Relevant Costing-with highlighted answer key.doc

8/18/2019 Relevant Costing-with highlighted answer key.doc

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CRC-ACE The Professional CPA Review School ________________________________________________________

Relevant Costing(Study Notes)

1.0 Denition and Classication of Cost1.1 Dierential Costs

1.1.1 Those costs that diers etween alternative1.1.! "ot a s#n$ costs

1.! %ncre&ental Costs1.!.1 Costs that will increase if a 'artic#lar alternative is

chosen.1.!.! A cost associated with 'rod#cin( an additional #nit1.!.) %t st e co&'ared with the incre&ental reven#e

1.) Avoidale costs1.).1 Those that can e eli&inated *in whole or in 'art+ ,

choosin( one alternative over another in a decision1. S#n$ Costs

1..1 Costs that has alread, een inc#rred and thatcannot e chan(ed , an, decision &ade now or inthe f#t#re are never relevant

1./ Co&&itted Costs1./.1 Present and f#t#re costs that will not chan(e

re(ardless of the decision &ade.

1. ''ort#nit, costs1..1 "ot recorded in the (eneral led(er.

1..! 2actors in the decision-&a$in( 'rocess eca#se the,dier a&on( alternatives.

!.0 Relevant and %rrelevant %te&s!.1 Relevant

!.1.1 An, e3'ected f#t#re costs which will dier a&on((iven alternative co#rses of actions.

!.1.! Dierential Avoidale and ''ort#nit, Costs!.! %rrelevant

!.!.1 4navoidale 3ed cost is an on(oin( 3ed costwhich cannot e altered or aected , a 'artic#lardecision.

!.!.! All s#n$ and co&&itted costs!.!.) 2#t#re reven#es and costs that will not chan(e ,

choosin( one alternative over another in a decisionare never relevant


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CRC-ACE The Professional CPA Review School

).0 Decision 5a$in().1 Scientic Process

).1.1 Dene the Prole&

).1.1.1The root ca#se or hidden 'role& ofvariances in a co&'an,6s o'eration

).1.! S'ecif, the criteria).1.!.1Deter&ine the 'ers'ective that will e #sed

as the asis for the sol#tion).1.!.!7hat is the o8ective9 5a3i&i:e 'rot

increase &ar$et share social services etc.).1.) %dentif, dierent alternatives

).1.).1'tions that can e ta$en to address the'role&

).1.).!Sho#ld consider sit#ations of oth internaland e3ternal environ&ent

).1. Develo' the decision &odel).1..1Si&'lif, the 'role&).1..!Dene what will e relevant and irrelevant).1..)%t rin(s to(ether all ele&ents of the 'role&

; criteria constraints and alternatives.).1./ 5a$e a concl#sion?decision

).! T,'es of Decisions).!.1 Ro#tine

).!.1.1Decisions &ade #nder a s'ecic 'rocess andcertaint,.

).!.1.!Rec#rrin( and 'ro(ra&&ed decisions withset res'onses.

).!.1.)@al#ale ti&e and reso#rces sho#ld not ee3'ended each ti&e the decisions is to e&ade

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).!.1.E3a&'les of Ro#tine Decisions).!.1..1 Re'lenish&ent of inventor,).!.1..! Sendin( delin#enc, notes

).!.1..)


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/.1 The $e, is the 'ro'er handlin( of 3ed costs 'artic#larl,allocated co&&on costs and deter&ination if s#ch a&o#ntsare avoidale or #navoidale

/.! The contri#tion &ar(in lost fro& the activit, to e dro''edst also e considered

/.) 5#t#all, e3cl#sive decisions ; a se(&ent will e aected ,decisions &ade re(ardin( another se(&ent.

/.


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@ariale Sellin( and Ad&inistrative *ifre#ired+

33

S'ecial E#i'&ent and other re#ire&ents

*if an,+

33

Bost Contri#tion 5ar(in ; if re#ired tosacrice re(#lar sales d#e to lac$ ofca'acit,.

33 *33+

%ncre&ental %nco&e F3

>.0 Sell or Process 2#rther>.1 A joint production process res#lts in the co&&in(led

&an#fact#re of two or &ore 'rod#cts called 8oint 'rod#cts.

>.! The 'rod#cts eco&e identiale fro& each other at the split-of point .

>.) 5ana(e&ent st fre#entl, decide whether to sell the'rod#cts at s'lit-o or alternativel, inc#r additional coste,ond s'lit-o *called separable cost + and then sell the(oods for a hi(her 'rice.

>. Goint costs inc#rred 'rior to s'lit-o are not relevant when&a$in( the sell-at-s'lit-o or-'rocess-f#rther decision eca#sethese costs will e inc#rred re(ardless of the alternativeselected.

>./ The correct decision is &ade , co&'arin( the se'arale costinc#rred a(ainst the a&o#nt of increased sales reven#e.

>. Co&'#tationSales after f#rther 'rocessin( 33Sales at S'lit-o 'oint *33+%ncre&ental Reven#e 33Cost to e inc#rred when 'rocess f#rther*%ncre&ental Cost+

*33+

"et %ncre&ental Prot if 'ositive 33

H.0 Constrained Reso#rcesH.1 Constraints

H.1.1 Bi&itations #nder which a co&'an, st o'erates#ch as li&ited availale &achine ti&e or raw&aterials which restricts the co&'an,6s ailit, tosatisf, de&and.

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H.1.! Constraints or ottlenec$s li&it a co&'an,6s ailit,to (row and li&it the total o#t'#t of the entires,ste&.

H.1.) Decisions &a, involve the #se of li&ited laor ho#rsli&ited &aterials and li&ited &achine ti&e.

H.! Decision CriteriaH.!.1 7hen onl, one li&ited reso#rce is 'resent a

co&'an, sho#ld foc#s on 'rod#cts that have the(reatest a&o#nt of contri#tion &ar(in 'er #nit ofthe scarce reso#rce.

H.) Co&'#tation


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@ariale Cost *33+Contri#tion 5ar(in 33Avoidale 2i3ed Costs *33

+ Total 33 Total 33

Relevant Costing (Quizzer)

Instruction: This #i::er is (ood for ! ho#rs. %t ai&s to (ive ,o# theneeded 'ractice to &aster the conce'ts of cost classication and anal,sis.


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. 2i3ed overhead that will e avoided if the 'art is o#(ht fro& ano#tside vendor

c. Direct Baor

d. Fixed overhead that ill continue even i! the "art is #ought!rom an outside vendor

. %n considerin( a s'ecial order sit#ation that will enale a co&'an, to&a$e #se of 'resentl, idle ca'acit, which of the followin( costswo#ld e irrelevant9a. $e"reciation. @ariale verheadc. 5aterialsd. Direct Baor

/. The salaries ,o# co#ld e earnin( , wor$in( rather than attendin(colle(e are an e3a&'le of a. #tla, costs c. S#n$ Costs. 5is'laced Costs d. %""ortunity Costs

. An o''ort#nit, cost isa. The dierence etween in total costs which res#lts fro& selectin(

one choice instead of another. &he "ro't !oregone #y selecting one choice instead o!

anotherc. A cost that &a, e saved , not ado'tin( an alternatived. A cost that &a, e shifted to the f#t#re with little or no eect on

c#rrent o'erations.

>. %n anal,:in( whether to #ild another re(ional service oLce thesalar, of the Chief e3ec#tive oLcer *CE+ at the cor'oratehead#artersa. Relevant eca#se salaries are alwa,s relevant. Relevant eca#se this will 'roal, chan(e if the re(ional

service oLce is #ilt.c.Irrelevant #ecause it is !uture cost that ill not dier

#eteen the alternatives under considerationd. %rrelevant since another i&'#ted costs for the sa&e will e

considered

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H. A&on( the costs relevant to a &a$e-or-#, decision incl#de variale&an#fact#rin( costs as well asa. 4navoidale Costs c. Plant De'reciation

. *voida#le Fixed Costs d. Real Estate Ta3es

J. ''ort#nit, Costs area. Costs irrevocal, inc#rred , 'ast actions. The dierence etween act#al and standard costsc. Not recorded in the accounting recordsd. Partl, 3ed costs and 'artl, variale costs

10. %n a sell or 'rocess f#rther decision which costs elow is *are+ notrelevant in a decision re(ardin( whether the 'rod#ct sho#ld e

'rocessed f#rther9a. * varia#le "roduction cost incurred "rior to s"lit+o . A variale 'rod#ction cost inc#rred after s'lit-o c. An avoidale 3ed 'rod#ction cost inc#rred after s'lit-o d. =oth = and C

11. A factor, is o'eratin( at less than 100M ca'acit,. Potential additional#siness will not #se #' the re&ainder of the 'lant ca'acit,.


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c.incre&ental costsd. dierential costs

1. Total #nit costs area. Relevant for cost-vol#&e-'rot anal,sis. Irrelevant in marginal analysisc.%nde'endent of the cost s,ste& #sed to (enerate the&d. "eeded for deter&inin( the 'rod#ct contri#tion.

1/. 7hich of the followin( is &ost relevant to a &an#fact#rin( e#i'&entre'lace&ent decision9a. ri(inal cost of the old e#i'&ent. $is"osal "rice o! the old e,ui"ment

c.. Cavite Cor'oration conte&'lates the te&'orar, sh#tdown of its 'lantfacilities in a 'rovincial area which is econo&icall, de'ressed d#e tonat#ral disasters. =elow are certain &an#fact#rin( and sellin(e3'ense

1. De'reciation !. Pro'ert, ta3 ).%nterest e3'ense

. %ns#rance of 2acilities /. Sales Co&&issions .Deliver, E3'ense

>. Sec#rit, of Pre&ises

7hich of the aove e3'enses will contin#e d#rin( the sh#tdown'eriod9

a. All e3'enses in the list c. %te&s 1!and ) onl,. *ll exce"t items - and . d. %te&s 1!)

and > onl,

1H. A s'ecial order (enerall, sho#ld e acce'ted if

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a. %ts reven#e e3ceeds allocated 3ed costs re(ardless of thevariale costs associated with the order.

. /xcess ca"acity exists and the revenue exceeds all varia#le

costs associated ith the orderc. E3cess ca'acit, e3ists and the reven#e e3ceeds allocated 3ed

costs.d. the reven#e e3ceeds total costs re(ardless of availale ca'acit,.

1J. %n a &a$e or #, decision the o''ort#nit, cost of ca'acit, co#lda. #e considered to decrease the "rice o! units "urchased

!rom su""liers. e considered to decrease the cost of #nits &an#fact#red , the

co&'an,.

c. e considered to increase the 'rice of #nits '#rchased fro&s#''liers.

d. not e considered since o''ort#nit, costs are not 'art of theacco#ntin( records.

!0. There is a &ar$et for oth 'rod#ct F and 'rod#ct N. 7hich of thefollowin( costs and reven#es wo#ld e &ost relevant in decidin(whether to sell 'rod#ct F or 'rocess it f#rther to &a$e 'rod#ct N9a. Total cost of &a$in( F and the reven#e fro& sale of F and N.. Total cost of &a$in( N and the reven#e fro& sale of N.

c. *dditional cost o! making 01 given the cost o! making 21and additional revenue !rom 0

d. Additional cost of &a$in( F (iven the cost of &a$in( N andadditional reven#e fro& N.

!1. Ba$as En(ine Co. &an#fact#res en(ines for the &ilitar, e#i'&ent ona cost-'l#s asis. The cost of a 'artic#lar &achine the co&'an,&an#fact#res is shown elow

Direct 5aterials P 00000Direct Baor )00000verhead

S#'ervisor6s salar, 00002rin(e enet on direct laor )0000De'reciation !000Rent !!000

%f the 'rod#ction of this en(ine were discontin#ed the 'rod#ctionca'acit, wo#ld e idle and the s#'ervisor will e laid-o sho#ld there

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e a ne3t contract for this en(ine the co&'an, sho#ld id a&ini& 'rice ofa. P H1000 . P >00000 c. P >)0000 d. 3 4451555

!!. Chow %nc. has its own cafeteria with the followin( ann#al costs2ood P 00000Baor )00000verhead 0000

The overhead is 0M 3ed. At the 3ed overhead P 100000 is thesalar, of the cafeteria s#'ervisor. The re&ainder of the 3edoverhead has een allocated fro& total co&'an, overhead.Ass#&in( the cafeteria s#'ervisor will re&ain and that Chow willcontin#e to 'a, said salar, the &a3i& cost Chow will e will to

'a, an o#tsider r& to service the cafeteria isa. P 110000 . P 100000 c. P >00000 d. 3

6.71555

!). Gerr, Co&'an, #d(eted sales of 00000 'lastic (#ns at P0 'er #nitfor !01!. @ariale &an#fact#rin( costs were #d(eted at P1 'er#nit and 3ed &an#fact#rin( costs at P10 'er #nit. A s'ecial orderoerin( to #, 0000 'lastic (#ns for P!) each was received , Gerr,in 5arch !01!. Gerr, has s#Lcient 'lant ca'acit, to &an#fact#re theadditional #antit, however the 'rod#ction wo#ld have to e done

on an overti&e asis at an esti&ated additional cost of P) 'er 'lastic(#ns. Acce'tance of the s'ecial order wo#ld not aect Gerr,6s nor&alsales and no sellin( e3'enses wo#ld e inc#rred. 7hat wo#ld e theeect on o'eratin( 'rot if the s'ecial order were acce'ted9a. P !0000 decrease c. P 1!0000 decrease. 3 8.51555 increase d. P !H0000 increase

!. Chow foods o'erate a cafeteria for its e&'lo,ees. The o'erationsof the cafeteria re#ire 3ed costs of P >0000 'er &onth andvariale costs of 0M of sales. Cafeteria sales are c#rrentl,avera(in( P 1!00000 'er &onth. The co&'an, has the

o''ort#nit, to re'lace the cafeteria with vendin( &achines.


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vendin( &achines will res#lt in a &onthl, increase?*decrease+ ino'eratin( inco&e of a. P 1H!000 . P !/HH00 c. P */HH000+ d. 3

891955

!/. G#li#s %nternational 'rod#ces 1/000 #nits of Prod#ct G1 and )0000#nits of G! for which PH00000 co&&on variale costs are inc#rred.

These two 'rod#cts can e sold as is or 'rocessed f#rther. 2#rther'rocessin( of either 'rod#ct does not dela, the 'rod#ction of s#se#ent atches of the 8oint 'rod#cts. =elow are so&e otherinfor&ation

G1 G!4nit sellin( 'rice witho#t f#rther

'rocessin(

P ! P 1H

4nit sellin( 'rice with f#rther 'rocessin( P )0 P !! Total se'arate wee$l, variale costs off#rther 'rocessin( P 100000

PJ0000

To &a3i&i:e G#li#s6 &an#fact#rin( contri#tion &ar(in the totalse'arate variale costs of f#rther 'rocessin( that sho#ld einc#rred each wee$ area. P J/000 . P J0000 c. P 100000 d. 3 8651555

!.


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'rod#ced. 7hich 'rod#ct or 'rod#cts sho#ld the li&ited n#&er of &achine ho#rs e #sed for9a. * # =oth A and = c. Either A and = d.

=!H. Nsaelle %nd#stries %nc. has an o''ort#nit, to ac#ire a new

e#i'&ent to re'lace one of its e3istin( e#i'&ents. The newe#i'&ent wo#ld cost P J00000 and has a ve-,ear #sef#l lifewith :ero dis'osal 'rice. @ariale o'eratin( costs wo#ld e P1&illion 'er ,ear. The 'resent e#i'&ent has a oo$ val#e of P/00000 and a re&ainin( #sef#l life of ve ,ears. %ts dis'osal 'ricenow is P /0000 it wo#ld e :ero after ve ,ears. @arialeo'eratin( costs wo#ld e P 1!/0000 'er ,ear. Considerin( theve ,ears in total #t i(norin( the ti&e val#e of &one, and

inco&e ta3es Nsaelle sho#lda. Re"lace due to 3 7551555 advantage. "ot re'lace d#e to P 1/0000 disadvanta(ec. Re'lace d#e to P )/0000 advanta(ed. "ot re'lace d#e to P 100000 disadvanta(e

!J. Ta(a,ta, 'en-air ea &ar$et is alon( the hi(hwa, leadin( to Taal@ista Bod(e. Arnel has a stall which s'eciali:es in hand-crafted fr#itas$ets that sells for P0 each. Dail, 3ed costs are P1/000 andvariale costs are P)0 'er as$et. An avera(e of >/0 as$ets is

sold each da,. Arnel has a ca'acit, of H00 as$ets 'er da,. =,closin( ti&e ,esterda, a #s load of teachers who attended ase&inar at the Develo'&ent Acade&, of the Phili''ines sto''ed, Arnel6s stall. Collectivel, the, oered Arnel P 1/00 for 0as$ets. Arnel sho#ld havea. Re8ected the oer since he co#ld have lost P/00. Re8ected the oer since he co#ld have lost PJ00c. *cce"ted the oer since he could have 3:55

contri#ution margind. Acce'ted the oer since he co#ld have P>00 contri#tion

&ar(in

)0. Pi3ie Co. 'rod#ces Co&'onent 1> for #se in one of its electronic(ad(ets. "or&al ann#al 'rod#ction for the ite& is 100000 #nits.

The cost 'er 100 #nit lot of the 'art are as followsDirect 5aterials P /!0

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'l#(s P 1H0000 of the ann#al 3ed overhead a''lied will eeli&inated and the co&'an, &a, e ale to rent the facilit,'revio#sl, #sed for &an#fact#rin( the 'l#(s. %f 4nion '#rchases

the 'l#(s #t does not rent the #n#sed facilit, the co&'an, wo#lda. Save P.00 'er #nit c. Bose P 1H.00

'er #nit. Save PJ.00 'er #nit d. >ose 3655

"er unit

)). Prod#ct A has a contri#tion &ar(in of PH0 'er #nit a contri#tion&ar(in ratio of /0M and re#ires &achine ho#rs to 'rod#ce.Prod#ct = has a contri#tion &ar(in of '1!0 'er #nit acontri#tion &ar(in ratio of 0M and re#ires / &achine ho#rs to

'rod#ce. %2 the co&'an, has li&ited &achine ho#rs availale thenit sho#ld 'rod#ce and sella. Prod#ct = since it has the hi(her contri#tion &ar(in 'er #nit. Prod#ct A since it re#ires fewer &achine ho#rs 'er #nit than

does Prod#ct =c. 3roduct ? since it has the higher contri#ution margin

"er machine hourd. Prod#ct A since it has the hi(her contri#tion &ar(in 'er

&achine ho#r

). Essence Prod#cers %nc. &an#fact#res vario#s scents o#t of Phili''ine owers and 'lants. %t also &an#fact#res e3otic oils thatit s#se#entl, #ses in the scents 'rod#ction. The cost 'er #nit of &eas#re for 1/000 #nits of e3otic oils are as follows

Direct 5aterials P !0Direct Baor )@ariale 2actor, verhead !4navoidale 2i3ed 2actor, verhead )!

TTAB P 110

Ftra ils %nc. oered Essence to s#''l, 1/000 #nits of &eas#re of

the e3otic oils for P1!0000. Ass#&in( the facilities for e3otic oilshave no alternative #se Essence Prod#cers %nc. sho#lda. Contin#e to 'rod#ce e3otic oils at P 11>0000 relevant costs

a(ainst '#rchase cost of P 1!0000.. Prod#ce >/00 #nits and #, >/00 #nits fro& Ftra ils to

save P )00000.

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c. ?uy !rom 2tra %ils1 Inc at 3 81/0000

%ns#rance on %nventories/0000

De'reciation on E#i'&ent)!/000

Advertisin(/00000

"et %nco&e *Boss+ P *1!/000+

The &ana(e&ent is conte&'latin( the dro''in( of #tlet "o. /d#e to the #nfavorale o'erational res#lts. %f this wo#ld ha''en

one e&'lo,ee will have to e retained with an ann#al salar, of P1/0000. The e#i'&ent has no resale val#e. #tlet "o. / sho#lda. Not #e dro""ed due to !oregone overall income o! 3

:-51555. =e dro''ed d#e to fore(one overall inco&e of P )!/000c. "ot e dro''ed d#e to fore(one overall inco&e of P!/000d. =e dro''ed d#e to overall o'erational loss of P !/000

). Division A of Decision E3'erts Cor'oration is ein( eval#ated foreli&ination. %t has contri#tion &ar(in of P 00000. %t receives an

allocated overhead of P1 &illion 10M of which cannot eeli&inated. The eli&ination of Division A wo#ld aect 're-ta3inco&e ,a. P 00000 decrease c. P 00000 increase. P /00000 decrease d. 3 -551555 increase

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)>. 2 S %nc. has an ann#al ca'acit, of !H00 #nits of o#t'#t. %ts

'redicted o'erations for the ,ear are as followsSales !000 #nits at P>0 each P 1/!00005an#fact#rin( Costs@ariale

P /00 'er #nit

2i3edP )0000

5ar$etin( and Ad&inistrative Costs

@ariale *Sales and Co&&issions+P 1!0 'er #nit

2i3edP 0000

Ass#&e there wo#ld e no eect on re(#lar sales at re(#lar 'ricesand that the #s#al sales co&&ission will e red#ced to half sho#ldthe co&'an, acce't a one-ti&e onl, s'ecial order for 00 #nits ata sellin( 'rice of P0 each.a. 0es1 due to incremental income o! 3 791555. Either on wo#ld do as the net eect wo#ld e the sa&ec. Nes d#e to incre&ental inco&e of P )0000d. "o d#e to the res#ltin( loss of P )>>1

)H. "ore 5illin( Co. has a 'lant ca'acit, of 0000 #nits 'er &onth.4nit costs at ca'acit, are

Direct 5aterials P 100Direct Baor 1/0@ariale verhead >/2i3ed overhead >/5ar$etin( 2i3ed Costs 1>/5ar$etin( @ariale Costs J0

Present &onthl, sales are )J000 #nits at P)0 each. GoshCor'oration contacted "ore ao#t '#rchasin( 0000 #nits at P00each. The 'resent sales wo#ld not e aected , the s'ecial order."ore sho#lda. *cce"t the s"ecial order due to 3 89-1555 incremental

income. Acce't the s'ecial order d#e to P 110000 incre&ental inco&e

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c. Acce't the s'ecial order d#e to P !1/000 incre&ental inco&ed. Acce't the s'ecial order d#e to P 10000 incre&ental inco&e

)J. Part =F is a co&'onent that 5otors En(ines Co. #ses in theasse&l, of &otors. The cost to 'rod#ce one =F is 'resentedelow

Direct 5aterials P 0005aterials handlin( *!0M of Direct5aterials +

H00

Direct Baor )!000

verhead *1/0M of Direct Baor+ H000 Total 5an#fact#rin( Costs P HH00

5aterials handlin( which is not incl#ded in &an#fact#rin(overhead re'resent the direct variale costs of the receivin(de'art&ent that are a''lied to direct &aterials and '#rchasedco&'onents on the asis of their cost. The co&'an,6s ann#aloverhead #d(et is one-third variale and two-thirds 3ed. Pre-casts Co. oers to s#''le =F at a #nit 'rice of P 0000. Sho#ld theco&'an, #, or &an#fact#re =F9

a. =#, d#e to advanta(e of P !H00 'er #nit. 5an#fact#re d#e to advanta(e of P >!00c. =#, d#e to advanta(e of P 1!H00 'er #nitd. @anu!acture1 due to advantage o! 3 861


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. @ake1 due to savings o! 3 -551555c. =#, d#e to savin(s of P !/00000d. 5a$e d#e to savin(s of P )000000

1. The 5a'ili Cor'. which has e3'erience e3cess 'rod#ction ca'acit,received a s'ecial oer for its 'rod#ct at P>H 'er #nit for 100000#nits. %t has een #sin( the variale costin( &ethod and has een'ricin( its 'rod#ct at PJ 'er #nit ased on &ar$-#' of 0M asfollows

Direct 5aterials P )0Direct Baor !0

@ariale verhead @ariale Sellin( and ad&inistrative

Total @ariale E3'enses P 00M 5ar$-#' )Sellin( 'rice P J

Ass#&in( that this s'ecial oer will not aect the &ar$et for the'rod#ct sho#ld the co&'an, acce't the s'ecial oer9

a. Nes since it will contri#te P!.H &illion &ar(in. 0es1 since it ill contri#ute 389 million margin

c. "o since it will &ean a loss of P1H &illiond. "o since it will &ean a loss of P1.1 &illion

!. Picnic %te&s %nc. &an#fact#res coolers of 10000 #nits that contain

a free:ale ice a(. 2or an ann#al vol#&e of 10000 #nits 3ed&an#fact#rin( costs of P /00000 are inc#rred. @ariale Costs 'er#nit a&o#nt are

Direct 5aterials P H0Direct Baor 1/@ariale verhead !0

=a(s Cor'. oered to s#''l, the asse&led ice a( for P0 with a&ini& order of /000 #nits. %f Picnic acce'ts the oer it will eale to red#ce variale laor and overhead for /0M. The direct&aterials for the free:ale a( will cost Picnic P!0 if it will 'rod#ceit. Considerin( =a(s Cor'. oer Picnic sho#lda. =#, the free:ale ice a( d#e to P 1/0000 advanta(e. Prod#ce the free:ale ice a( d#e to P !!/000 advanta(e

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c. 3roduce the !reeza#le ice #ag due to 3


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The 3ed costs incl#de a nor&al P)>00 allocation for in-ho#sedesi(n costs altho#(h no in-ho#se desi(n will e done. %nstead the

8o will re#ire the #se of e3ternal desi(ners costin( P >>/0. 7hat

is the total a&o#nt to e incl#ded in the calc#lation to deter&inethe &ini& acce'tale 'rice for the 8o9a. P )>00 . 3 7514-5 c P /000 d. P /H0/0

. Rollin Cor'. &an#fact#res atons. Rollin can &an#fact#re )00000atons a ,ear at a variale cost of P >/0000 and a 3ed cost of P/0000. =ased on Rollin6s 'redictions !0000 atons will e soldat the re(#lar 'rice of P/.00 each. %n addition a s'ecial order was'laced for 0000 atons to e sold at a 0M disco#nt o there(#lar 'rice. =, what a&o#nt wo#ld inco&e efore ta3es e

increased or decreased as a res#lt of the s'ecial order9a. P 0000 decrease c. 3 :51555 increase. P )000 increase d. P1H0000 increase

>. Sc#ll, %nc. has een &an#fact#rin( /000 #nits of Part !0/1 thatis #sed in the &an#fact#re of one of its 'rod#cts. At this level of 'rod#ction the cost 'er #nit of &an#fact#rin( 'art !0/1 is asfollows

$irect @aterials 3 <$irect >a#or 9

=aria#le %verhead 7Fixed %verhead .&%&*> 3


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Direct Baor 1!@ariale verhead /2i3ed verhead >

Iollow Co&'an, has oered to sell =#c$ /000 #nits of Part 1>00for P!> 'er #nit. %f =#c$ acce'ts the oer so&e of the facilities'resentl, #sed to &an#fact#re 'art 1>00 co#ld e #sed to hel'with the &an#fact#re of Part no. 1!11 and P) 'er #nit of the 3edoverhead a''lied to 'art no. 1>00 wo#ld e totall, eli&inated. =,what a&o#nt wo#ld net relevant costs e increased or decreased if =#c$ acce'ts Iollow6s oer9a. P )/000 decrease c. P !0000 decrease. 3 8-1555 decrease d. P /000 increase

J. 5ach Co&'an, 'rod#ces and sells H000 #nits of Prod#ct F each,ear. Each #nit of Prod#ct F sells for P10 and has a contri#tion&ar(in of P. %t is esti&ated that if Prod#ct F is discontin#ed P/0000 of the P 0000 in 3ed costs char(ed to Prod#ct F co#ld eeli&inated. These data indicate that if Prod#ct 3 is discontin#edoverall co&'an, o'eratin( inco&e sho#lda. Increase #y 3


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Sales P/00000

P !00000 P /000 P>/000

@ariale Costs )!/000 10000 /H000 /!)000

Contri#tion5ar(in

1>/000 0000 >000 !!000

2i3ed Costs >/000 )/000 !!000 1)!000'eratin(%nco&e?*loss+

100000 !/000 *1/000+ 110000

/1. Ass#&e none of the 3ed e3'enses for the hard r#er line areavoidale. 7hat will e total net inco&e if the line is dro''ed9a. D8


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'o#nd. The re&ainin( @aldene is #sed in the 'rod#ction of F,lowhich inc#rs P1!000 of se'arale costs 'er atch. Each atch of F,lo ,ields !000 'o#nds and sells for P1! 'er 'o#nd. 2it:'atric$

#ses the net reali:ale val#e &ethod to allocate the 8oint &aterialcosts. The co&'an, is deatin( whether or not to 'rocess F,lof#rther into a new 'rod#ct inten which wo#ld inc#r an additionalP000 in costs and sell for P1/ 'er 'o#nd. %f inten is 'rod#cedinco&e wo#ld increase ,a. 30. c. P1000 d. P!000.

/. Ea(le =rand %nc. 'rod#ces two 'rod#cts. Data re(ardin( these

'rod#cts are 'resented elow.Prod#ct F Prod#ct N

Sellin( 'rice 'er #nit P100 P1)0@ariale costs 'er #nit PH0P100Raw &aterials #sed 'er #nit ls. 10 ls.

Ea(le =rand has 1000 ls. of raw &aterials which can e #sed to'rod#ce Prod#cts F and N. 7hich one of the alternatives elowsho#ld Ea(le =rand acce't in order to &a3i&i:e contri#tion

&ar(in9a. 100 #nits of 'rod#ct N..


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Sales 'rice 'er (allon if 'rocessed f#rther P10P1H

@ariale 'rod#ction costs if 'rocessed f#rther P1!/000

P11/000

An assistant in the co&'an,6s cost acco#ntin( de'art&ent wasoverheard sa,in( V....that when oth 8oint and se'arale costs areconsidered the r& has no #siness 'rocessin( either 'rod#cte,ond the s'lit-o 'oint. The e3tra reven#e is si&'l, not worththe eort.W 7hich of the followin( strate(ies sho#ld ereco&&ended for a$es9

a. 5ononate -Sell at s'lit-o =erac,l - Sell at s'lit-o.

. @ononate +Sell at s"lit+oE ?eracyl + 3rocess !urtherc. 5ononate -Process f#rther =erac,l - Sell at s'lit-o.d. 5ononate -Process f#rther =erac,l - Process f#rther.

/H. C!rren" #!siness se$%en" o&era"ions for 'hi"%an( a %ass re"ailer( are &resen"e) #elow*

5erchandise A#to&otive Resta#rant TotalSales P/00000 P00000 P100000

P1000000

@ariale costs )00000 !00000 >0000/>0000

2i3ed costs 100000 100000 /0000!/0000'eratin(

inco&e *loss+ P100000 P100000 P*!0000+ P1H0000

5ana(e&ent is conte&'latin( the discontin#ance of theResta#rant se(&ent since Vit is losin( &one,.W %f this se(&ent is

discontin#ed P)0000 of its 3ed costs will e eli&inated. %naddition 5erchandise and A#to&otive sales will decrease /M fro&their c#rrent levels. 7hat will 7hit&an6s total contri#tion &ar(ine if the Resta#rant se(&ent is discontin#ed9a. P10000 . P!!0000 c. P)>/0 d 3:951555

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/J. Aril %nd#stries is a lti-'rod#ct co&'an, that c#rrentl,&an#fact#res )0000 #nits of Part >)0 each &onth for #se in'rod#ction. The facilities now ein( #sed to 'rod#ce Part >)0 have

3ed &onthl, overhead costs of P1/0000 and a theoreticalca'acit, to 'rod#ce 0000 #nits 'er &onth. %f Aril were to #,Part >)0 fro& an o#tside s#''lier the facilities wo#ld e idle and0M of 3ed costs wo#ld contin#e to e inc#rred. There are noalternative #ses for the facilities. The variale 'rod#ction costs of Part >)0 are P11 'er #nit. 2i3ed overhead is allocated ased on'lanned 'rod#ction levels. %f Aril %nd#stries contin#es to #se)0000 #nits of Part >)0 each &onth it wo#ld reali:e a net enet, '#rchasin( Part >)0 fro& an o#tside s#''lier onl, if thes#''lier6s #nit 'rice is less than

a. P1!.00 . P1!./0 c. P1).00 d 38755

0. Bar$ %nd#stries acce'ted a contract to 'rovide )0000 #nits of Prod#ct A and !0000 #nits of Prod#ct =. Bar$6s sta develo'ed thefollowin( infor&ation with re(ard to &eetin( this contract.

Prod#ct A Prod#ct = TotalSellin( Price P>/ P1!/@ariale costs P)0 PH2i3ed overhead

P100000

5achine ho#rs re#ired ) /5achine ho#rs availale 10000

Cost if o#tso#rced P/ P0Bar$6s o'erations &ana(er has identied the followin(alternatives. 7hich alternative sho#ld e reco&&ended to Bar$6s&ana(e&ent9a. @ake :51555 units o! 3roduct *1 utilize the remaining

ca"acity to make 3roduct ?1 and outsource theremainder

. 5a$e !/000 #nits of Prod#ct A #tili:e the re&ainin( ca'acit,

to &a$e Prod#ct = and o#tso#rce the re&ainder.c. 5a$e !0000 #nits of Prod#ct A #tili:e the re&ainin( ca'acit,

to &a$e Prod#ct = and o#tso#rce the re&ainder.d. Rent additional ca'acit, of )0000 &achine ho#rs which will

increase 3ed costs , P1/0000

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1. Ra,nd %nc. c#rrentl, sells its onl, 'rod#ct to 5all-Stores.Ra,nd has received a one-ti&e-onl, order for !000 #nits fro&another #,er. Sale of the s'ecial order ite&s will not re#ire an,

additional sellin( eort. Ra,nd has a &an#fact#rin( ca'acit, to'rod#ce >000 #nits. Ra,nd has an eective inco&e ta3 rate of0M. Ra,nd6s %nco&e State&ent efore consideration of theone-ti&e-onl, order is as follows.

Sales */000 #nits at P!0 'er #nit+ P100000@ariale &an#fact#rin( costs P/0000@ariale sellin( costs 1/000/000Contri#tion &ar(in )/0002i3ed &an#fact#rin( costs 1000

2i3ed sellin( costs 000 !0000'eratin( inco&e 1/000%nco&e ta3es 000"et inco&e P J000

%n ne(otiatin( a 'rice for the s'ecial order Ra,nd sho#ld setthe &ini& 'er #nit sellin( 'rice ata. 385 . P1) c. P1> d. P1H.

!. The 2#rnit#re Co&'an, c#rrentl, has three divisions 5a'le a$and Cherr,. The oa$ f#rnit#re line does not see& to e doin( well

and the 'resident of the co&'an, is considerin( dro''in( this line.%f it is dro''ed the reven#es associated with the a$ Division wille lost and the related variale costs saved. Also /0M of the 3edcosts allocated to the oa$ f#rnit#re line wo#ld e eli&inated. Theinco&e state&ents , divisions are as follows.

5a'le a$ Cherr,Sales P//000 PH/000 P100000

@ariale Costs 0000 >!000H!000

Contri#tion 5ar(in 1/000 1)0001H0002i3ed costs 10000 100010!00'eratin( 'rot *loss+ P /000 P*1000+ P >H00

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7hich one of the followin( o'tions sho#ld e reco&&ended to the'resident of the co&'an,9a. Contin#e o'eratin( the a$ Division as discontin#ance wo#ld

res#lt in a total o'eratin( loss of P1!00.. Continue o"erating the %ak $ivision as discontinuance

ould result in a 3.1555 decline in o"erating "ro'tsc. Discontin#e the a$ Division which wo#ld res#lt in a P1000

increase in o'eratin( 'rots.d. Discontin#e the a$ Division which wo#ld res#lt in a P>000

increase in o'eratin( 'rots.

). As'en Co&'an, 'lans to sell 1!000 #nits of 'rod#ct FT and H000#nits of 'rod#ct RP. As'en has a ca'acit, of 1!000 'rod#ctive

&achine ho#rs. The #nit cost str#ct#re and &achine ho#rsre#ired for each 'rod#ct is as follows.

4nit Costs FT RP5aterials P)> P!Direct laor 1! 1)@ariale overhead )2i3ed overhead )> )H5achine ho#rs re#ired 1.0 1./

As'en can '#rchase 1!000 #nits of FT at P0 and?or H000 #nits

of RP at P/. =ased on the aove which one of the followin(actions sho#ld e reco&&ended to As'enXs &ana(e&ent9a. 3roduce 2& internally and "urchase R3. Prod#ce RP internall, and '#rchase FT.c. P#rchase oth FT and RP.d. Prod#ce oth FT and RP.

. Refri(erator Co&'an, &an#fact#res ice-&a$ers for installation inrefri(erators. The costs 'er #nit for !0000 #nits of ice-&a$ers areas follows.

Direct &aterials P >Direct laor 1!@ariale overhead /2i3ed overhead 10

Total costs P)

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Cool Co&'art&ents %nc. has oered to sell !0000 ice-&a$ers toRefri(erator Co&'an, for P!H 'er #nit. %f Refri(erator acce'ts CoolCo&'art&ents6 oer the facilities #sed to &an#fact#re ice-&a$ers

co#ld e #sed to 'rod#ce water ltration #nits. Reven#es fro& thesale of water ltration #nits are esti&ated at PH0000 withvariale costs a&o#ntin( to 0M of sales. %n addition P 'er #nitof the 3ed overhead associated with the &an#fact#re of ice-&a$ers co#ld e eli&inated. 2or Refri(erator Co&'an, todeter&ine the most a''ro'riate action to ta$e in this sit#ationthe total relevant costs of &a$e vs. #, res'ectivel, area. P00000 vs. P/0000.. PH000 vs. P/!H000.c. 3.:


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. =asic Co&'#ter Co&'an, *=CC+ sells its &icro-co&'#ters #sin(id 'ricin(. %t develo's ids on a f#ll cost asis. 2#ll cost incl#des

esti&ated &aterial laor variale overheads 3ed &an#fact#rin(overheads and reasonale incre&ental co&'#ter asse&l,ad&inistrative costs 'l#s a 10M ret#rn on f#ll cost. =CC elievesids in e3cess of PJ!/ 'er co&'#ter are not li$el, to econsidered. =CC6s c#rrent cost str#ct#re ased on its nor&al'rod#ction levels is P/00 for &aterials 'er co&'#ter and P!0 'erlaor ho#r. Asse&l, and testin( of each co&'#ter re#ires 1!laor ho#rs. =CC6s variale &an#fact#rin( overhead is P! 'er laorho#r 3ed &an#fact#rin( overhead is P) 'er laor ho#r andincre&ental ad&inistrative costs are PH 'er co&'#ter asse&led.

The co&'an, has received a re#est fro& the School =oard for/00 co&'#ters. =CC6s &ana(e&ent e3'ects heav, co&'etition iniddin( for this 8o. As this is a ver, lar(e order for =CC and co#ldlead to other ed#cational instit#tion orders &ana(e&ent ise3tre&el, interested in s#&ittin( a id which wo#ld win the 8o#t at a 'rice hi(h eno#(h so that c#rrent net inco&e will not e#nfavoral, i&'acted. 5ana(e&ent elieves this order can easored within its c#rrent &an#fact#rin( facilit,. 7hich one of thefollowin( id 'rices sho#ld e reco&&ended to =CC6s&ana(e&ent9

a. P>.00 # 344. Gones Enter'rises &an#fact#res ) 'rod#cts A = and C. D#rin( the&onth of 5a, Gones6 'rod#ction costs and sales data were asfollows.

Prod#ctsA = C Totals

4nits of 'rod#ction )0000 !0000 >00001!0000

Goint 'rod#ction costs to s'lit-o 'oint

PH00002#rther 'rocessin( costs P - P0000 P100004nit sales 'rice

At s'lit-o ).>/ /./0 10.!/After f#rther 'rocessin( - H.001!./0

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=ased on the aove infor&ation which one of the followin(alternatives sho#ld e reco&&ended to Gones6 &ana(e&ent9a. Sell oth Prod#ct = and Prod#ct C at the s'lit-o 'oint.

. Process Prod#ct = f#rther #t sell Prod#ct C at the s'lit-o'oint.

c. 3rocess 3roduct C !urther #ut sell 3roduct ? at the s"lit+o "oint

d. Process oth Prod#cts = and C f#rther.

H. S,ner(, %nc. 'rod#ces a co&'onent that is 'o'#lar in &an,refri(eration s,ste&s. Data on three of the ve dierent &odels ofthis co&'onent are as follows.

5odel

A = C@ol#&e needed *#nits+ /000 000

)0005an#fact#rin( costs@ariale direct costs P10 P! P!0@ariale overhead / 10 1/2i3ed overhead 11 !0 1>

Total &an#fact#rin( costs P! P/ P/!Cost if '#rchased P!1 P! P)JS,ner(, a''lies variale overhead on the asis of &achine ho#rs

at the rate of P!./0 'er ho#r. 5odels A and = are &an#fact#red inthe 2ree:er De'art&ent which has a ca'acit, of !H000 &achine'rocessin( ho#rs.

7hich one of the followin( o'tions sho#ld e reco&&ended toS,ner(,Xs &ana(e&ent9a. P#rchase all three 'rod#cts in the #antities re#ired.. 5an#fact#re all three 'rod#cts in the #antities re#ired.c. &he Freezer $e"artments manu!acturing "lan should

include -1555 units o! @odel * and 71-55 units o!

@odel ?d. The 2ree:er De'art&entXs &an#fact#rin( 'lan sho#ld incl#de

!000 #nits of 5odel A and 000 #nits of 5odel =.

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J. The Doll Io#se a ver, 'rotale co&'an, 'lans to introd#ce anew t,'e of doll to its 'rod#ct line. The sales 'rice and costs for

the new dolls are as follows.Sellin( 'rice 'er doll P100@ariale cost 'er doll P0%ncre&ental ann#al 3ed costs P/000%nco&e ta3 rate )0M

%f 10000 new dolls are 'rod#ced and sold the eect on DollIo#se6s 'rot *loss+ wo#ld ea. P*1>000+ . P*/000+ c 3(:610. Gohnson Co&'an, &an#fact#res a variet, of shoes and hasreceived a s'ecial one-ti&e-onl, order directl, fro& a wholesaler.

Gohnson has s#Lcient idle ca'acit, to acce't the s'ecial order to&an#fact#re 1/000 'airs of snea$ers at a 'rice of P>./0 'er 'air.

Gohnson6s nor&al sellin( 'rice is P11./0 'er 'air of snea$ers.@ariale &an#fact#rin( costs are P/.00 'er 'air and 3ed&an#fact#rin( costs are P).00 a 'air. Gohnson6s variale sellin(e3'ense for its nor&al line of snea$ers is P1.00 'er 'air. 7hatwo#ld the eect on Gohnson6s o'eratin( inco&e e if the co&'an,acce'ted the s'ecial order9

a. Decrease , P0000. Increase #y 3:41-55c. %ncrease , P!!/00d. %ncrease , P/!/00.

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