LCCM – REFRESHER COURSE

MANAGEMENT ADVISORY SERVICES

Final Exam

Instructions: Choose the BEST answer for each of the following items.

1. That type of accounting which deals with how accounting and other financial data can be
used for decision-making in controlling, monitoring, and directing business activity is
called
a. management accounting c. financial accounting
b. responsibility accounting d. general accounting
2. In financial accounting, certain rules and regulations must be followed on how financial
statements must be presented to readers. In managerial accounting, no such restrictions
generally apply because it is
a. an entirely different field that need not observe the broad guidelines in financial
accounting.
b. designed to provide management with non-financial information for decision-
making.
c. designed to provide accounting and other financial data to assist management
in making business decisions.
d. a discipline that does not require preparation of financial statements.
3. In comparing management and financial accounting, which of the following more
accurately describes management accounting information?
a. comparable, verifiable, monetary
b. budgeted, informative, adaptable
c. required, estimated, internal
d. historical, precise, useful
4. Which of the following is not an objective of management accounting?
a. maximization of profit and minimization of costs.
b. measuring the performance of managers of subunits.
c. providing information for planning and decision making.
d. providing assistance in directing and controlling operations.
5. Cost is the monetary measure of the amount of resources given up in obtaining goods and
services. Costs may be classified as unexpired or expired.
Which of the following costs is not always considered to be expired immediately upon
being recognized?
a. salesmen’s commission
b. depreciation expense for factory equipment
c. cost of goods sold
d. salary of the company president
6. It refers to anything (a product, product line, a business segment) for which cost is
computed.
a. Cost object c. Cost control
b. Cost driver d. Cost variance
7. An activity that adds costs to the product or service, but does not make such product or
service more valuable to customers is called
a. non-value-adding activity. c. costly activity.
b. value-adding activity. d. valuable activity.
8. Product costs or inventoriable costs
a. are charged to expense when products become part of the finished goods
inventory.
b. include only the prime costs of producing a product.
c. are treated as assets before the products are sold.
d. include only the conversion costs of producing the products.

ITEMS 9 to 15 ARE BASED ON THE FOLLOWING INFORMATION:

Data about Annabelle Company’s production and inventories for the month
of June are as follows:
Purchases – direct materials P143,440
Freight in 5,000
Purchase returns and allowances P 2,440
Direct labor 175,000
Actual factory overhead 120,000
Inventories: June 1 June 30
Finished goods P 68,000 P 56,000
Work in process 110,000 135,000
Direct materials 52,000 44,000

Annabelle Company applies factory overhead to production at 80% of direct labor

cost. Over– or underapplied overhead is closed to cost of goods sold at year-end.
The company’s accounting period is on the calendar year basis.
9. Annabelle Company’s prime cost for June was
a. P154,000. c. P198,000.
b. P329,000. d. P315,000.
10. Annabelle Company’s conversion cost for June was
a. P315,000. c. P329,000.
b. P295,000. d. P444,000.
11. For the month of June, Annabelle Company’s total manufacturing cost was
a. P469,000. c. P644,000.
b. P444,000. d. P449,000.
12. For June, Annabelle Company’s cost of goods transferred to the finished
goods inventory account was
a. P579,000 c. P469,000.
b. P461,000. d. P444,000.
13. Annabelle Company’s cost of goods sold for June was
a. P441,000. c. P456,000.
b. P481,000. d. P444,000.
14. The amount of over/underapplied overhead factory for the month of June was
a. P140,000 overapplied. c. P20,000 overapplied.
b. P120,000 underapplied. d. P20,000 underapplied
15. The cost of goods sold for the month of June should be increased (decreased) by the amount of
over/ under-applied factory overhead of
a. P20,000. c. (P120,000).
b. (P20,000). d. P0.
16. For decision-making purposes, relevant costs are
a. variable past costs.
b. all fixed and variable costs.
c. anticipated future costs that will differ among various alternatives.
d. costs incurred within the relevant range of production.
17. An income or benefit that is given up when one alternative is selected over another is
called
a. loss. c. relevant cost.
b. opportunity cost. d. differential cost.
18. When production (in units) decreases, the average cost per unit of product increases. This
increase in the average cost per unit is due to the
a. increase in variable cost per unit.
b. increase in fixed cost per unit.
c. increase in total variable costs.
d. increase in total fixed costs.
19. The following data were collected from the records of the Receiving Department of a
company:
Number of Receiving and
Month Items Received Handling Costs
January 2,800 P17,500
February 2,000 12,500
March 1,190 7,450
April 5,200 32,500
May 4,410 27,600
June 4,016 25,100
The receiving and handling cost is most likely to be a
a. step cost. c. fixed cost.
b. variable cost. d. semi-variable cost.
ITEMS 20 to 22 ARE BASED ON THE FOLLOWING INFORMATION:
Meng Company is preparing a flexible budget for next year and requires a breakdown of
the factory maintenance cost into the fixed and variable elements.
The maintenance costs and machine hours (the selected cost driver) for the past six months
are as follows:
Maintenance Costs Machine Hours
January P15,500 1,800
February 10,720 1,230
March 15,100 1,740
April 15,840 2,190
May 14,800 1,602
June 10,600 1,590
20. If Meng Company uses the high-low method of analysis, the estimated variable rate of
maintenance cost per machine hour is
a. P7.23 c. P5.46
b. P8.73 d. P5.33
21. The average annual fixed maintenance cost amounts to a.
a. P4,160 c. P49,920
b. P8,320 d. P 5,120
22. What is the average rate per hour at a level of 1,500 machine hours?
a. P5.33 c. P7.23
b. P8.11 d. P5.46
23. The coefficient of correlation that indicates the strongest linear association between the
dependent and independent variables is
a. – 0.08 c. – 0.80
b. 0.40 d. 0.04
24. If the coefficient of correlation between two variables is –0.95, how might a scatter
diagram of these variables appear?
a. A least squares line that slopes up to the right.
b. A least squares line that slopes down to the right.
c. Random points
d. A least squares line that slopes down to the left.
25. Under absorption costing, fixed manufacturing overhead could be found in all of the
following except the
a. work-in-process account.
b. finished goods inventory account.
c. Cost of Goods Sold.
d. period costs.
26. Absorption costing differs from variable costing in all of the following except
a. treatment of fixed manufacturing overhead.
b. treatment of variable production costs.
c. acceptability for external reporting.
d. arrangement of the income statement.
27. A total variance is best defined as the difference between total
a. actual cost and total cost applied for the standard output of the period.
b. standard cost and total cost applied to production.
c. actual cost and total standard cost of the actual input of the period.
d. actual cost and total cost applied for the actual output of the period.
28. Ronald Corp. incurred 2,300 direct labor hours to produce 600 units of product. Each unit
should take 4 direct labor hours. Ronald applies variable overhead to production on a direct
labor hour basis. The variable overhead efficiency variance
a. will be unfavorable.
b. will be favorable.
c. will depend upon the capacity measure selected to assign overhead to production.
d. is impossible to determine without additional information.

Use the following information for questions 29–31.

Timothy Company has the following information available for October when 3,500 units
were produced (round answers to the nearest peso).
Standards:
Material 3.5 pounds per unit @ P4.50 per pound
Labor 5.0 hours per unit @ P10.25 per hour
Actual:
Material purchased 12,300 pounds @ P4.25
Material used 11,750 pounds
17,300 direct labor hours @ P10.20 per hour

29. What is the labor rate variance?

a. P875 F c. P865 U
b. P865 F d. P875 U
30. What is the material quantity variance?
a. P2,250 F c. P225 F
b. P2,250 U d. P2,475 U
31. Assume that the company computes the material price variance on the basis of material
issued to production. What is the total material variance?
a. P2,850 U c. P5,188 F
b. P5,188 U d. P2,850
32. Actual fixed overhead is P33,300 (12,000 machine hours) and fixed overhead was
estimated at P34,000 when the predetermined rate of P3.00 per machine hour was
set. If 11,500 standard hours were allowed for actual production, applied fixed
overhead is
a. P33,300 c. P34,500
b. P34,000 d. P36,000
Use the following information for questions 33–36.
Standard Company has developed standard overhead costs based on a capacity of
180,000 machine hours as follows:

Standard costs per unit:

Variable portion 2 hours @ P3 = P 6 Fixed
portion 2 hours @ P5 = 10 P16

During April, 85,000 units were scheduled for production, but only 80,000 units were
actually produced. The following data relate to April:
Actual machine hours used were 165,000.
Actual overhead incurred totaled P1,378,000 (P518,000 variable plus
P860,000 fixed).
All inventories are carried at standard cost.
33. The variable overhead spending variance for April was
a. P15,000 U c. P38,000 F
b. P23,000 U d. P38,000 U
34. The variable overhead efficiency variance for April was
a. P15,000 U c. P38,000 F
b. P23,000 U d. P38,000 U
35. The fixed overhead spending variance for April was
a. P40,000 U c. P60,000 F
b. P40,000 F d. P60,000 U
36. The fixed overhead volume variance for April was
a. P60,000 U c. P100,000 F
b. P60,000 F d. P100,000 U
37. The sum of the labor mix and labor yield variances equals
a. the labor efficiency variance.
b. the total labor variance.
c. the labor rate variance.
d. nothing because these two variances cannot be added since they use
different costs
38. Total quality management is inseparable from the concept of
a. ISO certification.
b. centralized organizational structure.
c. continuous improvement.
d. the product life cycle.
39. A significant cost of quality that is not recorded in the accounting records is the
a. failure cost for a customer complaint center.
b. cost of reworking products to bring them up to specification.
c. opportunity costs of forgone future sales.
d. appraisal cost for product equipment.
40. Coffin Company’s cost of compliance is P58,000. Appraisal cost is P21,000 and
failure cost is P32,000. The company’s total quality cost is
a. P53,000. c. P90,000.
b. P79,000. d. P111,000.

41. E Co. has the following expected pattern of collections on credit sales: 70 percent
collected in the month of sale, 15 percent in the month after the month of sale, and
14 percent in the second month after the month of sale. The remaining 1 percent is
never collected. At the end of May, E Co. has the following accounts receivable
balances:
From April sales P21,000
From May sales 48,000
E’s expected sales for June are P150,000. What were total sales for April?
a. P150,000 c. P70,000
b. P72,414 d. P140,000
42. Budgeted sales for K Inc. for the first quarter of 2023 are shown below:
January 35,000
February 25,000
March 32,000
The company has a policy that requires the ending inventory in each period to be
10 percent of the following period’s sales. Assuming that the company follows this
policy, what quantity of production should be scheduled for February?
a. 24,300 units c. 25,000 units
b. 24,700 units d. 25,700 units
43. Production of Product X has been budgeted at 200,000 units for May. One unit of
X requires 2 kgs. of raw material. The projected beginning and ending materials
inventory for May are:
Beginning inventory 2,000 kgs.
Ending inventory 10,000 kgs.
How many kgs. of material should be purchased during May?
a. 192,000 c. 408,000
b. 208,000 d. 416,000
44. The weighted average cost of capital that is used to evaluate a specific project
should be based on the
a. mix of capital components that was used to finance a project from last year.
b. overall capital structure of the corporation.
c. cost of capital for other corporations with similar investments.
d. mix of capital components for all capital acquired in the most recent fiscal year.
45. Tiger Inc. bought a piece of machinery with the following data:

Useful life 6 years

Yearly net cash inflow P45,000
Salvage value –0–
Internal rate of return 18%
Cost of capital 14%
Present Value factors, 6th year: Present value factors, 6 periods:
14% 0.456 14% 3.889
18% 0.370 18% 3.498

The initial cost of the machinery was

a. P175,000 c. P20,520
b. P157,410 d. P16,650
46. An investment project is expected to yield P10,000 in annual revenues, has P2,000
in fixed costs per year, and requires an initial investment of P5,000, with an
estimated useful life of 5 years. Given a cost of goods sold of 60 percent of sales,
what is the payback period in years?
a. 2.50 c. 2.00
b. 5.00 d. 1.25

47. A project has an initial cost of P100,000 and generates a present value of
net cash inflows of P120,000. What is the project’s profitability index?
a. 0.20 c. 0.80
b. 1.20 d. 5.00

48. All other things being equal, as the time period for receiving an annuity lengthens,
a. the related present value factors increase.
b. the related present value factors decrease.
c. the related present value factors remain constant.
d. it is impossible to tell what happens to present value factors from the
information given.

49. In evaluating the performance of a profit center manager, he/she should be

evaluated on
a. all revenues and costs that can be traced directly to the unit.
b. all revenues and costs under his/her control.
c. the variable costs and the revenues of the unit.
d. the same costs and revenues on which the unit is evaluated.

50. Office Products Inc. manufactures and sells various high-tech office automation
products. Two divisions of Office Products Inc. are the Computer Chip Division and
the Computer Division. The Computer Chip Division manufactures one product, a
“super chip,” that can be used by both the Computer Division and other external
customers. The following information is available on this month’s operations in the
Computer Chip Division:

Selling price per chip P50

Variable costs per chip P20
Fixed production costs P60,000
Fixed SG&A costs P90,000
Monthly capacity 10,000 chips
External sales 6,000 chips
Internal sales 0 chips

Presently the Computer Division purchases no chips from the Computer Chips
Division, but instead pays P45 to an external supplier for the 4,000 chips it needs
each month.

Assume that next month’s costs and levels of operations in the Computer and
Computer Chip Divisions are similar to this month. What is the appropriate transfer
price range for a possible transfer of the super chip from one division to the other?
a. P45 to P50 c. P20 to P45
b. P20 to P50 d. P30 to P40