COLEGIO DE DAGUPAN

Arellano Street, Dagupan City

School of Business and Accountancy

MANAGEMENT ACCOUNTING 1
Second Semester, AY 2018-2019
Midterm Examination – Set (A)

Show your solutions as needed and encircle your final answers. Use blue or black ink only for your final
answers.

1. Vince's Pizza delivers pizzas to dormitories and apartments near a major state university. The
company's annual fixed costs are P48,000. The sales price averages P9, and it costs the company P3
to make and deliver each pizza.

Required:
A. How many pizzas must Vince's sell to break even?
B. How many pizzas must the company sell to earn a target net profit of P54,000?
C. If budgeted sales total 9,900 pizzas, how much is the company's safety margin?
D. Vince's assistant manager, an accounting major, has suggested that the firm should try to increase
the contribution margin per pizza. Explain the meaning of "contribution margin" in layman's terms.

2. Seventh Heaven takes tourists on helicopter tours of Hawaii. Each tourist buys a P150 ticket; the
variable costs average P60 per person. Seventh Heaven has annual fixed costs of P702,000.

Required:
A. How many tours must the company conduct in a month to break even?
B. Compute the sales revenue needed to produce a target net profit of P36,000 per month.
C. Calculate the contribution margin ratio.
D. Determine whether the actions that follow will increase, decrease, or not affect the company's
break-even point.
1. A decrease in tour prices.
2. The termination of a salaried clerk (no replacement is planned).
3. A decrease in the number of tours sold.

3.Thompson Company is considering the development of two products: no. 65 or no. 66. Manufacturing
cost information follows.

No. 65 No. 66
Annual fixed costs P220,000 P340,000

Variable cost per unit 33 25

Regardless of which product is introduced, the anticipated selling price will be P50 and the company
will pay a 10% sales commission on gross peso sales. Thompson will not carry an inventory of these
items.

Required:
A. What is the break-even sales volume (in pesos) on product no. 66?
B. Which of the two products will be more profitable at a sales level of 25,000 units?
C. At what unit-volume level will the profit/loss on product no. 65 equal the profit/loss on product no.
66?

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4. Information taken from Grille Corporation's May accounting records follows.

Direct materials used P150,000

Direct labor 80,000
Variable manufacturing overhead 30,000
Fixed manufacturing overhead 100,000
Variable selling and administrative costs 51,000
Fixed selling and administrative costs 60,000
Sales revenues 625,000

Required:
A. Assuming the use of variable costing, compute the inventoriable costs for the month.
B. Compute the month's inventoriable costs by using absorption costing.
C. Assume that anticipated and actual production totaled 20,000 units, and that 18,000 units were sold
during May. Determine the amount of fixed manufacturing overhead and fixed selling and
administrative costs that would be expensed for the month under (1) variable costing and (2)
absorption costing.
D. Assume the same data as in requirement "C." Compute the contribution margin that would be
reported on a variable-costing income statement.

5. Sosa, Inc., began operations at the start of the current year, having a production target of 60,000
units. Actual production totaled 60,000 units, and the company sold 90% of its manufacturing output
at P55 per unit. The following costs were incurred:

Manufacturing:
Direct materials used P300,000
Direct labor 420,000
Variable manufacturing overhead 360,000
Fixed manufacturing overhead 600,000
Selling and administrative:
Variable 120,000
Fixed 630,000

Required:
A. Assuming the use of variable costing, compute the cost of Sosa's ending finished-goods inventory.
B. Compute the company's contribution margin. Would Sosa disclose the contribution margin on a
variable-costing income statement or an absorption-costing income statement?
C. Assuming the use of absorption costing, how much fixed selling and administrative cost would Sosa
include in the ending finished-goods inventory?
D. Compute the company's gross margin.

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