will before-tax income increase?
8. How many plant stands must the company sell to earn P996,450 in before-tax income?
9. If the company wants to earn P657,800 after tax and is subject to a 20 percent tax rate, how
many units must be sold?
10. How many plant stands must be sold to break even if XYZ’s fixed manufacturing cost
increases by P7,865? (use the original data).
11. The company has received an offer from a Brazilian company to buy 4,000 plant stands at
P40 per unit. The per-unit variable selling cost of the additional units will be P2.80 (rather
than P2.20), and P18,000 of additional fixed administrative cost will be incurred. This sale
would not affect domestic sales or their costs. Based on quantitative factors alone, should
XYZ accept this offer?

Problem 2 – 35 points

Rojo Products sells camping equipment. One of the company’s products, a camp lantern, sells for
P900 per unit. Variable expenses are P630 per lanterns, and fixed expenses associated with the
lantern total P1,350,000 per month.

1. Compute the company’s break-even point in number of lanterns and in total sales pesos.
2. If the variable expenses per lantern increase as a percentage of the selling price, will it
result in a higher or a lower break-even point? Why?
3. At present, the company is selling 8,000 lanterns per month. The sales manager is
convinced that a 10% reduction in the selling price will result in a 25% increase in the
 number of lanterns sold each month. Prepare two contribution income statements, one
under present operating conditions, and one as operations would appear after the proposed
changes. Show both total and per unit data on your statements.
4. Refer to No. 3. How many lanterns would have to be sold at the new selling price to yield a
minimum net operating income of P720,000 per month?

Problem 3 – 25 points

Mega Doors Company sells prehung doors to home builders. The doors are sold for P600 each.
Variable costs are P420 per door, and fixed costs total P4,500,000 per year. The company is
currently selling 30,000 doors per year.

1. Prepare a contribution format income statement for the company at the present level of
sales.
2. Compute the degree of operating leverage.
3. Management is confident that the company can sell 37,500 doors next year (an increase of
7,500 doors, or 25%, over current sales). Compute the following:
a. The expected percentage increase in net operating income for next year.
b. The expected total peso net operating income for the next year. (do not prepare an
income statement; use the degree of operating leverage to compute your answer.)

Problem 4 – 40 points

ABC Company sells a single product. The company’s sales and expenses for a recent month follow:

Per
Total Unit
Sales P600,000 P40
Total variable cost 420,000 28
Contribution margin 180,000 12
Total fixed cost 150,000
Operating income 30,000

1. What is the monthly break-even point in units sold and in pesos?

2. Without resorting to computations, what is the total contribution margin at the break-even
point?
3. How many units would have to be sold each month to earn a minimum target profit of
P18,000? Use the contribution margin method. Verify your answer by preparing a
contribution income statement at the target level of sales.
4. Refer to the original data. Compute the company’s margin of safety in both peso and
percentage terms.
5. What is the company’s CM ratio?
6. If monthly sales increase by P80,000 and there is no change in fixed expenses, by how much
would you expect monthly net operating income to increase?
Problem 5 – 26 points
The following events took place at the Barton Manufacturing corporation for the current year:
1. Purchased P80,000 in direct materials.

2. Incurred labor costs as follows:

a. Direct labor, P42,000
b. Supervisory labor, P11,500 (part of manufacturing overhead).
3. Purchased manufacturing equipment for P67,200.
4. Other manufacturing overhead was P80,500, excluding supervisory labor.
5. Transferred 70 percent of the materials purchased to work in process.
6. Completed work on 60 percent of the goods in process. Cost are assigned equally across all
work in process.
7. Sold 90 percent of the completed goods.
There were no beginning balances in the inventory accounts. All costs incurred were debited to the
appropriate account and credited to accounts payable.
Required:
a. Prepare journal entries to reflect these events.
b. Prepare a cost of goods sold statement from the data.
Problem 6 -24 points
High Plains Sales Corporation experienced the following events during the current year:
1. Incurred marketing costs of P197,000.
2. Purchased P971,000 of merchandise.
3. Paid P26,000 for transportation-in costs.
4. Incurred P400,000 of administrative costs.
5. Took a periodic inventory on December 31 and learned that goods with a cost of P297,000
were on hand. This compared with a beginning inventory of P314,000 on January 1.
6. Sales revenue during the year was P1,850,000.
All costs incurred were debited to the appropriate account and credited to Accounts Payable. All
sales were on credit.
Required:
a. Prepare journal entries to reflect these events.
b. Prepare an income statement based on these data.