MOUNTAIN VIEW COLLEGE

College Heights Mt. Nebo

8709 Valencia City, Bukidnon, Philippines
School of Business & Accountancy

COST ACCOUNTING
Midterm Examination

INSTRUCTIONS: Select the best answer for each of the following questions. Mark only one answer
for each item . Show solutions in good form if applicable.

1. The relationship between cost and activity is termed:

A. cost estimation.
B. cost prediction.
C. cost behavior.
D. cost analysis.
E. cost approximation.

2. Which of the following costs changes in direct proportion to a change in the activity level?
A. Variable cost.
B. Fixed cost.
C. Semivariable cost.
D. Step-variable cost.
E. Step-fixed cost.

3. Montgomery Company has a variable selling cost. If sales volume increases, how will the total
variable cost and the variable cost per unit behave?
Total Variable Cost Variable Cost Per Unit
A. Increase Increase
B. Increase Remain constant
C. Increase Decrease
D. Remain constant Decrease
E. Decrease Increase

4. Plaza Corporation observed that when 25,000 units were sold, a particular cost amounted to $70,000, or
$2.80 per unit. When volume increased by 15%, the cost totaled $80,500 (i.e., $2.80 per unit). The
cost that Plaza is studying can best be described as a:
A. variable cost.
B. fixed cost.
C. semivariable cost.
D. discretionary fixed cost.
E. step-fixed cost.

5. A company observed a decrease in the cost per unit. All other things being equal, which of the
following is probably true?
A. The company is studying a variable cost, and total volume has increased.
B. The company is studying a variable cost, and total volume has decreased.
C. The company is studying a fixed cost, and total volume has increased.
D. The company is studying a fixed cost, and total volume has decreased.
E. The company is studying a fixed cost, and total volume has remained constant.

6. Webster has the following budgeted costs at its anticipated production level (expressed in hours):
variable overhead, $150,000; fixed overhead, $240,000. If Webster now revises its anticipated
production slightly downward, it would expect:
A. total fixed overhead of $240,000 and a lower hourly rate for variable overhead.
B. total fixed overhead of $240,000 and the same hourly rate for variable overhead.
C. total fixed overhead of $240,000 and a higher hourly rate for variable overhead.
D. total variable overhead of less than $150,000 and a lower hourly rate for variable overhead.
E. total variable overhead of less than $150,000 and a higher hourly rate for variable overhead.

7. When graphed, a typical variable cost appears as:

A. a horizontal line.
B. a vertical line.
C. a u-shaped line.

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 D. a diagonal line that slopes downward to the right.
E. a diagonal line that slopes upward to the right.

8. Norman Company pays a sales commission of 5% on each unit sold. If a graph is prepared, with the
vertical axis representing per-unit cost and the horizontal axis representing units sold, how would a line
that depicts sales commissions be drawn?
A. As a straight diagonal line, sloping upward to the right.
B. As a straight diagonal line, sloping downward to the right.
C. As a horizontal line.
D. As a vertical line.
E. As a curvilinear line.

9. When graphed, a typical fixed cost appears as:

A. a horizontal line.
B. a vertical line.
C. a u-shaped line.
D. a diagonal line that slopes downward to the right.
E. a diagonal line that slopes upward to the right.

10. Costs that remain the same over a wide range of activity, but jump to a different amount outside that
range, are termed:
A. step-fixed costs.
B. step-variable costs.
C. semivariable costs.
D. curvilinear costs.
E. mixed costs.

11. Straight-line depreciation is a typical example of a:

A. variable cost.
B. step-variable cost.
C. fixed cost.
D. mixed cost.
E. curvilinear cost.

12. Douglas Corporation recently produced and sold 100,000 units. Fixed costs at this level of activity
amounted to $50,000; variable costs were $100,000. How much cost would the company anticipate if
during the next period it produced and sold 102,000 units?
A. $150,000.
B. $151,000.
C. $152,000.
D. $153,000.
E. Some other amount not listed above.

13. Extron, Inc., has only variable costs and fixed costs. A review of the company's records disclosed that
when 100,000 units were produced, fixed manufacturing costs amounted to $200,000 and the cost per
unit manufactured totaled $5. On the basis of this information, how much cost would the firm
anticipate at an activity level of 97,000 units?
A. $485,000.
B. $491,000.
C. $494,000.
D. $500,000.
E. Some other amount not listed above.

14. The relevant range is that range of activity:

A. where a company achieves its maximum efficiency.
B. where units produced equal units sold.
C. where management expects the firm to operate.
D. where the firm will earn a profit.
E. where expected results are abnormally high.

15. Within the relevant range of activity, costs:

A. can be estimated with reasonable accuracy.
B. can be expected to change radically.
C. exhibit decreasing marginal cost patterns.
D. exhibit increasing marginal cost patterns.
E. cannot be estimated satisfactorily.

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16. Within the relevant range, a curvilinear cost function can sometimes be graphed as a:
A. straight line.
B. jagged line.
C. vertical line.
D. curved line.
E. horizontal line.

17. Property taxes are an example of a(n):

A. committed fixed cost.
B. committed variable cost.
C. discretionary fixed cost.
D. discretionary variable cost.
E. engineered cost.

18. CVP analysis can be used to study the effect of:

A. changes in selling prices on a company's profitability.
B. changes in variable costs on a company's profitability.
C. changes in fixed costs on a company's profitability.
D. changes in product sales mix on a company's profitability.
E. all of the above.

19. The break-even point is that level of activity where:

A. total revenue equals total cost.
B. variable cost equals fixed cost.
C. total contribution margin equals the sum of variable cost plus fixed cost.
D. sales revenue equals total variable cost.
E. profit is greater than zero.

20. The unit contribution margin is calculated as the difference between:

A. selling price and fixed cost per unit.
B. selling price and variable cost per unit.
C. selling price and product cost per unit.
D. fixed cost per unit and variable cost per unit.
E. fixed cost per unit and product cost per unit.

21. Which of the following would produce the largest increase in the contribution margin per unit?
A. A 7% increase in selling price.
B. A 15% decrease in selling price.
C. A 14% increase in variable cost.
D. A 17% decrease in fixed cost.
E. A 23% increase in the number of units sold.

22. Which of the following would take place if a company experienced an increase in fixed costs?
A. Net income would increase.
B. The break-even point would increase.
C. The contribution margin would increase.
D. The contribution margin would decrease.
E. More than one of the above events would occur.

23. Assuming no change in sales volume, an increase in a firm's per-unit contribution margin would:
A. increase net income.
B. decrease net income.
C. have no effect on net income.
D. increase fixed costs.
E. decrease fixed costs.

24. A company that desires to lower its break-even point should strive to:
A. decrease selling prices.
B. reduce variable costs.
C. increase fixed costs.
D. sell more units.
E. pursue more than one of the above actions.

25. A company has fixed costs of $900 and a per-unit contribution margin of $3. Which of the following
statements is (are) true?
A. Each unit "contributes" $3 toward covering the fixed costs of $900.
B. The situation described is not possible and there must be an error.
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 C. Once the break-even point is reached, the company will make money at the rate of $3 per unit.
D. The firm will definitely lose money in this situation.
E. Statements "A" and "C" are true.

26. Sanderson sells a single product for $50 that has a variable cost of $30. Fixed costs amount to $5 per
unit when anticipated sales targets are met. If the company sells one unit in excess of its break-even
volume, the bottom-line profit will be:
A. $15.
B. $20.
C. $50.
D. an amount that cannot be derived based on the information presented.
E. an amount other than those in choices "A," "B," and "C" but one that can be derived based on the
information presented.

27. At a volume of 15,000 units, Boston reported sales revenues of $600,000, variable costs of $225,000,
and fixed costs of $120,000. The company's contribution margin per unit is:
A. $17.
B. $25.
C. $47.
D. $55.
E. an amount other than those above.

28. A recent income statement of Banks Corporation reported the following data:

Sales revenue $8,000,000

Variable costs 5,000,000
Fixed costs 2,200,000

If these data are based on the sale of 20,000 units, the contribution margin per unit would be:
A. $40.
B. $150.
C. $290.
D. $360.
E. an amount other than those above.

29. A recent income statement of Fox Corporation reported the following data:

Sales revenue $3,600,000

Variable costs 1,600,000
Fixed costs 1,000,000

If these data are based on the sale of 10,000 units, the break-even point would be:
A. 2,000 units.
B. 2,778 units.
C. 3,600 units.
D. 5,000 units.
E. an amount other than those above.

30. A recent income statement of Yale Corporation reported the following data:

Sales revenue $2,500,000

Variable costs 1,500,000
Fixed costs 800,000

If these data are based on the sale of 5,000 units, the break-even sales would be:
A. $2,000,000.
B. $2,206,000.
C. $2,500,000.
D. $10,000,000.
E. an amount other than those above.

31. Lawton, Inc., sells a single product for $12. Variable costs are $8 per unit and fixed costs total
$360,000 at a volume level of 60,000 units. Assuming that fixed costs do not change, Lawton's break-
even point would be:
A. 30,000 units.
B. 45,000 units.
C. 90,000 units.
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 D. negative because the company loses $2 on every unit sold.
E. a positive amount other than those given above.

32. Green, Inc., sells a single product for $20. Variable costs are $8 per unit and fixed costs total $120,000
at a volume level of 5,000 units. Assuming that fixed costs do not change, Green's break-even sales
would be:
A. $160,000.
B. $200,000.
C. $300,000.
D. $480,000.
E. an amount other than those above.

33. Orion recently reported sales revenues of $800,000, a total contribution margin of $300,000, and fixed
costs of $180,000. If sales volume amounted to 10,000 units, the company's variable cost per unit must
have been:
A. $12.
B. $32.
C. $50.
D. $92.
E. an amount other than those above.

34. Strand has a break-even point of 120,000 units. If the firm's sole product sells for $40 and fixed costs
total $480,000, the variable cost per unit must be:
A. $4.
B. $36.
C. $44.
D. an amount that cannot be derived based on the information presented.
E. an amount other than those in choices "A," "B," and "C" but one that can be derived based on the
information presented.

35. Ribco Co., makes and sells only one product. The unit contribution margin is $6 and the break-even
point in unit sales is 24,000. The company's fixed costs are:
A. $4,000.
B. $14,400.
C. $40,000.
D. $144,000.
E. an amount other than those above.

36. The contribution-margin ratio is:

A. the difference between the selling price and the variable cost per unit.
B. fixed cost per unit divided by variable cost per unit.
C. variable cost per unit divided by the selling price.
D. unit contribution margin divided by the selling price.
E. unit contribution margin divided by fixed cost per unit.

37. At a volume level of 500,000 units, Sullivan reported the following information:

Sales price $60

Variable cost per unit 20
Fixed cost per unit 4

The company's contribution-margin ratio is:

A. 0.33.
B. 0.40.
C. 0.60.
D. 0.67.
E. an amount other than those above.

38. Which of the following expressions can be used to calculate the break-even point with the contribution-
margin ratio (CMR)?
A. CMR ÷ fixed costs.
B. CMR x fixed costs.
C. Fixed costs ÷ CMR.
D. (Fixed costs + variable costs) x CMR.
E. (Sales revenue - variable costs) ÷ CMR.

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 39. A recent income statement of Oslo Corporation reported the following data:

Units sold 8,000

Sales revenue $7,200,000
Variable costs 4,000,000
Fixed costs 1,600,000

If the company desired to earn a target net profit of $480,000, it would have to sell:
A. 1,200 units.
B. 2,800 units.
C. 4,000 units.
D. 5,200 units.
E. an amount other than those above.

40. Yellow, Inc., sells a single product for $10. Variable costs are $4 per unit and fixed costs total
$120,000 at a volume level of 10,000 units. What dollar sales level would Yellow have to achieve to
earn a target net profit of $240,000?
A. $400,000.
B. $500,000.
C. $600,000.
D. $750,000.
E. $900,000.

41. The following information relates to Day Company:

Sales revenue $12,000,000

Contribution margin 4,800,000
Net income 800,000

Day's operating leverage factor is:

A. 0.067.
B. 0.167.
C. 0.400.
D. 2.500.
E. 6.000.

42. The following information relates to Paterno Company:

Sales revenue $10,000,000

Contribution margin 4,000,000
Net income 1,000,000

If a manager at Paterno desired to determine the percentage impact on net income of a given percentage
change in sales, the manager would multiply the percentage increase/decrease in sales revenue by:
A. 0.25.
B. 0.40.
C. 2.50.
D. 4.00.
E. 10.00.

Use the following to answer questions 43-44:

Edco Company produced and sold 45,000 units of a single product last year, with the following results:

Sales revenue $1,350,000

Manufacturing costs:
Variable 585,000
Fixed 270,000
Selling costs:
Variable 40,500
Fixed 54,000
Administrative costs:
Variable 184,500
Fixed 108,000

43. Edco's operating leverage factor was:

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 A. 4.
B. 5.
C. 6.
D. 7.
E. 8.

44. If Edco's sales revenues increase 15%, what will be the percentage increase in income before income
taxes?
A. 15%.
B. 45%.
C. 60%.
D. 75%.
E. An amount other than those above.

45. At the break even point, the contribution margin equals total
a. variable costs
b. sales revenues
c. selling and administrative costs
d. fixed costs

46. The most likely strategy to reduce the break-even point would be
a. increase both the fixed costs and the contribution margin
b. decrease both the fixed costs and the contribution margin
c. decrease the fixed costs and increase the contribution margin
d. increase the fixed costs and decrease the contribution margin

47. Del Co. has fixed costs of P100,000 and breakeven sales of P80,000. What is the projected
profit at P1,200,000 sales?
a. 50,000
b. 150,000
c. 200,000
d. 400,000

48. Associated Supply, Inc. is considering introducing a new product that will require a P250,000
investment of capital. The necessary funds would be raised through a bank loan at an interest
rate of 8%. The fixed operating costs associated with the product would be P122,500 while the
contribution margin percentage would be 42%. Assuming a selling price of P15 per unit,
determine the number of units(rounded to the nearest whole unit) Associated would have to
sell to generate earnings before interest and taxes(EBIT) of 32% of the amount of capital
invested in the product.
a. 35,318 units
b. 32,143 units
c. 25,575 units
d. 23,276 units

49. During 2010, Thor Lab supplied hospital with a comprehensive diagnostic kit for P120. At a
volume of 80,000 kits, Thor had fixed cost of P1,000,000 and a profit before income taxes of
P200,000. Due to an adverse legal decision, Thor’s 2011 liability insurance increased by
P1,200,000 over 2010. Assuming the volume and other costs are unchanged, what should the
2011, price be if Thor is to make the same P200,000 profit before income taxes?
a. P120.00
b. P135.00
c. P150.00
d. P240.00

50. Breakeven analysis assumes that over the relevant range

a. unit revenues are nonlinear
b. unit variable costs are unchanged
c. total costs are unchanged
d. total fixed costs are nonlinear

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51. Product Cott has sales of P200,000, a contribution margin of 20%, and a margin of safety of
P80,000. What is Cott’s fixed cost?
a. P16,000
b. P24,000
c. P80,000
d. P96,000

52. On January 1, 2010, Lake Co. increased its direct manufacturing labor wage rates. All other
budgeted costs and revenues were unchanged. How did this increase affect Lake’s budgeted
breakeven point and budgeted margin safety?
Budgeted Budgeted
Breakeven point margin of safety
a. increase increase
b. increase decrease
c. decrease decrease
d. decrease increase

53. Thomas Company sells products X, Y, and Z. Thomas sells three units of X for each unit of Z,
and two units of Y for each unit of X. The contribution margins are P1.00 per unit of X, P1.50
per unit of Y, and P3.00 per unit of Z. Fixed costs are P600,000. How many units of X would
Thomas sell at the break even point?
a. 40,000
b. 120,000
c. 360,000
d. 400,000

54. Which of the following can influence a company's pricing decisions?

A. Manufacturing costs.
B. Competitors.
C. Customer demand.
D. Pricing laws.
E. All of the above.

55. Which of the following choices correctly denotes factors that can influence a company's pricing
practices for goods and services?
Market Customer
Conditions Costs Demand
A. No Yes Yes
B. No Yes No
C. Yes Yes Yes
D. Yes Yes No
E. Yes No Yes

56. Which of the following is not a major influence on pricing decisions?

A. Planning and control policies of the firm.
B. Customer demand.
C. Costs.
D. Competitors.
E. Political, legal, and image-related issues.

57. Consider the following statements about pricing:

I.Prices are often determined by the market, subject to the constraint that costs must be covered in the
long run.
II.Prices are often based on costs, subject to the constraint that customers and competitors will exert an
influence.
III.A balance of market forces and cost is important when making pricing decisions.

Which of the above statements is (are) true?

A. I only.
B. II only.
C. I and III.
D. II and III.
E. I, II, and III.
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58. Managerial accountants:
A. rarely become involved in an organization's decision-making activities.
B. make decisions that focus solely on an organization's accounting matters.
C. collect data and provide information so that decisions can be made.
D. often serve as a cross-functional team member, making a wide range of decisions.
E. become involved in activities "C" and "D."

59. Factors in a decision problem that cannot be expressed in numerical terms are:
A. qualitative in nature.
B. quantitative in nature.
C. predictive in nature.
D. sensitive in nature.
E. uncertain in nature.

60. At which step or steps in the decision-making process do qualitative considerations generally have the
greatest impact?
A. Specifying the criterion and identifying the alternatives.
B. Developing a decision model.
C. Collecting the data.
D. Making a decision.
E. Identifying the alternatives.

61. An accounting information system should be designed to provide information that is useful. To be
useful the information must be:
A. qualitative rather than quantitative.
B. unique and unavailable through other sources.
C. historical in nature and not purport to predict the future.
D. marginal between two alternatives.
E. relevant, accurate, and timely.

62. To be useful in decision making, information should possess which of the following characteristics?
Relevance Accuracy Timeliness
A. Yes No Yes
B. Yes Yes No
C. Yes Yes Yes
D. No Yes Yes
E. No No Yes

63. A trade-off in a decision situation sometimes occurs between information:

A. accuracy and relevance.
B. relevance and uniqueness.
C. accuracy and timeliness.
D. sensitivity and accuracy.
E. sensitivity and relevance.

64. Which of the following best defines the concept of a relevant cost?
A. A past cost that is the same among alternatives.
B. A past cost that differs among alternatives.
C. A future cost that is the same among alternatives.
D. A future cost that differs among alternatives.
E. A cost that is based on past experience.

65. Consider the following costs and decision-making situations:

I.The cost of existing inventory, in a keep vs. disposal decision.

II.The cost of special electrical wiring, in an equipment acquisition decision.
III.The salary of a supervisor who will be transferred elsewhere in the organization, in a department-
closure decision.

Which of the above costs is (are) relevant to the decision situation noted?
A. I only.
B. II only.
C. III only.
D. I and II.
E. II and III.

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66. The following costs are relevant to the decision situation cited except:
A. the cost of hiring a full-time staff attorney, in a decision to establish an in-house legal department
or retain the services of a prominent law firm.
B. the remodeling cost of existing office space, in a firm's decision to stay at its current location or
move to a new building.
C. the long-term salary costs demanded by Joe Torrez (a superstar) and Rip Moran (an average player)
in baseball contract negotiations, in a decision that determines the amounts by which ticket prices
must be raised.
D. the cost to enhance an airline's Web site, in a decision to expand existing service to either Salt Lake
City or Phoenix.
E. the commissions that could be earned by a salesperson, in a decision that involves salesperson
compensation methods (i.e., commissions or flat monthly salaries).

67. Which of the following costs can be ignored when making a decision?
A. Opportunity costs.
B. Differential costs.
C. Sunk costs.
D. Relevant costs.
E. All future costs.

68. The cost of inventory currently owned by a firm is an example of a(n):

A. opportunity cost.
B. sunk cost.
C. relevant cost.
D. differential cost.
E. future cost.

69. An opportunity cost may be described as:

A. a forgone benefit.
B. an historical cost.
C. a specialized type of variable cost.
D. a specialized type of fixed cost.
E. a specialized type of semivariable cost.

70. The term "opportunity cost" is best defined as:

A. the amount of money paid for an item.
B. the amount of money paid for an item, taking inflation into account.
C. the amount of money paid for an item, taking possible discounts into account.
D. the benefit associated with a rejected alternative when making a choice.
E. an irrelevant decision factor.

71. A factory that makes a part has significant idle capacity. The factory's opportunity cost of making this
part is equal to:
A. the variable manufacturing cost per unit.
B. the fixed manufacturing cost per unit.
C. the semivariable cost per unit.
D. the total manufacturing cost per unit.
E. zero.

72. Susan is contemplating a job offer with an advertising agency where she will make $54,000 in her first
year of employment. Alternatively, Susan can begin to work in her father's business where she will
earn an annual salary of $38,000. If Susan decides to work with her father, the opportunity cost would
be:
A. $0.
B. $38,000.
C. $54,000.
D. $92,000.
E. irrelevant in deciding which job offer to accept.

73. Which of the following costs should be used when choosing between two decision alternatives?
Relevant Sunk Opportunity
Cost Cost Cost
A. No Yes No
B. No Yes Yes
C. Yes No No
D. Yes No Yes
E. Yes Yes Yes
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74. A special order generally should be accepted if:
A. its revenue exceeds allocated fixed costs, regardless of the variable costs associated with the order.
B. excess capacity exists and the revenue exceeds all variable costs associated with the order.
C. excess capacity exists and the revenue exceeds allocated fixed costs.
D. the revenue exceeds total costs, regardless of available capacity.
E. the revenue exceeds variable costs, regardless of available capacity.

75. Two months ago, Victory purchased 4,500 pounds of Hydrol, paying $15,300. The market for this
product has been very strong since the acquisition, with the market price jumping to $4.05 per pound.
(Victory can buy or sell Hydrol at this price.) The company recently received a special-order inquiry,
one that would require the use of 4,200 pounds of Hydrol. Which of the following is (are) relevant in
deciding whether to accept the special order?
A. The 300-pound remaining inventory of Hydrol.
B. The $4.05 market price.
C. The $3.40 purchase price.
D. 4,500 pounds of Hydrol.
E. More than one of the above factors are relevant.

76. Snider, Inc., which has excess capacity, received a special order for 4,000 units at a price of $15 per
unit. Currently, production and sales are budgeted for 10,000 units without considering the special
order. Budget information for the current year follows.

Sales $190,000
Less: Cost of goods sold 145,000
Gross margin $ 45,000

Cost of goods sold includes $30,000 of fixed manufacturing cost. If the special order is accepted, the
company's income will:
A. increase by $2,000.
B. decrease by $2,000.
C. increase by $14,000.
D. decrease by $14,000.
E. change by some other amount.

77. CompTronics, a manufacturer of computer peripherals, has excess capacity. The company's Utah plant
has the following per-unit cost structure for item no. 89:

Variable manufacturing $40

Fixed manufacturing 15
Variable selling 8
Fixed selling 11
Traceable fixed administrative 4
Allocated administrative 2

The traceable fixed administrative cost was incurred at the Utah plant; in contrast, the allocated
administrative cost represents a "fair share" of CompTronics' corporate overhead. Utah has been
presented with a special order of 5,000 units of item no. 89 on which no selling cost will be incurred.
The proper relevant cost in deciding whether to accept this special order would be:
A. $40.
B. $59.
C. $61.
D. $80.
E. some other amount.

78. Donnelly, a division of Dakota Enterprises, currently makes 100,000 units of a product that has created
a number of manufacturing problems. Donnelly's costs follow.

Manufacturing costs:
Variable $420,000
Fixed 150,000
Allocated corporate administrative cost 70,000

If Donnelly were to discontinue production, fixed manufacturing costs would be reduced by 80%. The
relevant cost of deciding whether the division should purchase the product from an outside supplier is:
A. $420,000.
B. $490,000.
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 C. $540,000.
D. $570,000.
E. $640,000.

79. Maddox, a division of Stanley Enterprises, currently performs computer services for various
departments of the firm. One of the services has created a number of operating problems, and
management is exploring whether to outsource the service to a consultant. Traceable variable and fixed
operating costs total $80,000 and $25,000, respectively, in addition to $18,000 of corporate
administrative overhead allocated from Stanley. If Maddox were to use the outside consultant, fixed
operating costs would be reduced by 70%. The irrelevant costs in Maddox's outsourcing decision total:
A. $17,500.
B. $18,000.
C. $25,000.
D. $25,500.
E. some other amount.

80. Clay Co. has considerable excess manufacturing capacity. A special job order’s cost sheet
includes the following applied manufacturing overhead costs:
Fixed costs P 21,000
Variable costs 33,000

The fixed costs include a normal P3,700 allocation for in-house design costs, although no in-
house design will be done. Instead the job will require the use of external designer costing
P7,570. What is the total amount to be included in the calculation to determine the minimum
acceptable price for the job?
A. P36,700
B. P40,750
C. 54,000
D. 58,050

81. For the year ended December 31, 2021, Abel Co. incurred direct costs of P500,000 based on a
particular course of action during the year. If a different course of action had been taken, direct
cost would have been P400,000. In addition, Abel’s 2021 fixed costs were P90,000. The
incremental cost was
A. 10,000
B. 90,000
C. 100,000
D. 190,000

82. Mili Co. plans to discontinue a division with a P20,000 contribution margin. Overhead
allocated to the division is P50,000 of which P5,000 cannot be eliminated. The effect of this
discontinuance on Mili’s pretax income would be an increase of
A. 5,000
B. 20,000
C. 25,000
D. 30,000

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