FIN073: Periodical Exam 2

 
1. Management accounting information, compared to those contained in the set of general purpose financial
statements, tend to be
A. flexible
B. historical 
C. less detailed
D. structured

2. Which of the following is normally associated with capacity variance?

A. Direct labor
B. Direct materials
C. Fixed overhead costs 
D. Variable overhead costs

3. Which one of the following variances is of least significance from a behavioral control perspective?
A. Favorable materials price variance obtained by purchasing raw materials from a new vendor.
B. Unfavorable materials quantity variance amounting to 20% of the, quantity allowed for the output, attained.
C. Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours for the output; attained.
D. Fixed factory overhead volume variance resulting from management's decision midway through the fiscal year to reduce
its budgeted output by 20%.

4. Sassy and Girl were calculating materials variances for the company. Both needed to know the actual
quantity and standard price of materials. However, only Sassy needed to know the actual price of the
materials, and only Girl needed to know the standard quantity of materials. Why?
A. Sassy was calculating materials price variance, whereas Girl was calculating materials quantity variance.
B. Sassy was calculating materials quality variance, whereas Girl was calculating materials price variance.
C. Sassy was calculating materials quantity variance, whereas Girl was calculating materials price variance.
D. Sassy was calculating materials quantity variance, whereas Girl was calculating materials quality variance.
 
5. Management by exception refers to a strategy that focuses on
A. Decentralized organizations
B. Highly successful managers
C. Significant variances
D. Unusual business opportunities
6. The direct materials price variance is best measured and reported to appropriate management personnel at
the time
A. Quarterly financial statements are prepared.
B. Direct materials are issued to production areas.
C. Purchased quantities exceed standard order size.
D. Shipments are received and recorded as purchases.
 
7. Variable costing enables more efficient:
A. Cost-volume-profit (CVP) analysis. 
B. External reporting.
C. Financial statement analysis.
D. Physical inventory counts.
 
8. Which of the following differs between absorption costing and variable costing?
A. Sales revenues.
B. The number of units produced.
C. The fixed-overhead volume variance.
D. The treatment of variable manufacturing overhead.
 
9. Which one of the following statements is true regarding absorption costing and variable costing?
A. Gross margins are the same under both costing methods.
B. Variable manufacturing costs are lower under variable costing.
C. Overhead costs are treated in the same manner under both costing methods.
D. If finished goods inventory increases, absorption costing results in higher income. 
10. All of the following are disadvantages of authoritative budgeting as opposed to participatory budgeting
except that it:
A. reduces the time required for budgeting.
B. may result in a budget that is not possible to achieve.
C. may limit the acceptance of proposed goals and objectives.
D. reduces the communication between employees and management.
 
11. Which budget is prepared independently of the sales budget?
A. Capital expenditures budget
B. Cash budget
C. Production budget
D. Selling and administrative budget
 
12. Which of the following best describes business process re-engineering?
A. It is used when “heavy blasting” is required to alleviate a dire situation.
B. It puts emphasis on the chain of activities that take input and create output of value to the customer.
C. It forces people to look at tacit rules and assumptions underlying the way they currently do business.
D. It reinvents, rather than improving or modifying. It disregards existing processes and invents new way of doing work.
 
13. Which management tool is a key component of target costing?
A. Management simulation
B. Goal programming
C. Linear programming
D. Value engineering
 
14. Identify the example of a line position,
A. Store manager for Rustan's
B. Controller for a manufacturing company
C. Chief financial officer of a merchandising company
B. Goal programming
 
15. The least-squares regression method:
A. Is generally less accurate than the Scattergraph method
B. Is the only method acceptable under generally accepted accounting principles
C. Can be used only if the fixed cost element is larger than the variable cost element.
D. Fits a regression line by minimizing the sum of the squared errors from the regression line
 
16. Which of the following is an example of a committed fixed cost?
A. advertising
B. employee training programs
C. investment in production facilities
D. preventive maintenance
 
17. An example of a fixed cost that would be considered a direct cost is
A. A cost accountant's salary when the cost object is a unit of product.
B. Board of Directors' fees when the cost object is the Marketing Department.
C. A production supervisor's salary when the cost object is the Production Department,
D. The rental cost of a warehouse to store finished goods when the cost object is the Purchasing Department.
 
18. Which of the following would be a reasonable basis for assigning the materials handling costs to the units
produced in an activity-based costing (ABC) system?
A. Number of production runs per year
B. Number of components per completed unit
C. Amount of time required to produce one unit
D. Amount of overhead applied to each completed unit
 
19. Which of the following is the financial executive primarily responsible for both management and financial
accounting?
A. Chief financial officer.
B. Controller.
C. Internal auditors.
D. Treasurer.
 
20. Which of the following is false?
A. The accountant assumes that the relationship between cost and activity is approximately a straight line within the
relevant range.
B. In all cases, a cost formula produced by the high low points method and a cost formula produced in the least squares
method would be the same within rounding error.
C. The scattergraph method is more accurate than the high low method since all the observed data points can be taken into
account when the straight line is drawn.
D. The high-low method is the least accurate method in analyzing mixed costs because the high and low points may not be
representative of costs throughout the entire relevant range.
 
21. In relation to comprehensive budgeting, which of the following statements is incorrect?
A. Rolling budget is a budget that is revised on a regular (continuous) basis.
B. The budget committee DO NOT PREPARE and DEVELOP BUDGETS. They only approve it because the preparation of
budgets rests with individual managers.
C. The information on budgeted balance sheet does not contain information for the current budget only but rather it has
cumulative information like a usual balance sheet of a set of financial statements.
D. None from the statements is incorrect.
 
22. Which of the following budgets are usually prepared first?
A. Cash budget
B. Direct labor budget
C. Production budget
D. Purchases budget
 
23. Which of the following statements about activity-based costing is not true?
A. In activity-based costing, cost drivers are what cause costs to be incurred.
B. Activity-based costing is useful for allocating marketing and distribution costs.
C. Activity-based costing differs from traditional costing systems in that products are not cross-subsidized.
D. Activity-based costing is more likely to result in major differences from traditional costing systems if the firm
manufactures only one product rather than multiple products.
 
24. A difference between standard costs used for cost control and budgeted costs
A. cannot exist because they should be the same amounts.
B. can exist because standard costs must be determined after the budget is completed.
C. can exist because budgeted costs are historical costs, whereas standard costs are based on engineering studies.
D. can exist because standard costs represent what costs should have been, whereas budgeted costs represent expected
actual costs.
 
25. The materials mix variance for a product is P450 unfavorable and the materials yield variance is P150
unfavorable. This means that
A. the materials price variance is P600 unfavorable.
B. the materials quantity variance is P600 unfavorable
C. the total materials cost variance is definitely P600 unfavorable.
D. the materials price variance is also unfavorable, but the amount cannot be determined from the given information.
 
26. If all sub-variances are calculated for labor, which of the following cannot be determined?
A. actual hours of labor used
B. efficiency of the labor force
C. labor rate variance
D. reason for the labor variances
 
27. Which of the following is true of a company that uses absorption costing?
A. Variable selling expenses are included in product costs.
B. Net operating income fluctuates directly with changes in sales volume.
C. Fixed production and fixed selling costs are considered to be product costs.
D. Unit product costs can change as a result of changes in the number of units manufactured.
 
28. Under variable costing
A. inventory costs will be lower than under absorption costing.
B. net operating income will always be higher than absorption costing.
C. net operating income will tend to vary inversely with production changes.
D. net operating income will tend to move up and down in response to changes in levels of production.
 
29. Absorption costing differs from variable costing in all of the following except
A. acceptability for external reporting.
B. arrangement of the income statement
C. treatment of variable production costs
D. treatment of fixed manufacturing overhead.
 
30. Under absorption costing, if sales remain constant from period 1 to period 2, the company will report a
larger income in period 2 when
A. period 2 production exceeds period 1 production.
B. period 1 production exceeds period 2 production
C. fixed production costs are larger in period 2 than period 1.
D. variable production costs are larger in period 2 than period 1.
 
31. The preparation of an organization's budget
A. makes performance review possible at all levels of management.
B. forces management to look ahead and try to see the future of the organization.
C. requires that the entire management, team work together to make and carry out the yearly plan.
D. all of the above.
 
32. Bali Company has a policy of maintaining an inventory of finished goods equal to 30 percent of the
following month's sales. For the forthcoming month of March, Bali has budgeted the beginning inventory at
30,000 units and the ending inventory at 33,000 units. This suggests that
A. March sales are budgeted at 3,000 units less than April sales.
B. March sales are budgeted at 10,000 units less than April sales.
C. February sales are budgeted at 3,000 units less than March sales.
D. February sales are budgeted at 10,000 units less than March sales.
 
33. The contribution approach income statement
A. organizes costs on a functional basis
B. provides owners with more cash flows.
C. is particularly helpful to the manager in planning and decision making
D. provides a gross margin figure from which selling and administrative expenses are deducted.
 
34. Product costs or inventoriable costs
A. are treated as assets before the products are sold.
B. include only the prime costs of producing a product.
C. include only the conversion costs of producing the product.
D. are charged to expense when products become part of the finished goods inventory.
 
35. Proficient Corporation has a sales goal of P500,000 for the coming year. Based on this level of activity,
Proficient budgets its total expenses at P450,000 Actual sales are P480,000 and actual costs are P460,000.
Proficient Corporation’s operations were
A. effective but not efficient.
B. efficient but not effective.
C. both efficient and effective.
D. neither efficient nor effective.
 
36. The source of standards that uses the best performance measures anywhere is
A. activity analysis
B. benchmarking
C. historical data.
D. market expectations.

37. Which of the following management practices involves concentrating on areas that deserve attention and
giving less attention to areas operating as expected?
A. Benchmarking.
B. Management by exception.
C. Management by objectives.
D. Responsibility accounting.
 
38. Management by exception is the practice of concentrating on
A. areas not operating as anticipated.
B. favorable variances.
C. the master budget.
D. unfavorable variances.
 
39. Why do many companies have switched from absorption costing to variable costing for internal reporting.
A. to increase bonuses for managers
B. to comply with external reporting requirements.
C. in order to have the denominator level more accurate.
D. to reduce the undesirable incentive to build up inventories.
 
40. One possible means of determining the difference between operating incomes for absorption costing and
variable costing is by
A. subtracting sales of the previous period from sales of this period.
B. adding fixed manufacturing costs to the production-volume variance.
C. multiplying the number of units produced by the budgeted fixed manufacturing cost rate.
D. subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending
inventory.

PROBLEM SOLVING

1. Refer to Problem P2-1, the budgeted cash collections in March for the sales made in March is

 
 
2. Refer to Problem P2-1, the budgeted cash receipts for the month of April is
 
3. Refer to Problem P2-1, the budgeted purchases of merchandise for February is
 
4. Refer to Problem P2-1, the budgeted cash disbursements for operating expenses (other than cost of goods
sold) during the month of April is
 
5. Refer to Problem P2-1, the budgeted cash disbursements to be made in April for the merchandise purchases
is 
 
6. Refer to Problem P2-2, the materials price variance is

7. Refer to Problem P2-2, the materials usage variance is

 
8. Refer to Problem P2-2, the labor rate variance is
 
9. Refer to Problem P2-2, the labor efficiency variance is
 
10. Refer to Problem P2-2, the overhead controllable or spending variance
 
11. Refer to Problem P2-2, the overhead volume variance
 
12. Refer to Problem P2-3, the breakeven volume in tons of product for the year is

 
13. Refer to Problem P2-3, if the sales volume is estimated to be 2,100 tons next year, and the prices and
costs stay at the same levels and amounts next year, the after-tax income that Nikki can expect for the
incoming year is
 
14. Refer to Problem P2-3, Nikki has a potential foreign customer that has offered to buy 1,500 tons at P450
per ton. Assume that all of Nikki’s costs would be at the same levels and rates last year. What net income
after taxes would Nikki make if it takes this order and rejects some businesses from regular customers so as
not to exceed capacity?
 
15. Refer to Problem P2-3, assume that Nikki plans to market its product in a new territory. Nikki estimates
that an advertising and promotion program costing P60,000 annually would need to be undertaken for the
next two or three years. In addition a P20 per ton sales commission over and above the current commission to
the sales force in the new territory would be required. How many tons would have to be sold in the new
territory to maintain Nikki’s current after-tax income of P81,000?

16. Refer to Problem P2-3, assume that Nikki estimates that the per ton selling price will decline 10% next
year. Variable costs will decrease by P6 per ton and the fixed costs will not change. What sales volume in
pesos will be required to earn an after-tax income of P81,000 next year?
 
17. Refer to Problem P2-4, the amount of fixed manufacturing costs applied to production during the first six
months under absorption costing is

18. Refer to Problem P2-4, the reported net income (or loss) for the first 6 months under absorption costing is
 
19. Refer to Problem P2-4, the reported net income (or loss) for the first 6 months under variable costing is
 
20. Refer to Problem P2-4, assuming that 90,000 units of the product were sold during the first six months
and that this is to be used as a basis for developing the annual production and sales budget, the revised
estimate for the total number of units to be sold during the year is