Midterm Exam

ACCOUNTING 13 MIDTERM EXAM Instruction: Write all your answers in the answer sheet. Show your solutions in a very good form. PROBLEM 1 Chip Division of Computer Solutions, Inc. The Chip Division of Computer Solutions, Inc. produces a high -quality computer chip. Unit production costs (based on capacity production of 100,000 units per year) follow: Direct material Direct labor Overhead (20% variable) Other information: Sales price SG&A costs (40% variable)

P50 20 10 100 15

1. Refer to Chip Division of Computer Solutions, Solutions, Inc. Assume, for this question only, that the Chip Division is producing and selling at capacity. What is the minimum selling price that the division would consider on a "special order" of 1,000 chips on which no variable period costs would be incurred? a. P100 b. P72 c. P81 d. P94 2. Refer to Chip Division of Computer Solutions, Inc. Assume, for this question only, that the Chip Division is operating at a level of 70,000 chips per year. What is the minimum price that the division would consider on a "special order" of 1,000 chips to be distributed through normal channels? a. P78 b. P95 c. P100 d. P81 3. Refer to Chip Division of Computer Solutions, Inc. Assume, for this question only, that the Chip Division is presently operating at a level of 80,000 chips per year. Accepting a "special order" on 2,000 chips at P88 will a. increase total corporate profits by P4,000. b. increase total corporate corporate profits by P20,000. P20,000. c. decrease total corporate profits by P14,000. d. decrease total corporate profits by P24,000. PROBLEM 2 Holt Industries has two sales territories-East and West. Financial information for the two territories is presented below: Sales Direct costs: Variable Fixed Allocated common costs Net income (loss)

East P980,000

West P750,000

(343,000) (450,000) (275,000) P(88,000)

(225,000) (325,000) (175,000) P 25,000

Because the company is in a start-up stage, corporate management feels that the East sales territory is creating too much of a cash drain on the company and it should be eliminated. If the East territory is discontinued, one sales manager (whose salary is P40,000 per year) will be relocated to the West territory. By how much would Holt's income change if the East territory is eliminated? a. increase by P88,000 b. increase by P48,000 P48,000 c. decrease by P267,000 d. decrease by P227,000

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PROBLEM 3 Thomas Company is currently operating at a loss of P15,000. The sales manager has received a special order for 5,000 units of product, which normally sells for P35 per unit. Costs associated with the product are: direct material, P6; direct labor, P10; variable overhead, P3; applied fixed overhead, P4; and variable selling expenses, P2. The special order would allow the use of a slightly lower grade of direct material, thereby lowering the price per unit by P1.50 and selling expenses would be decreased by P1. If Thomas wants this special order to increase the total net income for the firm to P10,000, what sales price must be quoted for each of the 5,000 units? a. P23.50 b. P24.50 c. P27.50 d. P34.00 PROBLEM 4 Quest Company produces a part that has the following costs per unit: Direct material Direct labor Variable overhead Fixed overhead Total

P8 3 1 5 P17

Zest Corporation can provide the part to Quest for P19 per unit. Quest Company has determined that 60 percent of its fixed overhead would continue if it purchased the part. However, if Quest no longer produces the part, it can rent that portion of the plant facilities for P60,000 per year. Quest Company currently produces 10,000 parts per year. Which alternative al ternative is preferable and by what margin? a. Make-P20,000 b. Make-P50,000 c. Buy-P10,000 d. Buy-P40,000 PROBLEM 5 Browning Company has 15,000 units in inventory that had a production cost of P3 per unit. These units cannot be sold through normal channels due to a significant technology change. These units could be reworked at a total cost of P23,000 and sold for P28,000. Another alternative is to sell the units to a junk dealer for P8,500. The relevant cost for Browning to consider in making its decision is a. P45,000 of original product costs. b. P23,000 for reworking reworking the units. c. P68,000 for reworking the units. d. P28,000 for selling selling the units to to the junk dealer. dealer. PROBLEM 6 Robertson Corporation Corporation Robertson Corporation sells a product for P18 per unit, and the standard cost card for the product shows the following costs: Direct material Direct labor Overhead (80% fixed) Total

P1 2 7 P10

1. Refer to Robertson Corporation. Robertson received a special order for 1,000 units of the product. The only additional cost to Robertson would be foreign import taxes of P1 per unit. If Robertson is able to sell all of the current production domestically, what would be the minimum sales price that Robertson would consider for this special order? a. P18.00 b. P11.00 c. P5.40 d. P19.00 2. Refer to Robertson Corporation. Assume that Robertson has sufficient idle capacity to produce the 1,000



PROBLEM 7 Glamorous Grooming Corporation makes and sells brushes and combs. It can sell all of either product it can make. The following data are pertinent to each respective product: Units of output per machine hour Selling price per unit Product cost per unit Direct material Direct labor Variable overhead

Brushes 8 P12.00

Combs 20 P4.00

P1.00 2.00 0.50

P1.20 0.10 0.05

Total fixed overhead is P380,000. The company has 40,000 machine hours available for production. What sales mix will maximize profits? a. 320,000 brushes and 0 combs b. 0 brushes and 800,000 800,000 combs c. 160,000 brushes and 600,000 combs d. 252,630 brushes and 252,630 combs PROBLEM 8 Houston Footwear Corporation has been asked to submit a bid on supplying 1,000 pairs of military combat boots to the Armed Armed Forces. The company's company's costs per pair of boots are as follows: Direct material Direct labor Variable overhead Variable selling cost (commission) Fixed overhead (allocated) Fixed selling and administrative cost

P8 6 3 3 2 1

Assuming that there would would be no commission commission on this potential potential sale, the the lowest price the firm can bid is some price greater than a. P23. b. P20. c. P17. d. P14. PROBLEM 9 The Michigan Company has made the following information available for its production facility for the month of June. Fixed overhead was estimated at 19,000 machine hours for the production cycle. Actual machine hours for the period were 18,900, which generated 3,900 units. Material purchased (80,000 pieces) Material quantity variance Machine hours used (18,900 hours) VOH spending variance Actual fixed overhead Actual labor cost Actual labor hours

P314,000 P6,400

U

P50 U P60,000 P40,120 5,900

Michigan’s standard costs are as follows: Direct material Direct labor Variable overhead (applied on a machine hour basis) Fixed overhead (applied on a machine hour basis)

20 pieces @ P4 per piece 1.5 hours @ P6 per hour 4.8 hours @ P2.50 per hour 4.8 hours @ P3 per hour



Determine the following items: a. material purchase price variance b. standard quantity allowed allowed for material c. total standard cost of material allowed d. actual quantity of material used e. labor rate variance f. standard hours allowed for labor g. total standard cost of labor allowed h. labor efficiency variance i. actual variable overhead incurred . standard machine hours allowed k. variable overhead efficiency variance l. budgeted fixed overhead m. applied fixed overhead n. fixed overhead spending variance o. volume variance p. total overhead variance PROBLEM 10 Whitestone Company The following information is available for Whitestone Company for the current year: Standard: Material X: 3.0 pounds per unit @ P4.20 per pound Material Y: 4.5 pounds per unit @ P3.30 per pound Class S labor: 3 hours per unit @ P10.50 per hour Class US labor: 7 hours per unit @ P8.00 per hour Actual: Material X: 3.6 pounds per unit @ P4.00 per pound (purchased and used) Material Y: 4.4 pounds per unit @ P3.25 per pound (purchased and used) Class S labor: 3.8 hours per unit @ P10.60 per hour Class US labor: 5.7 hours per unit @ P7.80 per hour Whitestone Company Company produced a total total of 45,750 units. Compute the material price, mix, and yield variances (round to the nearest peso). -end-

Midterm Exam

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