1. Motor Company manufactures 10,000 units of Part M-l each year for use in its production. The following total costs were reported last year: Direct materials Php 20,000 Direct labor 55,000 Variable mfg. overhead 45,000 Fixed mfg overhead 70,000 Total Manufacturing cost Php 190,000 Valve Company has offered to sell Motor 10,000 units of Part M-l for Php18 per unit. If Motor accepts the offer, some of the facilities presently used to manufacture Part M-l could be rented to a third party at an annual rental of Php15,000. Additionally, Php4 per unit of the xed overhead applied to Part M-l would be totally eliminated. Should Motor Company accept Valve Company's offer, and why? A) No, because it would be Php5,000 cheaper to make the part. B) Yes, because it would be Php10,000 cheaper to buy the part. C) No, because it would be Php15,000 cheaper to make the part. D) Yes, because it would be Php25,000 cheaper to buy the part. 2. Landor Appliance Company makes and sells electric fans. Each fan regularly sells for Php42. The following cost data per fan is based on a full capacity of 150,000 fans produced each period. Direct materials Php 8.00 Direct labor 9.00 Manufacturing overhead (70% variable and 30% unavoidable xed) 10.00 A special order has been received by Landor for a sale of 25,000 fans to an overseas customer. The only selling costs that would be incurred on this order would be Php4 per fan for shipping. Landor is now selling 120,000 fans through regular channels each period. What should Landor use as a minimum selling price per fan in negotiating a price for this special order? A) Php28 B) Php2? C) Php31 D) Php24 3. The constraint at Rauchwerger Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: WX KD FS Selling price per unit Php 192.00 Php 542.66 Php 222.84 Variable cost per unit 158.72 420.54 167.76 Minutes on the constraint 3.20 8.60 3.60 Assume that sufcient time is available on the constrained machine to satisfy demand for all but the least protable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? A) Php33.28 per unit B) Php10.40 per minute C) Php122.12 per unit D) Php15.30 per minute 4. The Freed Company produces three products, X, Y, Z, from a single raw material input. Product Y can be sold at the split off point for total revenues of Php50,000, or it can be processed further at a total cost of Php16,000 and then sold for Php68,000. Product Y: A) should be sold at the split-off point, rather than processed further. B) would increase the company's overall net operating income by Php18,000 if processed further and then sold. 0) would increase the company's overall net operating income by Php68,000 if processed further and then sold. D) would increase the company's overall net operating income by Php2,000 if processed further and then sold. 5. If both the xed and variable expenses associated with a product decrease, what will be the effect on the contribution margin ratio and the break-even point, respectively? Contribution margin ratio Break-even point A) Decrease Increase B) Increase Decrease C) Decrease Decrease D) Increase Increase 6. The break-even point would be increased by: A) a decrease in total xed expenses. a decrease in the ratio of variable expenses to sales. B) C) an increase in the contribution margin ratio. D) none of these. 7. Which of the following strategies could be used to reduce the break-even point? Fixed expenses Contribution margin A) Increase Increase B) Decrease Decrease C) Decrease Increase D) Increase Decrease 8. Wilson Company prepared the following preliminary budget assuming no advertising expenditures: Selling price Php 10 per unit Unit sales 100,000 Variable expenses Php 600,000 Fixed expenses Php 300,000 Based on a market study, the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if Php100,000 were spent on advertising. Assuming that these changes are incorporated in its budget, what should be the budgeted net operating income? A Php175,000 Php190,000 Php205,000 Php365,000 \"UHiv B C D 9. A company makes a single product that it sells for Php 16 per unit. Fixed costs are Php76,800 per month and the product has a contribution margin ratio of 40%. If the company's actual sales are Php224,000, its margin of safety is: A) Php32,000 B) Php96,000 C) Php128,000 D) Php 192,000 10. The following data are available for the Phelps Company for a recent month: Product A Product B Product C Total Sales Php 150,000 Php 130,000 Php 90,000 Php 370,000 Variable expenses 91,000 104,000 27,000 222,000 Contribution margin Php 59,000 Php 26,000 Php 63,000 148,000 Fixed expenses 55,000 Net operating income Php 93,000 The break-even sales for the month for the company are: A) Php91,667 B) Php203,000 C) Php148,000 D) Php137,50011. Ostler Company's net operating income last year was Php 10,000 and its contribution margin was Php50,000. Using the operating leverage concept, if the company's sales increase next year by 8 percent, net operating income can be expected to increase by: A) 20% B) 16% C) 160% D) 40% 12. Hopi Corporation expects the following operating results for next year: Sales Php 400,000 Margin safety Php 100,000 Contribution margin ratio 75% Degree of operating leverage 4 What is Hopi expecting total fixed expenses to be next year? A) Php75,000 B) Php 100,000 C) Php200,000 D) Php225,000 13. Fleet Corporation produces a single product. The company manufactured 700 units last year. The ending inventory consisted of 100 units. There was no beginning inventory. Variable manufacturing costs were Php6.00 per unit and fixed manufacturing costs were Php2.00 per unit. What would be the change in the dollar amount of ending inventory if variable costing was used instead of absorption costing? A) Php800 decrease B) Php200 decrease C) Phpo D) Php200 increase14. Pungent Corporation manufactures and sells a spice rack. Shown below are the actual operating results for the rst two years of operations: Year 1 Year 2 Units (spice racks) produced 40,000 40,000 Units (spice racks) sold 37,000 41,000 Absorption costing net operating income Php 44,000 Php 52,000 Variable oosting net operating income Php 38,000 ? Pungent's cost structure and selling price were the same for both years. What is Pungent's variable costing net operating income for Year 2? A) Php48,000 B) Php50,000 C) Php54,000 D) Php56,000 Use the following to answer questions 15-22: Abdi Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price Php 81.00 Units in beginning inventory 0 Units produced 7,300 Units sold 7,000 Units ending inventory 300 Variable costs per unit: Direct materials Php 20.00 Direct labor 30.00 Variable manufacturing overhead 7.00 Variable selling and administrative 11.00 Fixed costs: Fixed manufacturing overhead Php 65,700 Fixed selling and administrative Php 21,000 15. What is the unit product cost for the month under variable costing? A) Php77 B) Php66 C) Php68 D) Php57 16. What is the unit product cost for the month under absorption costing? A) Php66 B) Php77 C) Php57 D) Php68 17. The total contribution margin for the month under the variable costing approach is: A) Php91,000 B) Php 168,000 C) Php105,000 D) Php25,300 18. The total gross margin for the month under the absorption costing approach is: A) Php 105,000 B) Php 124,800 C) Php7,000 D) Php91,000 19. What is the total period cost for the month under the variable costing approach? A) Php65,700 B) Php 163, 700 C) Php98,000 D) Php86,70020. What is the total period cost for the month under the absorption costing approach? A) Php98,000 B) Php65,700 C) Php21,000 D) Php 163,700 21. What is the net operating income for the month under variable costing? A) Php2,700 B) Php4,300 C) Php7,000 D) Php(12,800) 22. What is the net operating income for the month under absorption costing? A) Php7,000 B) Php4,300 C) Php(12,800) D) Php2,70023.(lgnore income taxes in this problem.) Dowlen, Inc., is considering the purchase of a machine that would cost Php150,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value ofPhp23,000. The machine would reduoe labor and other costs by Php36,000 per year. Additional working capital of Php6,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine.The company requires a minimum pretax return of 12% on all investment projects. The net present value of the proposed project is closest to: A) Php9,65? B) -Php2,004 C) Php6,699 D) Php13,223 24.(lgnore income taxes in this problem.) The Poteran Company is considering a machine that will save Php3,000 a year in cash operating costs each year for the next six years. At the end of six years it would have no salvage value. If this machine costs Php9,060 now, the machine's internal rate of return is closest to: A) 18% B) 20% C) 22% D) 24% 25.(lgnore income taxes in this problem) The management of Byrge Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 8 years. The company uses a discount rate of 10% in its capital budgeting. The net present value of the investment, excluding the intangible benets, is -Php448,460. To the nearest whole dollar how large would the annual intangible benet have to be to make the investment in the aircraft nancially attractive? A) Php44,846 B) Php56,058 C) Php84,060 D) Php448,460 26. A project has an initial investment of Php100,000 and a project protability index of 0.15. The discount rate is 12%. The net present value of the project is closest to: A) Php15,000 B) Php115,000 C) Php112,000 D) Php12,000 27. (Ignore income taxes in this problem.) The management of Lanzilotta Corporation is considering a project that would require an investment of Php263,000 and would last for 8 years. The annual net operating income from the project would be Php66,000, which includes depreciation of Php31,000. The scrap value of the project's assets at the end of the project would be Php15,000. The payback period of the project is closest to: A) 3.8 years B) 2.6 years C) 2.7 years D) 4.0 years 28.(lgnore income taxes in this problem.) The management of Plotnik Corporation is investigating purchasing equipment that would increase sales revenues by Php269,000 per year and cash operating expenses by Php156,000 per year. The equipment would cost Php294,000 and have a 6 year life with no salvage value. The simple rate of retum on the investment is closest to: A) 16.7% B) 38.4% C) 23.8% D) 21.8% 29.Amster Corporation has not yet decided on the required rate of return to use in its capital budgeting. This lack of information will preventAmster from calculating a project's: Paybac Net Present Internal Rate of k Value Return A ) No No No B ) Yes Yes Yes 0 ) No Yes Yes D ) No Yes No 30.If income taxes are ignored, how is depreciation used in the following capital budgeting techniques? Internal Rate of Net Present Return Value A ) Excluded Excluded B ) Excluded Included 0 ) Included Excluded D ) Included Included 31 .If the net present value of a project is zero based on a discount rate of 16%, then the internal rate of retum is: A) equal to 16%. B less than 16%. ) C) greater than 16%. D) cannot be determined from this data. 32.Three potential investment projects (A, B, and C) at Nit Corporation all require the same initial investment, have the same useful life (3 years), and have no expected salvage value. Expected net cash inows from these three projects each year is as follows: A B C Year1 Php 1,000 Php 2,000 Php 3,000 Year 2 2,000 2,000 2,000 Year 3 3,000 2,000 1,000 What can be determined from the information provided above? A) the net present value of project C will be the highest. B) the internal rate of return of projects A and C cannot be computed. C) the net present value and the internal rate of return will be the same for all three projects. ) D both Aand B above. 33. Amster Corporation has not yet decided on the required rate of return to use in its capital budgeting. This lack of information will preventAmster from calculating a project's: Paybac Net Present Internal Rate of k Value Return A ) No No No B ) Yes Yes Yes C ) No Yes Yes D ) No Yes No 34. If income taxes are ignored, how is depreciation used in the following capital budgeting techniques? lntemal Rate of Net Present Return Value A ) Excluded Excluded B ) Excluded Included 0 ) Included Excluded D ) Included Included 35.If the net present value of a project is zero based on a discount rate of 16%, then the internal rate of return is: A) equal to 16%. B) less than 16%. C) greater than 16%. D) cannot be determined from this data. 36.Three potential investment projects (A, B, and C) at Nit Corporation all require the same initial investment, have the same useful life (3 years), and have no expected salvage value. Expected net cash inows from these three projects each year is as follows: A B c Year 1 Php 1,000 Php 2,000 Php 3,000 Year 2 Php 2,000 Php 2,000 Php 2,000 Year 3 Php 3,000 Php 2,000 Php 1,000 What can be determined from the information provided above? A) the net present value of project C will be the highest. B) the internal rate of return of projects A and 0 cannot be computed. C) the net present value and the internal rate of return will be the same for all three projects. ) D both A and B above. 37. Knox Company uses 10,000 units of a part in its production process. The costs to make a part are: direct material, Php12; direct labor, Php25; variable overhead, Php13; and applied fixed overhead, Php30. Knox has received a quote of Php55 from a potential supplier for this part. If Knox buys the part, 70 percent of the applied fixed overhead would continue. Knox Company would be better off by A) Php50,000 to manufacture the part B) Php 150,000 to buy the part C) Php40,000 to buy the part D) Php160,000 to manufacture the part. 38. Paulson Company has only 25,000 hours of machine time each month to manufacture its two products. Product X has a contribution margin of Php50, and Product Y has a contribution margin of Php64. Product X requires 5 hours of machine time, and Product Y requires 8 hours of machine time. If Paulson Company wants to dedicate 80 percent of its machine time to the product that will provide the most income, the company will have a total contribution margin of A) Php250,000 B) Php240,000 C) Php210,000 D) Php200,00039. Doyle Company has 3 divisions: R, S, and T. Division R's income statement shows the following for the year ended December 31: Sales Php1,000,000 Cost of goods sold (800,000) Gross profit Php 200,000 Selling expenses Php 100,000 Administrative expenses 250,000 (350,000) Net loss Php (150.000) Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60 percent are avoidable if the division is closed. All of the selling expenses relate to the division and would be eliminated if Division R were eliminated. Of the administrative expenses, 90 percent are applied from corporate costs. If Division R were eliminated, Doyle's income would A) increase by Php 150,000 B) decrease by Php75,000 C) decrease by Php155,000 D) decrease by Php215,000. 40. Thomas Company is currently operating at a loss of Php 15,000. The sales manager has received a special order for 5,000 units of product, which normally sells for Php35 per unit. Costs associated with the product are: direct material, Php6; direct labor, Php10; variable overhead, Php3; applied fixed overhead, Php4; and variable selling expenses, Php2. The special order would allow the use of a slightly lower grade of direct material, thereby lowering the price per unit by Php 1.50 and selling expenses would be decreased by Php1. If Thomas wants this special order to increase the total net income for the firm to Php10,000, what sales price must be quoted for each of the 5,000 units? A) Php23.50 B) Php24.50 C) Php27.50 D) Php34.00