1.Thomas Company is currently operating at a loss of $15,000.

The sales manager has received a special order

for 5,000 units of product, which normally sells for $35 per unit. Costs associated with the product are:
direct material, $6; direct labor, $10; variable overhead, $3; applied fixed overhead, $4; and variable
selling expenses, $2. The special order would allow the use of a slightly lower grade of direct material,
thereby lowering the price per unit by $1.50 and selling expenses would be decreased by $1. If Thomas
wants this special order to increase the total net income for the firm to $10,000, what sales price must
be quoted for each of the 5,000 units?

a. $23.50

b. $24.50

c. $27.50

d. $34.00

ANS: A

In order to increase income to $10,000, there must be an increase of $25,000 or $5 per unit.

Direct materials $ 4.50

Direct Labor 10.00

Variable Overhead 3.00

Variable Selling Exp 1.00

Production Costs $18.50

Additional profit per

unit
5.00

Sales price/unit $23.50

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2. Robertson Corporation
 Robertson Corporation sells a product for $18 per unit, and the standard cost card for the product shows
the following costs:

Direct material $ 1

Direct labor 2

Overhead (80% fixed) 7

Total $10

. Refer to Robertson Corporation. Robertson received a special order for 1,000 units of the product. The
only additional cost to Robertson would be foreign import taxes of $1 per unit. If Robertson is able to sell
all of the current production domestically, what would be the minimum sales price that Robertson would
consider for this special order?

a. $18.00

b. $11.00

c. $5.40

d. $19.00

ANS: D

The company would increase its minimum sales price to reflect the foreign import tax of $1
per unit.

3.Robertson Corporation
 Robertson Corporation sells a product for $18 per unit, and the standard cost card for the product shows
the following costs:

Direct material $ 1

Direct labor 2

Overhead (80% fixed) 7

Total $10

Refer to Robertson Corporation. Assume that Robertson has sufficient idle capacity to produce the 1,000 units.
If Robertson wants to increase its operating profit by $5,600, what would it charge as a per-unit selling
price?

a. $18.00

b. $10.00

c. $11.00

d. $16.60

ANS: C

The company would want to charge a price equal to a per unit profit of $5.60 plus variable
costs per unit of $4.40 and the import tax per unit of $1.00. The total price is $11.00.

4.Chip Division of Computer Solutions, Inc.

The Chip Division of Computer Solutions, Inc. produces a high-quality computer chip. Unit production
costs (based on capacity production of 100,000 units per year) follow:
Direct material $50

Direct labor 20

Overhead (20% variable) 10

Other information:

Sales price 100

SG&A costs (40% variable) 15

Refer to Chip Division of Computer Solutions, Inc. Assume, for this question only, that the Chip Division
is producing and selling at capacity. What is the minimum selling price that the division would consider
on a "special order" of 1,000 chips on which no variable period costs would be incurred?

a. $100

b. $72

c. $81

d. $94

ANS: D

Variable period costs are $6 ($15 * 40% variable)

The minimum selling price would have to be greater than the manufacturing costs and fixed
period costs.

$(100 - 6) = $94 per unit

5.Chip Division of Computer Solutions, Inc.

The Chip Division of Computer Solutions, Inc. produces a high-quality computer chip. Unit production
costs (based on capacity production of 100,000 units per year) follow:
 Direct material $50

Direct labor 20

Overhead (20% variable) 10

Other information:

Sales price 100

SG&A costs (40% variable) 15

Refer to Chip Division of Computer Solutions, Inc. Assume, for this question only, that the Chip Division is
operating at a level of 70,000 chips per year. What is the minimum price that the division would consider
on a "special order" of 1,000 chips to be distributed through normal channels?

a. $78

b. $95

c. $100

d. $81

ANS: A

The price would have to cover all variable costs.

$(50 + 20 + 2 + 6) = $78 per unit

6.Chip Division of Computer Solutions, Inc.

The Chip Division of Computer Solutions, Inc. produces a high-quality computer chip. Unit production
costs (based on capacity production of 100,000 units per year) follow:

Direct material $50

Direct labor 20
 Direct material $50

Overhead (20% variable) 10

Other information:

Sales price 100

SG&A costs (40% variable) 15

Refer to Chip Division of Computer Solutions, Inc. Assume, for this question only, that the Chip Division is
presently operating at a level of 80,000 chips per year. Accepting a "special order" on 2,000 chips at $88
will

a. increase total corporate profits by $4,000.

b. increase total corporate profits by $20,000.

c. decrease total corporate profits by $14,000.

d. decrease total corporate profits by $24,000.

ANS: B

$(88 - 78) = $10 profit per unit * 2,000 units = $20,000 profit increase

7.Harding Corporation manufactures batons. Harding can manufacture 300,000 batons a year at a variable cost
of $750,000 and a fixed cost of $450,000. Based on Harding's predictions, 240,000 batons will be sold at
the regular price of $5.00 each. In addition, a special order was placed for 60,000 batons to be sold at a
40 percent discount off the regular price. The unit relevant cost per unit for Harding's decision is

a. $1.50.

b. $2.50.

c. $3.00.
a. $1.50.

d. $4.00.

ANS: B

The relevant costs will be the variable costs per unit.

$750,000/300,000 units = $2.50/unit

Reference: Relevant Costing raiborn

8.Venus Company, a manufacturer of lamps, budgeted sales of 400,000 lamps at P20 per unit for the
year. Variable manufacturing costs were budgeted at P8 unit, and fixed manufacturing costs at P 5 per
unit. A special order offering to buy 40,000 lamps for P11.50 each was received by Venus in April. Venus
has sufficient plant capacity to manufacture the additional quantity of lamps; however, the production
would have to be done by the present work force on an overtime basis at an estimated additional cost
of P1.50 per lamp. Venus will not incur any selling expenses as a result of the special order. Venus
Company have a unit relevant cost of

A. P 8.00 C. P 9.50

B. P13.00 D. P14.50

v. Answer: C

variable cost P8.00

premium 1.50

Relevant cost per unit P9.50

9.Wawa Enterprises has the capacity to produce 10,000 bearings, but operates at 90% of capacity.
Bearings normally sell for P60 each, and cost an average of 50 to make, including a share of the monthly
fixed costs of P180,000. Ilog Corp has offered to buy 1,000 bearings at P40 each. What is the relevant
cost per unit?

A. P 20 C. P 40

B. P 30 D. P 50
Answer: B

Full cost 50.00

-Fixed overhead (180,000/9,000) 20.00

Relevant unit cost 30.00

10.Intellectual Co. recently received an order for a product that it does not normally produce. Since the
company has excess production capacity, management is considering accepting the order. In analyzing
the decision, the assistant controller is compiling the relevant costs of producing the order. The special
order requires 1,000 kilograms of powdered Nitrocide, a solid chemical regularly used in the company‟s
products. The current stock of Nitrocide is 8000 kilograms at a book value of P8.10 per kilogram. If the
special order is accepted, the firm will be forced to restock powdered Nitrocide earlier than expected, at
a predicted cost of P8.70 per kilogram. Without the special order, the purchasing manager predicts that
the price will be P8.30, when normal restocking takes place. Any order of the Nitrocide must be in 5,000
kilograms. what is the relevant cost of powdered Nitrocide to be included in the special order?

A. P 8,700 C. P10,300

B. P 8,300 D. P43,500

Answer: C

Cost of 1,000 kg at latest price (1,000 x 8.70) 8,700

Add excess price include on the remaining 4,000 kg. 4,000 x (8.70 – 8.30) 1,600

Relevant cost 10,300

11.Balagtas & Company expects to incur the following costs at the planned production level of 10,000
units:

Direct materials P100,000

Direct labor 120,000

Variable overhead 60,00

Fixed overhead 30,000

The selling price is P50 per unit. The company currently operates at full capacity of 10,000 units. Capacity
can be increased to 13,000 units by operating overtime. Variable costs increase by P14 per unit for
overtime production. Fixed overhead costs remain unchanged when overtime operations occur. Balagtas
has received a special order from Florante, Inc. who has offered to buy 2,000 units at P45 each. What is
the incremental cost associated with this special order?

A. P42,000 C. P31,000

B. P84,000 D. P62,000

Answer: B

Direct materials (2,000 @ 10) 20,000

Direct labor (2,000 @ 12) 24,000

Variable overhead (2,000 @ 6) 12,000

Increase in variable cost due to overtime (2,000 @ 14) 28,000

Incremental cost 84,000

12.Brace Co. has considerable excess manufacturing capacity. A special job order‟s cost sheet includes
the following applied manufacturing overhead costs:

Variable costs P56,250

Fixed costs 45,000

The fixed costs include a normal P6,800 allocation for in-house design costs, although no in-house design
will be done. Instead, the special job will require the use of external designers costing P13,750. What is
the minimum acceptable price for the job?
A. P 63,050 C. P101,250

B. P 70,000 D. P108,200

. Answer: B

Variable costs P56,250

Additional fixed costs 13,750

Minimum bid price P70,000

13.The cost to produce 24,000 units at 70% capacity consists of:

Direct materials P360,000

Direct labor 540,000

Factory overhead, all fixed 290,000

Selling expense (35% variable, 65% fixed) 240,000

What unit price would the company have to charge to make P22,500 on a sale of 1,500 additional units
that would be shipped out of the normal market area?

A. P 51 C. P 41

B. P 56 D. P 50

Answer: B

Direct material (360,000 ÷ 24,000) P15.00

Direct labor (540,000 ÷ 24,000) 22.50

Variable selling expenses (84,000 ÷ 24,000) 3.50

Total P41.00

Add Profit per unit (22,500 ÷ 1,500) 15.00

Selling price P56.00

14.Kaila Company‟s unit cost of manufacturing and selling a given item at an activity level of 10,000
units per month are:

Manufacturing costs

Direct materials P39

Direct labor 6

Variable overhead 8

Fixed overhead 9

Selling expenses

Variable 30

Fixed 11

The company desires to seek an order for 5,000 units from a foreign customer. The variable selling
expenses will be reduced by 40%, but the fixed costs for obtaining the order will be P20,000. Domestic
sales will not be affected by the order. the minimum break-even price per unit to be considered on this
special sale is

A. P 71 C. P 69

B. P 75 D. P 84

Answer: B

Relevant cost to make and sell:

Direct materials 39

Direct labor 6

Variable OH 8

Reduced selling expenses (30 x 0.06) 18

Add‟l fixed cost (20,000 † 5,000) 4

Minimum selling price 75

15.Chrisy Company sells a product for P18 per unit and the standard cost card for the product shows the
following costs:

Direct materials P 1.00

Direct labor 2.00

Overhead (80% fixed) 7.00

Total P10.00

Chrisy received a special order for 1,000 units of the product. The only additional cost to Chrisy would be
foreign import taxes of P1 per unit. If Chrisy is able to sell all of the current production domestically,
what would be the minimum sales price that Chrisy would consider for this special order?

A. P 18 C. P 17

B. P 19 D. P 11

Answer: B

The company has no existing capacity. The minimum selling price for this special sales should equal the
regular selling price plus additional expenses.

Regular selling price P18

Additional expenses 1

Minimum selling price P19

16.Chua Company sells a product for P20 with variable cost of P8 per unit. Chua could accept a special
order for 1,000 units at P14. If Chua accepted the order, how many units could it lose at the regular price
before the decision become unwise?

A. 1,000 units C. 500 units

B. 200 units D. 0 units

Answer: C

The maximum number of units in regular sales that Benjing could afford to lose equals the quantity that
provides regular contribution margin that matches the contribution margin provided by special sale.
Contribution margin from special sale 1,000 (14 – 8) 6,000

Divided by regularCM (20 – 8) ÷ 12

Maximum Number of units 500

To illustrate the solution:

Contribution margin from special sale 6,000

Less Decrease in regular sales‟ contribution margin (500 x 12) 6,000

Effect on profit NIL

17.Filamer Company currently sells 1,000 units of product M for P2 each. Variable costs are P1.50. A
discount store has offered P1.70 per unit for 400 units of product M. The managers believe that if they
accept the special order, they will lose some sales at the regular price. Determine the number of units
they could lose before the order become unprofitable.

A. 200 units. C. 400 units.

B. 160 units. D. 500 units

. Answer: B

The maximum decrease in regular sale = Contribution margin from special sale/Unit contribution margin
on regular sale (400 x 0.20) ÷ (2.00 -1.50) = 160

18.The Thermo Company has received a special order for 300 units of product X for P6 a unit. It usually
sells for P9.50 a unit with a cost of P7.50 a unit inclusive of 75 cents a unit as sales commission that will
not be paid on this order. The cost also includes P3 in manufacturing overhead, was two-third of which is
for the fair share of depreciation, rent, utilities and supervisor's salary. The latter‟s (supervisor's salary)
accounts for one-half of this amount. Assuming that excess capacity is available, and this order requires a
mold that costs P150, accepting the order will increase

A. loss by P225 C. gain by P225

B. loss by P375 D. gain by P375

Answer: C

Selling price P6.00

Relevant cost per unit:

Regular cost per unit P7.50

Less: Commission P0.75

Fixed overhead (P3 x 2/3) 2.00 (2.75)

Net amount P4.75

Incremental fixed cost (P150 300) 0.50 5.25

Advantage per unit, Buy P0.75

Number of units 300

Increase in profit P 225

19.Alejar Company manufactures a product with a unit variable cost of P50 and a unit sales price of P88.
Fixed manufacturing costs were P240,000 when 10,000 units were produced and sold. The company has
a one-time opportunity to sell an additional 3,000 units at P70 each in a foreign market. This special sale
would not affect its present sales. If the company has sufficient capacity to produce the additional units,
acceptance of the special order would affect net income

as follows:

A. Income would decrease by P 12,000.

B. Income would increase by P 12,000.

C. Income would increase by P210,000.

D. Income would increase by P 60,000

.Answer: D

Additional profit: 3,000 x (70 – 50) = 60,000

20.i.Louderhead Company makes bull-repellent scent according to a traditional Western recipe, which
normally sells at P90 per unit. Normal production volume is 10000 ounces per month. Average cost is
P50 per ounce, of which P20 is direct material and P10 is variable conversion cost. This product is
seasonal. After july, demand for this product drops to 6,000 ounces monthly. In November, Garrison Co.
offers to buy 1,500 ounces for P60,000. If Louderhead accepts the order, it must design a special label for
Garrison at a cost of P5,000. Each label will cost P2.50 to make and apply. Louderhead should:

A. accept the order, at a gain of P6,250

B. reject the order, at a loss of P18,750

C. reject the order, at a loss of P23,750

D. accept the order, at a gain of P11,250

Answer: A

Sales 60,000

Less: Variable production cost (1,500 x 30) 45,000

Additional Fixed cost 5,000

Labeling cost (1,500 x 2.50) 3,750 53,750

Profit 6.250

Reference: Relevant Costing Bobadilla