1. Yehle Inc.

regularly uses material Y51B and currently has in

stock 460 liters of the material for which it paid P2,530 several
weeks ago. If this were to be sold as is on the open market as
surplus material, it would fetch P4.55 per liter. New stocks of
the material can be purchased on the open market for P5.45 per
liter, but it must be purchased in lots of 1,000 liters. You have
been asked to determine the relevant cost of 720 liters of the
material to be used in a job for a customer. The relevant cost of
the 720 liters of material Y51B is:
A)
B)
C)
D)

P3,924
P5,450
P3,510
P3,276

Answer: A

2. Teich Inc. is considering whether to continue to make a

or to buy it from an outside supplier. The company uses
the components each year. The unit product cost of the
according to the company's absorption cost accounting
given as follows:
Direct materials..............
Direct labor..................
Variable manufacturing overhead
Fixed manufacturing overhead. .
Unit product cost.............

component
15,000 of
component
system is

7.90
2.10
1.10
4.00
P15.10

Assume that direct labor is a variable cost. Of the fixed

manufacturing overhead, 10% is avoidable if the component were
bought from the outside supplier; the remainder is not avoidable.
In addition, making the component uses 3 minutes on the machine
that is the company's current constraint. If the component were
bought, this machine time would be freed up for use on another
product that requires 6 minutes on the constraining machine and
that has a contribution margin of P8.10 per unit.
When deciding whether to make or buy the component, what cost of
making the component should be compared to the price of buying
the component?
A) P15.55
B) P11.50
C) P19.15
D) P15.10
Answer: A
3. Two products, LB and NH, emerge from a joint process. Product LB
has been allocated P30,800 of the total joint costs of P44,000. A
total of 2,000 units of product LB are produced from the joint
process. Product LB can be sold at the split-off point for P13
per unit, or it can be processed further for an additional total
cost of P14,000 and then sold for P15 per unit. If product LB is
processed further and sold, what would be the effect on the
overall profit of the company compared with sale in its
unprocessed form directly after the split-off point?
A) P16,000 more profit
B) P20,800 more profit
C) P40,800 less profit
D) P10,000 less profit
Answer: D

Use the following to answer questions 4 5:

Jebb's Lettuce Stand currently sells 60,000 heads of lettuce each year
for P1.00 per head. Jebb is thinking of expanding operations and
serving the customer better by purchasing a slice and dice machine
that will cut up each head of lettuce into bite-size pieces that can
be used for salads. Jebb expects he will then be able to sell his
lettuce for P1.70 per head. Jebb has prepared the following analysis
for each option based on sales of 60,000 heads of lettuce:
Selling Unsliced Lettuce:
Variable costs...........
Fixed costs..............
Total....................
Selling Sliced Lettuce:
Variable costs...........
Fixed costs..............
Total....................

Per Head
P0.25
0.30
P0.55

Total
P15,000
18,000
P33,000

Per Head
P0.30
0.90
P1.20

Total
P18,000
54,000
P72,000

4. Based on the information above, what will be Jebb's increase or

decrease in profit for the year if he chooses to start slicing up
the lettuce instead of selling it whole?
A) P3,000 increase
B) P3,000 decrease
C) P12,000 decrease
D) P30,000 increase
Answer: A
5. Assume that Jebb is currently selling only 50,000 heads of
lettuce per year instead of 60,000. Under this scenario, what
will be Jebb's increase or decrease in profit for the year if he
chooses to start slicing up the lettuce instead of selling it
whole?
A) P2,000 increase
B) P2,500 decrease
C) P3,000 increase
D) P3,500 decrease
Answer: D

Use the following to answer questions 6 7:

Bayshore Company manufactures and sells Product K. Results for last
year are as follows:
Sales (10,000 units at P150 each)
Less expenses:
Variable production costs.. . .
Sales commissions (15% of sales)
Salary of product line manager
Traceable
fixed
advertising
expense....................
Fixed manufacturing overhead.
Total expenses................
Net operating loss............

P1,500,000
P900,000
225,000
190,000
175,000
160,000

1,650,000
P (150,000)

Bayshore is reexamining all of its product lines and is trying to

decide whether to discontinue Product K. Dropping the product would
have no effect on the total fixed manufacturing overhead incurred by
the company.
6. Assume that dropping Product K will have no effect on the sale of
other product lines. If the company drops Product K, the change
in annual net operating income due to this decision will be a:
A) P10,000 decrease
B) P150,000 increase
C) P160,000 decrease
D) P310,000 decrease
Answer: A
7. Assume that dropping Product K would result in a P15,000 increase
in the contribution margin of other product lines. If Bayshore
chooses to drop Product K, then the change in net operating
income next year due to this action will be a:
A) P150,000 increase
B) P150,000 decrease
C) P5,000 increase
D) P140,000 increase
Answer: C

Use the following to answer questions 8 9:

Melbourne Company has traditionally made a subcomponent of its major
product. Annual production of 30,000 subcomponents results in the
following costs:
Direct materials....
Direct labor........
Variable overhead...
Fixed overhead......

P250,000
P200,000
P190,000
P120,000

Melbourne has received an offer from an outside supplier who is

willing to provide the 30,000 units of the subcomponent each year at a
price of P28 per unit. Melbourne knows that the facilities now being
used to manufacture the subcomponent could be rented to another
company for P80,000 per year if the subcomponent were purchased from
the outside supplier. Otherwise, there would be no effect of this
decision on the total fixed overhead of the company.
8. If Melbourne decides to purchase the subcomponent from the
outside supplier, what would be the impact on the company's net
operating income for the year?
A) P120,000 higher
B) P20,000 higher
C) P120,000 lower
D) P20,000 lower
Answer: C
9. At what price per unit charged by the outside supplier would
Melbourne
be
economically
indifferent
between
making
the
subcomponent or buying it from outside?
A) P29
B) P25
C) P21
D) P24
Answer: D
Use the following to answer questions 10 - 11:
10.
The company has received a special, one-time-only order for
300 units of component D53. There would be no variable selling
expense on this special order and the total fixed manufacturing
overhead and fixed selling and administrative expenses of the
company would not be affected by the order. However, assume that
Dockwiller has no excess capacity and this special order would
require 30 minutes of the constraining resource, which could be
used instead to produce products with a total contribution margin
of P1,800. What is the minimum price per unit on the special
order below which the company should not go?
A) P73
B) P36
C) P53
D) P6
Answer: B
11.
Refer to the original data in the problem. What is the
current contribution margin per unit for component D53 based on
its selling price of P150 and its annual production of 8,000
units?
A) P83
B) P118

C) P32
D) P120
Answer: B
Use the following to answer questions 12 - 14:
The Melrose Company produces a single product, Product C. Melrose has
the capacity to produce 70,000 units of Product C each year. If
Melrose produces at capacity, the per unit costs to produce and sell
one unit of Product C are as follows:
Direct materials..............
Direct labor..................
Variable manufacturing overhead
Fixed manufacturing overhead. .
Variable selling expense. . . . . .
Fixed selling expense.........

P20
P17
P13
P14
P12
P8

The regular selling price of one unit of Product C is P100. A special

order has been received by Melrose from Moore Company to purchase
7,000 units of Product C during the upcoming year. If this special
order is accepted, the variable selling expense will be reduced by
75%. Total fixed manufacturing overhead and fixed selling expenses
would be unaffected except that Melrose will need to purchase a
specialized machine to engrave the Moore name on each unit of product
C in the special order. The machine will cost P10,500 and will have no
use after the special order is filled.
12.
Assume that Melrose expects to sell 60,000 units of Product
C to regular customers next year. At what selling price for the
7,000 units would Melrose be economically indifferent between
accepting and rejecting the special order from Moore?
A) P53.00
B) P54.50
C) P75.00
D) P76.50
Answer: B
13.
Assume Melrose expects to sell 60,000 units of Product C to
regular customers next year. If Moore company offers to buy the
special units at P90 per unit, the effect of accepting the
special order on Melrose's net operating income for next year
will be:
A) P42,000 increase
B) P54,000 decrease
C) P105,000 increase
D) P248,500 increase
Answer: D
14.
Suppose Melrose can sell 68,000 units of Product C to
regular customers next year. If Moore Company offers to buy the
special order units at P95 per unit, the effect of accepting the
special order for 7,000 units on Melrose's net operating income
for next year will be a:
A) P93,500 increase
B) P104,000 increase
C) P114,500 increase
D) P294,000 increase
Answer: A

Use the following to answer questions 15 - 17:

Craves Company makes four products in
concerning these products appear below:

single

facility.

Data

Product
Selling price per unit........
Variable
manufacturing
cost
per unit.....................
Variable selling cost per unit
Milling machine minutes per
unit.........................
Monthly demand in units.......

A
P28.20

B
P26.60

C
P20.40

D
P24.70

P11.40
P3.40

P7.70
P1.50

P6.30
P3.50

P9.30
P1.80

2.60
1,000

1.40
3,000

0.70
4,000

0.90
1,000

The milling machines are potentially the constraint in the production

facility. A total of 10,400 minutes are available per month on these
machines.
15.
to
A)
B)
C)
D)

How many minutes of milling machine time would be required

satisfy demand for all four products?
9,000
10,500
10,400
9,900

Answer: B
16.
Which product makes the LEAST profitable use of the milling
machines?
A) Product A
B) Product B
C) Product C
D) Product D
Answer: A
17.
Which product makes the MOST profitable use of the milling
machines?
A) Product A
B) Product B
C) Product C
D) Product D
Answer: C

18.
Up to how much should the company be willing to pay for one
additional hour of milling machine time if the company has made
the best use of the existing milling machine capacity? (Round off
to the nearest whole centavo.)
A) P10.60
B) P0.00
C) P5.15
D) P17.40
Answer: C
Use the following to answer questions 19 20:
Dockham Company makes two products from a common input. Joint
processing costs up to the split-off point total P33,600 a year. The
company allocates these costs to the joint products on the basis of
their total sales values at the split-off point. Each product may be
sold at the split-off point or processed further. Data concerning
these products appear below:
Product X
Allocated
joint
processing
costs........................
Sales value at split-off point
Costs of further processing. . .
Sales
value
after
further
processing...................

Product Y

Total

P14,000
P20,000
P26,300

P19,600
P28,000
P24,500

P33,600
P48,000
P50,800

P50,200

P48,600

P98,800

19.
What is the net monetary advantage (disadvantage)
processing Product X beyond the split-off point?
A) P23,900
B) P29,900
C) P3,900
D) P9,900

of

Answer: C
20.
What is the net monetary advantage (disadvantage)
processing Product Y beyond the split-off point?
A) P(3,900)
B) P24,100
C) P32,500
D) P4,500
Answer: A

of