2nd Final Departmental Examinations Reviewer

A.Y. 2023 - 2024

Subject Code: ACCO 205

Course Subject: Strategic Cost Management

1. Which of the following statements is/are true?

I. The cost of a resource that has no alternative use in a make-or-buy
decision problem has an opportunity cost of zero.
II. Vertical integration is the involvement by a company in more than one
of the steps from securing basic raw materials to the production and
distribution of a finished product.
III. When a company has a production constraint, the product with the
highest contribution margin per unit of the constrained resource
should be given highest priority.
a) I only
b) I and II
c) I, II, and III
d) None of the statements are true

2. The opportunity cost of making a component part in a factory with no excess

capacity is
the:
a) variable manufacturing cost of the component
b) fixed manufacturing cost of the component
c) total manufacturing cost of the component
d) net benefit foregone from the best alternative use of the capacity required

3. In a sell or process further decision, which of the following costs are

relevant?
I. A variable production cost incurred prior to the split-off point.
II. An avoidable fixed production cost incurred after the split-off point.
a) Only I
b) Only II
c) Both I and II
d) Neither I nor II

4. When applying the cost-benefit approach to a decision, the primary criterion

is how well management goals will be achieved in relation to costs. Costs
include all expected
 a) variable costs for the courses of action but not expected fixed costs because only
the expected variable costs are relevant
b) incremental out-of-pocket costs as well as all expected continuing costs that are
common to all alternative courses of action
c) future costs that differ among the alternative courses of action plus all qualitative
factors that cannot be measured in numerical terms
d) historical and future costs relative to the courses of action including all qualitative
factors that cannot be measured in numerical terms

5. If a firm is at full capacity, the minimum special-order price must cover

a) variable costs associated with the special order
b) variable and fixed manufacturing costs associated with the special order
c) variable and incremental fixed costs associated with the special order
d) variable costs and incremental fixed costs associated with the special order plus
foregone contribution margin on regular units not produced

6. When producing joint products, what are the relevant costs for a decision to
sell or process further?
a) Joint costs
b) Costs incurred at the split-off point
c) Costs incurred after the split-off point
d) Costs incurred before the split-off point

7. Daisy Company has 2 products that use the same manufacturing facilities
and cannot be subcontracted. Each product has sufficient orders to utilize
the entire manufacturing capacity. For short-run profit maximization, Jago
should manufacture the product with the:
a) Greater gross profit per hour of manufacturing capacity
b) Greater contribution margin per hour of manufacturing capacity
c) Lower total manufacturing costs for the manufacturing capacity
d) Lower total variable manufacturing costs for the manufacturing capacity

8. Eagle Manufacturing occasionally has capacity problems in its metal shaping

division, where the chief cost driver is machine hours. In evaluating the
attractiveness of its individual products for decision-making purposes, which
measurement tool should the firm select?
I. If machine hours do not constrain the number of units produced
II. If machine hours constrain the number of units to be produced
a) 1) Contribution margin 2) Contribution margin per machine hour
b) 1) Gross profit 2) Contribution margin
c) 1) Contribution margin per machine hour 2) Contribution margin
 d) 1) Contribution margin 2) Contribution margin ratio

9. What is the purpose of a departmental overhead cost report?

a) To control overhead costs
b) To allocate uncontrollable costs
c) To control corporate labor costs
d) To determine the cause of any misuse of costs

10. What is the preparation of reports for each level of responsibility in the
company’s organization chart called?
a) Exception reporting
b) Responsibility reporting
c) Static reporting
d) Master budgeting analysis

11. Which type of center is the housekeeping department of a manufacturing

company?
a) A profit center
b) A segment
c) A Cost center
d) An investment center

12. On what is a manager of a profit center evaluated?

a) His or her ability to control costs
b) The profit that the center generates
c) The amount of return the center’s assets generate
d) The amount of revenue that can be generated

13. In which situation is responsibility accounting especially valuable?

a) In not-for-profit companies
b) In cost centers
c) When large amounts of uncontrollable costs exist
d) In decentralized companies

14. What is a segment?

a) A non-controllable costs
b) An area of responsibility in decentralized operations
c) Another name for a cost center
d) A division which contains both uncontrollable and non-controllable costs

15. Net cash flow could be used to measure performance in

 a) Profit and investment centers
b) Revenue centers and profit centers
c) Revenue centers and investment centers
d) Cost centers and investment centers

16. The statement of cash flows may be superior to the cash budget as a
performance evaluation measure because
a) The cash budget does not include capital investments
b) Cash flows are arranged by activity -
c) Cash flows are shown on the accrual basis on the cash budget
d) Of all the above reasons

17. The statement of cash flows indicates the cash flows and outflows from
a) Merchandising, financing, and investing activities
b) Operating, investing, and sending activities
c) Operating, investing, and financing activities
d) investing, financing, and borrowing activities

18. The return on investment (ROI) ratio measures

a) Both asset turnover and earnings as a percent of sales
b) Only asset turnover
c) on ly earnings as a percent of sales
d) Asset turnover and earnings as a percent of sales, correcting for the effects of
differing depreciation methods

19. Profit margin indicates the portion of sales that

a) Equals contribution margin
b) Equals to product contribution margin
c) Covers fixed expenses
d) Is not used to cover expenses

20. Variable analysis would be appropriate to measure performance in

a) Profit centers
b) Investment centers
c) Cost centers
d) All of the above

21. Using a single performance evaluation criterion for an investment center

a) Is only appropriate if the criterion is non-monetary
b) Can result in manipulation of the performance measure
c) Is most effective because a manager can concentrate on a single goal
 d) Allows multinational investment centers’ performances to be equitably compared

22. If sales and expenses both rise by P100,000

a) Residual income will increase
b) Asset turnover will decrease
c) Return on investment will be unchanged
d) Return on investment will increase

23. Market-based transfer price simulates the selling price that would exist if
the segments or subunits were independent companies.
a) True.
b) False, it should be negotiated transfer price.
c) False, it should be cost-based transfer price.
d) False, it should be if the segments or subunits were dependent companies.

24. The general rule in establishing transfer prices consistent with economic
decision making is the ________________________.
a) standard cost plus opportunity cost if goods are transferred internally.
b) actual cost plus opportunity cost if goods are transferred internally.
c) differential cost plus opportunity cost if goods are transferred internally.
d) all of the above.

25. If a firm operates at full capacity, the transfer price should be the
_________________.
a) external market price.
b) differential cost.
c) actual cost.
d) standard cost.

26. Which of the following statements regarding transfer pricing is FALSE?

a) When the idle capacity exists, there is no opportunity cost to producing
intermediate products for another division.
b) Market-based transfer prices should be reduced by any costs avoided by selling
internally rather than externally.
c) No contribution margin is generated by the transferring division when variable
cost-based transfer prices are used.
d) The goal of transfer pricing is to provide segment managers with incentive to
maximize the profits of their divisions.

27. Prices are set by the competitive market when

a) The product is specifically made for a customer
 b) There are no other producers capable of manufacturing a similar item
c) A company can effectively differentiate its product from others
d) A product is not easily distinguishable from competing products

28. In cost-plus pricing, the markup component

a) Is a rigid number
b) Is ultimately determined by the market
c) Provides a means to calculate the actual selling price
d) Is the end rather than the start of pricing decision

29. The markup percentage is usually higher if

a) There is idle capacity
b) Demand is strong
c) Competition is intense
d) Demand is elastic

30 For pricing decisions, full product costs

a) Include all costs that are traceable to the product
b) Include all manufacturing costs and selling costs
c) Include all direct costs plus an appropriate allocation of the indirect costs of all
business functions
d) Allow for the highest possible product prices

31. ANJ Inc. has some materials that originally cost P51,400. The material has a
scrap value of P25,100 as is, but if reworked at 5,400, it could be sold for
35,100. What would the incremental effect be on the company's overall
profit of reworking and selling the material rather than selling it as scrap?
a) P4,600
b) (P4,600)
c) P4,000
d) (P4,000)

32. A merchandising company has two departments, S and R. A recent monthly

income statement for the company follows:

Total Department S Department R

Sales P3,000,000 P2,000,000 P1,000,000
Less: Variable costs and 1,200,000 800,000 400,000
expenses
Contribution margin 1,800,000 1,200,000 600,000
Less: Fixed cost and expenses 1,300,000 500,000 800,000
 Net operating income/ (loss) P500,000 P700,000 (P200,000)

A study indicates that P230,000 of the fixed expenses charged to

Department R are sunk costs that will continue even if Dept. R is dropped. In
addition, the elimination of Department R will result in a 10% increase in
the sales of Department S. If Department R is dropped, what will be the
effect on the company's net operating income as a whole?
a) Increase by P90,000
b) Decrease by P90,000
c) Increase by P10,000
d) No effect

33 A study has been conducted to determine if Product C should be dropped.

Sales of the product total P300,000 per year; variable expenses total
210,000 per year. Fixed expenses charged to the product total 120,000 per
year. The company estimates that 70,000 of these fixed expenses will
continue even if the product is dropped. These data indicate that if Product C
is dropped, the company's overall net operating income would:
a) Decrease by P30,000 per year
b) Increase by P30,000 per year
c) Decrease by P40,000 per year
d) Increase by P40,000 per year

34. Center Systems Inc. manufactures computers on a cost-plus basis. The

production cost of a computer is as follows:
Direct Materials P500,000
Direct labor 300,000
Manufacturing overhead
Supervisor’s salary 30,000
Fringe benefits on direct labor 25,000
Depreciation 18,000
Rent 12,000
Total cost P885,000

If production of this computer was discontinued, the production capacity

would be idle, and the supervisor would be laid off. The depreciation
referred to above is for special equipment that would have no resale value
and that does not wear out through use. When asked to bid on the next
contract for this computer, the minimum unit price that the company should
bid is:
 a) P800,000
b) P885,000
c) P900,000
d) P995,000

35. Zugar Cane Products, Inc., processes sugar cane in batches. The company
buys a batch of sugar cane from farmers for P800 which is then crushed in
the company's plant at a cost of P490. Two intermediate products, cane fiber
and cane juice, emerge from the crushing process. The cane fiber can be sold
as is for P710 or processed further for P330 to make the end product
industrial fiber that is sold for P920. The cane juice can be sold as is for P940
or processed further for P460 to make the end product molasses which is
sold for P1,380. How much profit (loss) does the company make by
processing one batch of sugar cane into the end products of industrial fiber
and molasses?
a) P280
b) P200
c) P210
d) P220

36. Two alternatives, H and M, are under consideration at Alfava Corporation.

Costs associated with the alternatives are listed below.
Alternative X Alternative Y
Material costs P37,000 P37,000
Processing costs 38,000 53,000
Equipment rental 12,000 26,000
Occupancy costs 16,000 26,000
What is the differential cost of Alternative Y over Alternative X, including all
of the relevant costs?
a) P39,000
b) P103,000
c) P122,000
d) P142,000

37. The Home Shoppe is considering the addition of a new line of bathroom
cabinets to its current product lines. Expected cost and revenue data for the
new cabinets are as follows:
Annual sales 700 units
Selling price per unit P5,000
Variable costs per unit
 Production P2,800
Selling P900
Avoidable fixed costs per year
Production P45,000
Selling P60,000
Allocated common fixed costs per year P54,000

If the cabinets are added, it is expected that the contribution margin of their
product lines at the cabinet shop will drop by 35,000 per year.

The increase in net income resulting from this decision would be:
a) P770,000
b) P730,000
c) P710,000
d) P700,000

38. Referring to the preceding problem, what is the lowest selling price per unit
that could be charged for the new cabinets from the following list and still
make it economically desirable to add the new product line?
a) P4,000
b) P3,900
c) P3,800
d) P3,700

39. Margo Company makes two products, K and L, in a joint process. At the
split-off point, 40,000 units of K and 50,000 units of L are available each
month. Monthly joint production costs are P270,000.

Product K can be sold at the split-off point for P4.20 per unit. Product L can
either be sold at the split-off point for P3.20 per unit or it can be processed
further and sold for P6.30 per unit. If L is processed further, additional
processing costs of P2.50 per unit will be incurred.

If L is processed further and then sold, rather than being sold at the split-off
point, the change in monthly operating income would be a:

a) P30,000 increase
b) P30,000 decrease
c) P25,000 increase
d) P25,000 decrease
40. What would the selling price per unit of product K need to be after further
processing in order for Margo Company to be economically indifferent
between selling L at the split-off point or processing L further?
a) P5.70
b) P6.70
c) P7.20
d) P8.70

41. Rheiner Company produces three products with the following costs and
selling prices:
K L M
Selling price per unit P400 P300 P350
Variable costs per unit 240 160 200
Contribution margin per unit P160 P140 P150
Direct labor hours per unit 4 2 3
Machine hours per unit 5 7 4

If Rheiner has a limit of 20,000 direct labor hours but no limit on units sold
or machine hours, then the ranking of the products from the most profitable
to the least profitable use of the constrained resource is:
a) K, L, M
b) L, M, K
c) K, M, L
d) M, L, K

42. If Rheiner has a limit of 30,000 machine hours but no limit on units sold or
direct labor hours, then the ranking of the products from the most profitable
to the least profitable use of the constrained resource is:
a) K, L, M
b) L, K, M
c) K, M, L
d) M, K, L

43. Sea Naktan Company budgeted manufacturing costs for 25,000 units are:

Fixed manufacturing costs - P25,000 per month

Variable manufacturing costs - P12.00 per unit

The company produced 20,000 units during March. How much is the flexible
budget for total manufacturing costs for march?
 a) P265,000
b) P260,000
c) P325,000
d) P240,000

44. BINI Fan Manufacturing reported the following items for 2023:

Income tax expense - P30,000

Contribution Margin - 100,000
Controllable fixed costs - 40,000
Interest expense - 20,000
Total operating assets - 325,000

How much is the controllable margin?

a) 10,000
b) 100,000
c) 30,000
d) P60,000

45. A department has budgeted a monthly manufacturing overhead cost of

P40,000 plus P5 per direct labor hour. The flexible budget report reflects
P120,000 for the total budgeted manufacturing cost for the month. What is
the actual level of activity achieved during the month?
a) 16,000 direct labor hours
b) 32,000 direct labor hours
c) 48,000 direct labor hours
d) Cannot be determined

46. Blissoo Company recorded operating data for its seats division for the year.
The company’s desired return is 5%

Sales - P500,000
Contribution margin - 100,000
Total direct fixed costs - 60,000
Average total operating assets - 200,000

How much is ROI for the year if management is able to identify a way to
improve the contribution margin by P20,000, assuming fixed costs are held
constant?
a) 10%
b) 20%
 c) 30%
d) 8%

47. OA Pharmaceuticals is evaluating its Multivitamins division, an investment

center. The division has a P45,000 controllable margin and P300,000 of
sales. How much will be company’s average operating assets be when its
return on investment is 10%?
a) P450,000
b) P300,000
c) P255,000
d) P495,000

48. The following information is available for LLOUD Auto Sales:

Average operating assets - P800,000
Controllable Margin - P80,000
Contribution Margin - P200,000
Minimum rate of return - 8%

How much is the company’s residual income

a) P64,000
b) P16,000
c) P136,000
d) P720,000

49. BGYO Companys’s master budget shows that the planned activity level for
next year is expected to be 20,000 machine hours, at this level of activity,
the following manufacturing overhead costs are expected:

Indirect labor - P45,000

Factory supplies - 4,000
Indirect Materials - 21,000
Depreciation on factory building - 15,000

Total manufacturing overhead - P85,000

If the company operates at 21,000 machine hours, how much is allowed on a

flexible budget for manufacturing overhead costs?
a) P73,500
b) P89,250
c) P85,000
d) P88,500
50. Reyal Good Foods calculated the following for its two divisions. The
company’s required rate of return is 12%

Division A - 26.9%
Division B - 11.5%

Which of the following should the company choose?

a) It depends on which division generates the larger profits
b) Both, since both investments generate a positive return
c) Division A
d) Division B

51. The current controllable margin for Trumpet Division is P62,000. Its current
operating assets are P200,000. The division is considering purchasing
equipment for P60,000 that will increase annual controllable margin by an
estimated P10,000. If the equipment is purchased, what will happen to the
return on investment for the division?
a) A decrease of 3.3%
b) An increase of 3.3%
c) A decrease of 7.2%
d) An increase of 7.2%

52. JCT Manufacturing Company prepared a fixed budget of 40,000 direct labor
hours, with estimated overhead costs of P200,000 for variable overhead and
P60,000 for fixed overhead. The company then prepared a budget at 38,000
labor hours. How much is the total overhead cost at this level of activity?

a) 260,000
b) P250,000
c) P247,000
d) P190,000

ITEMS 53-54 ARE BASED ON THE FOLLOWING INFORMATION:

BTS and TXT are the only two divisions in the HYBE Company. BTS makes and
sells units that can be sold either to outside customers or to TXT. The following
data are available from last month:

BTS Division:
Unit selling price to outside customers P45
 Unit variable costs when sold to outside customers 30
Capacity in units 12,000
Units sold to outside customers 6,000

TXT Division:
Number of units needed per month 4,000
Unit price paid to an outside supplier P42

If BTS sells the units to TXT, BTS can avoid P2 per unit in sales commissions.

53. What transfer price would be used according to the transfer pricing formula?
a) P28
b) P30
c) P42
d) P45

54. What is the maximum price per unit that TXT should be willing to pay BTS if
a transfer were to take place?

a) P28
b) P30
c) P42
d) P45

55. ANYA Division of SPY x FAMILY Corp. sells 80,000 units of CHIMERA to the
outside market. CHIMERA sells for P10.00 and has a variable cost of P5.50
and a fixed cost per unit of P2.50. ANYA has a capacity to produce 100,000
units per period.

LOID Division currently purchases 10,000 units of CHIMERA from ANYA

Division for P10.00. LOID Division has been approached by an outside
supplier willing to supply the parts for P9.00. What is the effect on SPY x
FAMILY’s overall profit if LOID refuses the outside price and decides to buy
internally instead?
a) P20,000 decrease in SPY x FAMILY’s profits.
b) P35,000 decrease in SPY x FAMILY’s profits.
c) P10,000 increase in SPY x FAMILY’s profits.
d) No change.
56. The DOG division of a company, which is operating at capacity, produces and
sells 1,000 units of a certain electronic component in a perfectly competitive
market. Revenue and cost data are as follows:

Sales P50,000
Variable costs 34,000
Fixed costs 12,000
The minimum transfer price that should be charged to the CAT division of
the same company for each component is:

a) P12
b) P34
c) P46
d) P50

ITEMS 57-60 ARE BASED ON THE FOLLOWING INFORMATION:

JPIA Corporation budgeted the following costs for the production of its one and
only product for the next fiscal year:

Direct Materials P562,500

Direct Labor 390,000
Manufacturing Overhead
Variable 420,000
Fixed 322,500
Selling and Administrative
Variable 180,000
Fixed 240,000
Total Costs P2,115,000

JPIA has an annual target operating income of P450,000. Round off your
answers to the nearest whole number.

57. The markup percentage for setting prices as a percentage of total

manufacturing costs is ______.
a) 51%
b) 125%
c) 185%
d) 245%
58. The markup percentage for setting prices as a percentage of variable
manufacturing cost is ______.
a) 54%
b) 87%
c) 169%
d) 122%

59. The markup percentage for setting prices as a percentage of variable cost of
the product is ______.
a) 328%
b) 36%
c) 228%
d) 65%

60. The markup percentage for setting prices as a percentage of full cost of the
product is ______.
a) 328%
b) 36%
c) 228%
d) 21%
 Summary of Answers

1. C 31. A
2. D 32. A
3. B 33. C
4. C 34. B
5. D 35. D
6. D 36. A
7. B 37. A
8. A 38. B
9. A 39. A
10. B 40. A
11. C 41. B
12. A 42. D
13. D 43. A
14. B 44. D
15. A 45. A
16. B 46. C
17. C 47. A
18. A 48. B
19. D 49. D
20. D 50. C
21. B 51. A
22. C 52. B
23. A 53. A
24. C 54. C
25. A 55. D
26. D 56. D
27. D 57. A
28. B 58. B
29. B 59. D
30. C 60. D
 Summary of Answers – Explained

1. (C)

2. (D)

3. (B)

4. (C)

5. (D)

6. (D)

7. (B)

8. (A)

9. (A)

10. (B)

11. (C)

12. (A) reflects the primary criterion on which managers of profit centers are evaluated. Their
success is measured by their ability to generate profits while effectively managing costs and
resources.

13. (D)

14. (B)

15. (A) net cash flow is a relevant and meaningful measure of performance in both profit
centers (which focus on profitability) and investment centers (which focus on ROI and capital
efficiency).

16. (B) Arranging cash flows by activity enhances the statement of cash flows' usefulness in
performance evaluation compared to the cash budget, which typically does not categorize
cash flows in the same detailed manner.

17. (C)
18. (A) Accurately describes what the ROI ratio measures, capturing both profitability
(earnings as a percent of sales) and asset utilization efficiency (asset turnover) in its
calculation.

19. (D) It reflects the amount of profit that remains after all expenses, including fixed
expenses, have been accounted for in the financial statement.

20. (D) Variable analysis is relevant and useful for measuring performance in profit centers,
investment centers, and cost centers alike.

21. (B) it highlights the risk associated with relying solely on one criterion for evaluation.

22. (C) Net Income remains unchanged, and ROI is calculated using Net Income, then ROI
will also remain unchanged. The numerator (Net Income) and the denominator (Average
Investment) both remain the same before and after the increase in sales and expenses.

23. (A)

24. (C) Differential Costs also refers to outlay costs which includes the direct variable cost of
the product or service and any other cost that are incurred only as a result of the transfer.

25. (A)

26. (D) The goal of transfer pricing is to provide segment managers with incentive to
maximize the profits of the company as a whole, and not only their divisions.

27. (D)

28. (B)

29. (B)

30. (C)

31. (A) P4,600

Sales value of reworked material 35,100

Less: Cost to rework material 5,400
Net sales value 29,700
Current scalp value 25,100
Net advantage 4,600
32. (A) Increase by P90,000
If closed:
Dept. S Dept. R Total
Sales P2,200,000 - P2,200,000
Variable Cost 880,000 - 880,000
Contribution Margin 1,320,000 - 1,320,000
Fixed Cost 500,000 230,000 790,000
Net income P820,000 230,000 P590,000

Net income if closed P590,000

Net income if not closed 500,000
Increase in Net income P90,000

33. (C) Decrease by P40,000 per year

Keep the product Drop the product Difference
Sales P300,000 - (P300,000)
Variable expenses 210,000 - 210,000
Contribution Margin 90,000 - (90,000)
Fixed expenses 120,000 70,000 50,000
Net income/ (loss) (P30,000) (P70,000) (P40,000)

34. (B)
Direct Materials P500,000
Direct labor 300,000
Manufacturing overhead
Supervisor’s salary 30,000
Fringe benefits on direct labor 25,000
Total relevant cost P855,000

35. (D) P220

Combined final sales value (920+1380) P2,300
Less costs of producing the end products:
Cost of sugar cane 800
Cost of crushing 490
Combined costs of further processing (330+460) 790 P2,080
 Profit (loss) P220

36. (A) P39,000

Alternative X Alternative Y Differential Costs
Material costs P37,000 P37,000 P0
Processing costs 38,000 53,000 15,000
Equipment rental 12,000 26,000 14,000
Occupancy costs 16,000 26,000 10,000
Total P103,000 P142,000 P39,000

37. (A) P770,000

Sales (700 units * P5,000) P3,500,000

Less costs:
Variable production costs (700 * 2,800) P1,960,000
Variable selling costs (700 * 900) 630,000
Avoidable fixed production costs 45,000
Avoidable fixed selling costs 60,000
Decline in existing product line contribution margin 35,000 2,730,000
Net income/ (loss) P770,000

38. (B) P3,900

Variable production costs (700 * 2,800) P1,960,000
Variable selling costs (700 * 900) 630,000
Avoidable fixed production costs 45,000
Avoidable fixed selling costs 60,000
Total P2,695,000

The selling price would have to cover all of the costs of P2,695,000. On a per-unit basis, the
cost is P3,850 (P2,695,000 / 700 units). The lowest selling price on the list that covers the
cost is P3,900 per unit.

39. (A) P30,000

Final sales value after further processing P6.30
Less sales value at split-off point 3.20
Incremental revenue from further processing 3.10
 Less cost of further processing 2.50
Profit (loss) from further processing 0.60

Total profit = 0.60 per unit * 50,000 units = P30,000

40. (A) P5.70

The company would be indifferent between selling Product L at the split-off point or
processing Product L further when the sales value at the split-off point equals the
incremental profit that the company could earn by processing further.
Sales value at split-off point = Final sales value after further processing - Cost of
further processing
P3.20 = Final sales value after further processing - P2.50
Final sales value after further processing = P3.20 + P2.50 = P5.70

41. (B)
K L M
Selling price per unit P400 P300 P350
Variable costs per unit 240 160 200
Contribution margin per unit (a) P160 P140 P150
Amount of the constrained resource
required to produce one unit (b) 4 2 3
Contribution margin per unit of the
constrained resource (a / b) P40 P70 P50

42. (D)
Selling price per unit P400 P300 P350
Variable costs per unit 240 160 200
Contribution margin per unit (a) P160 P140 P150
Amount of the constrained resource
required to produce one unit (b) 5 7 4
Contribution margin per unit of the
constrained resource (a / b) P32 P20 P37.5

43. (A)
 Variable Cost (20,000 x 12) 240,0000

Fixed Costs 25,000

Total Manufacturing costs P265,000

44. (D)

P100,000 - 40,000 P60,000

45. (A)

Total flexible budget 120,000

Less: fixed overhead (40,000)

Variable overhead ar actual 80,000

Direct labor rate per hour Divided by 5.00

Direct labor hours used P16,000

46. (C)

CM = 100,000 + 20,000 P120,000

Less: Direct fixed costs (60,000)

Controllable margin 60,000

Total average operating assets 200,000

ROI = 60,000/P200,000 .30 or 30%

47. (A)

ROI = Controllable margin / investments

10% = P45,000 / x = 45,000 /10% =450,000

48. (B)

Controllable Margin P80,000

Less: desired rate of return = 800,000 x 8% (64,000)

Residual income P16,000

49. (D)

Variable Costs (P45,000 + 4,000 + 21,000)/20,000 x 21,000 hrs 73,500

Fixed Costs 15,000

Total Costs 88,500

50. (C) DIVISION A 26.9% > DIVISION B 12%

51. (A)

Present ROI P62,000/P200,000 0.31

Project’s ROI P10,000/P60,000 0.17

New ROI with the new project (62,000 + 10,000) / (200,000+ 0.28
60,000)

(0.31-0.28) = 3.3 decrease 0.0331

52. (B)

Variable (200,000/40,000 dlh) x 38,000 dlh 190,000

Add: fixed costs 60,000

Total overhead cost 250,000

53. (A) P28

Capacity in Units 12,000
Less: Units sold to outside customers (6,000)
Excess Capacity 6,000

The excess capacity is greater than the number of units needed by the TXT division
(4,000 units). Thus, we will only need to account for the outlay/differential cost.

Unit variable costs when sold to outside customers P30

Less: Avoidable Selling Commission Expense (2)
Transfer Price P28

54. (C) P42

The maximum price per unit that TXT would be willing to pay for the transfer from
BTS would be equal to the unit price that they paid to an outside supplier, which is
P42.

55. (D) No change.

There is no change in the profit because the Motor Division REFUSED TO BUY from
the outside supplier.

56. (D) P50

Sales P50,000
Divided by Units Sold 1,000
Market Price P50

Because the DOG division is operating at capacity, the minimum price it will charge an
internal division is the market price. The market price per unit is P50.

57. (A) 51%

 Markup percentage = Profit required + total annual costs not included in cost base
Cost base

Markup percentage = 450,000 + (180,000 + 240,000)

(562,500 + 390,000 + 420,000 + 322,500)

Markup percentage = 870,000

1,695,000

Markup percentage = 51.3274 or 51%

58. (B) 87%

Markup percentage = Profit required + total annual costs not included in cost base
Cost base

Markup percentage = 450,000 + (322,500 + 180,000 + 240,000)

(562,500 + 390,000+420,000)

Markup percentage = 1,192,500

1,372,500

Markup percentage = 86.8852459 or 87%

59. (D) 65%

Markup percentage = Profit required + total annual costs not included in cost base
Cost base

Markup percentage = 450,000 + (322,500 + 240,000)

(562,500 + 390,000 + 420,000 + 180,000)

Markup percentage = 1,012,500

1,552,500

Markup percentage = 65.2174 or 65%

60. (D) 21%

Markup percentage = Profit required + total annual costs not included in cost base
Cost base

Markup percentage = 450,000

2,115,000

Markup percentage = 21.2766 or 21%