1. Bush Manufacturing has 31,000 labor hours available for producing M and N.

Consider the following

information:
Product M Product N
Required labor time per unit (hours) 2 3
Maximum demand (units) 6,500 8,000
Contribution margin per unit P5.00 P5.70
Contribution margin per labor hour P2.50 P1.90
If Bush follows proper managerial accounting practices in terms of setting a production schedule, how much
contribution margin would the company expect to generate?

A. P31,450. B. P63,100. C. P66,700. D. P78,100.

2. Bonifacio Company makes and sells a popular product and its average annual sales is 14,000 units at P65
each. Details of its costs are as follows:
Variable manufacturing costs per unit 37
Variable selling expenses per unit 8
Annual fixed manufacturing overhead 112,000
Annual fixed selling and administrative 65,000

Sales are expected to go down to 1,200 units during the next three months due to road construction. Hence,
management plans to close for three months and avoid 60% of all fixed costs. But additional shut down
costs of P10,500 will be incurred.The company should operate since its expected sales in 3 months exceed

a. 803 units b. 1,000 units c. 574 units d. 790 units

*** Items 3 through 9 are based on the officers of Borromeo Corp, who are reviewing the
profitability of the company’s four products and the potential effects of several proposals for varying
the product mix. An excerpt from the income statement and other data follow:

Totals Product P Product Q Product R Product S

Sales P 62,600 P 10,000 P 18,000 P 12,600 P 22,000
Cost of goods sold 44,274 4,750 7,056 13,968 18,500
Gross profit P 18,326 P 5,250 P 10,944 P (1,368) P 3,500
Operating expenses 12,012 1,990 2,976 2,826 4,220
Income before income taxes P 6,314 P 3,260 P 7,968 P(4,194) P (720)

Units sold 1,000 1,200 1,800 2,000

Sales price per unit P 10.00 P 15.00 P 7.00 P 11.00
Variable cost of goods sold per P 2.50 P 3.00 P 6.50 P 6.00
unit
Variable operating expenses per P 1.17 P 1.25 P 1.00 P 1.20
unit

Each of the following proposals is to be considered independently of the other proposals. Consider only
the product changes stated in each proposal; the activity of other products remains stable. Ignore income
taxes.

3. If product R is discontinued, the effect on income will be

a. P 4,194 increase c. P 1,368 increase

b. P 900 increase d. P 12,600 decrease

 4. If product R is discontinued and a consequent loss of customers causes a decrease of 200 units in sales of
Q, the total effect on income will be
a. P 15,600 decrease c. P 2,044 increase

b. P 1,250 decrease d. P 2,866 increase

5. If the sales price of R is increased to P8 with a decrease in the number of units sold to 1,500, the effect on
income will be
a. P 2,199 decrease c. P 750 increase

b. P 600 decrease d. P 1,650 increase

6. The plant in which R is produced can be used to produce a new product, T. Total variable costs and
expenses per unit of T are P 8.05, and 1,600 units can be sold at P 9.50 each. If T is introduced and R is
discontinued, the total effect on income will be
a. P 3,220 increase c. P 2,320 increase

b. P 2,600 increase d. P 1,420 increase

7. Production of P can be doubled by adding a second shift, but higher wages must be paid, increasing the
variable cost of goods sold to P 3.50 for each additional unit. If the 1,000 additional units of P can be sold
at P 10 each, the total effect on income will
a. P 10,00 increase c. P 5,330 increase

b. P 6,500 increase d. P 2,260 increase

8. Part of the plant in which P is produced can easily be adapted to the production of S, but changes in
quantities may make changes in sales prices advisable. If production of P is reduced to 500 units (to be
sold at P 12 each), and production of S is increased to 2,500 units (to be sold at P 10.50 each), the total
effect on income will be
a. P 2,060 decrease c. P 250 increase
b. P 1,515 decrease d. P 1,765 decrease

9. Fitzpatrick Corporation uses a joint manufacturing process in the production of two products, Gummo
and Xylo. Each batch in the joint manufacturing process yields 5,000 pounds of an intermediate
material, Valdene, at a cost of $20,000. Each batch of Gummo uses 60% of the Valdene and incurs
$10,000 of separate costs. The resulting 3,000 pounds of Gummo sells for $10 per pound. The
remaining Valdene is used in the production of Xylo which incurs $12,000 of separable costs per batch.
Each batch of Xylo yields 2,000 pounds and sells for $12 per pound. Fitzpatrick uses the net
realizable value method to allocate the joint material costs. The company is debating whether or not to
process Xylo further into a new product, Zinten, which would incur an additional $4,000 in costs and
sell for $15 per pound. If Zinten is produced, income would increase by

a. $2,000. b. $5,760. c. $14,000. d. $26,000.

10. Manico Company produces three products X, Y, & Z with the following characteristics:
X Y Z
Selling price per unit ...... $2 1 $1 1 $1
100%
0 0
0 0
% %
Variable cost per unit ......
12 6 12 7
0 5
Contribution margin per unit 60%
4 2
0 5
% %
Machine hours per unit ......
1.6 1.33 1.50
The company has only 2,000 machinehours available each month. If demand exceeds the company's capacity, in what
sequence should orders be filled if the company wants to maximize its total contribution margin?
a. orders for Z first, X second, and Y third.
b. orders for X first, Z second, and Y third.
c. orders for Y first, X second, and Z third.
d. orders for Z first and no orders for X or Y.