1. Consider the following statements about I only.

residual income:
1. Residual income incorporates a firm's cost
of acquiring investment capital.
2. Residual income is a percentage measure,
not a dollar measure.
3. If used correctly, residual income may
result in division managers making decisions
that are in their own best interest and not in
the best interest of the entire firm.

Which of the above statements is (are) true?

2. All of the following actions will increase ROI a decrease in a company's invested capital.
except:

3. Which of the following describes the goal that Establish incentives for autonomous division
should be pursued when setting transfer managers to make decisions that are in the overall
prices? organization's best interests

4. Consider the following statements about I only.

transfer pricing:
1. Income taxes and import duties are an
important consideration when setting a
transfer price for companies that pursue
international commerce.
2. Transfer prices cannot be used by
organizations in the service industry.
3. Transfer prices are totally cost-based in
nature, not market-based.

Which of the above statements is (are) true?

5. The presence of idle capacity in the selling the incremental costs of production in the selling
division may increase division.

6. In a decentralized company in which divisions aid in the appraisal and motivation of managerial
may buy goods from one another, the transfer performance.
pricing system should be designed primarily
to

7. If a division is set up as an autonomous profit out at a cost-based transfer price

center, then goods should not be transferred

8. Consider the following statements about I, II, and III.

performance reports:
1. Performance reports provide feedback to
managers and allow them to better control
operations.
 2. Many performance reports have budget,
actual, and variance data.
3. Performance reports are often structured
around a firm's organizational hierarchy—that
is, data relating to lower-level units (e.g.,
departments) are combined and flow into
higher-level units (e.g., stores).

Which of the above statements is (are) true?

9. ROI is most appropriately used to evaluate investment center managers.

the performance of:

10. When the majority of authority is maintained centralized

by top management personnel, the
organization is said to be

11. When used for performance evaluation, include allocated fixed overhead
periodic internal reports based on a
responsibility accounting system should not

12. Responsibility accounting systems strive to: provide information to managers

13. Decentralized firms can delegate authority by Investment center.

structuring an organization into responsibility
centers. Which of the following organizational
segments is most like a totally independent,
standalone business where managers are
expected to "make it on their own"?

14. To evaluate the performance of individual equal to the market price of the product.
departments, interdepartmental transfers of a
product should preferably be made at prices

15. The difference between the profit margin fixed expenses traceable to the segment but
controllable by a segment manager and the controllable by others.
segment profit margin is caused by:

16. The Banig Division of Home Products 6.5

Corporation manufactures a single grade of
residential grade Baniging. The division has
the capacity to produce 500,000 square yards
of Banig each year. Its current costs and
revenues are shown here:

Sales (400,000 square P2,000,000

yards)

Variable costs per square yard:

Production P2.00

SG&A 1.00

Fixed costs per square yard (based on 500,000

yard capacity)

Production P0.50

SG&A 1.00

The Housing Division currently purchases

40,000 yards of banig (of the grade produced
by the Banig Division) each year at a cost of
P6.50 per square yard from an outside
vendor.

If the autonomous Housing and Banig

Divisions enter negotiations on the internal
transfer of 40,000 square yards of Banig,
what is the maximum price that will be
considered?

If the autonomous Housing and Banig

Divisions enter negotiations on the internal
transfer of 40,000 square yards of Banig,
what is the minimum price that will be
considered? 2+1 = 3

17. Marites Mirasol, general manager of the 260,000

Eastern Division of Quiet Enterprises, has
significant authority over pricing decisions as
well as programs that involve cost Answer:
reduction/control. The data that follow relate
to upcoming divisional operations: B. If X = fixed cost, then;
[($132-$80) x 120,000] – X – ($15,000,000 x
Average invested capital: P15,000,000 16%) = $200,000
Annual fixed costs: P3,900,000 $6,240,000 – X - $2,400,000 = $200,000
Variable cost per unit: P80 X = $3,640,000
Number of units expected to be sold: 120,000
To achieve her promotion, Deborah must reduce
Assume the unit selling price is P132 and that
fixed costs by $260,000 ($3,900,000 -
Quiet has a 16% imputed interest charge. Top
$3,640,000)
management will promote Marites to
corporate headquarters if her division can
generate P200,000 of residual income. If
 Marites desires to move to corporate, by how
much must the division reduce the amount of
annual fixed costs incurred?

18. The Motor Division of Dynamic Engine 100

Corporation uses 5,000 carburetors per
month in its production of automotive
engines. It presently buys all of the
carburetors it needs from two outside
suppliers at an average cost of P100. The
Carburetor Division of Dynamic Engine
Corporation manufactures the exact type of
carburetor that the Motor Division requires.
The Carburetor Division is presently
operating at its capacity of 15,000 units per
month and sells all of its output to a foreign
car manufacturer at P106 per unit. Its cost
structure (on 15,000 units) is:

Variable production costs P70

Variable selling costs 10
All fixed costs 10
Assume that the Carburetor Division would
not incur any variable selling costs on units
that are transferred internally.

What is the maximum of the transfer price

range for a transfer between the two
divisions?

19. Given the following data for Kabraso Inc.: 0.25

2.5 x 10% = 0.25

Selling price 20

Units sold 5,000

Average operating 40,000

assets

Asset Turnover 2.5

MRR 18%

Profit margin 10%

How much is the company’s current return on

investment?

20. The Motor Division of Dynamic Engine 50,000

 Corporation uses 5,000 carburetors per
month in its production of automotive
engines. It presently buys all of the
carburetors it needs from two outside
suppliers at an average cost of P100. The
Carburetor Division of Dynamic Engine
Corporation manufactures the exact type of
carburetor that the Motor Division requires.
The Carburetor Division is presently
operating at its capacity of 15,000 units per
month and sells all of its output to a foreign
car manufacturer at P106 per unit. Its cost
structure (on 15,000 units) is:

Variable production costs P70

Variable selling costs 10
All fixed costs 10
Assume that the Carburetor Division would
not incur any variable selling costs on units
that are transferred internally.

If the two divisions agree to transact with one

another, by how much will corporate profits
change?

21. The following data pertain to Norris Company 0.05

for 20x1:

550,000-500,000= 50,000/ 1,000,000= 0.05

Sales revenue P1,000,000

Cost of goods sold 550,000

Operating expenses 400,000

Average invested capital 500,000

What is the company's sales margin?

22. Given the following data for Kabraso Inc.: 4,300

Selling price 20

Units sold 5,000

Average operating 40,000

assets
 Asset Turnover 2.5

MRR 18%

Profit margin 10%

If selling price increased by 15%, and

everything else remained constant, by how
much will the company’s residual income
increase?

23. The following data pertain to Norris Company 0.1

for 20x1:

Sales revenue P1,000,000

Cost of goods sold 550,000

Operating expenses 400,000

Average invested capital 500,000

What is the company's return on investment?

24. Given the following data for Kabraso Inc.: 2,800

Selling price 20

Units sold 5,000

Average operating 40,000

assets

Asset Turnover 2.5

MRR 18%

Profit margin 10%

How much is the company’s residual income?

25. The Motor Division of Dynamic Engine 96

Corporation uses 5,000 carburetors per
month in its production of automotive
engines. It presently buys all of the
carburetors it needs from two outside
 suppliers at an average cost of P100. The
Carburetor Division of Dynamic Engine
Corporation manufactures the exact type of
carburetor that the Motor Division requires.
The Carburetor Division is presently
operating at its capacity of 15,000 units per
month and sells all of its output to a foreign
car manufacturer at P106 per unit. Its cost
structure (on 15,000 units) is:

Variable production costs P70

Variable selling costs 10
All fixed costs 10
Assume that the Carburetor Division would
not incur any variable selling costs on units
that are transferred internally.

What is the minimum of the transfer price

range for a transfer between the two
divisions?

26. A manufacturer's raw-material purchasing cost center.

department would likely be classified as a:

27. Controllable costs, as used in a responsibility those costs that a manager can influence in the time
accounting system, consist of: period under review.

28. In a responsibility accounting system, costs controllable and noncontrollable costs.

are classified into categories on the basis of

29. Consider the following statements about goal I and II.

congruence:

1. Goal congruence is obtained when

managers of subunits throughout an
organization strive to achieve the goals set by
top management.
2. Managers are often more concerned about
the performance of their own subunits rather
than the performance of the entire
organization.
3. Achieving goal congruence in most
organizations is relatively straightforward and
easy to accomplish.

Which of the above statements is (are) true?

30. The following data pertain to Norris Company 25,000

for 20x1:
Sales revenue P1,000,000

Cost of goods sold 550,000

Operating expenses 400,000

Average invested capital 500,000

If the sales and average invested capital

remain the same, to what level would total
costs and expenses have to be reduced in
20x2 to achieve a 15% return on investment?

31. The Banig Division of Home Products 140,000

Corporation manufactures a single grade of
residential grade Baniging. The division has
the capacity to produce 500,000 square yards 6.5
of Banig each year. Its current costs and (3.00)
revenues are shown here: 3.50
X 40,000
140,000
Sales (400,000 square P2,000,000
yards)

Variable costs per square yard:

Production P2.00

SG&A 1.00

Fixed costs per square yard (based on 500,000

yard capacity)

Production P0.50

SG&A 1.00

The Housing Division currently purchases

40,000 yards of banig (of the grade produced
by the Banig Division) each year at a cost of
P6.50 per square yard from an outside
vendor.

If the Housing and Banig Divisions agree on

the internal transfer of 40,000 square yards of
Banig at a price of P4.00 per square yard,
how will overall corporate profits be affected?
32. Marites Mirasol, general manager of the 130
Eastern Division of Quiet Enterprises, has
significant authority over pricing decisions as A. A 14% return on investment will require the
well as programs that involve cost division to produce income of $2,100,000 ($
reduction/control. The data that follow relate 15,000,000 x 14%)if X = selling price, then
to upcoming divisional operations:
120,000X – (120,000 x $80) - $3,900,000 =
Average invested capital: P15,000,000 $2,100,000
Annual fixed costs: P3,900,000 120,000X = $15,600,000
Variable cost per unit: P80 X = $130
Number of units expected to be sold: 120,000

Top management will promote Marites if she

can earn a 14% return on investment for the
year. What unit selling price should she
establish to get her promotion?

33. The Banig Division of Home Products 80,000

Corporation manufactures a single grade of
residential grade Baniging. The division has
the capacity to produce 500,000 square yards 6.50
of Banig each year. Its current costs and (4.50)
revenues are shown here: 2.00
X 40,000
80,000
Sales (400,000 square P2,000,000
yards)

Variable costs per square yard:

Production P2.00

SG&A 1.00

Fixed costs per square yard (based on 500,000

yard capacity)

Production P0.50

SG&A 1.00

The Housing Division currently purchases

40,000 yards of banig (of the grade produced
by the Banig Division) each year at a cost of
P6.50 per square yard from an outside
vendor.

If the Housing and Banig Divisions agree on

the internal transfer of 40,000 square yards of
Banig at a price of P4.50 per square yard,
 how will overall corporate profits be affected?
80,000

Net Increase in corporate profits = 60,000

(80,000) - 140,000 = 60,000

34. When an organization allows divisional average total assets minus average current
managers to be responsible for short-term liabilities.
loans and credit, the division's invested
capital should be measured by
1. Which of the following statements is true for a firm that Profits fluctuate with sales
uses variable costing?

2. The proponents of throughput costing treat all costs except those related to variable
direct materials as costs of the period in which
they are incurred.

3. Consider the following statements about absorption- I and II

and variable-costing net income:

I. Yearly income reported under absorption costing

will differ from income reported under variable
costing if production and sales volumes differ
II. Long-run, total income reported under
absorption costing will often be close to that
reported under variable costing.
III. Differences in income under absorption and variable
costing can often be reconciled by multiplying the
change in inventory (in units) by the variable
manufacturing overhead cost per unit. Which of the
above statements is (are) true?

4. A Company's inventory increased during the year. On will be higher than that reported under variable
the basis of this information, income reported under costing.
absorption costing:

5. During the most recent year, Alttab Company had a net 20,800
income of P90,000 using absorption costing and Variable- 84,000
P84,000 using variable costing. The fixed overhead E- 110,000 (5per unit x 22,000)
application rate was P5 per unit. There were no Beginning- (104,000) 104,000/5= 20,800
beginning inventories. If 22,000 units were produced = 90,000
last year, how many units were sold last year?

6. The following information was extracted from the first 2,000

year absorption based accounting records of Confused
Co.
Sales 144,000
Total fixed cost incurred 100,000
Less: Variable Cost
Total variable cost incurred 50,000
Manufacturing Cost (12,000)
Total period cost incurred 70,000 (20,000 x 60%)

Total variable period cost 30,000 Period Cost (30,000)

incurred
Contribution margin 102,000
Units sold 12,000
Fixed Costs (100,000)
Units produced 20,000
Selling price P12 Variable Costing Net 2,000
Income
If Confused Co. had used variable costing in its
first year of operations, how much income (loss)
before income taxes would it have reported?

7. The following information was extracted from the first 102,000

year absorption based accounting records of Confused
Co.

Total fixed cost incurred 100,000

Total variable cost incurred 50,000

Total period cost incurred 70,000

Total variable period cost 30,000

incurred

Units sold 12,000

Units produced 20,000

Selling price P12

If Confused Co. had used variable costing in its
first year of operations, how much is the total
contribution margin would it have reported?

8. For the most recent year, Shopee Company's net 2,000

income computed by the absorption costing method
was P7,400, and its net income computed by the = $22 - $17 = $5
variable costing method was P10,100. The company's = ($10,100 - $7,400)
unit product cost was P17 under variable costing and = $5
P22 under absorption costing. =(1,460 units + 540 units)
= 2,000
If the ending inventory consisted of 1,460 units,
how many units was the company’s beginning
inventory?

9. TAICHI Company, which has only one product, has 22,200

provided the following data concerning its most recent
month of operations: Dm 34
Selling price ............................ P111 Dl 37
Units in beginning inventory ............. 400 Voh 3
Units produced ........................... 8,800 = 74
Units sold ............................... 8,900
Units in ending inventory ................ 300 74 x 300 units in ending inventory = 22,200
Variable costs per unit:
Direct materials ....................... P34
Direct labor ........................... 37
 Variable manufacturing overhead ........ 3
Variable selling and administrative .... 9

Fixed costs:
Fixed manufacturing overhead ........... P 61,600
Fixed selling and administrative ....... 169,100

The company produces the same number of units

every month, although the sales in units vary from
month to month. The company's variable costs per unit
and total fixed costs have been constant from month to
month.

How much is the cost of ending inventory under

variable costing?

10. Hulika Inc. presents the following data from absorption 400,000
costing income statements for the last two years:

YR1 YR2

Sales 2,000,000 2,500,000

COGS (at standard) 800,000 950,000

Variance- Over (Underapplied) 25,000 -25,000

Operating expense 500,000 550,000

Operating income 675,000 1,050,000

Assuming that there were no changes in capacity

between years and that the unit variable costs are
constant, using variable costing, how much is the
product cost in year 1?

11. Susi Company, a manufacturer of rivets, uses 800,000

absorption costing. Susi's 2020 manufacturing costs
were as follows:
Direct materials and direct labor P 800,000
Depreciation of machines 100,000
Rent for factory building 60,000
Electricity to run machines 35,000

If the company opts to use direct costing, how

much of these cost should be inventoried?

12. Umbrella Corporation provides the following 5

information for the month of January based on the Dm 50,000/ 20,000= 2.5
 production of 20,000 units: Dl 30,000/20,000= 1.5
Voh 20,000/20,000= 1
Direct materials P 50,000 Variable cost= 5
Direct labor 30,000
Variable factory overhead costs 20,000
Fixed factory overhead costs 25,000
Variable selling and administrative expenses 40,000
Fixed selling and administrative expenses 15,000

How much is the product cost under Variable

costing?

13. AIM Manufacturing expects to produce and sell 6,000 17

units of Modok, its only product, for P20 each. Direct
material cost is P2 per unit, direct labor cost is P8 per =(6,000×$2)+(6,000×$8)+(6,000×$3)
unit, and variable manufacturing overhead is P3 per =$12,000+$48,000+$18,000
unit. Fixed manufacturing overhead is P24,000 in total. =$78,000
Variable selling and administrative expenses are PI per =$78,000+$24,000
unit, and fixed selling and administrative costs are
P3,000 in total. According to generally accepted =$102,000
accounting principles, inventoriable cost per unit of =102,000 / 6,000
Modok would be: = 17.00

14. Umbrella Corporation provides the following 8.75

information for the month of January based on the Dm 2.5
production of 20,000 units: Dl 1.5
Voh 1
Direct materials P 50,000 Foh 1.25
Direct labor 30,000 = 6.25
Variable factory overhead costs 20,000 +2.50 target profit/unit
Fixed factory overhead costs 25,000 =8.75
Variable selling and administrative expenses 40,000
Fixed selling and administrative expenses 15,000

What selling price will earn a gross profit of P 2.50

per unit under absorption costing?

15. Umbrella Corporation provides the following 22,000

information for the month of January based on the
production of 20,000 units:

Direct materials P 50,000

Direct labor 30,000
Variable factory overhead costs 20,000
Fixed factory overhead costs 25,000
Variable selling and administrative expenses 40,000
Fixed selling and administrative expenses 15,000

How many units were sold if variable costing profit

is higher than absorption costing profit by P 2,500?
16. Umbrella Corporation provides the following 4,000
information for the month of January based on the
production of 20,000 units:

Direct materials P 50,000

Direct labor 30,000
Variable factory overhead costs 20,000
Fixed factory overhead costs 25,000
Variable selling and administrative expenses 40,000
Fixed selling and administrative expenses 15,000

If selling price is 180% of product cost, at 18,000

units of sales, how much is the net income under
variable costing?

17. When inventories increase from one period to the next will be smaller than under absorption costing
and all other factors remain constant, income under
direct costing:

18. Which one of the following is the best reason for using Fixed factory overhead is more closely related to
variable costing? the capacity to produce than to the production of
specific units

19. Consider the following comments about absorption- All of the statements are true
and variable-costing income statements:
1. A variable-costing income statement discloses a
firm's contribution margin.
2. Cost of goods sold on an absorption-costing income
statement includes fixed costs.
3. The amount of variable selling and administrative
cost is the same on absorption- and variable-costing
income statements. Which of the above statements
is (are) true?

20. A reason why absorption costing income statements They shift portions of fixed manufacturing
are sometimes difficult for the manager to interpret is overhead from period to period according to
that: changing levels of inventories.

21. Consider the following statements about absorption- Statement 2 and 3

and variable-costing net income:
1. Differences in income under absorption and variable
costing can often be reconciled by multiplying the
change in inventory (in units) by the variable
manufacturing overhead cost per unit.
2. Long-run, total income reported under
absorption costing will often be close to that
reported under variable costing.
3. Yearly income reported under absorption costing
will differ from income reported under variable
costing if production and sales volumes differ.
 Which of the above statements are true?

22. A basic tenet of variable costing is that period costs Because period costs will occur whether
should be currently expensed. What is the rationale production occurs, it is improper to allocate
behind this procedure? these costs to production and defer a current
cost of doing business.

23. Last year, Mechnical Company's variable production The ending inventory under variable costing will
costs totaled P7,500 and its fixed manufacturing be P900 lower than the ending inventory under
overhead costs totaled P4,500. The company absorption costing.
produced 3,000 units during the year and sold 2,400
units. There were no units in the beginning inventory.
Which of the following statements is true?

24. For external-reporting purposes, generally accepted absorption costing

accounting principles require that net income be based
on:

25. The following data relate to Bolo Corporation for the Bolo’s variable costing income statement would
year just ended: reveal a contribution margin of P330,000.
Sales revenue P750,000
Cost of goods sold:
Variable portion 370,000
Fixed portion 110,000
Variable selling and administrative cost 50,000
Fixed selling and administrative cost 75,000

Which of the following statements is correct?

26. Which of the following situations would cause Units sold equaled 39,000 and units produced
variable-costing net income to be lower than equaled 42,000
absorption-costing net income?

27. Under variable costing, fixed manufacturing overhead expensed immediately when incurred.
is:

28. Last year, Savory Company produced 10,000 units and 14,400
sold 8,000 units at a price of P24. Costs for last year 7.2 x 2,000 = 14,400
were as follows:
Direct materials P25,000
Direct labor 35,000
Variable factory overhead 12,000
Fixed factory overhead 37,000
Variable selling expense 9,000
Fixed selling expense 7,500
Fixed administrative expense 15,500

Fixed factory overhead is applied based on expected

production. Last year, Savory expected to produce
10,000 units.
 Assuming that beginning inventory was zero, what is
the value of ending inventory under variable
costing?

29. Last year, Savory Company produced 10,000 units and 72,800
sold 8,000 units at a price of P24. Costs for last year
were as follows: Absorption:
Direct materials P25,000 Sales 192,000
Direct labor 35,000 COGS (87,200)
Variable factory overhead 12,000 = 104,800
Fixed factory overhead 37,000 Vsexp (9,000)
Variable selling expense 9,000 Fsexp (7,500)
Fixed selling expense 7,500 Fasexp (15,500)
Fixed administrative expense 15,500 = 72,800

Fixed factory overhead is applied based on expected

production. Last year, Savory expected to produce
10,000 units.

Assuming that beginning inventory was zero, how

much is the net income under absorption costing?

30. Ramon Company reported the following units of (600,000 / 100,000) × 10,000 = 60,000
production and sales for June and July:
=40,000 - 60,000
= (20,000)
Month Produced Sold

June 100,000 90,000

July 100,000 105,000

Income under absorption costing for June was

$40,000; income under variable costing for July was
$50,000. Fixed costs were $600,000 for each month.
There were no beginning inventories for June.

How much was the income (loss) for June using

variable costing?

31. Net profit under absorption costing may differ from net Change in the quantity of all units in inventory
profit determined under the direct costing. How is this times the relevant fixed costs per unit.
difference calculated?

32. Which of the following is true of a company that uses Unit product costs can change as a result of
absorption costing? changes in the number of units manufactured.

33. The following information was extracted from the first 26,000
year absorption based accounting records of Confused
Co.
Total fixed cost incurred 100,000

Total variable cost incurred 50,000

Total period cost incurred 70,000

Total variable period cost 30,000

incurred

Units sold 12,000

Units produced 20,000

Selling price P12

If Confused Co. had used absorption costing in its
first year of operations, how much income (loss)
before income taxes would it have reported?

34. Hulika Inc. presents the following data from absorption 975,000
costing income statements for the last two years:

YR1 YR2

Sales 2,000,000 2,500,000

COGS (at standard) 800,000 950,000

Variance- Over (Underapplied) 25,000 -25,000

Operating expense 500,000 550,000

Operating income 675,000 1,050,000

Assuming that there were no changes in capacity
between years and that the unit variable costs are
constant, using variable costing, how much is the
period cost in year 2?

35. Pabuhata Co.'s 2020 manufacturing costs were as 898,000

follows:
Direct materials and direct labor P 700,000 SOLUTION:
Other variable manufacturing costs 100,000 = 700,000 +100,000 + 80,000 +18,000
Depreciation of factory building and manufacturing = 898,000
equipment 80,000
Other fixed manufacturing overhead 18,000
Variable Selling expense 50,000
Fixed selling expense 70,000
 What amount should be considered as product
cost for external reporting purposes?

36. TAICHI Company, which has only one product, has 13.47
provided the following data concerning its most recent
month of operations:
Selling price ............................ P111
Units in beginning inventory ............. 400
Units produced ........................... 8,800
Units sold ............................... 8,900
Units in ending inventory ................ 300
Variable costs per unit:
Direct materials ....................... P34
Direct labor ........................... 37
Variable manufacturing overhead ........ 3
Variable selling and administrative .... 9

Fixed costs:
Fixed manufacturing overhead ........... P 61,600
Fixed selling and administrative ....... 169,100

The company produces the same number of units

every month, although the sales in units vary from
month to month. The company's variable costs per unit
and total fixed costs have been constant from month to
month.

What is the company’s degree of operating

leverage (round off two decimal places?

37. Net income determined using full absorption costing Fixed manufacturing overhead costs deferred in
can be reconciled to net income determined using or released from inventories.
variable costing by computing the difference between:

38. If a manufacturing company uses variable costing to Only raw material, direct labor, and variable
cost inventories, which of the following costs are manufacturing overhead costs.
considered inventoriable costs?

39. Zion Company uses variable costing for internal internal income figures that vary closely with
reporting and absorption costing for the external sales and external income figures that are
financial statements. A review of the firm’s internal and influenced by both units sold and productive
external disclosures will likely find output.

40. Last year, Savory Company produced 10,000 units and 65,400
sold 8,000 units at a price of P24. Costs for last year Sales 192,000
were as follows: COGS (57,600)
Direct materials P25,000 =134, 400
Direct labor 35,000 (9,000)
Variable factory overhead 12,000 (7,500)
Fixed factory overhead 37,000 (15,500)
 Variable selling expense 9,000 (37,000)
Fixed selling expense 7,500 =65,400
Fixed administrative expense 15,500

Fixed factory overhead is applied based on expected

production. Last year, Savory expected to produce
10,000 units.

Assuming that beginning inventory was zero, how

much is the net income under variable costing?

41. The following information was extracted from the first 32,000
year absorption based accounting records of Confused
Co.

Total fixed cost incurred 100,000

Total variable cost incurred 50,000

Total period cost incurred 70,000

Total variable period cost 30,000

incurred

Units sold 12,000

Units produced 20,000

Selling price P12

If Confused Co. had used absorption costing in its

first year of operations, how much total ending
inventory balance would it have reported?

42. Racoon City Industries reported P65,000 of net income 55,000

for the year by using absorption costing. The company
had no beginning inventory, planned and actual = 515,000 - (20 x 18,000)
production of 20,000 units, and sales of 18,000 units. = 155,00 - 100,000
Standard variable manufacturing costs were P20 per = $55,000
unit, and total budgeted fixed manufacturing overhead
was P100,000. If there were no variances, net income
Absorption costing, fixed overhead
under variable costing would be:
allocated to products:
= 100,000 ÷ 20,000
=5
Product cost
= 20 + 5
= 25
COGS
= 25 x 18,000
 = 450,000
sales revenue
= 450,000 + 65,000
= 515,000

43. Beth's management recently committed to incurring Direct materials

direct labor and all manufacturing overhead charges
regardless of the number of units produced. Under
throughput costing, the company's cost of goods sold
would include charges for:

44. Last year, Savory Company produced 10,000 units and 21,800
sold 8,000 units at a price of P24. Costs for last year
were as follows:
Direct materials P25,000
Direct labor 35,000
Variable factory overhead 12,000
Fixed factory overhead 37,000
Variable selling expense 9,000
Fixed selling expense 7,500
Fixed administrative expense 15,500

Fixed factory overhead is applied based on expected

production. Last year, Savory expected to produce
10,000 units.

Assuming that beginning inventory was zero, what

is the value of ending inventory under absorption
costing?

45. Hulika Inc. presents the following data from absorption 0

costing income statements for the last two years:

YR1 YR2

Sales 2,000,000 2,500,000

COGS (at standard) 800,000 950,000

Variance- Over (Underapplied) 25,000 -25,000

Operating expense 500,000 550,000

Operating income 675,000 1,050,000

Assuming that there were no changes in capacity
between years and that the unit variable costs are
constant, using variable costing, how much will
operating income change in year 1?
 46. Hopper Industries manufactures a single product using 264,500
standard costing. Variable production costs are P13
and fixed production costs are P125,000. Hopper uses
a normal activity of 12,500 units to set its standard
costs. Hopper began the year with 1,000 units in
inventory, produced 11,000 units, and sold 11,500
units. The standard cost of goods sold under
absorption costing would be

47. Ruthie Company had the following sales and Because of the changes in production levels,
production data for the past four years: under variable costing, the per unit inventory
value will change each year.

Year 1 Year 2 Year 3 Year 4

Production in 6,000 9,000 4,000 5,000

Units

Sales in Units 6,000 6,000 5,000 7,000

Selling price per unit, variable costs per unit, and total
fixed costs are the same in each year. Which of the
following statements is not correct?

48. TAICHI Company, which has only one product, has 700
provided the following data concerning its most recent
month of operations:
Selling price ............................ P111
Units in beginning inventory ............. 400
Units produced ........................... 8,800
Units sold ............................... 8,900
Units in ending inventory ................ 300
Variable costs per unit:
Direct materials ....................... P34
Direct labor ........................... 37
Variable manufacturing overhead ........ 3
Variable selling and administrative .... 9

Fixed costs:
Fixed manufacturing overhead ........... P 61,600
Fixed selling and administrative ....... 169,100

The company produces the same number of units

every month, although the sales in units vary from
month to month. The company's variable costs per unit
and total fixed costs have been constant from month to
month.

How much greater (lower) is net income under

 variable costing?

49. The following information was extracted from the first Total variable manufacturing costs
year absorption based accounting records of Confused = $50,000 - 30,000
Co. = $20,000
Total fixed period costs incurred
= $70,000 - 30,000
Total fixed cost incurred 100,000
= $40,000
Total variable cost incurred 50,000 Total fixed manufacturing costs
= $100,000 - 40,000
Total period cost incurred 70,000 = $60,000
Total manufacturing costs
Total variable period cost 30,000 = $60,000 + $20,000
incurred = $80,000
Percent of goods sold:
Units sold 12,000 12,000/20,000
= 60%
Units produced 20,000 $80,000 * 60%
= $48,000
Selling price P12

What is Cost of Goods Sold for Confused Co. first year?

50. the following information was extracted from the first

year absorption based accounting records of Confused
Sales Price per Unit: 12.00
Co.
Variable Costs per Unit 2.50
Total fixed cost incurred 100,000 ($50,000 / 20,000)

Total variable cost incurred 50,000 Contribution Margin 9.50

Total period cost incurred 70,000

Total variable period cost 30,000

incurred

Units sold 12,000

Units produced 20,000

Selling price P12

Based on variable costing, if Confused Co. had sold 12,001

units instead of 12,000, its income before income taxes would
have been

51. Bungisngis Mouthwash began business in 20x2. produced- 100,000-98,000= ending inv- 2,000
Production for the year was 100,000 bottles of
mouthwash, and sales were 98,000 bottles. Costs A V
incurred during the year were as follows: Dm 28 28
 Dl 13 13
Ingredients used P2,800,000 Voh 24 24
Direct labor 1,300,000 Foh 12
Variable overhead 2,400,000 = 77 65
Fixed overhead 1,200,000 Variable cost per unit= 2,800,000+1,300,000+
Variable selling expense 500,000 2,400,000= 6,500,000/ 100,000= 65
Fixed selling and administrative expenses 1,400,000 Absorption cost per unit 6,500,000+
1,200,000= 7,700,000/ 100,000= 77
Total actual costs P9,600,000
Fixed overhead charged to expense (VARIABLE
What was Cost of Goods Sold for 20X2 under COSTING)- 1,200,000
absorption costing? Fixed overhead charged to expense
ABSORPTION- 7,546,000 (ABSORPTION COSTING)- 98,000 (1,200,000/
VARIABLE- 6,370,000 100,000)= 98,000 x 12= 1,176,000
1. What was the value of ending inventory under
variable costing? Under absorption costing? Ending inventory variable 65 x 2,000= 130,000
Variable- 130,000 Absorption 77 x 2,000= 154,000
Absorption- 154,000
2. How much fixed overhead was charged to COGS under variable 65 x 98,000 = 6,370,000
expense in 1999 under variable costing? Under Absorption 77 x 98,000= 7,546,000
absorption costing?
VARIABLE COSTING- 1,200,000
ABSORPTION- 1,176,000

52. Variable costing enables more efficient: Cost volume profit analysis

53. Which of the following statements is FALSE? Nonmanufacturing costs are expensed in
the future under variable costing.

54. Which cost is responsible for the difference in total unit Depreciation
cost between absorption costing and variable costing?

55. If the unit level of inventory increases during an more operating income will be reported
accounting period, then: under absorption costing than variable
costing

56. When managers produce more units than can be sold, Inflate income
full costing can