Question details

Hope Company manufactures Part P for use in its production cycle. The cost per unit for
$ 15.00

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MANAGEMENT ADVISORY SERVICES

QUESTIONS & ANSWERS

COMPILED BY: MA. CRISTINA P. OBESO, CPA

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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