D. Cost To Gather Information Is Increased: Section 2 Theories Chapter 20

SECTION 2
Theories Chapter 20
1. The following are advantages of decentralization except:

a. Leads to gain from quicker decision making
b. Sharpens the focus of subunit managers
c. Aids management development and learning
d. Cost to gather information is increased
2. The process of delegating the decision making authority throughout an organization is called:
a. Segment reporting
b. Centralization
c. Decentralization
d. Segment margin
3. What are the limitations of decentralization?

a. Activities may be duplicated
b. Increases motivation of subunit managers
c. Decisions are best made at that level in an organization where problems and opportunities
arise
d. Creates greater responsiveness to local needs
4. It occurs when costs are improperly assigned among the company’s segments.
a. Cost distortion/cross-subsidization
b. Traceable and fixed cost
c. Sales and contribution
5. The practice of delegating decision-making authority to lower levels of management in a company

called _________.
a. Centralization
b. Decentralization
c. Segment margin
d. Segment reporting
6. Decisions are made at the very top level and lower level managers are charged with implementing
these decisions.
a. Segment reporting
b. Centralization
c. Decentralization
d. Segment margin
7. It represents the margin available after a segment has covered all of its own costs and the best
gauge of the long run profitability of a segment.
a. Segment margin
b. Contribution margin
c. Segment reporting
d. Cost distortion
8. The practice of assigning non-traceable or common costs to segments is another business practice
that leads to distorted segment cost.
a. Omission of costs
b. Inappropriate methods for allocating costs among segments
c. Cross-subsidization
d. Arbitrarily dividing common costs among segments
9. The strategic benefit of centralized approach is:

a. Retains control over key business functions
b. Sharpens the focus of subunit managers
c. Increases motivation of subunit manager
d. Better and faster performance evaluation
10. For many firms, a ________ approach is preferable.

a. Centralized
b. Decentralized
c. Segment
d. Management
11. Which of the ff. statements are advantages of decentralization?
I. Decentralization creates greater responsiveness to local needs
II. Decentralization may be duplicated activities
III. Decentralization leads to gains from quicker decision making
a. I, II
b. II only
c. III, II
d. I, III
12. Which of the ff. statements are limitations of decentralization?

I. Cost to gather information is increased
II. Activities may be duplicated
III. Increases motivation of subunit managers
a. II, III
b. I, III
c. I, II
d. None of the above
13. Statements of income designed to focus on various segments of the company is known as:
a. Segment
b. Decision making
c. Segment margin
d. Segment reporting
14. A ______ is any part or activity of an organization about which manager seeks cost, revenue or
profit data.
a. Segment
b. Profit or loss
c. Subunits
d. Managers
15. The two kinds of fixed costs are:

a. Fixed and variable
b. Traceable and common
c. Actual and standard
d. Direct and indirect
16. Consist of all the major business functions that add value to a company’s products and services.
a. Value chain
b. Arbitrary act
c. Management chain
d. All of the above
17. Which of the ff statements are correct under the problems related to proper cost assignment?
I. Omission of same cost in the assignment process
II. When the company uses inappropriate bases to allocate costs
III. The assignment of cost to segments when they are really common costs.
a. II only
b. Both II and III
c. I only
d. Both I and II
18. A fixed cost is incurred as a consequence of the existence of the segment and could be easily
identified or traced to the particular segment.
a. Common fixed cost
b. Variable cost
c. Traceable fixed cost
d. Direct cost
19. A good example of a common cost which normally could not be assigned to products on a
segmented income statement except on an arbitrary basis would be:
a. Product advertising outlays
b. Salary of a corporation president
c. Direct materials
d. The product manager’s salary
20. All other things being equal, if a division’s traceable fixed expenses increase:
a. The division’s contribution margin ratio will decrease
b. The division’s segment margin ratio will remain the same
c. The division’s segment margin will decrease
d. The overall company profit will remain the same
Problems
1. Devlin Company hast two divisions, C and D. The overall company contribution margin ratio is 30%,
with sales in the two divisions totaling P 500, 000. If variable expenses are P 300, 000 in Division C, and
if Division C’s contribution margin ratio is 25%, then sales in Division D must be:
a. P 50,000 c. P 150,000
b. P 100,000 d. P 200,000
2. 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 on 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. P 318,000 c. P 485,000
b. P 455,000 d. P 555,000
3. Channing Company has two division, 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 P405,000 in Division S, and if
Division S’s contribution margin ratio is 25%, then sales in Division T must be:
a. P 75,000 c. P 225,000
b. P 150,000 d. P 300,000
Questions 4 and 5 are based on the following information.
JTC Company has two sales areas: East and West. During last year, the contribution margin in the East area
was P50,000, or 20% of sales. The segment margin in the West area was P15,000, or 8% of sales. Traceable
fixed cost are P15,000 in the East and P10,000 in the West. During last year, the company reported total net
income P26,000.
4. The total fixed costs (traceable and common) for JTC Company for the year were:
a. P 49,000 c. P 24,000
b. P 25,000 d. P 50,000
5. The variable costs for the West area for the year were:
a. P 230,000 c. P 162,500
b. P 185,000 d. P 65,000
Questions 6 through 9 are based on the following information.
Okinawa company has two stores: D and S. During November, Okinawa Company reported a net income of
P30,000 and sales of P450,000. The contribution margin in Store D was P100,000, or 40% of sales. The
segment margin in Store S was P30,000, or 15% of sales. Traceable fixed expenses are P60,000 in Store D, and
P40,000 in Store S.
6. Sales in Store D totaled:
a. P 400,000 c. P 150,000
b. P250,000 d. P 100,000
7. Variable expenses in Store S totaled:
a. P 70,000 c. P 200,000
b. P 110,000 d. P 130,000
8. Okinawa Company’s total fixed expenses for the year were:
a. P 40,000 c. P 140,000
b. P100,000 d. P 170,000
9. The segment margin ratio in Store D was:
a. 16% c. 40%
b. 24% d. 60%
10. Mamee Company has two divisions, 1 and 2. During July, the contribution margin in Division 1 was
P60,000. The contribution margin ratio in Division 2 was 40% and its sales were P250,000. Division 2’s
segment margin was P60,000. The common fixed expenses were P50,000 and the company net
income was P20,000. The segment margin for Division 1 was:
a. P 0 c. P 50,000
b. P 10,000 d. P 60,000
CHAPTER 21
BUSINESS PLANNING
THEORIES
1. Operating decisions primarily deal with
a. The use of scarce resources.
b. How to obtain funds to acquire resources
c. Acquiring equipment and buildings
d. Satisfying shareholders
2. Financing decisions primarily deal with
a. The use of scarce resources
b. How to obtain funds to acquire resources
c. Acquiring equipment and buildings
d. Satisfying shareholders
3. A limitation of comparing a company’s performance against actual results of last year is that
a. It includes adjustments foir future condition
b. Feedback is no longer a possibility
c. Past results can contain inefficiencies of the past year
d. The budgeting time period is set at one year
4. Challenging business plans tend to

a. Decrease line-management participation in attaining corporate goals
b. Increase failure
c. Increase anxiety without motivation
d. Motivate improved performance
5. Business plan can help implement
a. Strategic planning
b. Long-run planning
c. Short-run planning
d. All of the above
6. To gain the benefits of business planning, ___________________ must understand and support the budget.
a. Management at all levels
b. Customers
c. Suppliers
d. All of the above
7. The sales forecast should be primarily based on
a. Statistical analysis
b. Input from sales managers and sales representative
c. Production capacity
d. Input from the board of directors
8. The sales forecast is influenced by

a. Advertising and sales promotion
b. Competition
c. General economic conditions
d. All of the above
9. A sales forecast is
a. Often the outcome of elaborate information gathering and discussions among sales managers
b. Developed primarily to prepare next year’s marketing campaign
c. Solely based on sales of the previous year
d. A summary of product costs that influence pricing decisions
10. Budgeted production depends on
a. The direct materials usage budget and direct material purchases budget
b. The direct manufacturing labor budget
c. Budgeted sales and expected changes in inventory levels
d. The manufacturing overhead cost budget
11. Budgeted manufacturing overhead costs include all tyoes of factory expenses except
a. Fixed items such as depreciation of manufacturing machinery
b. Variable itmes such as plant supplies
c. Indirect labor such as the salary of the plant supervisor
d. Direct labor and direct materials
12. This portion of the business plang must be designed to capture and hold the interest of the party to whom
the plan is being presented.
a. Cover Sheet
b. Context of the Business
c. Executive Summary
d. Implementation Schedule
13. What are the checklist of items to be included in the Cover Sheet of a Business Plan
I. Business Information
II. Economic Trends
III. Amount of the Capital required
IV. Promotional description of business goals, potential, and outlook
a. I, II, and III c. I, and IV only
b. I, III, and IV d. I, II, III, and IV
14. In this section of the business plan, it is important that the research will determine the strenght of your
analysis
a. Profile of the specific market
b. Context of the business
c. Marketing plan
d. Executive Summary
15. All of the following statements are true about common characteristic of business planning except:
a. Plans are kept simple as possible
b. Plans are flexible enough to change with unexpected events
c. The planning horizon is undefined
d. Planning is approached in an organized manner
16. The four critical areas of marketing plan are:
a. Promotion, Publicity, Advertisement, and Market Research
b. Publicity, Promotion, Merchandising, and Market Research
c. Publicity, Advertisment, Promotion, and Merchandising
d. Promotion, Advertisement, Merchandising, and Market Research
17. Computation trio includes:
a. Profit and Loss Statement, Statement of Financial Position, and Cash Flow Statement
b. Statement of Changes in Equity, Statement of Financial Position, and Cash Flow Statement
c. Profit and Loss Statement, Statement of Financial Position, and Statement of Retained Earnings
d. Statement of Changes in Equity, Statement of Financial Position, and Statement of Retained Earnings
18. Which of the following is a role of the consultant?

a. Evaluate methods for long range planning
b. Suggest techniques to be used in the planning process
c. Develop the methods of planning
d. All of the above
19. All of the following categories focuses on influences that can impact a company except:
a. Internal
b. External
c. Management
d. Business Planning
20. It is establish by the characteristics of the company.
a. Internal
b. External
c. Management
d. Business Planning
PROBLEMS
For numbers 21-24
Amethyst, Inc. expects to manufacture and sell 6,000 ceramic vases for P20 each. Direct materials costs are P2,
direct manufacturing labor is P10, and manufacturing overhead is P3 per vase. The following inventory levels apply to
2017:
Beginning Inventory Ending Inventory
Direct materials 1,000 units 1,000 units
Work-in-progress inventory 0 units 0 units
Finished goods inventory 400 units 500 units
21. On the 2017 budgeted income statement, what amount will be reported for sales?
a. P122,000
b. P118,000
c. P140,000
d. P120,000
22. How many ceramic vases need to be produce in 2017?
a. 5,900 vases
b. 6,100 vases
c. 7,000 vases
d. 6,000 vases
23. On the 2017 budgeted income statement, what amount will be reported for cost of good sold?
a. P 91,500
b. P105,000
c. P 90,000
d. P 85,000
24. What are the 2017 budgeted costs for direct materials, direct manufacturing labor, and manufacturing
overhaed, respectively?
a. P12,200; P61,000; P18,300
b. P12,000; P60,000; P18,000
c. P 2,000; P10,000; P 3,000
d. P 2,000; P 0; P18,000
For numbers 25-30

IMNIDA Company is a manufacturer of bikes. Their regular units are manufactured to meet marketing projections,
and the specialized units are made after an order is received. After the last year operation, the income statement
shows the result for the year 2016.
IMNIDA COMPANY
Income Statement
For the year ended December 31, 2016
Revenues
Sales P 800,000
Cost of goods sold 430,000
Gross Margin P 370,000
Operating Cost
Marketing P 25,000
Distribution 15,000
Administration 50,000
Total operating cost __ 90,000
Operating Income P 280,000
IMNIDA management team is in the process of preparing the 2017 budget and is studying the following information
 Selling prices of bikes are expected to increase by 8%.
 Marketing cost are expected to increase by 5% and the admin cost by 2%.
 Cost of each unit is expected to increase by 5%.
 Distribution cost vary in proportion to the number of units of bikes sold.
 There is no beginning or ending inventory of bikes.
25. On the 2017 budgeted income statement, what amount will be reported for sales and cost of goods sold?
a. 451,000; 864,000
b. 684,000; 541,000
c. 820,000; 430,200
d. 864,000; 451,500
26. Compute for the gross margin of budgeted income statement for 2017.
a. 412,500
b. 413,800
c. 541,200
d. 430.000
27. If the bike sales in unit are expected to increase by 10%, how much will be the budgeted sales?
a. 912,300
b. 848,000
c. 950,400
d. 915,840
28. How much is the total operating cost to be reported in the budgeted income statement for 2017?
a. 90,150
b. 92,250
c. 77,250
d. 41,250
29. If the bike sales in unit are expected to increase by 20%, how much will be the reported distribution cost?
a. 18,000
b. 3,000
c. 16,500
d. 19,000
30. What is the budgeted operating income for 2017?
a. 320,230
b. 320,240
c. 320,250
d. 320,260
CHAPTER 22
Strategic Cost Management; Balanced Scorecard
Theories
1. Involves the development of sustainable competitive position in which the firms competitive advantage provides
continued success.
a. strategic management
b. planning & decision-making
c. operational control
d. management control
2. Involves budgeting and profit planning, cash flow management & other decision related to the firms operation.
a. planning & decision-making
b. strategic planning
c. operational control
d. management control
3. This is a competitive strategy in which a firm succeeds by producing products or services at the lowest cost in the
industry?
a. cost leadership
b. differentiation
c. focus
d. none of the above
4. A cost leader is one who?
a. makes sustainable profit at lowest price
b. has relatively large market & avoids segment market
c. focuses almost exclusively on cost reduction
d. all of the above
5. Competitive strategy in which a firm succeeds by developing and maintaining unique value for the product
a. differentiation
b. focus
c. cost leadership
d. strategic planning
6. Competitive strategy in which a firm succeeds by targeting its affection to a specific segment of market
a. focus
b. differentiation\
c. cost leadership
d. strategic planning
7. Consist of an integrated system of performance measures that are derived from & support the company strategy
a. balanced scorecard
b. financial performance
c. non financial performance
8. Concentrate on current activities which will be the drivers of future financial performance
a. non financial performance
b. financial performance
c. balanced scorecard
9. It is the measures of profitability and market value among others, as indicators of how well the firm satisfies its
owners & shareholders.
a. financial perspective
b. customer satisfaction
c. internal business processes
d. innovation & learning
10. It is the measures of quality service & low cost, among others, as indicators as how well the firm satisfies its
customers.
a. customer satisfaction
b. financial perspective
c. internal business processes
d. innovation & learning
11. It is the measures of the efficiency & effectiveness which the firm produces the product or service.
a. internal business processes
b. innovation & learning
c. financial perspective
d. customer satisfaction
12. It is the measures of the firm’s ability to develop & utilize human resources to meet the strategic goals now & into
the future.
a. innovation & learning
b. financial perspective
c. customer satisfaction
d. internal business processes
13. Many of the measures serve as leading indicators of future financial
performance.
a. non financial
b. operational
c. financial
14. The should focus only on key measures to be used by identifying only the most critical
ones.
a. balanced scorecard
b. leading indicators
c. logging indicators
d. learning and growth perspective
15. What is the focus of evaluating the success of strategy?
a. Comparing actual operating performance over 2 different time periods and explicity linking it to strategic choices.
b. Comparing applied operating performance over 2 different time periods and explicity linking it to strategic choices.
c. Comparing budgeted operating performance over 2 different time periods and explicity linking it to strategic
choices.
d. Comparing actual operating performance over 3 different periods.
16. When does a company considered to be successful in implementing its strategy.
a. When the amounts of the product differentiation, cost leadership and growth components align closely with its
strategy.
b. When the amounts of the product differentiation, cost leadership and growth components align openly with its
strategy.
c. When the amounts of growth components only is align closely with its strategy.
17. Which of the following are not included in the evaluating the success of a strategy?
a. growth component
b. price recovery component
c. productivity component
18. Productivity component computed as:
a. Actual units of inputs or capacity used to produce this year’s output less actual input/ capacity multiply by input
price last year.
b. Output price this year less output price last year multiply by actual units of output sold this year.
c. Input price this year less input price last year multiply by actual units of input or capacity.
d. Actual units of output sold this year less actual unit of output multiply by output price last year.
19. The amount of time work is actually done on the product.
a. process time
b. inspection time
c. queue time
d. move time
20. The time to move materials or partially completed products from workstation to workstation.
a. move time
b. queue tome
c. inspection time
d. process time
Problems
Southwest Company keeps careful track of the time relating to orders and their production. During the most recent
quarter, the following average times were recorded for each unit to order.
Wait time…………………………… 17.0 days
Inspection time……………………… 0.4 days
Process time………………………… 2.0 days
Move time …………………………… 0.6 days
Queue time………………………….. 5.0 days
1. What is the throughput time, or velocity of production?
a. 8.0 days
b. 6.0 days
c. 7.5 days
d. 10.0 days
2. What is the manufacturing cycle efficiency (MCE)?
a. 0.25
b. 0.50
c. 0.75
d. 0.95
3. What is the delivery cycle time?
a. 25.0 days
b. 26.0 days
c. 28.5 days
d. 30.0 days
Lorenzo Corporation has provided the ff. data for one of its products:
Process time………………………………………………. 3 days
Queue time……………………………………………….. 4 days
Inspection time…………………………………………… 0.7 days
Move time………………………………………………… 0.3 days
Wait time………………………………………………….. 9 days
4. The manufacturing cycle efficiency for this operation would be closest to:
a. 0.375
b. 0.45
c. 0.18
d. 0.33
Rainee Manufacturing Corporation has the following information:

Moving time 8 days
Inspection time 2 days
Processing time 10 days
Storage time 30 days
5. What is the total amount of value-added time?
a. 10 days
b. 30 days
c. 40 days
d. 50 days
6. What is the total amount of nonvalue-added time?
a. 40 days
b. 50 days
c. 10 days
d. 30 days
7. What is the product’s cycle time?
a. 50 days
b. 10 days
c. 30 days
d. 40 days
8. What is the manufacturing cycle efficiency?
a. 20%
b. 60%
c. 25%
d. 80%
Nicole Corporation has the following information:

Moving time 10 days
a. 50 days
b. 10 days
c. 35 days
d. 50 days
a. 30%
b. 20%
c. 50%
d. 70%
CHAPTER 23: ADVANCED ANALYSIS AND APPRAISAL OF PERFORMANCE:
FINANCIAL AND NONFINANCIAL
QUIZ
Theories
1. A report that measure financial and nonfinancial performance measures for
various organization units in a single report is called a(n)
a. Balanced scorecard
b. Financial report scorecard
c. Imbalanced scorecard
d. Unbalanced scorecard
2. Customer-satisfaction measures are an example of :

a. Goal-congruence approach
b. Balanced scorecard approach
c. Financial report scorecard approach
d. Investment success approach
3. An example of a performance measure with a long-run time horizon

a. Is direct materials efficiency variances.
b. Is overhead spending variances.
c. Is number of new patents developed
d. Include all of the above measures.
4. Should assets be defined as total assets or net assets? This question is

considered part of which step in designing an accounting-based performance
measure?
a. Choose performance measures that align with top management’s financial goals.
b. Choose the time horizon of each performance measure.
c. Choose a measurement alternative for each performance measure.
5. Should assets be measure at historical cost or current cost? This question is

considered part or which step in designing an accounting-based performance
measure?
a. Choose performance measures that align with top management’s financial goals.
b. Choose the time horizon of each performance measure.
c. Choose a definition for each performance measure.
d. Choose a measurement alternative for each performance measure.
6. Which of the following statements about designing an accounting-based

performance measure is false?
a. The steps may be followed in a random order.
b. The issues considered in each steps are independent.
c. Management’s beliefs are present during the analyses.
d. Behavioral criteria are important when evaluating the steps.
7. The return on investment is usually considered the most popular approach to
incorporating the investment base into a performance measure because
a. It blends all the ingredients of profitability into a single percentage.
b. Once determined, there is no need to use it with other measure of performance.
c. It is similar to the company’s price earnings ratio in that a corporation’s return on
investment appears every day in The Wall Street Journal.
d. Of both (a) and (c).
8. A problem with utilizing residual income that

a. A corporation with a high investment turnover ratio always has a higher residual
income than a corporation with a smaller investment turnover ratio.
b. A corporation with a high return on sales always has a higher residual income
than a corporation with a smaller return on sales.
c. A corporation with a larger peso amount of assets is likely to have a higher
residual income than corporation with smaller peso amount of assets.
d. None of the above are correct.
9. A accompany which favors the residual income approach

a. Wants managers to concentrate on maximizing an absolute amount of pesos.
b. Wants managers to concentrate on maximizing a percentage return.
c. Wants managers to maximize the investment turnover ratio.
d. Wants managers to maximize return on sales.
10. If a company is a multinational company with operations in several different

countries, one way to achieve comparability of historical-cost based on ROIs for
facilities in different countries is
a. Restate the results of operations using the cash basis method of accounting.
b. Use GAAP for all reporting and calculations.
c. Restate the results of all operations in pesos.
d. All of the above would achieve comparability.
11. Team incentives encourage cooperation by

a. Forcing people to work together on difficult tasks.
b. Improving morale.
c. Letting individuals help one another as they strive toward a common goal.
d. Rewarding all teams the same amount.
12. Many manufacturing, marketing, and design problems require employees with
multiple skills; therefore, terms are used and the members have the added
encouragement of
a. Individual incentives
b. Management incentives
c. Morale incentives
d. Team incentives
13. Designers of executive compensation plans emphasize which of the following
factors?
a. Achievement of organization goals
b. Administrative case
c. The probability that the executives affected by the plan will perceive the plan as
fair
d. All of the above are emphasized.
14. Rate of sales growth and number of customers are two examples of critical
performance indicators for which of the following critical success factors?
a. Service
b. Quality
c. Cost
d. Revenue
15. An effective system of performance measurement contains critical performance

indicators that are a reflection of the customer’s perspective, a reflection of the
customer’s validation, a reflection comprehensive information, and a provision for
feedback.
What critical performance indicator is describe by the following statement?
Customer –focused performance measure help organization members manage
activities by concentrating their attention on improving what matters to the
customers.
a. Reflection of the customer’s perspective
b. Reflection of the customer’s validation
c. Reflection of comprehensive information
d. Provision of feedback

indicators that are a reflection of the customer’s perspective, a reflection of the
customer’s validation, a reflection comprehensive information, and a provision for
feedback.
Performance measures should be external, rather than internal and should reflect an
understanding of the difference between the output and outcome of activities.
17. When a firm discovers that sales have been declining because of poor service
and slow delivery schedules, they are receiving a(n):
a. Diagnostic signal
b. Warning signal
c. Supporting signal
d. “green light” signal
measurement contains critical performance indicators that are a reflection of the
customer’s perspective, a reflection of the customer’s validation, a reflection
comprehensive information, and a provision for feedback.
An effective program of performance measurement assesses all facets of relevant
performance so that the decision maker will not trade off relevant, but unmeasured,
facets of performance for performance of measure facets.

What critical performance indicator is concerned with outcomes?

What critical performance indicator uses performance measures as warning and
diagnostic signals?
Problems
1. During the past twelve months, the Seven Corporation had a net income of P
39,200. What is the return on investment if the amount of the investment is P
280,000.
a. 10%
b. 12%
c. 14%
d. 16
2. The Delta Corporation had the following information for 2013:
Revenue P 900,000
Operating expenses 670,000
Total assets 1,150,000
What is the return on investment?
a. 10%
b. 20%
c. 25%
d. 78.2%
The following information applies to questions 3 through 5.
The HZI Corporation reported the following information for its Pasig Division:
Revenues P 1,000,000
Operating Costs 600,000
Taxable income 200,000
Operating assets 500,000
Income is defined as operating income.
3. What is the Pasig Division’s investment turnover ratio?
a. 2.00
b. 3.33
c. 2.50
d. 0.80
4. What is the Pasig Division’s Return on sales?

a. 0.2
b. 0.4
c. 0.5
d. 0.6
5. What is the Pasig Division’s return on investment?

a. 0.2
b. 0.4
c. 0.5
d. 0.8

Federov Company has two sources of funds: long-term debt with a market and book
value of P10 million issued at an interest rate of 12%, and equity capital that has a
market value of P8 million (book value of P4 million). Federov Company has profit
centers in the following locations with the following operating incomes, total assets,
and total liabilities. The cost of equity capital is 12%, while the tax is 25%.
Opearting Current
Income Assets
Liabilities
Tarlac P 960,000 P 4,000,000 P 200,000
Quezon P 1,200,000 P 8,000,000 P 600,000
Manila P 2,040,000 P 12,000,000 P 1,200,000
6. What is the EVA for Tarlac?

a. P255,740
b. P327,460
c. P392,540
d. P720,000
7. What is the EVA for Quezon?

a. P135,580
b. P220,000
c. P234,000
d. P305,000
8. What is the EVA for Manila?

a. P450,000
b. P1,530,000
c. P414,360
d. P1,115,640

The Globe Medical Supply Company has two divisions that operate independently of
one another. The financial data for the year 2013 reported the following results:
Uptown Downtown
Sales P3,000,000 P2,500,000
Operating income 750,000 550,000
Taxable income 650,000 375,000
Investment 6,000,000 5,000,000
The company’s desired rate of return is 10%. Income is defined as operating
income.
9. What are the respective return-on-investment ratios for the Uptown and
Downtown Divisions?
a. 0.110 and 0.125
b. 0.108 and 0.075
c. 0.125 and 0.110
d. 0.050 and 0.150
10. What are the respective residual incomes for the Uptown and downtown
Divisions?
a. P30,000 and P50,000
b. P150,000 and P30,000
c. P150,000 and P50,000
d. P50,000 and a negative P150,000
Theories -- Chapter 26
Multiple choice
1. Implantation of total quality management (TQM) in a firm:

a. Must follow a rigid, predetermined process to be successful
b. Involves some lower-level managers and all senior executives
c. Takes from 3-5 years
d. Is a bottoms-up process, with senior management involved only in the final
phase.
2. The just-in-time manufacturing system is also called the

a. Job in training system
b. Job in transit system
c. Zero cost system
d. Zero inventories system
3. Conformance that requires all products or services to meet exactly the target
value with no variation allowed is
a. Endzone conformance
b. Target conformance
c. Goalpost conformance
d. Absolute quality conformance
4. Examples of the quality cost of prevention include all of the following, except:
a. Tuition for external training
b. Additional tolerance controls for machinery
c. Depreciation of a training room
d. An annual award for lowest rework rate
5. Conformance to quality specification expressed as specified range around a

target is
a. Endzone conformance
b. Target conformance
c. Goalpost conformance
d. Absolute quality conformance
6. Changing to an activity-based costing/management system will not

a. Change the way that resources are allocated
b. Change the way that costs are allocated
c. Change all the people’s jobs
d. Change the way that performance is evaluated
7. Cost quality reports usually do not consider

a. External failure costs.
b. Opportunity costs
c. Internal failure costs
d. Appraisal costs
8. Typically, as prevention costs increase, other costs of quality:

a. Are not affected
b. Change, but the direction cannot be predicted
c. Increase, but at a slower pace
d. Decrease
9. The quality of cost prevention is:

a. Exampled by the cost of servicing warranties
b. Refers only to zero-defect programs
c. An upstream costs
d. A downstream costs
10. These costs are incurred to avoid poor-quality goods or services or reduce the
number of defects in products or services.
a. Appraisal costs
b. Internal failure cost
c. Prevention costs
d. External failure costs
11. These costs, also called inspection costs, are incurred to identify products before
the products are shipped to customers.
a. Appraisal costs
c. Prevention costs
12. These are costs that result from identification of defects during the appraisal
process
a. Appraisal costs
c. Prevention costs
13. These are incurred when poor-quality goods or services are detected after
delivery to customers
a. Appraisal costs
c. Prevention costs
14. The sum of conformance and nonconformance costs

a. Cost of quality
b. Historical costs
c. Appraisal costs
d. Prevention costs
15. Duration from the time a customer places an order for a product or service to the
time the product or service is delivered to the customer
a. PERT
b. Customer-response time
c. On-time performance
d. Benchmarking
16. Which of the following is not a key features of just-in-time production

a. Improving plant layout
b. Targeting zero defects
c. Reducing setup time
d. Investments
17. Refers to situation in which the product or service is actually delivered by the
time it was scheduled to be delivered
a. PERT
d. Benchmarking
18. Also called lean production; demand-pull manufacturing system because each
component in a production line is produced
a. Just-in-time production
d. Benchmarking
19. Fundamental rethinking and redesign of business processes to achieve

improvement in critical measures of performance of cost, quality, service, speed
and customer satisfaction.
d. Reengineering
e. Process of identifying and managing constraint in the making of products or in

providing services.
d. Theory of constraints
Problems
Use the following information to answer questions 1 through 3:
Testing P 60,000
Rework 27,500
Training 45,000
Product liability insurance 35,000
Quality planning 43,000
Customer surveys 15,000
Reinspection and retesting 17,500
Warranty repairs 50,000
Total quality costs P293,000
Sales for 2005 were P1,000,000
1.What is the amount of appraisal costs?

A. P60,000 C. P32,500
B. P92,500 D. P75,000
2. What is the amount of external failure costs?

A. P35,000 C. P50,000
B. P85,000 D. P67,500
3. If Kurt Company is able to reduce quality costs to 2.5 percent of sales, what will
happen to profits?
A. Decrease by P25,000 C. Decrease by P293,000
B. Increase by P268,000 D. Increase by P25,000
Question Nos. 4 and 5 are based on the following:
Prior to installing a JIT system, Friendly Company used machine hours to assign
maintenance costs to its three products of 4-inch, 6-inch, and 9-inch insulation. The
maintenance costs totaled P840,000 per year. The machine hours used by each
product and the quantity produced of each product are as follows:
Machine Hours Quantity Produced
4-inch 6,000 15,000 rolls
6-inch 10,000 12,500 rolls
9-inch 8,000 11,200 rolls
After installing JIT, three manufacturing cells were created and the cell workers were
trained to perform maintenance. Maintenance costs for the three cells still totaled
P840,000; however, these costs are now traceable to each cell.
Cell, 4-inch P220,000
Cell, 6-inch 300,000
4. The maintenance cost per roll of 4-inch insulation before JIT is installed would be
A. P24.00 C. P14.00
B. P17.50 D. P13.16
5. The maintenance cost per roll of 9-inch insulation before JIT is installed would be
A. P17.50 C. P28.57
B. P25.00 D. P75.00
6. Highline Company reported the following costs for the year just ended:
Throughput manufacturing costs P

180,000
Non-throughput manufacturing costs 600,000
Selling and administrative costs 125,00
0
If Highline uses throughput costing and had sales revenues for the period of P
950,000, which of the following choices correctly depicts the company's cost of
goods sold and net income?
Cost of Net
Goods Income
Sold
A. P180,000 P45,000
B. P180,000 P645,000
C P305,000 P45,000
.
D P305,000 P645,000
.
E. Some other combination of figures not listed
above.
7. Coastal Corporation, which uses throughput costing, began operations at the start of
the current year. Planned and actual production equaled 20,000 units, and sales
totaled 17,500 units at P95 per unit. Cost data for the year were as follows:
Direct materials (per unit) P 18

Conversion cost:
Direct labor 160,000
Variable manufacturing 280,000
overhead
Fixed manufacturing overhead 340,000
(total)
The company classifies direct materials as a throughput cost. How much of this cost
would be held in year-end inventory under throughput costing?
a. P1,427,500
b. P1,470,000
c. P1,525,000
d.P 1,570,000
8. The costs that follow appeared on Omaha's quality cost report:
Warranty costs P15,000

Raw-materials inspection 10,000
Quality training 31,000
Customer complaints 5,500
Rework of defective units 12,800
The sum of Omaha's appraisal and internal failure costs is:

a. P10,000.
b. P12,800.
c. P22,800.
d. P68,800.
e. some other amount.
9.The costs that follow appeared on Lexington’s quality cost report:
Warranty costs $19,000
Production stoppages from machine 7,800
breakdowns
The sum of Lexington’s prevention and external failure costs is:

a. P40,000.
b. P49,000.
c. P59,000.
d. P63,100.
10. Chase, Inc., has identified the following selected quality costs:
Warranty costs: P72,000
Employee training: P28,000
Repair of units prior to shipment to customers: P14,000
Quality engineering: P61,000
Product inspection during manufacturing: P35,000
Travel to customer sites to perform repairs: P6,200
The sum of external failure costs is :

a. P89,000.
b. P45,000.
c. P14,000.
d. P78,200.
1. In a decentralization organization who are allowed at various operating levels the
authority to make decisions relating to their area of responsibilities?
a. Managers
b. Employee
c. BOD
d. Auditor
ANSWER : A
2. Who determine when delegation of responsibility (decentralization) is desirable?

a. Subunit Managers
b. Accountant
c. Top Managers
d. Auditor
ANSWER : C
3. A good example of a common cost which normally could not be assigned to products
on a segmented income statement except on an arbitrary basis would be:
a. product advertising outlays
b. salary of a corporation president.
c. direct materials.
d. the product manager’s salary.
ANSWER : B
4. All other things being equal, if a division’s traceable fixed expense increase:
a. the division’s contribution margin ratio will decrease.
b. the division’s segment margin ratio will remain the same.
c. the division’s segment margin will decrease.
d. the overall company profit will remain the same.
ANSWER : C
5. Is an Advantage of Decentralization that speeds decision making, creating a

competitive advantage over centralized organizations.
a. Creates greater responsiveness to local needs
b. Aids management development and learning
c. Leads to gain from quicker decision making.
d. Increases motivation of subunit managers
ANSWER : C
6. Statement of income designed to focus on various segments of the company is
known as?
a. Decentralized
b. Operations
c. Management Development
d. Segment Reporting
ANSWER : D
7. The impact on net operating income of short run changes in sales for a segment can
be most clearly predicted by analyzing:
a. the contribution margin ratio.
b. the segment margin.
c. the ratio of the segment margin to sales.
d. net sales less segment fixed costs.
ANSWER : A
8. In a segmented contribution format income statement, what is the best measure of

the long run profitability of a segment?
a. its gross margin
b. its contribution margin
c. its segment margin
d. its segment margin minus an allocated portion of common fixed expenses
ANSWER : C
9. In order to properly report segment margin as a guide to long run segment profitability
and performance, fixed costs must be separated into two broad categories. One
category is common fixed costs. What is the other category?
a. discretionary fixed costs
b. committed fixed costs
c. traceable fixed costs
d. specialized fixed costs
ANSWER : C
10. Which of the following segment performance measures will decrease if there is an
increase in the interest expense for that segment?
Return on Investment Residual Income
a. Yes Yes
b. No Yes
c. Yes No
d. No No
ANSWER : D
11. Which of the following segment performance measures will increase if there is a
decrease in the selling expenses for that segment?
Return on Investment Residual Income
a. Yes Yes
b. No Yes
c. Yes No
d. No No
ANSWER : A
12. Some investment opportunities that should be accepted from the viewpoint of the
entire company may be rejected by a manager who is evaluated on the basis of:
a. return on investment.
b. residual income.
c. contribution margin.
d. segment margin.
ANSWER : A
13. Which of the following is NOT classify as limitation of decentralization?

a. Dysfunctional decision making may result to suboptimal or incongruent decision
making
b. Cost to gather information is increased
c. Better and Faster performance evaluation
d. Activities may be duplicated
ANSWER : C
14. A process of delegating the decision-making authority throughout an organization is

called
a. Segment
b. Planning
c. Decentralization
d. Organizing
ANSWER : C
15. The informal structure does not appear on the___________ chart, but is often vital
to effective operations.
a. Business
b. Organization
c. Chain
d. Reporting
ANSWER : B
PROBLEMS
1. Bellinda Company has two divisions. C and D. The overall company contribution
margin ratio is 30%, with sales in the two divisions totaling P500,000. lf variable
expenses are P300,000 in Division C. and if division C’s contribution margin ratio is
25%, then sales in Division D must be:
a. P50,000
b. P100,000
c. P150,000
d. P200,000
ANSWER : B
2. Barneycles 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 2
had variable expenses of P120,000 and a variable expense ratio of 60% of sales. For
August, Barneycles Company’s sales were:
a. P318,000
b. P455,000
c. P485,000
d. P555,000
ANSWER : B
3. Blessy 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. lf variable expenses
are P405,000 in Division S, and if Division S's contribution margin ratio is 25%, then
sales in Division T must be:
a. P75,000
b. P210,000
c. P225,000
d. P300,000
ANSWER : B
Questions 4 and 5 are based on the following information.

Elsa Cruz Company has two sales areas: East and West. During last year, the
contribution margin in the East area was P50,000 or 20% of sales. The segment margin
in the West area was P15,000, or 8% of sales. Traceable fixed costs are P15,000 in the
East and P10,000 in the West. During last year, the company reported total net income
of P26,000.
4. The total fixed costs(traceable and common)for Elsa Cruz Company for the year
were:
a. P49,000.00
b. P25,000.00
c. P24,000.00
d. P50,000.00
ANSWER : A
5. The variable costs for the West Area for the year were:
a. P230,000
b. P185,000
c. P162,500
d. P 65,000
ANSWER : C
Questions 6 through 9 are based on the following information.

Mang Juan Company has two stores: D and S. During November, Mang Juan Company
reported a net income of P30,000 and sales of P50,000. The contribution margin in
Store D was P100,000, or 40% of sales. The segment margin m Store S was P30,000,
or 15% of sales. Traceable fixed expanses an P60,000 in Store D, and P40,000 in Store
S.
6. Sales in State D totaled:
a. P400,000
b. P250,000
c. P150,000
d. P100,000
ANSWER : B
7. Variable expenses in Store S totaled: ‘

a. P70,000
b. P110,000
c. P200,000
d. P130,000
ANSWER : D
8. Mang Juan Company’s total fixed expenses for the year were:
a. P 40,000
b. P100,000
c. P140,000
d. P170,000
ANSWER : C
9. The segment margin ratio in Store D was:

a. 16%.
b. 24%.
c. 40%.
d. 60%.
ANSWER : A
10. Bobby Company has two divisions, i and 2. During July, the contribution margin in
Division I was P60,000. The contribution margin ratio in Division 2 was 40% and its
sales were P250000. Division 2’s segment margin was P60,000. The common fixed
expenses were P50,000 and the company net income was 100,000. The segment
margin for Division 1 was:
a. P0
b. P10,000
c. P50,000
d. P60,000
ANSWER : B
CHAPTER 21 - MULTIPLE CHOICES – BUSINESS PLANNING

1. Operating decisions primarily deal with
a. the use of scarce resources.
b. how to obtain funds to acquire resources.
c. acquiring equipment and buildings.
d. satisfying shareholders.
2. Financing decisions primarily deal with
a. the use of scarce resources.
b. how to obtain funds to acquire resources.
c. acquiring equipment and buildings.
d. preparing financial statements for shareholders.
3. A limitation of comparing a company’s performance against actual results of last year
is that
a. it includes adjustments for future conditions.
b. feedback Is no longer a possibility.
c. past results can contain inefficiencies of the past year.
d. the budgeting time period Is set at one year
4. Challenging business plans tend to
a. decrease line-management participation in attaining corporate goals.
b. increase failure.
c. increase anxiety without motivation.
d. motivate improved performance.
5. A business plan can help implement
a. strategic planning.
b. long-run planning.
c. short-run planning.
d. all of the above
6. To gain the benefits of business planning. ___________ must understand and
support the budget.
a. management at all levels
b. customers
c. suppliers
d. all of the above.
7. The sales forecast should be primarily based on
a. statistical analysis.
b. input from sales managers and sales representatives.
c. production capacity.
d. input from the board of directors.
8. The sales forecast is influenced by
a. advertising and sales promotions.
b. competition
c. general economic conditions.
d. all of the above.
9. A sales forecast is
a. often the outcome of elaborate information gathering and discussions
among sales managers.
b. developed primarily to prepare next year’s marketing campaign.
c. solely based on sales of the previous year.
d. a summary of product costs that influence pricing decisions.
10. Budgeted production depends on
a. the direct materials usage budget and direct material purchases' budget.
b. the direct manufacturing labor budget.
c. budgeted sales and expected changes In inventory levels.
d. the manufacturing overhead costs budget.
11. Budgeted manufacturing overhead costs include all types of factory expenses
except
a. fixed items such as depreciation of manufacturing machinery.
b. variable items such as plant supplies.
c. indirect labor such as the salary of the plant supervisor
d. direct labor and direct materials.

SW, Inc. expects to manufacture and sell 6,000 ceramic vases for P20 each. Direct
materials costs are P2, direct manufacturing labor is P10, and manufacturing overhead
is P3 per vase. The following inventory levels apply to 2013:
Beginning inventory Ending inventory
Direct materials 1,000 units 1,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 400 units 500 units
12. On the 2013 budgeted Income statement what amount will be reported for sales?
a. P122,000
b. P118,000
c. P140,000
d. P120,000
13. How many ceramic vases need to be produced in 2013?
a. 5,900 vases
b. 6,100 vases
c. 7,000 vases
d. 6,000 vases
14. On the 2013 budgeted income statement, what amount will be reported for cost of
goods sold?
a. P 91,500
b. P105,000
c. P 90,000
d. P 88,500
15. What are the 2013 budgeted costs for direct materials, direct manufacturing labor,
and manufacturing overhead, respectively?
a. P12,200; P61,000; P18,300
b. P12,000; P60,000; P18,000
c. P2000; P10,000; P3,000
a. P2,000; P0; P18,000
Theories – CHAPTER 22
1. Throughput time consists of:
a. Process time
b. Inspection time and queue time
c. Process time, inspection time, and move time
d. Process time, inspection time, move time, and queue time
2. Manufacturing Cycle Efficiency (MCE) is computed as:

a. Throughput time/Delivery cycle time
b. Process time/Delivery cycle time
c. Value-added time/Throughput time
d. Value-added time/Delivery cycle time
3. Which of the following represents value-added time in the manufacturing cycle?

a. Inspection Tine
b. Queue Time
c. Move Time
d. Process Time
4. Quality is classified under which of the four balanced scorecard perspectives?

a. Financial Perspective
b. Internal Business Perspective
c. Customer Perspective
d. Learning and Growth Perspective
5. Product and process design is classified under which of the four balanced
scorecard perspective?
a. Internal Business Perspective
b. Customer Perspective
c. Learning and Growth Perspective
d. Financial Perspective
6. Responsive after sales service design is classified under which of the four
balanced scorecard perspective?
7. Financial Accounting Services design is classified under which of the four

balanced scorecard perspective?
8. What activities increase the product’s worth to the customer?

a. Process Quality Yield
b. Process Productivity
c. Value-Added Activity Processing Time
d. Non-Value-Added Activity Processing Time
9. Waiting for your order to arrive is part of:

a. Processing Time
b. Inspection Time
c. Move Time
d. Queue Time
10. Which of the following statements is incorrect?

a. It helps to communicate the strategy to all members of the organization by
translating the strategy into a coherent and linked set to understandable and
measurable operational targets.
b. The balanced scorecard should focus only on key measures to be used by
identifying only the most critical ones.
c. In not-for-profit companies, the balanced scorecard places strong
emphasis on financial objectives and measures.
d. The scorecard should highlight suboptimal trade-offs that managers may
make when they fail to consider operational and financial measure together.
11. Which of the following is part of cost leadership?

a. Choosing market niches where competition is the weakest.
b. Enabling the firm to charge higher prices and outperform the competition
without reducing costs significantly.
c. It involves monitoring the activities of operating-level managers and
employees by mid-level managers.
d. It makes sustainable profits at lower prices.
12. This is a linkage from strategy formulation to financial results

a. Cost and Effect Chain
b. Mission
c. Balanced Scorecard
d. Manufacturing Cycle Efficiency
13. Which of the following is the best MCE for a business firm?
a. 0.9
b. 0.8
c. 0.75
d. 0.5
14. Which of the following is used to compute delivery cycle time but not used in
manufacturing cycle time?
a. Process Time
b. Wait Time
c. Queue Time
d. Move Time
15. In data transmission, this is the amount of data that can be moved from one
place to another during a period?
a. Economic Value Added
b. Value-Added Processing Time
c. Throughput
d. Manufacturing Cycle Efficiency
Computation
Lorenzo Corporation has provided the following data for one of its products:
Process time --------------------------- 3 days
Queue time --------------------------- 4 days
Inspection time --------------------------- 0.7 days
Move time --------------------------- 0.3 days
Wait time --------------------------- 9 days
1. What is the Manufacturing Cycle Efficiency?

a. 0.375
b. 0.45
c. 0.18
d. 0.33
Answer:
Manufacturing Cycle Efficiency = 3 days/3+4+0.7+0.3 days
Manufacturing Cycle Efficiency = 0.375
Use the following information to answer questions 2 through 4.

Rainee Manufacturing Corporation has the following information:
Moving time 8 days
2. What is the total amount of value-added time?

a. 10 days
b. 30 days
c. 40 days
d. 50 days
Answer:
Value-Added Time = Processing Time
Value-Added Time = 10 days
3. What is the total amount of nonvalue-added time?

a. 10 days
b. 30 days
c. 40 days
d. 50 days
Answer:
Non Value-Added Time = Moving Time + Inspection Time + Processing Time
Non Value-Added Time = 8 days + 2 days + 30 days
Non Value-Added Time = 40 days

a. 10 days
b. 30 days
c. 40 days
d. 50 days
Answer:
Product’s Cycle Time = Moving time + Inspection Time +Processing time +Storage time
Moving time 8 days

TOTAL 50 days

a. 25%
b. 80%
c. 20%
d. 60%
Answer:
Manufacturing Cycle Efficiency = 10 days/8 + 2 + 10 + 30 days
Manufacturing Cycle Efficiency = 0.20 or 20%
Use the following information to answer 6 and 7.

Nicole Corporation has the following information:
Moving Time 10 days
Inspection Time 5 days
Processing Time 15 days
Storage Time 20 days

a. 10 days
b. 15 days
c. 35 days
d. 50 days
Answer:
Moving Time 10 days
Inspection Time 5 days
Processing Time 15 days
Storage Time 20 days
TOTAL 50 days

a. 30.0%
b. 20.0%
c. 50.0%
d. 70.0%
Answer:
Manufacturing Cycle Efficiency = 15 days/50days
Manufacturing Cycle Efficiency = 30%
Birmingham Hardwood Frames makes picture frame. During November 2016,

managers compiled the following data:
Total frames manufactured 1,850,000

Good frames produced and sold 1,731,000
Total processing time (Minutes) 21,120
Value-Added Processing Time (Minutes) 6,920
8. Calculate the manufacturing cycle efficiency.

a. 93.57%
b. 32.77%
c. 8.47%
d. 15%
Answer:
Manufacturing Cycle Efficiency = 6,920/21,120
Manufacturing Cycle Efficiency = 32.77%
9. Calculate the throughput using one ratio.

a. 82
b. 90
c. 83
d. 75
Answer:
Throughput = 1,731,000/21,120
Throughput = 82
10. Calculate the process quality yield.

a. 87.57%
b. 93.57%
c. 75.54%
d. 21.18%
Answer:
Process Quality Yield = 1,731,000/1,850,000
Process Quality Yield = 93.57%
Multiple Choice: Chapter 25

1. All of the following statements are true except
a. Cash bonuses, meals, and trips are examples of extrinsic rewards
b. Pay for performance systems base rewards on achieving or exceeding some
measured performance.
c. An intrinsic reward is based on performance and is any reward that one
person provides to another person to recognize a job well done.
d. In an effective compensation system, each employees should be paid a basic
wage that reflects the market assessment for his skills and experience
2. Which of the following statements is false?

a. Incentive compensation systems work best in organizations in which
employees have no skill or have not been empowered.
b. Profit sharing is a group incentive compensation plan focused on rewarding
short-term performance.
c. A stock option is the right to purchase a unit of the organization’s stock at a
specified price for a set time limit.
d. An important element of control is motivating employees to pursue the
organization’s interests as they undertake their daily jobs.
3. Which of the following is NOT a true statement?

a. An important element of control is motivating employees to pursue the
organization’s interests as they undertake their daily jobs.
b. An important element of motivation is compensation.
c. Hygiene factors relate to the job context and define the environment of the
individual’s work.
d. Compensation is not useful in motivating employees.
4. _____________ is based on performance and is any reward that one person

provides to another in recognition of a job well done.
a. Valence
b. Intrinsic rewards
c. Extrinsic rewards
d. Hygiene Factors
5. Which of the following is an intrinsic reward?

a. Cash bonuses
b. Job satisfaction
c. Trips
d. Meals
6. Which of the following is an extrinsic reward?

a. Stock bonuses
b. Recognition in the organization’s newsletter
c. Recognition on a plaque
d. All of the above are extrinsic rewards.
7. Which of the following is NOT an attribute of effective performance measurement

systems?
a. The person must understand the job.
b. The job’s performance measures should reflect the organization’s key
success factors.
c. The performance measurement system should set clear standards or targets
for performance.
d. The pay for performance systems base rewards on only net income.
8. ______________ systems base rewards on achieving or exceeding some

measured performance.
a. Pay for the performance
b. Base salary agreement
c. Intrinsic reward
d. Marketing

systems?
a. The performance measurement system should be accurate.
b. The reward system should focus on individual or group rewards depending on
the nature of the job.
c. The performance measurement system should set clear standards or targets
for performance.
d. Incentive compensation are rewards systems that pay only an hourly wage for
hours worked.
10. Under the independent wage policy guideline for effective incentive
compensation system, wage and incentive compensation policy for senior
management should be developed by:
a. senior management
b. A board of directors’ compensation committee.
c. Employees.
d. Middle management.
11. Which of the following is true about the independent wage policy for effective
incentive systems?
a. Senior management should have its own wage and incentive compensation.
b. The compensation committee should not operate independently of senior
management’s direction.
c. A board of director’s compensation committee should design the incentive
compensation plan for senior management.
d. All of the above are true statements.
12. Which of the following is true about the participation guideline for effective
incentive compensation systems?
a. Many experts believe that only the senior management should participate in
an incentive compensation plan.
b. Many experts believe that all employees should participate in an incentive
compensation plan.
c. Incentive plans do not need to be documented clearly.
d. Many experts feel that the incentive compensation should be about 200% of
the employees’ basic wage for senior levels of the organization.
13. Which of the following guidelines is being described by the statement below?
A board of directors’ compensation committee should design the incentive
compensation plan for senior management without direct influence from the
senior management.
a. Fairness
b. Participation
c. Basic wage level
d. Independent wage policy
14. _____________ is a group incentive compensation plan focused on rewarding

short-term performance.
a. A cash bonus
b. Profit sharing
c. Gain sharing
d. A stock options
15. _____________ is (are) also called lump-sum rewards, pay for performance, and
merit pay.
a. A cash bonus
b. Profit sharing
c. Gain sharing
d. A stock options
16. _____________ is the right to purchase a unit of the organization’s stock at a

specified price.
a. A cash bonus
b. Profit sharing
c. Gain sharing
d. A stock options
17. Which of the following would not be an advantage for distributing the proceeds of
a bonus pool in a profit-sharing plan based on each person’s salary?
a. easy to administer
b. likely to be considered fair
c. always reflects contributions made
d. easy to calculate
18. Which of the following would not be an advantage for distributing the proceeds of
a bonus pool in a profit-sharing plan based on an equal share?
a. easy to administer
b. may little motivational effect
c. likely to be considered fair
d. reflects how people often divide rewards
19. Single performance measures can often

a. Increase an employee’s overall performance by focusing his or her attention
on only one aspect of their work.
b. Create employee myopia by focusing their attention on only one aspect of
their work.
c. Lead to greater job satisfaction for employees.
d. Increase the level of teamwork in an organization.
20. Reward system designers consider all of the following when designing an
incentive system except
a. The level of uncertainty about goal achievement.
b. The personalities of employees.
c. The risk attitudes of employees.
d. The work ethic of employees.
21. Participation in decision-making involves

a. Filling out budget requests that are passed on to a superior.
b. Telling a superior where you would like the budget set.
c. A Joint decision-making process in which all parties agree to the levels at
which the budget should be set.
d. Electing a spokesperson to tell a superior where you would like the budget
set.
22. Empowering employees mean

a. They are free to strike at any time.
b. They can hold secret meetings on company time.
c. They get a greater share of the raise pool than they did before.
d. They are given the ability to suggest and make changes to their work
environment.
23. Participation in decision-making may lead to the following benefits except

a. Increased job satisfaction.
b. Increased tensions between coworkers.
c. Improved morale.
d. Greater commitment to the decision.

systems?
a. The person must understand the Job.
b. The reward system should focus on individual or group rewards depending on
the nature of the job.
c. The performance measurement system should be accurate.
d. The performance measurement system should set clear standards or targets
for performance.
CHAPTER 26: Managing accounting in a Changing Environment
Theories:
1. Implementation of total quality management (TQM) in a firm.
a. must follow a rigid, predetermined process to be successful.
b. involves some lower-level managers and all senior executives.
c. takes from 3-5 years.
d. is a bottom up process, with senior management involved only in the final
phase.
2. Ideally, how many units should be produced in a just-in-time manufacturing system?

a. budgeted customer demand for the current week.
b. budgeted customer demand for the following week.
c. actual customer demand for the current week.
d. maximum production capacity for the current week.
3. Process Re-engineering includes all the following steps except:
a. constructing a diagram flowcharting the current process.
b. redesigning the process.
c. elimination of non-value added activities.
d. elimination of all constraints.
4. According to the theory of constraints, improvement efforts should usually be focused
on:
a. work centers that are not constraints.
b. the work center that is the constraint.
c. the work center with the highest total cost.
d. the work center with the most obsolete equipment.
5. Piacere Pizzeria makes forty-five kinds of pizza for take-out and delivery. Which of
the following could be the constraint at Piacere Pizzeria?
a. the person who makes the pizza crust
b. the person who puts toppings on the pizza
c. the pizza oven
d. any of the above can be the constraint
6. The quality cost of prevention is:
a. exampled by the cost of servicing warranties.
b. refers only to zero-defect program
c. an upstream cost
d. a downstream cost
7. Examples of the quality cost of prevention include all of the following except:
a. tuition for the external training
b. additional tolerance controls for machinery
c. depreciation of a training room
d. an annual award for lowest rework rate
8. The key difference(s) between internal failure cost and external failure cost is (are):
a. when the cost happens
b. where the cost happens
c. both when and where the cost happens
d. whether the cost happens.
9. Conformance to a quality specification expressed as a specified range around a
target is:
a. endzone conformance
b. target conformance
c. goalpost performance
d. absolute quality conformance
10. The cost of warranty repairs would be classified as a(n):
a. preventive cost
b. appraisal cost
c. internal failure cost
d. external failure cost
11. The cost of labor time required to rework defective units would be classified as a(n):
a. preventive cost
b. appraisal cost
c. internal failure cost
d. external failure cost
12. Just-in-time purchasing requires
a. larger and less frequent purchase orders
b. smaller and less frequent purchase orders
c. smaller and more frequent purchase orders
d. larger and more frequent purchase orders
13. Cost quality reports usually do not consider (14)
a. preventive cost
b. appraisal cost
c. opportunity cost
d. internal failure cost
14. The just-in-time manufacturing system is also called the (18)
a. job in training system
b. job in transit system
c. zero cost system
d. zero inventories system
15. Goalpost quality conformance differs from absolute quality comformance like:
a. “general” differs from “always”
b. “range differs from “point”
c. “probable” differs from “certain”
d. “ many” differs from “one”
Problems
Use the following information to answer questions 1 through 3:
Testing P 60,000
Rework 27,500
Training 45,000
Product liability insurance 35,000
Quality planning 43,000
Customer surveys 15,000
Reinspection and retesting 17,500
Warranty repairs 50,000
Total quality costs P293,000
Sales for 2005 were P1,000,000
1.
What is the amount of appraisal costs?
A. P60,000 C. P32,500
B. P92,500 D. P75,000
2.
What is the amount of external failure costs?
A. P35,000 C. P50,000
B. P85,000 D. P67,500
If Kurt Company is able to reduce quality costs to 2.5 percent of sales, what will
3.
happen to profits?
A. Decrease by P25,000 C. Decrease by P293,000
B. Increase by P268,000 D. Increase by P25,000
Question Nos. 4 and 5 are based on the following:
Prior to installing a JIT system, Friendly Company used machine hours to assign
maintenance costs to its three products of 4-inch, 6-inch, and 9-inch insulation. The
maintenance costs totaled P840,000 per year. The machine hours used by each
product and the quantity produced of each product are as follows:
Machine Hours Quantity Produced
4-inch 6,000 15,000 rolls
6-inch 10,000 12,500 rolls
9-inch 8,000 11,200 rolls
After installing JIT, three manufacturing cells were created and the cell workers were
trained to perform maintenance. Maintenance costs for the three cells still totaled
P840,000; however, these costs are now traceable to each cell.
Cell, 4-inch P220,000
4.
The maintenance cost per roll of 4-inch insulation before JIT is installed would be
A. P24.00 C. P14.00
B. P17.50 D. P13.16
5.
The maintenance cost per roll of 9-inch insulation before JIT is installed would be
A. P17.50 C. P28.57
B. P25.00 D. P75.00
6. Highline Company reported the following costs for the year just ended:
Throughput manufacturing costs P

180,000
Non-throughput manufacturing costs 600,000
0
If Highline uses throughput costing and had sales revenues for the period of P
950,000, which of the following choices correctly depicts the company's cost of
goods sold and net income?
Cost of Net
Goods Income
Sold
A. P180,000 P45,000
B. P180,000 P645,000
C P305,000 P45,000
.
D P305,000 P645,000
.
E. Some other combination of figures not listed
above.
7. Coastal Corporation, which uses throughput costing, began operations at the start of
the current year. Planned and actual production equaled 20,000 units, and sales
totaled 17,500 units at P95 per unit. Cost data for the year were as follows:
Direct materials (per unit) P 18

Conversion cost:
Direct labor 160,000
Variable manufacturing 280,000
overhead
Fixed manufacturing overhead 340,000
(total)
The company classifies direct materials as a throughput cost. How much of this cost
would be held in year-end inventory under throughput costing?
a. P1,427,500
b. P1,470,000
c. P1,525,000
d.P 1,570,000
8. The costs that follow appeared on Omaha's quality cost report:
Warranty costs P15,000

Rework of defective units 12,800
The sum of Omaha's appraisal and internal failure costs is:

a. P10,000.
b. P12,800.
c. P22,800.
d. P68,800.
9.The costs that follow appeared on Lexington’s quality cost report:
Warranty costs $19,000

Production stoppages from machine 7,800
breakdowns
The sum of Lexington’s prevention and external failure costs is:

a. P40,000.
b. P49,000.
c. P59,000.
d. P63,100.
10. Chase, Inc., has identified the following selected quality costs:
 Warranty costs: P72,000
 Employee training: P28,000
 Repair of units prior to shipment to customers: P14,000
 Quality engineering: P61,000
 Product inspection during manufacturing: P35,000
 Travel to customer sites to perform repairs: P6,200
The sum of external failure costs is :
a. P89,000.
b. P45,000.
c. P14,000.
d. P78,200.

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SECTION 2

1. The following are advantages of decentralization except:

3. What are the limitations of decentralization?

5. The practice of delegating decision-making authority to lower levels of management in a company

9. The strategic benefit of centralized approach is:

10. For many firms, a ________ approach is preferable.

12. Which of the ff. statements are limitations of decentralization?

15. The two kinds of fixed costs are:

4. Challenging business plans tend to

8. The sales forecast is influenced by

18. Which of the following is a role of the consultant?

For numbers 25-30

Rainee Manufacturing Corporation has the following information:

Nicole Corporation has the following information:

2. Customer-satisfaction measures are an example of :

3. An example of a performance measure with a long-run time horizon

4. Should assets be defined as total assets or net assets? This question is

5. Should assets be measure at historical cost or current cost? This question is

6. Which of the following statements about designing an accounting-based

8. A problem with utilizing residual income that

9. A accompany which favors the residual income approach

10. If a company is a multinational company with operations in several different

11. Team incentives encourage cooperation by

15. An effective system of performance measurement contains critical performance

16. An effective system of performance measurement contains critical performance

19. An effective system of performance measurement contains critical performance

20. An effective system of performance measurement contains critical performance

4. What is the Pasig Division’s Return on sales?

5. What is the Pasig Division’s return on investment?

The following information applies to questions 6 through 8.

6. What is the EVA for Tarlac?

7. What is the EVA for Quezon?

8. What is the EVA for Manila?

The following information applies to questions 9 through 10.

1. Implantation of total quality management (TQM) in a firm:

2. The just-in-time manufacturing system is also called the

5. Conformance to quality specification expressed as specified range around a

6. Changing to an activity-based costing/management system will not

7. Cost quality reports usually do not consider

8. Typically, as prevention costs increase, other costs of quality:

9. The quality of cost prevention is:

14. The sum of conformance and nonconformance costs

16. Which of the following is not a key features of just-in-time production

19. Fundamental rethinking and redesign of business processes to achieve

e. Process of identifying and managing constraint in the making of products or in

Sales for 2005 were P1,000,000

1.What is the amount of appraisal costs?

2. What is the amount of external failure costs?

Throughput manufacturing costs P

Direct materials (per unit) P 18

8. The costs that follow appeared on Omaha's quality cost report:

Warranty costs P15,000

The sum of Omaha's appraisal and internal failure costs is:

The sum of Lexington’s prevention and external failure costs is:

The sum of external failure costs is :

2. Who determine when delegation of responsibility (decentralization) is desirable?

5. Is an Advantage of Decentralization that speeds decision making, creating a