MS- 06: STANDARD COSTING

EXERCISES: STANDARD COSTING

1. Materials and Labor Variance Analysis

Kanon Company uses a standard cost system and has established the following standards for one unit of its main
product, The Wonder Camera Tripod:

Inputs Standards
Direct Materials 3 metal bars per tripod at 2.00 per bar
Direct Labor labor hour per tripod at10 per hour

At the start of the month, the budget includes a planned production of 1oo units of tripod based on normal capacity;
at the end of the month, actual production was 120 units of tripod, which resulted to using 400 bars of metal
purchased at a cost of 2.10 per bar.

REQUIRED:

1. Based on the BUDGETED production of 100 units:

A. How many metal bars must the company plan to use? (Budgeted quantity)
B. How much materials cot is included in the budget? (Budgeted cost)
2. Determine the actual cost of materials used. (Actual cost)
3. Based on the ACTUAL production of 120 units:
A. How many metals bars should have been used? (Standard quantity)
B. How much materials cot should have been incurred? (Standard materials cost)
C. How many labor hours should have been spent? (Standard hours)
D. How much labor cost should have been incurred? (Standard Labor cost)
4. Determine the following:
A. Materials budget variance
B. Materials standard cost variance
C. Materials quantity and price variance
5. During the month, a total payroll of P540 was paid to labourers, working 45 hours to produce the 120 units
of Tripod. Determine the following:
A. Total labor variance
B. Labor efficiency variance
C. Labor rate variance

2. Materials Price Usage Variane Vs. Materials Purchase Price Variance

The standard cost of direct materials used by SM Company for its lone product is P 3 per unit. During the month,
500 units of materials were purchased at a total cost of P 1,400 while only 400 units of materials were used; the
standard quantity allowed for actual production is 380 units.

REQUIRED: Determine the following:

1. Total Materials Variance
2. Materials Quantity Variance
3. Materials Price Usage Variance
4. Materials Purchase Price Variance
3. Factory Overhead Budget
Trinoma Company shows the following data regarding its factory overhead:
Standard per unit of product: 4 labor hours @ P 3.00* per hour
Normal capacity: 2,500 units
Budgeted (Denominator) Hours: hours

Fixed Overhead (FFOH) P 20,000 Fixed Overhead (FR) ____________

Variable Overhead (VFOH) ____________ Variable Overhead (VR) _____________
Total Budgeted Overhead ___________ Standard Overhead Rate (SR) P 3.00 *

REQUIRED: Fill- in the blanks.

4. Factory Overhead Varinace Analysis, Two- Variance Method

The normal capacity of Greenbelt Company is 12,000 labor hours per month. At normal capacity, the standard
factory overhead rate is P 13 per labor hour based on P 96,000 of budgeted fixed cost per month and a variable cost
rate of P 5 per labor hour. During January, the company operated at 12,500 labor hours, with actual factory overhead
of P 166,000. The number of standard labor hours allowed for the production actually attained is 11,000.

REQUIRED: Determine (1) the overall factory overhead variance (2) overhead controllable variance
(3) volume variance.

5. Factory Overhead Variance Analysis, Two, Three. Four- Way Variance Method
Market-Market Company provides the following production data:
Total standard overhead cost per unit of product: 4 hours at 3.00 per hour = P 12. 00 per unit

Budgeted fixed factory overhead P 20,000

Normal production 2,500 units
Actual production 2,000 units
Actual hours 7,500 hours
Actual factory overhead incurred (75% fixed) P 26,000

REQUIRED: Determine the following

1. Budgeted factory overhead 6. Volume Variance

2. Standard factory overhead 7. Spending Variance
3. Budgeted FOH based on actual hours 8. Variance efficiency variance
4. Budgeted FOH based on standard hours 9. Variable spending variance
5. Controllable variance 10. Fixed spending variance

6. Factory Overhead Variance Analysis (Budget, Variable, Fixed Variances)

Assume the same data in item number 5

One way Two-way Three-Way Four-way

AFOH: P 26,000 Con S = S (V) =
SFOH: P 24,000 Vol E (V) = S (F) =
FOH Variance: P 2,000 U Vol = E (V) =
P 2,000 U P 2,000 U V (F) = P 2,000 U
Additional Requirements:

11. Budget (flexible) variance (2-way) 14. Fixed volume variance

12. Budget (flexible)2 variance (3-way) 15. Variable FOH variance
13. Varible controllable variance 16. Fixed FO variance

7. Materials, Labor nd Overhead Variances (Compute for the missing amounts)

Standard variable cost per unit:

A. Materials: 4 pounds @ P P
B. Direct labor: hours @ P 12.00 P 6.00
C. Variable overhead: P 8 per direct labor hour P
Production 8,000 units
Materials purchases, 32,000 pounds P 62, 000
Materials used at standard prices, 31,200 pounds P
Direct labor (actual) hours P 47,200
Material purchase price variance P 2,000 adverse
Material use variance P
Direct Labor rate variance P 2,000 favorable
Direct labor efficiency variance P
Variable overhead spending variance P 1,500 credit
Variable overhead efficiency variance P
Actual variable overhead cost P

8. Materials Price, Mix and Yield Variances

Bonarita Merger products the popular Walangkati face powder and has in its budget the following standards for
one kilo of the face powder:
Ingredients Standard Quantity
(Input) (Grams) Standard Unit Cost Standard Cost
Paminta (20%) 200 P 3.00 P 600
Gawgaw (70%) 700 P 4.00 P 2,800
Atsuete (10%) 100 P 5.00 P 500
TOTAL 1,000 P 3,900
The company reported the following production and cost data for the period:
Ingredients Standard Quantity
(Input) (Grams) Standard Unit Cost Standard Cost
Paminta 45,000 P 4.00 P 180,000
Gawgaw 125,000 P 3.00 P 375,000
Atsuete 30,000 P 6.00 P 180,000
TOTAL 200,000 P 735,000
Walangkati face powder production totalled 190 kilos.

REQUIRED:
1. Total materials cost variance
2. Materials price variance
3. Materials mix variance
4. Materials yield variance
MS- 07: RESPONSIBILITY ACCOUNTING AND TRANSFER PRICING

EXERCISES: RESPONSIBILITY ACCOUNTING AND TRANSFER PRICING

1. RESPONSIBILTY CENTERS
Indicate how each of the business situations below is most likely to be organized: cost center (CC), revenue center
(RC), profit center (PC), or investment center (IC).

A. The accounting department of Banco De Orocan.

B. The Magnolia product division of San Miguel Corporation.
C. The Ayala Mall car park ticket outlets.
D. The repairs and maintenance department of Philippine Airlines.
E. The Recto Branch of Starbox Coffee.
F. The College of Business and Economics of De La Salle University.
G. The parts department of Toyota Cars Corporation.
H. The convenience store that is owned by a chain organization; the head office supplies all the goods
To be sold and determines the selling prices.
2. CONTROLLABLE/ NON-CONTROLLABLE COSTS, DIRECT/INDIRECT COSTS
The supervisor of the Painting department of Honda Motors is in-chargeof purchasing supplies, authorizing
Repairs, and hiring labor for the department. Various costs are given:
(1) (2) (3) (4)
A. Sales, salaries and commission P 18,200
B. Salary, supervisor of Painting department
2, 500
C. Factory heat and light
3,900
D. General office salaries
11,000
E. Depreciation factory
1,800
F. Supplies, painting department
1,500
G. Repairs and maintenance, painting department
H. Factory insurance 1,400
I. Labor cost, Painting Department 2,100
J. Salary of factory supervisor 15,600
2,700
Total:
REQUIRED:
1. How much is the total costs controllable by the supervisor of the Painting department?
2. .How much is the total costs directly identifiable with the painting department?
3. How much is the total costs that will have to be allocated to the factory department?
4. How much is the total costs that do not pertain t factory operations?
3. SEGMENTED INCOME STATEMENT
The following data pertain to Zesto Airlines Operations for the year 2012:
TOTAL NORTWEST Division CENTRAL Division
Amount % Amount % Amount %
Sales P 1,000,000 (100%) (100%) ( )
Less: Variable expenses ( ) ( ) ( )
Contribution margin ( ) P 360,000 ( ) ( )
Less: Traceable fixed expenses ( ) ( P 150,000 ) ( ) ( P 200,000 )( )
Division segment margin ( ) ( ) (P 120,000) ( )
Less: Common fixed expenses ( )
Income P 40,000 ( )

REQUIRED:
Fill-in missing data.
4. RETURN ON INVESTMENT VS. RESIDUAL INCOME
For each of the following independent cases, the minimum desired return on Investment (RoI) is 20%

Division A1 Division B2 Division C3

Sales P 400,000 (5) P 700,000

Operating Income (1) (6) P 42,000
Operating Assets (2) P 300,000 (9)
Margin 15% 8% (10)
Turnover (3) 3 times (11)
Return on Investment 30% (7) (12)
Residual Income (4) (8) P 22,000

REQUIRED:
Compute for each divisions missing terms.

5. SERVICE COST ALLOCATION

The Star Cinema has two service departments (A and B) and two producing departments (X and Y).

Service Departments Operating Departments

A B X Y
Direct costs P 150 P300
Services performed by Dept. A 40% 40% 20%
Services performed by Dept. B 20% 70% 10%

REQUIRED:
1. Direct Method
2. Step-down method (cost of department A is allocated first)
3. Step-down method (cost of department B is allocated first)
4. Reciprocal method

6. TRANSFER PRICING
Yuseco Companys Division A (Aldayag) produces a new product a small tool used by other companies as a key
part in their products. Cost and sales data relating to the small tool are given below:

Selling price per unit P 50

Variable costs per unit P 30
Fixed Costs per unit P 12
*Based on Aldyag divisios capacity of 40,000 tools per year
.
The companys Division B (Bonarita) is introducing a new product that will use a tool such as the one produced by
Division A. An outside supplier has quoted the Division B a price of P 48 per tool. Division B would like to purchase
the tools from Division A, if an acceptable transfer price can be worked out.

REQUIRED:

1. Determine the lower limit of the transfer price assuming that:

A. Division A ham ample idle capacity to handle all the Division Bs need
B. Division A is presently selling all the tools it can produce outside customers
2. From the standpoint of the entire company, should the Division B purchase the tools from the Division A
(operating at capacity) of from outside supplier? Why?
3. Assume that the Division B requires 10,000 tools per year and the Division A is presently selling 36,000 tools per
year to outside customers:
A. Determine the lower limit of the transfer price.
B. What would be overall effect on company profits if all 10,000 tools were acquired from the Division A
rather than from the outside suppliers?

7. PRICE SETTING METHODS

The Indian Spirit Company is operating with two divisions. Division H is produsing a product line that is required as
a component part of the product being manufactured by Division W.

For Division H, the costs of producing the component part per unit are:
Direct Materials P 10
Direct labor P8
Variable Factory Overhead P5
Fixed Factory overhead P2

The product of Division H is being sold n a highly competitive market for P30 per unit.

Division W is currently buying 80% of the production output of Division H at a negotiated price of P 28 per unit. It is
Expected tat 25,000 units of product will be produced by Division H.

With emphasis on divisional welfare rather than the companys welfare, a new transfer price must be developed. It is
suggested that a 40% mark-up on cost will be added when transferring the product from Division H to Division W.

An additional processing cot for Division W is P 8 per unit. The selling price of the product of Division W is P 45 per
unit.

REQUIRED:
Determine the gross profit per unit of the product from Division W under each of the following independent
assumptions:

A. Transfer price is full-cost based.

B. Transfer price is cost-based plus mark-up.
C. Transfer price is based on negotiated price.
D. Transfer price is mark-based.
MS- 08: ACTIVITY- BASED COSTING AND BALANCED SCORECARD

EXERCISES: ACTIVITY BASED COSTING AND BALANCED SCORECARD

1. ACTIVITY LEVELS
Determine the appropriate level for each of the following activities. Indicate whether the activity is unit level (UL),
Batch level (BL), product-level (PL), facility-level (FL).

A. Equipment setups
B. Plant Supervision
C. Prime Cost
D. Packaging and shipment
E. Heating, Lighting, and security
F. Designing, changing and advertising
G. Product order processing

2. TRADITIONAL COSTING VS. ABC

Batak Company incurs P 800,000 in manufacturing overhead costs. The company has been allocating overhead
To individual product lines based on direct labor hours.

Cost Driver Amount in Cost Pool Amount of Activity

Direct labor hours P 300,000 40,000
Number of batches 300,000 1,500
Number of shipments 200,000 500
Total overhead costs 800,000

Two products have the following characteristics:

Product X Product Y
Direct labor hours 2,000 1,000
Number of batches 20 100
Number of shipments 2 150
REQUIRED:
Determine the overhead costs to be allocated to each product using:
A. Traditional costing (based on direct labor hours)
B. Activity-based costing (ABC)

3. APPLICATION OF OVERHEAD COSTS

A) Osama Company uses predetermined overhead rate based on direct labor hours to apply manufacturing
overhead to jobs. Estimated and actual data for direct labor and manufacturing overhead last year are as follows.

ESTIMATED ACTUAL

Direct labours hours 600,000 550,000

Manufacturing overhead 720,000 680,000

The manufacturing overhead for Osama Company for last year was

a. Over-applied P 40,000 c. Over-applied P 20,000

b. Under-applied P 40,000 d. Under-applied P 20,000
B) Push Company uses activity-based costing to compute product costs external reports. The company has three
activity centers and applies overhead using predetermined overhead rates for each activity center. Estimated costs
and activities for the current year are presented for the tree activity centers:

Estimated Overhead Cost Estimated Activity

Activity 1 P 61,387 2,300
Activity 2 P 34,076 2,800
Activity 3 P 69,075 2,500

Actual costs and activities for the current year were as follows:

Actual Overhead Cost Actual Activity

Activity 1 P 61,392 2,290
Activity 2 P 33,941 2,795
Activity 3 P 69,080 1,340

The amount of overhead applied for Activity 2 during the year was:

a. P 74.15 over-applied c. P 135.00 over-applied

b. P 74.15 under-applied d. P 135.00 under-applied

C) The most common treatment of under-applied and over-applied overheard costs is to close it out to
a. Work in process c. Cost of goods sold
b. Retained earnings d. Finished goods

4. MANUFACTURING CYCLE EFFICIENCY

Democraps Company keeps careful track of the time related to orders and their production. During the
most recent quarter, the following average times were recorded for each unit or order.

Wait time 7 days

Inspection time 4/10 of a day
Process time 2 days
Move time 6/10 of a day
Queue time 15 days
REQUIRED:
1. How long (in days) is the velocity of production (throughout time)?
2. What is the manufacturing cycle efficiency ratio?
3. What percentage of the production time is spent on non-value added activities?
4. How long (in days) is the delivery cycle time?

5. QUALITY COSTS

A) The four categories quality costs are

a. Internal failure, external failure, carrying and ordering costs
b. Prevention, appraisal, internal failure and external failure costs
c. Product liability, warranty, appraisal an training costs
d. Training, testing, failure, and conformance cost
B) Conformance costs, incurred to keep defective products from failing into the hands of customers are composed of
a. Prevention and appraisal cost c. Appraisal and internal failure costs
b. Prevention and internal failure cost d. Internal and external failure costs

C) Non-conformance costs, incurred because defects are produced despite efforts to void them, are composed of
a. Prevention and appraisal cost c. Appraisal and internal failure cost
b. Prevention and internal failure cost d. Internal and external failure cost

6. MARKETING EFFECTIVENESS
Independent Company is planning to sell 1,600 units at P 25 contribution margin per unit (estimated market size for
the year was 32,000 units.) At the end 2of the year, the company to sold 3,000 units at P 35 contribution margin per
unit (actual total market was determined to be 100,000 units)

REQUIRED: Determine the following

1. Sales Volume variance
2. Market size variance
3. market share variance
MS- 09: QUANTITTATIVE TECCHNIQUES

EXERCISES: INVENTORY MODELS

1. Shirley Company requires 40,000 shells for its P 100-siganture product, Pearly Shirl. The shells, which are
purchased from outside suppliers, will be used evenly throughout the year. The cost to place one order is P 20, while
the cost to corry the shells in inventory for one year is P 0.40.

REQUIRED:
A) The optimal order quantity (economic order quantity)
B) The number times the company should place orders within a year.
C) The average inventory

2. Based on an EOQ analysis, the optimal order quantity is 3,000 units. Annual inventory carrying cots equal 30% of
the average inventory level. The company pays P 5 per unit to buy the product and P 112.50 to place an order. The
monthly demand for the product is 5,000 units.

REQUIRED:
A) Annual inventory carrying cost
B) Annual inventory ordering cost
C) Total inventory Cost
3. Bonitafe subsidiary purchased 7,500 units of bleaching soap per annum. The average purchase lead time is 7
working days. Maximum lead time is 10 working days. The company works 300 days per year.

REQUIRED:
A) How many units should Bonitafe maintain as safety stock?
B) what is Bonitafes reorder point for bleaching soap?

4. Each stock-out of a product sold by George Company P2,000 per occurrence. The carrying cost per unit of
inventory is P5 per year and the company orders 1,500 units of product 18 times a tear at a cost of P200 per order.
The probability f a stock out at various levels of safety stocks is:
Units of Safety Stock Probability of a Stock-Out
0 50%
200 30%
400 14%
600 5%
800 1%

The optimal level of safety stock for the company is

a. 200 units c. 600 units
b. 400 units d. 800 units
 EXERCISES: LINEAR PROGRAMMING

1. Following are the data about Maximin Companys two products that if produces through its production
facilities:
Product A Product B
Contribution Margin per unit P3 P4
Materials Used: Material X 2 pieces 5 pieces
Material Y 4 pieces 2 pieces
Available Quantity of Materials Material X 120 pieces
Material Y 80 meters
REQUIRED: Determine:
A) Objective Function involving maximization of the companys contribution margin
B) Constraint Function for Material X
C) Constraint Function for Material Y
D) Optimal product mix

2. Erin n Neo Corporation produces a product in 50-gallon batches. The basic ingredients used for the material B are
costing P 20 per gallon and for Material A, costing P 10 per gallon. No more than 1 galloon of A can be used, and at
least 15 gallons of B must be used.

REQUIRED:
How would the objective function (minimization of product cost) be expressed?
MS10: CAPITAL BUDGETING

1. NET INVESTMENTS FORR DECISION MAKING

The Wob Company plans to replace a unit of equipment that was acquired 3 years ago and is now recorded
at a net book value of P65,000. This equipment can be sold now for P75,000. Tax rate is 25%.

New equipment can be acquired from Cool-Bee Company at a list price of P200,000. Cool-Bee will grant 2%
cash discount if the equipment is paid within 30 days from acquisition date. Shipping, installation and testing charges
to be paid are estimated at P14,000.

Other assets with a book value of P12,000 that are to be retired as a result of the acquisition of the new
machine can e salvaged and sold for P10,000.

Additional working capital of P23,000 will be needed to support operations planned with the new
equipment.

The annual cash flow after income tax from the operation of the new equipment has been estimated at
P50,000. The equipment is expected to have a useful life of 5 years with a salvage value of P4,000 at the end of 5
years.

REQUIRED:
What is the initial cost of net investments for decision-making?

2. WEIGHTED AVERAGE COST OF CAPITAL (WACC)

Bag-you Company wants to determine the weighted average cost of capital that it can use to evaluate capital
investment proposals. The companys capital structure with corresponding market values follows:
8% Term Bonds P600,000
5% Preferred stock (100 par) 200,000
Common Stock (no par, 10,000 shares outstanding) 400,000
Retained Earnings 800,000
Total P 2 000 000
Additional data:
Current Market price per share:
Preferred Stock P50
Common Stock P40
Expected common dividend : P2 per share
Dividend growth rate:4%
Corporate tax rate: 30%
REQUIRED:
A) Given an operating income of P500,000, how much is the earnings per share
B) Determine the weighted average cost of capital
3. NET RETURNS (INCREASE IN REVENUE)
The management of Star-Luck Cinema plans to install coffee vending machine costing P200,000 in its movie
house. Annual sales of coffee are estimated at 10,000 cups at a price of P15 per cup. Variable costs are estimated at
P6 per cup, while incremental fixed cash costs, excluding depreciation, at P20,000 per year. The machines are
expected to have a service life of 5 years, with no salvage value. Depreciation will be computed on straight-line basis.
The companys income tax is 30%.
REQUIRED:
A) The increase in annual income
B) The annual cash inflows that will be generated by the project.
4. NET RETURNS (COST SAVINGS)
Moon Corporation is planning to buy cleaning equipment that can reduce car wash service cost and other
cash expenses by an average of P70,000 per year. The new cleaning equipment will cost P100,000 and will be
depreciated for 5 years on a straight-line basis. No salvage value is expected at the end of the equipments life.
Income tax is estimated at 32% of income before tax.
REQUIRED:
Determine the net cash inflows that will be generated by the project
5. PAYBACK PERIOD & ACCOUNTING RATE OF RETURN (WITH EVE CASH FLOWS)
Blue Company considers the replacement of some old equipment. The cost of the new equipment is P90,000
with a useful life estimate of 8 years and a salvage value of P10,000. The annual pre-tax cash savings from the use of
the new equipment is P40,000. The old equipment has zero market value and is fully depreciated. The company uses
cost of capital of 25%.
REQUIRED: Assuming that the income tax rate 40%, compute:
A) Paybak period
B) Accounting rate of return on original investment
C) Accounting rate of return on average investment
6. PAYBACK PERIOD & ACCOUNTING RATE OF RETURN (WITH UNEVEN CASH FLOW)
Pole Company has an investment opportunity costing P90,000 that is expected to yield the following cash
flows over the next five years: (assume a cut off of 30%)
Year Amount
1 P40,000
2 35,000
3 30,000
4 20,000
5 10,000
REQUIRED:
A) Payback period in months B) Book rate of return
7. BAIL-OUT PAYBACK PERIOD
A project costing P80,000 will produce the following annual cash flows and salvage value:
Year Cash Flows Salvage Values
1 P50,000 P65,000
2 50,000 50,000
3 50,000 35,000
4 50,000 20,000
REQUIRED:
Bail-out payback period.