COST Center (COST SBU) --- Exercise 5 p. 507; Problem 4 p.

512

EXERCISE 5

1. Controllable Costs by supervisor of Department 10 are as follows:

a) Supplies, Department 10
b) Repairs and Maintenance, Department 10
c) Labor Cost, Department 10

2. Direct Costs of Department 10 are

a) Salary, supervisor of Department 10

b) Supplies, Department 10
c) Repairs and Maintenance, Department 10
d) Labor Cost, Department 10

3. Costs allocated to Factory Department are:

a) Factory, heat and light

b) Depreciation, factory
c) Factory insurance
d) Salary of factory superintendent

4.Costs which do not pertain to factory operations are:

a) Sales salaries and commissions

b) General office salaries
PROBLEM 4

1.
Performance Report for the Production Manager

Actual Flexible Variance

Cost Budget Cost (U) or (F)
Controllable costs:
Direct material P24,000 P20,000 P4,000 (U)
Direct labor 48,000 50,000 2,000 (F)
Supplies 4,000 6,000 2,000 (F)
Maintenance 3,000 4,000 1,000 (F)

Total P79,000 P80,000 P1,000 (F)

2.

Performance Report for the Vice President

Actu
al Flexible Variance
C
o
s
t Budget Cost (U) or (F)
Controllable costs:
Marketing division P104,000 P102,000 P2,000 (U)
(
F
Production division 79,000 80,000 1,000 )
(
F
Personnel division 72,000 76,000 4,000 )
(
F
Other costs 68,800 70,000 1,200 )

Total P323,800 P328,000 P4,200 (F)

 PROFIT Center (PROFIT SBU) --- Exercise 1 p. 505; Problem 1 and 2 p.510 – 511

EXERCISE 1

Department

1 2 4 Total
P
9
8 P
P1 P1 , 39
32 68 0 8,
,0 ,0 0 00
Revenue 00 00 0 0
(8
2,
00
Direct cost of department 0) (108,000 ) (61,000) (251,000)

Contribution of the
P
P 3
5 7 P
0, , 14
0 0 7,
0 0 00
department 0 P 60,000 0 0

Allocated cost 121,000

Net income P 26,000

No, the president is not correct. However, Department 3 does not

cover all of the cost allocated to it. But it contributes P21,000 to the total
operations over and above its direct costs. Without it, the company would earn
less than P21,000 as compared with the original income of P47,000 of the
company.
PROBLEM 1
a.
Jadlow Manufacturing Corporation
Income Statement
For the Year Ended December 31, 20X3

Total Product S Product T

Sales P5,100,000 P2,700,000 P2,400,000
Less: Variable Costs 3,330,000 1,890,000 1,440,000

Contribution Margin P1,770,000 P 810,000 P 960,000

Less: Controllable fixed
expenses 501,000 66,000 435,000

Contribution to the recovery

of non-controllable fixed
expenses P1,269,000 P 744,000 P 525,000

b. Complaint of the manager of Product T is defended on the ground that his product
offering shows a positive contribution margin and hence, adds to the recuperation of
non-controllable fixed expenses. The perception was made under the suspicion that the
former year's figures (not given) were less ideal than the current year.
PROBLEM 2
1.

Product

A B C
Incremental sales P71,000 P46,000 P117,000
Less: Incremental costs 42,000 15,000 96,000

Net income P29,000 P31,000 P 21,000

Product B seems to offer the best profit potential because it has P31,000.

2.

Depreciation of equipment P 6,400

Operating cost of the equipment 4,600

Total sunk cost P11,000

3.

From Product A P29,000

From Product C 21,000

Total opportunity cost (for
selling the product B) P50,000