Second Pre-board Set A

1. If the total materials variance for a given operation is

favorable, why must this variance be further evaluated as to
price and usage? 
A. There is no need to further evaluate the total materials
variance if it is favorable.
B. Generally accepted accounting principles require that all
variances be analyzed in three stages.
C. All variances must appear in the annual report to equity
owners for proper disclosure.
D. A further evaluation lets management evaluate the activities
of the purchasing and production functions.

2. Which of the following is the most probable reason a company

would experience an unfavorable labor rate variance and a
favorable labor efficiency variance? 
A. The mix of workers assigned to the particular job was heavily
weighted towards the use of higher paid experienced individuals.
B. The mix of workers assigned to the particular job was heavily
weighted towards the use of new relatively low paid unskilled
workers.
C. Because of the production schedule, workers from other
production areas were assigned to assist this particular process.
D. Defective materials caused more labor to be used in order to
produce a standard unit.

3. The variable overhead price variance is due to 

A. price items only.
B. efficiency items only.
C. both price and efficiency items.
D. neither price or efficiency items.

4. The production volume variance is computed by the difference

between the 
A. actual fixed overhead and applied fixed overhead.
B. actual fixed overhead and budget at actual level of activity
reached.
C. actual fixed overhead and budget at denominator level of
activity planned.
D. budget at actual levels of activity reached and fixed overhead
applied.

5. The production volume variance must be computed when a company

uses 
A. activity-based costing.
B. process costing.
C. full-absorption costing.
D. variable costing.

6. Which of these variances is least significant for cost

control? 
A. labor price variance
B. material quantity variance
C. fixed overhead price variance
D. production volume variance
7. A debit balance in the labor-efficiency variance account
indicates that 
A. standard hours exceed actual hours.
B. actual hours exceed standard hours.
C. standard rate and standard hours exceed actual rate and actual
hours.
D. actual rate and actual hours exceed standard rate and standard
hours.

8. The Redrock Company uses flexible budgeting for cost control.

Redrock produced 10,800 units of product during October,
incurring indirect material costs of P13,000. Its master budget
for the reflected indirect material costs of P180,000 at a
production volume of 144,000 units. What was the flexible budget
variance for the indirect material costs in October? 
A. P1,100 favorable
C. P2,000 favorable
C. P2,000 unfavorable
D. P500 favorable

 Data on Goodman Company's direct-labor costs are given below:

  
 
9. What was Goodman's standard direct-labor rate? 
A. $3.54
B. $3.80
C. $4.00
D. $5.80

10. Blue Company produces Trivets. Based on its master budget,

the company should produce 1,000 Trivets each month, working
2,500 direct labor hours. During May, only 900 Trivets were
produced. The company worked 2,400 direct labor hours. The
standard hours allowed for May production would be 
A. 2,500 hours.
B. 2,400 hours.
C. 2,250 hours.
D. 1,800 hours.

 Information on Barber Company's direct labor costs for the month

of January is as follows:

  
 
11. What is Barber's direct labor price (rate) variance? 
A. $17,250
B. $20,700
C. $18,750
D. $21,000
12. Information for Nighttime Company's direct labor cost for
February is as follows:

  

What were the standard direct labor hours for February? 

A. 70,000
B. 69,000
C. 72,000
D. 71,400

   
 
13. What is the fixed overhead spending (budget) variance? 
A. $200
B. $400
C. $300
D. $240

14. What is the production volume variance? 

A. $200
B. $400
C. $300
D. $240

15. What is the fixed overhead spending (budget) variance for

May? 
A. $1,000 unfavorable
B. $3,000 unfavorable
C. $2,000 unfavorable
D. $2,000 favorable

16. Which of the following statements is (are) true regarding the

master budget?
(A) A master budget consists of (a) organizational goals, (b)
strategic long-range profit plan, and (c) tactical short-range
profit plan.
(B) A master budget consists of only a budgeted (a) income
statement, (b) balance sheet, and (c) stockholder's equity
statement. 
A. Only A is true.
B. Only B is true.
C. Both A and B are true.
D. Neither A nor B is true.
17. Budgetary slack can best be defined as 
A. underestimation of budgeted expenses.
B. underestimation of budgeted revenues.
C. overestimation of long-term assets.
D. overestimation of current liabilities.

18. Which of the following statements is (are) true regarding the

benefits associated with participative budgeting?
(A) Goal congruence by divisions means top management need not be
concerned with overall profitability.
(B) Budget assumptions and estimates are prepared by those
closest to the budgeted activity. 
A. Only A is true.
B. Only B is true.
C. Both A and B are true.
D. Neither A nor B is true.

19. The starting point in preparing a comprehensive budget for a

manufacturing company limited by its ability to produce and not
by its ability to sell is 
A. a sales forecast.
B. an estimate of productive capacity.
C. an estimate of cash receipts and disbursements.
D. a projection of fixed asset acquisitions.

20. The amount of materials to be purchased during the budget

period is equal to budgeted 
A. total production needs plus units in the beginning materials
inventory minus the units in the ending materials inventory.
B. total production needs plus units in the ending materials
inventory minus the units in the beginning materials inventory.
C. units to be produced plus units in the beginning materials
inventory minus the units in the ending materials inventory.
D. units to be produced plus units in the ending materials
inventory minus the units in the beginning materials inventory.

21. The manufacturing overhead budget requires that costs be

separated into their fixed and variable components. Another
budget that has this requirement is the 
A. direct labor.
B. direct materials.
C. cost of goods sold.
D. marketing and administrative expenses.

22. Which of the following statements does not reflect a

difficulty in preparing the marketing and administrative budget? 
A. Managers have discretion about how much money is spent.
B. Managers have discretion about the timing of when money is
spent.
C. Marketing and administrative expenses are made up of fixed and
variable items.
D. Marketing and administrative expenses normally have a one year
time horizon.

23. Which of the following budgets is not required in a wholesale

organization? 
A. cash
B. sales
C. production
D. cost of goods sold
24. The Sledge Hammer Company manufactures a line of high quality
tools. The company sold 1,000,000 hammers at a price of P4 per
unit last year. The company estimates that this volume represents
a 20% share of the current hammers market. The market is expected
to increase by 5%. Marketing specialists have determined that, as
a result of a new advertising campaign and packaging, the company
will increase its share of this larger market to 24%. Due to
changes in prices, the new price for the hammer will be P4.30 per
unit. This new price is expected to be in line with the
competition and have no effect on the volume estimates. What are
the estimated sales revenues in the coming year? 
A. P5,040,000.
B. P5,160,000.
C. P5,418,000.
D. P5,689,000.

25. TRS is a large securities dealer. Last year, the company made

120,000 trades with an average commission of P120. Because of the
general economic climate, TRS expects trade volume to decline by
20%. Fortunately, the average commission per trade is likely to
increase by 10% because trades are expected to be large in the
coming year. What are the estimated commission's revenues for TRS
in the coming year? 
A. P11,520,000
B. P12,672,000
C. P15,552,000
D. P15,840,000

26. TLC Credit, Inc. has P35.0 million in consumer loans with an

average interest rate of 12.0%. The bank also has P30.0 million
in home equity loans with an average interest rate of 8.0%.
Finally, the bank owns P5.0 million in corporate securities with
an average interest rate of 6%. Next year, consumer loans will
increase to P40.0 million because of a rate decrease to 10.0%,
while home equity loans will increase to P32.0 million at an
average interest rate of 6.5%. Unfortunately, the investment in
corporate securities will decrease by 20% and the average
interest rate will be only 9.0%. What is TLC's estimated change
in revenues next year? 
A. P460,000 decrease
B. P460,000 increase
C. P700,000 increase
D. P700,000 decrease

 Hawle Manufacturing Company is in the process of preparing its

2010 budget and is anticipating the following changes:
30% increase in the number of units sold
20% increase in the direct material unit cost
15% increase in the direct labor cost per unit
10% increase in the manufacturing overhead cost per unit
14% increase in the selling price
7% increase in the administrative expenses
Hawle does not keep any units in inventory.
The composition of the cost of finished products during 2010 for
materials, direct labor and factory overhead, respectively, was
in the ratio of 3 to 2 to 1. The condensed income statement for
2009 is as follows:
27. What are estimated net sales for 2010, assuming the sales
return/gross sales relationship remains constant? 
A. $646,893
B. $585,000
C. $571,500
D. $567,450

28. What is the estimated cost of goods sold for 2010 assuming

the number of units sold does not change? 
A. $464,100
B. $402,900
C. $397,800
D. $357,000

29. The Tobler Company had budgeted production for the year as

follows:

Four pounds of raw materials are required for each unit produced.
Raw materials on hand at the start of the year total 4,000 lbs.
The raw materials inventory at the end of each quarter should
equal 10% of the next quarter's production needs in materials.
Budgeted purchases of raw materials in the third quarter would be
(in lbs.) 
A. 63,200 lbs.
B. 62,400 lbs.
C. 56,800 lbs.
D. 50,400 lbs.

30. Kaufman Industries has just completed its sales forecasts and

its marketing department estimates that the company will sell
36,000 units during the upcoming year. In the past, management
has maintained inventories of finished goods at approximately
three months' sales. However, the estimated inventory at the
start of the year of the budget period is only 6,000 units. Sales
occur evenly throughout the year. What is the estimated
production level (units) for the first month of the upcoming
budget year? 
A. 12,000
B. 9,000
C. 6,000
D. 3,000
31. Davis Corporation had the following transactions in their
first year of operations:

What is the cash balance at year end? 

A. $150,000
B. $170,000
C. $210,000
D. $280,000

 The Task Company is to begin operations in April. They have

budgeted April sales of P30,000. May sales of P34,000, June sales
of P40,000, July sales of P42,000, and August sales of P38,000.
10% of each month's sales will represent cash sales; 75% of the
balance will be collected in the month following the sale, 17%
the second month, 6% the third month and the balance is bad
debts.
 
32. What is the amount of cash to be collected in the month of
July? 
A. P34,022
B. P38,022
C. P42,000
D. P37,580

33. Assume the Task Company charges 1 1/2% on any balance that is

not collected in the month following the month of sale. This
charge will also change the collection percentages to 15% cash
sales, 80% of the balance collected in the month following the
sale, 16% the second month, 3% the third month. This stricter
credit policy will reduce the estimated sales budgets by 7% each
month. What is the amount of cash to be collected in July? 
A. P39,199
B. P35,312
C. P38,193
D. P36,242

34. The Richburn Manufacturing Company increased its merchandise

inventory by P17,000 over the year. The company also granted its
customers more liberal credit terms which increased the accounts
receivable by P37,500. Sales were P975,000 and the accounts
payable decreased by P27,500. The gross profit on sales is 45%.
Selling and administrative expenses were P145,000; this included
depreciation expense of P4,000. What were the cash disbursements
for the year? 
A. P721,750.
B. P706,500.
C. P689,500.
D. P599,750.
35. A company has the following annual budget data:

What are total budgeted production costs for the year?

A. $2,100,000
B. $2,180,000
C. $2,240,000
D. $2,320,000

36. If a cost is a common cost of the segments on a segmented

income statement, the cost should:
A. be allocated to the segments on the basis of segment sales.
B. not be allocated to the segments.
C. excluded from the income statement.
D. treated as a product cost rather than as a period cost.

37. A national retail company has segmented its income statement

by sales territories. If each sales territory statement is
further segmented by individual stores, which of the following
will most likely occur?
A. some common fixed expenses in the sales territory segmented
statement will become traceable fixed expenses in the individual
store segmented statement.
B. some traceable fixed expenses in the sales territory segmented
statement will become common fixed expenses in the individual
store segmented statement.
C. the sum total of the individual stores' segment margins in
each sales territory will be equal to the segment margin for the
sales territory.
D. both A and C above.

38. Hayworth Company has just segmented last year's income

statements into its ten product lines. The chief executive
officer (CEO) is curious as to what effect dropping one of the
product lines at the beginning of last year would have had on
overall company profit. What is the best number for the CEO to
look at to determine the effect of this elimination on the net
operating income of the company as a whole?
A. the product line's sales dollars.
B. the product line's contribution margin.
C. the product line's segment margin.
D. the product line's segment margin minus an allocated portion
of common fixed expenses.

39. In an income statement segmented by product line, a fixed

expense that cannot be allocated among product lines on a cause-
and-effect basis should be:
A. classified as a variable expense.
B. allocated to the product lines on the basis of sales dollars.
C. allocated to the product lines on the basis of segment margin.
D. classified as a common fixed expense and not allocated.
40. Managerial performance can be measured in many different ways
including return on investment (ROI) and residual income. A good
reason for using residual income instead of ROI is:
A. Residual income can be computed without having to measure
operating assets.
B. Managers are more likely to accept projects that are
beneficial to the company.
C. ROI does not take into account both turnover and margin.
D. A minimum rate of return does not have to be specified when
the residual income approach is used.

41. Which of the following performance measures will decrease if

the minimum required rate of return increases?
Return on Residual
Investment Income
A. Yes Yes
B. No Yes
C. Yes No
D. No No

42. Which of the following would be an argument for using the

gross cost of plant and equipment as part of operating assets in
return on investment computations?
A. It is consistent with the computation of net operating income,
which includes depreciation as an operating expense.
B. It is consistent with the balance sheet presentation of plant
and equipment.
C. It eliminates the age of equipment as a factor in ROI
computations.
D. It discourages the replacement of old, worn-out equipment
because of the dramatic, adverse effect on ROI.

43. Walsh Company has three Stores: X, Y, and Z. During August,

the variable expenses in Store X were P90,000 and the
contribution margin ratio was 25%. Store Y had a contribution
margin of P27,000 and a contribution margin ratio of 20%. Store Z
had variable expenses of P120,000 and a variable expense ratio of
60% of sales. For August, Walsh Company's sales were:
A. P318,000
B. P455,000
C. P485,000
D. P555,000

44. Channing Company has two divisions, S and T. The company's

overall contribution margin ratio is 30% when sales in the two
divisions total P750,000. If variable expenses are P450,000 in
Division S, and if Division S's contribution margin ratio is 25%,
then sales in Division must be:
A. P75,000
B. P150,000
C. P225,000
D. P300,000

45. Insider Company has two divisions, J and K. During March, the
contribution margin in J was P30,000. The contribution margin
ratio in K was 40%, its sales were P125,000, and its segment
margin was P32,000. The common fixed expenses in the company were
P40,000, and the company's net operating income was P18,000. The
segment margin for Division J was:
A. P26,000
B. P32,000
C. P8,000
D. P58,000

46. Davison Inc. consists of two districts, A and B. The company

as a whole had sales of P400,000, a contribution margin ratio of
25% and a combined segment margin totaling P35,000. District A
had sales of P90,000 during May, a contribution margin ratio of
45%, and a segment margin of P16,000. If the net operating income
of Davison Inc. for May is P12,000, the traceable fixed expenses
in District B must have been:
A. P23,000
B. P24,500
C. P49,000
D. P40,500

47. Domingos Company has two product lines, C and J. Line C has
sales of P100,000 during March, a segment margin ratio of 19%,
and traceable fixed expenses of P20,000. The company as a whole
had a contribution margin ratio of 25% and P105,000 in total
contribution margin. Based on this information, total variable
expenses for product J must have been:
A. P61,000
B. P176,000
C. P315,000
D. P254,000

48. Bennett Company has two stores, P and Q. During April, Store P
had a segment margin of P8,000 and variable expenses equal to 65%
of sales. Traceable fixed expenses for Store Q were P18,000.
Bennett Company as a whole had a contribution margin ratio of
40%, a combined segment margin of P20,000, and sales of P180,000.
Given this data, the sales for store Q were:
A. P157,143
B. P60,000
C. P30,000
D. P120,000

49. Given the following data:

Return on investment 25%

Sales P100,000
Average operating assets P40,000
Turnover 2.5
Minimum required rate of return 18%
Margin on sales 10%

The residual income would be:

A. P2,800
B. P0
C. P6,000
D. P8,000

50. The following information relates to last year's operations at

the Paper Division of Germane Corporation:

Minimum required rate of return 15%

Return on investment (ROI) 18%
Sales P810,000
Turnover (on operating assets) 5 times
 What was the Paper Division's net operating income last
year?
A. P24,300
B. P29,160
C. P145,800
D. P162,000

51. Which of the following changes to a company's contribution

income statement will always lower the break-even point (either
in units or in pesos)? 
A. Sales price increases by 10%.
B. Sales price decreases by 5%.
C. Variable costs increase by 10% and fixed costs decrease by 5%.
D. Variable costs decrease by 5% and fixed costs increase by 10%.

52. A decrease in the margin of safety would be caused by a(n): 

A. increase in the total fixed costs.
B. increase in total revenue (sales).
C. decrease in the break-even point.
D. decrease in the variable cost per unit.

53. Which of the following statements is false? 

A. In essence, the value chain and the supply chain are similar;
each creates something for which the customer is willing to pay.
B. Accounting systems are important because they provide all the
information for decisions commonly made by managers.
C. The supply or distribution chain is a linked set of
organizations that exchange goods and services in combination to
provide a final product or service to the customer.
D. Eliminating nonvalue-added activities always reduces costs
without affecting the value of the product to customers.

54. The field of accounting that depends on generally accepted

accounting principles (GAAP) is called 
A. cost accounting.
B. financial accounting.
C. managerial accounting.
D. responsibility accounting.

55. According to the Institute of Management Accountants (IMA),

the final step in resolving an ethical dilemma is to 
A. resign from the organization.
B. call the IMA's ethics hotline.
C. report the circumstances to a local newspaper.
D. consult with an objective, independent advisor.

56. Which of the following is not one of the overarching ethical

principles of the Institute of Management Accountants (IMA) Code
of Ethics? 
A. Competence
B. Responsibility
C. Honesty
D. Objectivity

57. Under full absorption costing, which of the following are

included in product costs? 
A. Only direct materials and direct labor.
B. Only variable manufacturing costs.
C. Only conversion costs.
D. All fixed and variable manufacturing costs.
58. Cheboygan Company has the following unit costs:

Cheboygan produced and sold 10,000 units. If the product sells

for $100, what is the operating profit using a contribution
margin income statement? 
A. $170,000
B. $240,000
C. $290,000
D. $360,000

59. Companies X and Y began operations in 2009 with identical

account balances and their revenues and expenses for the same
year are also identical in amount except that Company X has a
higher ratio of cash to non-cash expenses. If the cash balances
of both companies increase as a result of operations (no
financing or dividends), the ending cash balance of Company X as
compared to Company Y will be
A. higher
B. the same
C. lower
D. cannot be determined

60. A low payout ratio accompanied by a high earnings per share

means that the company
A. plows back its earnings
B. has less working capital requirements
C. has great need for working capital
D. lacks information to make a conclusion

End of examination!