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Management Services by Luzviminda S.

Payongayong
Y2006 edition

Chapter 6
I

II

TRUE OR FALSE
1 0
2 1
3
4 0
5 1
6
7 0
8
9 1
10 0

Variable Costing as a Tool to Management Planning


11
MISSED
NUMBERS
12 TO 14
15
16
17
18
19
20

1
0
1
0
1

21
22
23
24
25
26
27
28

0
1

21
22
23
24
25

A
D
A
A
B

MULTIPLE CHOICE QUESTIONS


1
2
3
4
5
6
7
8
9
10

C
B
D
A
D
B
D
A
D
A

11
12
13
14
15
16
17
18
19
20

B
C
A
B
C
C
A
D
C
A

III MULTIPLE CHOICE PROBLEMS


1C

P26.00

P10 + P6 + P2 +(P480,000 / 60,000) =

2B

P18.00

P10 + P6 + P2 =

3C

P1,300,000

P26 X 50,000 units

4A

P180,000

produced
sold
ending inventory

5B

P80,000

6B

P14,000

60,000 units
50,000 units
10,000 units

x P18.00 cost per unit

produced
60,000 units
sold
50,000 units
ending inventory
10,000 units
x P8.00 cost per unit
Factory overhed per unit = P480,000 / 60,000 units = P8.00
Y2014

1 338939223.xlsx Sheet1

Y2015

Y2016

Management Services by Luzviminda S. Payongayong


Y2006 edition
beginning
0
+ units produced
20
- units sold
-20
= ending inventory
0
Sales
16 units at P11,000
cost of sales :
variable cost
fixed overhead
P30,000 / 20 units
units sold
gross profit
Less, operating expenses:
variable selling & administrative
fixed selling and administrative
Net income

7C

P41,000

P8,000

Sales
16 units at P11,000
variable costs
cost of sales
selling & administrative
units sold
contribution margin
Less, fixed costs:
factory overhead
selling and administrative costs
Net income

9D

P47,000

P125 x 16 =

Sales
24 units at P11,000
cost of sales :
variable cost
fixed overhead
P30,000 / 20 units
units sold
gross profit
Less, operating expenses:
variable selling & administrative
fixed selling and administrative
Net income

8A

20
-16
4

Sales
24 units at P11,000
variable costs
cost of sales
selling & administrative
units sold
contribution margin

2 338939223.xlsx Sheet1

P125 x 24 =

4
20
-24
0

6,000.00
1,500.00
7,500.00
16

2,000.00
40,000.00

6,000.00
1,500.00
7,500.00
24

3,000.00
40,000.00

6,000.00
125.00
6,125.00
16

30,000.00
40,000.00

6,000.00
125.00
6,125.00
24

Management Services by Luzviminda S. Payongayong


Y2006 edition
Less, fixed costs:
factory overhead
selling and administrative costs
Net income

10 D

P17 & P16


variable cost per unit
fixed cost per unit
at 40,000 = P200,000 / 40,000
at 50,000 = P200,000 / 50,000
total cost per unit

11 D

P12 & P12

Production
under 40,000
12.00
5.00
17.00

only variable manufacturing costs

12 B

P390,000 & P430,000


Sales
40,000 units
total costs of sales
gross profit
Less Expenses
variable selling P2 per unit
fixed selling & administrative
total expenses
net income

13 A

P390,000 & P390,000


Sales
40,000 units
variable costs:
Cost of sales
Selling & administrative
contribution margin
less, Fixed expenses

Manufacturing
Selling & administrative

total expenses
net income
14 A

30,000.00
40,000.00

refer to number 12

3 338939223.xlsx Sheet1

Production
under 40,000
1,200,000.00
680,000.00
520,000.00
80,000.00
50,000.00
130,000.00
390,000.00

Production
under 40,000
1,200,000.00
480,000.00
80,000.00
560,000.00
640,000.00
200,000.00
50,000.00
250,000.00
390,000.00

Management Services by Luzviminda S. Payongayong


Y2006 edition
15 B

Note There was no inventory at January 1, 2007.


P200 decrease Variable costing (P6 x 100 )
Absorption costing ( P8 x 100)
difference

16 C

P19.00

Cost per unit under AC

17 A

P3,600

Net income per AC


Fixed Factory OH in EI (2,000 x [P18,500 /6,000])
Net income per VC

18 B

P4,000 loss

Net income per AC


Less, Fixed Factory OH in EI [2,000 x (P18,000/6000)]
Net loss per VC
OR
Sales
Variable cost of sales (4000 x P5.00)
Variable Selling Expenses
Total variable costs
CM
Fixed costs manufacturing costs
Fixed selling
Total fixed costs
Net loss

19 B

P4,000

P5 + P 6 + P1 + (P21000/ 3000) = P19.00

Net income per VC


Add, Fixed FOH in EI [1,000 x (P12,000/6,000)]
Net income per AC
OR
Sales
Cost of sales
Production - variable
5,000 x P7
Production - fixed
(P12,000 / 6,000) x 5,000
Total variable costs
Gross Profit
Expenses: Fixed selling
Variable
Net loss

20 B

P16.00

P4.00 + P2.00 + P10.00

21 A

P10.00

Cost per unit = [P4 + P2 + (P10 x 40%)]

22 D

(P2,000)

Net income per AC


Less, Fixed FOH in EI
Net income (loss) per VC

4 338939223.xlsx Sheet1

2,000 x P4.00

40,000.00
20,000.00
4,000.00
24,000.00
16,000.00
18,000.00
2,000.00
20,000.00
(4,000.00)

35,000.00
10,000.00

6,000.00
10,000.00

Management Services by Luzviminda S. Payongayong


Y2006 edition

23 A

P36,000

24 A

P2,400 greater

Fixed cost expensed:


From COG6,000 x P4.00
From sellinP18,000 x 2/3
Variable
Costing
15,000.00

Sales
(300 x P50)
Less, Cost of goods sold
Variable costs (300 x P10)
Fixed FOH (P6,000/500) x P300
Total
CM/GP

3,000.00
3,000.00
12,000.00

Less, Fixed Costs/Operating Exp.


Manufacturing fixed costs
Variable selling
Fixed selling
Total
Net income
Net income per AC
Net loss per VC
Net income per AC greater than Net income per VC
200 x P10.00

6,000.00
2,000.00
4,500.00
12,500.00
(500.00)

25 B

P2,000

Ending inventory

26 C

P20,000

Net income per VC


Add, Fixed FOH in ending inventory (P22 -P12) x 1,000
Net income per AC

27 D

P20,000

Production
Sold
Ending Inventory

28 D

P25,000

Units in ending inventory


Cost per unit P8.00 + (P25,000/ 12,500) = P10

29 B

P117,500

Cost of sales 10,000 x P8.00 =


Selling & Administrative expense 12,500 x P3.00 =

30 A

P35,000

Cost of sales 10,000 x (P25,000 / 12,500)


Selling and Administrative expense

12,500
10,000
2,500 x P8.00 per unit

5 338939223.xlsx Sheet1

2,500
x 2,500 =

Management Services by Luzviminda S. Payongayong


Y2006 edition

ment Planning

26.00
18.00
1,300,000.00

180,000.00

80,000.00

6 338939223.xlsx Sheet1

Management Services by Luzviminda S. Payongayong


Y2006 edition

176,000.00

120,000.00
56,000.00

42,000.00
14,000.00

264,000.00

180,000.00
84,000.00

43,000.00
41,000.00
176,000.00

98,000.00
78,000.00

70,000.00
8,000.00
264,000.00

147,000.00
117,000.00

7 338939223.xlsx Sheet1

Management Services by Luzviminda S. Payongayong


Y2006 edition

70,000.00
47,000.00
Production
under 50,000
12.00

4.00
16.00

Production
under 50,000
1,200,000.00
640,000.00
560,000.00
80,000.00
50,000.00
130,000.00
430,000.00

Production
under 50,000
1,200,000.00
480,000.00
80,000.00
560,000.00
640,000.00
200,000.00
50,000.00
250,000.00
390,000.00

8 338939223.xlsx Sheet1

Management Services by Luzviminda S. Payongayong


Y2006 edition

600.00
800.00
(200.00)
(P21000/ 3000) = P19.00
7,800.00
(4,200.00)
3,600.00
2,000.00
(6,000.00)
(4,000.00)

2,000.00
2,000.00
4,000.00
65,000.00

45,000.00
20,000.00
16,000.00
4,000.00
16.00
10.00
6,000.00
(8,000.00)
(2,000.00)

9 338939223.xlsx Sheet1

Management Services by Luzviminda S. Payongayong


Y2006 edition

24,000.00
12,000.00
Absorption
Costing
15,000.00
3,000.00
3,600.00
6,600.00
8,400.00

2,000.00
4,500.00
6,500.00
1,900.00
1,900.00
(500.00)
2,400.00
2,000.00
10,000.00
10,000.00
20,000.00

20,000.00

25,000.00
80,000.00
37,500.00
117,500.00
20,000.00
15,000.00
35,000.00

10 338939223.xlsx Sheet1

Management Services
Y2006 edition

Chapter 6

by Luzviminda S. Payongayong

Variable Costing as a Tool to Management Planning

PROBLEMS
6.1

1 Using absorption costing


Direct material
Direct labor
Variable overhead
Fixed overhead
Total Production

(P108,000 / 12,000)

Absorption Costing Income statement


Sales
(10,000 x P110 )
Less, Cost of Sales
(10,000 x P54 )
Gross Profit
Less, Operating Expenses:
Selling & Administrative - Fixed
Selling & Administrative - Variable
Net income
2 Using variable costing
Direct material
Direct labor
Variable overhead
Total Production

30.00
12.00
3.00
9.00
54.00

200,000.00
40,000.00

30.00
12.00
3.00
45.00

Variable Costing Income statement


Sales
(10,000 x P110 )
Less, Variable costs:
Manufacturing costs
10,000 x P45
Selling & Administrative 10,000 x P4
Contribution margin
Less, Fixed costs:
Manufacturing costs
Selling & Administrative
Net income

450,000.00
40,000.00

108,000.00
200,000.00

3 Difference in net income


Per absorption costing
Per variable costing
Difference
(2,000 EI x P9 Fixed FFOH)
a
When production exceeds sales ( P > S ), net income per AC is greater than
net income per VC as there are Fixed FOH that are inventoried.

6.2

1 Cost per unit under Absorption costing (P90 + [ P450,000 / 20,000 units] ) = P112.50
Sales
17,000 x P200
Less, Cost of slaes
17,000 x P112.50

11 338939223.xlsx PROBLEMS

Management Services
Y2006 edition

by Luzviminda S. Payongayong

Gross Profit
Less, Expenses:
Variable selling & adm
Fixed selling & adm
Net income
2 Inventory at end

17,000 x P22

374,000.00
500,000.00

3,000 x P112.50

6.3

Variable costing method

Production at
30,000 cans
Sales
( 30,000 at P15. per unit)
450,000.00
Less Variable costs - Production
30,000 x P7
210,000.00
Contribution margin
240,000.00
Less Fixed costs
Production
150,000.00
Selling & Administrative
25,000.00
175,000.00
Net income
65,000.00

6.4

Net income per Absorption costing


- FOH in EI [(P45,000 - P41,000) x (P225,000 / 45,000)]
Net income per Variable costing

6.5
Sales
Less, Variable costs:
Cost of sales
[P1,500,000 - (250,000 x P3.00)]
Operating expenses
Contribution margin
Less, Fixed costs:
Manufacturing costs (P1,500,000 - P750,000)
Operating expenses
Net income
6.6

1
ABSORPTION COSTING METHOD
Sales
Less, Cost of sales
Direct materials
Direct labor
Factory overhead
Total manufacturing costs
Less, cost of inventory for 2,000 units
(P136,000 / 16,500) x 2,000 units
Gross Profit

12 338939223.xlsx PROBLEMS

750,000.00
125,000.00

750,000.00
100,000.00

44,000.00
36,000.00
56,000.00
136,000.00
16,484.85

Management Services
Y2006 edition

by Luzviminda S. Payongayong

Less, Operating expenses


Selling and marketing expenses
General & Administrative expenses
Net income
2
VARIABLE COSTING METHOD
Sales
Less, Variable costs of sales
Direct materials
Direct labor
Factory overhead
Total manufacturing costs
Less, cost of inventory for 2,000 units
(P96,000 / 16,500) x 2,000 units
Manufacturing contribution margin
Less, Variable operating expenses:
Selling and marketing expenses
General & Administrative expenses
Final Contribution margin
Less, Fixed costs:
Factory overhead
Selling and marketing expenses
General & Administrative expenses
Net income
3
Net income per Variable costing
+
Fixed FOH in ending inventory 2,000 x (P40,000 /16,500)
=
Net income per absorption costing

20,000.00
12,000.00

44,000.00
36,000.00
16,000.00
96,000.00
11,636.36

10,000.00
2,000.00

40,000.00
10,000.00
10,000.00

The difference is due to the treatment in the Fixed FOH. The full amount of P40,000 was charged to the
revenues under variable costing while only P35,151.52 (P40,000 /16,500 x 14,500) was charged to the
revenues under the absorption costing. (P40,000 - P35,151.52)
6.7

Variable
Costing

1
2

Direct materials
Direct labor
Variable overhead
Fixed overhead
(P30,000 /100,000)
Total cost per unit
Ending inventory in units
Cost of ending inventory
Sales in units
Cost of sales
Sales
Less,
Cost of sales
Fixed factory overhead
Selling & Administrative -variable
Selling & Administrative -fixed

13 338939223.xlsx PROBLEMS

3.00
2.00
1.00
6.00
25,000
150,000.00
75,000
450,000.00
2,100,000.00
450,000.00
300,000.00
75,000.00
160,000.00

Management Services
Y2006 edition

by Luzviminda S. Payongayong

Total
3

985,000.00
1,115,000.00

Net income

6.8

Variable
Costing
80,000.00
100,000.00
72,000.00
252,000.00
12,000
21.00
10,000
210,000.00

1
2
+

6.9
1

Direct materials
Direct labor
Factory overhead
- variable
Factory overhead
- fixed
Total cost
Units produced
cost per unit
Units sold
Cost of goods sold
Net income per variable costing
Fixed factory overhead in beginning inventory (P60,000/12,000) x 2,000
Fixed factory overhead in ending inventory (2,000 + 12,000 - 10,000) x P5.00
Net income per absorption costing

Absorption costing method


Sales
Less Cost of Sales
Beginning inventory
Add, Current costs:
Variable Manufacturing costs at P7.50
Fixed costs
Add, Current costs
Total Available for sale
Less, Ending inventory
Cost of sales
Gross profit
Selling and administrative expense
Net income
* 7,000 x (P200,000/20,000) = P70,000
** 2,000 x (P189,000/18,000) = P21,000
Variable costing method
Sales
Less, Variable costs
Cost of sales
Beginning inventory
Current costs
Available for sale
Ending inventory
Cost of sales
Variable expenses
Total variable costs

Year 1
260,000.00
-

150,000.00
50,000.00
200,000.00
200,000.00
70,000.00
130,000.00
130,000.00
45,000.00
85,000.00

260,000.00

*
(P45,000 x 40%)

14 338939223.xlsx PROBLEMS

150,000.00
150,000.00
52,500.00
97,500.00
18,000.00
115,500.00

Management Services
Y2006 edition

by Luzviminda S. Payongayong

Contribution margin
Less, Fixed costs
Factory overhead
Selling and Administrative (P45,000 x 60%)
Total fixed costs
Net income
* 7,000 x (P150,000/20,000) = P52,500
** 2,000 x (P135,000/18,000) = P15,000
3

Difference in Net income


Net income per absorption costing
Net income per variable costing
Difference
Fixed factory overhead in Ending inventory
Per absorption costing
Per variable costing
Fixed factory overhead in Beginning inventory
Per absorption costing
Per variable costing
Total Difference
OR
Net income per Absorption costing
+
Fixed factory overhead in beg. Inventory
Y1
Y2
7000 x P2.50
Fixed factory overhead in end. Inventory
Y1
7000 x P2.50
Y2
2000 x P3.00
Net income per Variable costing

6.10

1 Variable costing method


Sales (14,000 @ P45) (16,000 @ P45)
Less Variable costs
Cost of goods sold
Beginning inventory, at std., P25
Current costs at std., at P25
Total
Ending inventory, at std. P25
Variable cost of goods sold
Variable selling and Adm., Expenses
Total Variable costs
Contribution Margin

15 338939223.xlsx PROBLEMS

144,500.00
50,000.00
27,000.00
77,000.00
67,500.00

85,000.00
67,500.00
17,500.00

70,000.00
52,500.00
17,500.00
17,500.00

85,000.00
-

(17,500.00)
67,500.00
Year 1
630,000.00

425,000.00
425,000.00
75,000.00
350,000.00
350,000.00
280,000.00

Management Services
Y2006 edition

by Luzviminda S. Payongayong

Less, Fixed Costs:


Factory overhead
Selling & Administrative Expenses
Total Fixed costs
Operating income
2 Absorption cosing method
Sales (14,000 @ P45) (16,000 @ P45)
Less Cost of goods sold
Beginning inventory, at std., P33*
Current costs at std., at P33
Total
Ending inventory, at std. P33
Variable cost of goods sold
Gross Profit at standard
Production volume variance - Fav (Unfav)**
Gross Profit at Actual
Less Operating Expenses:
Selling & Administrative Expenses
Operating income
* Standard costs :

Variable costs
Fixed costs (P120,000 / 15,000)

** Production volume variance:


Year 1
17,000 - 15,000 x P8
Year 2
14,000 - 15,000 x P8
3 Reconciliation of net income
Net income per variable costing
Fixed factory overhead costs in:
Beginning inventory
Y 1
0
Y2
3000 x P8
Ending inventory
Y1
3000 x P8
Y2
1000 x P8
Net income per absorption costing

120,000.00
120,000.00
160,000.00

630,000.00
561,000.00
561,000.00
99,000.00
462,000.00
168,000.00
16,000.00
184,000.00
184,000.00
25.00
8.00
33.00
16,000.00
8,000.00
Year 1
160,000.00

24,000.00
184,000.00

6.11
1 Standard costs

Variable
Costing

Direct materials
Direct labor
Variable overhead
Fixed overhead
2 Units so * Sales

(20,000 + 110,000 - 12,000 )

16 338939223.xlsx PROBLEMS

3.00
6.00
1.00
10.00
118,000.00

Management Services
Y2006 edition

by Luzviminda S. Payongayong

Cost of goods sold


Less, Prod. volume variance (100,000 - 110,000 ) x P1.10
Cost of goods sold at actual

1,180,000.00
1,180,000.00

6.12
Direct materials and direct labor
Factory overhead
Total Manufacturing costs
Units produced
Cost per unit
Ending finished goods in units
Cost of ending finished goods
6.13
Fixed manufacturing costs
Variable manufacturing costs
Direct materials
Direct labor
Total costs
Units produced
cost per unit
Units of ending inventory
cost of ending inventory

( a / b)
(c x d)

a
b
c
d
e

No. 1
44,000.00
12,000.00
30,000.00
24,000.00
110,000.00
2,200
50.00
300.00
15,000.00

6.14
a

Absorption costing
Sales
Less, cost of goods sold
Beginning inventory
Current Production
Available for sale
Ending inventory
Gross Profit
Less Expenses
Net income

2,000 x P16

Variable costing
Sales
Less, Cost of goods sold
Variable manufacturing costs
Less, Ending inventory
2,000 x P9.60
Contribution Margin
Less, Fixed costs:
Manufacturing costs
Selling & Administrative Expenses
Net income
OR

17 338939223.xlsx PROBLEMS

160,000.00
160,000.00
(32,000.00)

96,000.00
(19,200.00)

64,000.00
80,000.00

Management Services
Y2006 edition

by Luzviminda S. Payongayong

Net income per absorption costing


Fixed factory overhead in Ending inventory
Net income per variable costing

(P6.40 x 2,000)

18 338939223.xlsx PROBLEMS

Management Services
Y2006 edition

by Luzviminda S. Payongayong

ent Planning

1,100,000.00
540,000.00
560,000.00

240,000.00
320,000.00

1,100,000.00

490,000.00
610,000.00

308,000.00
302,000.00

320,000.00
302,000.00
18,000.00

er AC is greater than

20,000 units] ) = P112.50


3,400,000.00
1,912,500.00

19 338939223.xlsx PROBLEMS

Management Services
Y2006 edition

by Luzviminda S. Payongayong

1,487,500.00

874,000.00
613,500.00
337,500.00

Production at
50,000 cans
450,000.00
210,000.00
240,000.00
150,000.00
25,000.00
175,000.00
65,000.00
62,000.00
20,000.00
42,000.00

2,000,000.00

875,000.00
1,125,000.00

850,000.00
275,000.00

174,000.00

119,515.15
54,484.85

20 338939223.xlsx PROBLEMS

Management Services
Y2006 edition

by Luzviminda S. Payongayong

32,000.00
22,484.85

174,000.00

84,363.64
89,636.36

12,000.00
77,636.36

60,000.00
17,636.36
17,636.36
4,848.48
22,484.84

ll amount of P40,000 was charged to the


0 /16,500 x 14,500) was charged to the

Absorption
Costing
3.00
2.00
1.00
3.00
9.00
25,000
225,000.00
75,000
675,000.00
2,100,000.00
675,000.00
75,000.00
160,000.00

21 338939223.xlsx PROBLEMS

Management Services
Y2006 edition

by Luzviminda S. Payongayong

910,000.00
1,190,000.00
Absorption
Costing
80,000.00
100,000.00
72,000.00
60,000.00
312,000.00
12,000
26.00
10,000
260,000.00
40,000.00
(10,000.00)
20,000.00
50,000.00

Year 2
460,000.00
70,000.00
135,000.00
54,000.00
189,000.00
259,000.00
21,000.00 **
238,000.00
222,000.00
75,000.00
147,000.00

460,000.00

52,500.00
135,000.00
187,500.00
15,000.00 **
172,500.00
30,000.00 (P75,000 x 40%)
202,500.00

22 338939223.xlsx PROBLEMS

Management Services
Y2006 edition

by Luzviminda S. Payongayong

257,500.00
54,000.00
45,000.00
99,000.00
158,500.00

(P75,000 x 60%)

147,000.00
158,500.00
(11,500.00)

21,000.00
15,000.00
6,000.00
70,000.00
52,500.00
17,500.00
(11,500.00)

147,000.00

17,500.00

(6,000.00)
158,500.00
Year 2
720,000.00

75,000.00
350,000.00
425,000.00
25,000.00
400,000.00
400,000.00
320,000.00

23 338939223.xlsx PROBLEMS

Management Services
Y2006 edition

by Luzviminda S. Payongayong

120,000.00
120,000.00
200,000.00

720,000.00
99,000.00
462,000.00
561,000.00
33,000.00
528,000.00
192,000.00
(8,000.00)
184,000.00
184,000.00

Favorable
Unfavorable
Year 2
200,000.00

total
360,000.00

(24,000.00)

8,000.00
184,000.00

8,000.00
368,000.00

Absorption
Costing
3.00
6.00
1.00
1.10
11.10
118,000.00

24 338939223.xlsx PROBLEMS

Management Services
Y2006 edition

by Luzviminda S. Payongayong

1,309,800.00
(11,000.00) Fav.
1,298,800.00

500,000.00
100,000.00
600,000.00
1,000.00
600.00
200.00
120,000.00

No. 2
12,000.00
30,000.00
24,000.00
66,000.00
2,200
30.00
300.00
9,000.00

256,000.00

128,000.00
128,000.00
80,000.00
48,000.00

256,000.00

76,800.00
179,200.00

144,000.00
35,200.00

25 338939223.xlsx PROBLEMS

Management Services
Y2006 edition

by Luzviminda S. Payongayong

48,000.00
(12,800.00)
35,200.00

26 338939223.xlsx PROBLEMS