Question details

These are only acounts in Cyber's balance sheet. Amounts indicated by a question mark
$ 15.00

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MANAGEMENT ADVISORY SERVICES

QUESTIONS & ANSWERS

1. The following pertains to Sure Company:

Sales (50,000 units)

P1,000,000

Direct Materials and Direct Labor

300,000

Factory Overhead

Variable

40,000

Fixed

70,000

Selling and General Expenses

Variable

10,000

Fixed

60,000

How much was Sure's break-even point in number of units?

a. 9,848

b. 10,000

c. 18,571

d. 15,700

2. Michael Company began its operations on Jan. 1,2008 and produces a single product that sells

for P10/unit. Michael uses the actual (historical) cost system. In 2008, 100,000 units

were produced and 80,000 units were sold. There was no work-in-process inventory at

Dec. 31, 2008.

Manufacturing costs and selling and administrative expenses for 2008 were as

follows:

Fixed costs

Variable costs

Raw materials

2.00/unit produced

Direct labor

1.25/unit produced

Factory overhead

120,000

0.75/unit produced

Selling and administrative

70,000

1.00/unit produced

What would be Michael's finished goods inventory at Dec. 31, 2008 under absorption

costing method?

a. 80,000

b. 104,000

c. 110,000

d. 210,000

3. Hope Company manufactures Part P for use in its production cycle. The cost per unit for

10,000 units of part P are as follows:

Direct materials

3

Direct labor

15

Variable overhead

6

Fixed overhead

8

32

Hope can buy 10,000 units of Part P at P30 per unit. If Hope buys Part P. the

released facilities could be used to save P45,000 in relevant costs in the manufacture of

Part T. In addition, P5/unit of the fixed overhead applied to Part P would be totally eliminated.

What alternative is more desirable and by what amount is it more desirable?

a.

Manufacture

P10,000

b.

Manufacture

P15,000

c.

Buy

P35,000

d.

none of the choices

4. 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

5. Right Corporation projects the following transactions for 2009, its first year of operations:

Proceeds from issuance of common stock

1,000,000

Sales on account

2,200,000

Collections of accounts receivable

1,800,000

Cost of goods sold

1,400,000

Disbursements for purchases of merchandise

and expenses

1,200,000

Disbursements for income tax

250,000

Disbursements for purchase of fixed assets

800,000

Depreciation on fixed assets

150,000

Proceeds from borrowings

700,000

Payments on borrowings

80,000

The projected cash balance at Dec. 31, 2009 is

a. 1,170,000

b. 1,220,000

c. 1,370,000

d. 1,500,000

6. KC Corporation is planning to invest P80,000 in a three-year project.KC's expected rate of

return is 10%. The present value of P1 is at 10% for one year is .909, for two years is .826, and

for three years is .751. The cash flow, net of income tax, will be P30,000, for the first year

(present value of P27, 270) and P36,000 for the second year (present value of of P29,736).

Assuming the rate of return is exactly 10%, what will be the cash flow, net of income tax, for

the third year?

a. P22,000

b. P22, 994

c. P30,618

d. 27,270

7. The Dec. 31, 2007 balance sheet of Cyber Inc is presented below. These are only acounts

in Cyber's balance sheet. Amounts indicated by a question mark (?) can be calculated from the

additional information given

Assets

Cash

25,000

Accounts receivable (net)

?

Inventory

?

Property, plant and equipment (net)

294,000

432,000

Liabilities & Stockholders' Equity

Current ratio (at year end)

1.5 to 1

Total liabilities divided by total stockholders'

equity

0.8

Inventory turnover (based on ending inventory)

10.5 times

Cost of sales for 2007

735,000

What was Cybers' Dec. 31, 2007 inventory?

a. 21,000

b. 30,000

c. 70,000

d. 88,000

8. The Heaven Co. makes and sells a single product called Zoom. Overhead costs are applied

to products on a basis of direct labor hours. The following data applies to the company's

activities for the month of November:

Actual fixed overhead cost incurred

161,450

Budgeted direct labor hours (denominator activity)

40,000

Number of zoom completed

21,000

Fixed overhead budget variance - favorable

11,450

Standard direct labor hours allowed per Zoom

2

Standard overhead rate

5

The volume variance for November is:

a. 6,800 unfavorable

b. 6,800 favorable

c. 7,500 favorable

d. cannot be determined

9. The following information pertains to material R which is used by Barney Co.

Annual usage in units

20,000

Working days per year

250

Safety stock in units

800

Normal lead time in working days

30

Units of material R will be required evenly throughout the year. The order point is

a. 1,600

b. 2,400

c. 3,200

d. 3,600

 

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ANSWERS

1. B

Total fixed costs (expenses)

P130,000

Div. by Contribution margin per unit

Selling price (P1,000,000/50,000)

20

Variable cost (350,000/50,000)

7

13

Break-even point in units

10,000

2. B

Total manufacturing costs per unit: P4.00 + P1.20 = P5.20

Finished goods inventory: (20,000 x P5.20) = P104,000

3. C

If part P is purchased:

Decrease in costs (savings):

Variable manufacturing (P10,000 x P24)

240,000

Fixed manufacturing eliminated (10,000 x P5)

50,000

Relevant costs savings

45,000

Total decrease in costs

335,000

Increase in cost (purchase price):

(10,000 x P30)

300,000

Net cost savings if part P is bought

35,000

4. A

Shut down costs:

Fixed costs in 3 months (P177,000 x 1/4)

44,250

Less: Avoidable cost (loss)

28,200

16,050

div. by Contribution margin per unit

20

Shutdown point

802.5

5. A

Cash receipts:

Issuance of common stock

1,000,000

Collection of accounts receivable

1,800,000

Proceeds from borrowings

700,000

3,500,000

Cash disbursements

Disbursements for purchases of

merchandise and expenses

1,200,000

Disbursements for income tax

250,000

Purchase of fixed assets

800,000

Payments on borrowings

80,000

2,330,000

1,170,000

6. C

Present value of cash flow:

Cash flow

PV Factor

Year 1

30,000

x

0.909

27,270.00

Year 2

36,000

x

0.826

29,736.00

Year 3

?

x

0.75

?

Present value of cash flow:

?

Investment outlay

80,000

Net present value using 10% rate of return

0

Total present value for the three years

80,000

Less: Present value for 2 years( P27,270+29736)

57,006

Present value of cash flow for the third year

22,994

Divide by PV factor for the third year

0.751

Cash flow for the third year

30,618

7. C

Inventory turnover =

Cost of sales =

10.5

Inventory, end

10.5 =

735,000

?

Inventory, Dec. 31 = P735,000/10.5 = 70,000

8 C

Budget based on standard hours:

Budgeted fixed overhead (P161,450-11,450)

150,000

(Fixed overhead rate: 150,000/40,000= 3.75)

Variable overhead 42,000 hrs x (P5.00-3.75)

52,500

202,500

Standard overhead cost:

42,000 hours x P5.00 =

210,000

Volume variance-favorable

7,500

9 C

The order point (reorder point) = lead time usage + safety stock

Lead time usage:

Daily usage (20,000 units / 250 days)

80 units

Normal lead time

x 30

Lead time usage

2,400 units

Add: Safety stock

800

Order point

3,200 units

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