PREWEEK LECTURE

MANAGEMENT ADVISORY SERVICES (1st half)

MAY 2022 CPALE

INTRODUCTION TO MAS

1. That kind of accounting concerned with providing information to management in making decisions
about the operations of the business
a. Responsibility accounting
b. Cost accounting
c. Financial accounting
d. Management accounting

2. Management accounting
a. Is governed by generally accepted accounting principles
b. Is geared primarily to the past rather than the future
c. Places more emphasis on precision of data compared with financial accounting which does
not
d. Draws from disciplines beyond accounting

3. Which of the following characteristics does not relate to management accounting?

a. Accounting reports may include non-monetary information
b. Reports are often based on estimates and are seldom useful for anything other than the
purpose for which they are prepared
c. It is subject to restrictions imposed by GAAP
d. It provides data for internal users within the business organization

4. The primary purpose of management advisory services is

a. To conduct special studies, preparation of recommendation, development plans and
programs, and provision of advise and assistance in their implementation
b. To provide service or to fulfill some social need
c. To improve the client’s use of its capabilities and resources to achieve the objectives of the
organization
d. To earn the best rate of return on resources entrusted to its care with safety of investment
being taken into account and consistent with the firm’s social and legal responsibilities

5. The chief management accountant called “controller” traditionally performs these functions, except
a. The establishment and implementation of the financial planning process
b. Financial and management reporting and interpretation
c. Protection of company’s resources and economic conditions
d. Preparation of proposals for product promotions

COST CONCEPTS AND BEHAVIOR

6. The amount of variable cost per unit and total fixed cost within a relevant range behave this way in
relation to production level
a. Production increases, unit variable cost increases, total fixed cost increases
b. Production decreases, unit variable cost decreases, total fixed cost decreases
c. Production increases, unit variable cost remains constant, total fixed cost remains the same
d. Production increases, unit variable cost decreases, total fixed cost remains the same

7. Which of the following statements is false?

a. At zero production level, fixed costs are positive
b. At zero production level, variable costs are usually zero
c. At zero production level, total costs equal total fixed costs
d. At zero production level, fixed costs is also zero

8. Costs that increase as the volume of activity decreases within the relevant range are
a. Average costs per unit
b. Total fixed costs
c. Average variable costs per unit
d. Total variable costs
9. Direct materials are a
Conversion Cost Manufacturing Cost Prime Cost
a. Yes Yes No
b. Yes Yes Yes
c. No Yes Yes
d. No No No

10. The cost of rent for a manufacturing plant is generally considered to be a

Period Cost Product Cost
a. No Yes
b. No No
c. Yes No
d. Yes Yes

11. An opportunity cost is

a. The difference in total costs which results from selecting one choice instead of another
b. A cost that may be shifted to the future with little or no effect on current operations
c. A cost that may be saved by not adopting an alternative
d. The profit foregone by selecting one choice instead of another

12. Sunk costs

a. Are relevant to long-term decisions but not to short-term decisions
b. Are relevant to decision making
c. Are subtitles for opportunity costs
d. In themselves are not relevant to decision making

13. These are among the methods of segregating fixed cost and variable costs, except
a. Regression analysis
b. Scattergraph method
c. Breakeven method
d. High-low method

14. Weaknesses of the high-low method include all of the following, except
a. Only two observations are used to develop the cost function
b. The high and low activity levels may not be representative
c. The method does not detect if the cost behavior is nonlinear
d. The mathematical calculations are relatively complex

15. Regression analysis

a. Estimates the independent cost variable
b. Uses probability assumptions to determine total project costs
c. Estimates the dependent cost variable
d. Ignores the coefficient of determination

16. In the formula y = a + bx, y represents

a. Fixed cost
b. Total cost
c. Variable cost
d. Mixed cost

17. In regression analysis, the coefficient of determination is a measure of

a. The amount of variation in the dependent variable explained by the independent variables
b. The amount of variation in the dependent variable unexplained by the independent variables
c. The slope of the regression line
d. The predicted value of the independent variable

18. Correlation is a term frequently used in conjunction with regression analysis and is measured by the
value of the coefficient of correlation, “r”. The best explanation of the value “r” is that it
a. Interprets variances in terms of the independent variable
b. Ranges in size from negative infinity to positive infinity
c. Is a measure of the relative relationship between two variables
d. Is positive only for downward-sloping regression lines
19. The objective of a scatter diagram is
a. To determine, by visual fit, the relationship of two variables in a graph
b. Divide a universe of data into homogenous groups
c. Show the vital trend and separate trivial items
d. None of the choices

Use the following for the next two (2) items:

Company X wants to develop a cost estimating equation for its monthly cost of electricity. It has the
following data:

Month Cost of Electricity DL hours

January P6,750 1,500
April 7,500 1,700
July 8,500 2,000
October 7,250 1,600
20. Using the high-low method, what is the best equation?
a. Y = P750 + P3.50X
b. Y = P1,500 + P5.00X
c. Y = P750 + P5.00X
d. Y = P1,500 + P3.50X

21. How much is the total cost for the month of November if 1,000 DL hours are incurred?
a. P5,000
b. P6,000
c. P3,500
d. P1,500

Use the following for the next two (2) items:

Month Meals served Utilities costs
December 55 P401
January 30 P360
February 25 P347.5
March 40 P385.5
April 60 P414

22. Using the method of least squares, the variable rate for utilities costs per meal served is
a. P1.90
b. P1.80
c. P2.00
d. P3.00

23. Using the method of least squares, the fixed cost is

a. P300
b. P331
c. P306
d. P303

COST VOLUME PROFIT (CVP) ANALYSIS

24. The systematic examination of the relationships among selling prices, volume of sales and production,
costs, and profits is termed
a. Contribution margin analysis
b. Budgetary analysis
c. Cost-volume-profit analysis
d. Gross profit analysis

25. Which of the following assumptions does not pertain to cost-volume-profit analysis?
a. The total revenue function is linear
b. All costs are classified as fixed or variable
c. The units produced will equal the units sold
d. Sales mix may vary during the related period
26. At the breakeven point, fixed cost is always
a. Less than the contribution margin
b. More than the contribution margin
c. Equal to the contribution margin
d. More than the variable cost

27. Cost-volume profit analysis is a key factor in many decisions, including choice of product-lines, pricing
of products, marketing strategy, and utilization of product facilities. A calculation used in CVP analysis
is the break-even point. Once the break-even point has been reached, operating income will increase
by the
a. Sales price per unit for each additional unit sold
b. Contribution margin per unit for each additional unit sold
c. Fixed cost per unit for each additional unit sold
d. Gross margin per unit for each additional unit sold

28. To reduce the break-even point, the company may

a. Decrease both the fixed costs and contribution margin
b. Increase both the fixed costs and the contribution margin
c. Decrease the fixed costs and increase the contribution margin
d. Increase the fixed costs and decrease the contribution margin

29. The rate or amount that sales may decline before losses are incurred is called
a. Sensitive level of income
b. Variable sales ratio
c. Margin of safety
d. Residual income rates

30. The margin of safety is a key concept of CVP analysis. The margin of safety is the
a. Contribution margin rate
b. Difference between budgeted contribution margin and actual contribution margin
c. Difference between budgeted contribution margin and break-even contribution margin
d. Difference between budgeted sales and break-even sales

For the next five (5) items:

31. Company X produces a product that has the following data per annum

Unit sales price P400 per unit

Unit variable costs P260 per unit
Total fixed cost P7,000,000
Units sold 70,000 units

Compute the following:

a. Unit contribution margin, contribution margin ratio, and variable cost ratio.

b. Break-even point in units and in pesos.

c. Margin of safety in units, in pesos, and margin of safety ratio.

d. Net profit ratio.

e. If sales increase by P450,000, how much would you expect profit to increase?

32. Company X sells a product to retailers for P200. The unit variable cost is P40 with a selling commission
of 10%. Fixed manufacturing costs total P1,000,000 per month while fixed selling and administrative
costs total P420,000. The income tax rate is 30%. The target sales if after tax income is P123,200
would be
a. 10,950 units
b. 13,750 units
c. 11,400 units
d. 15,640 units
33. Company X has sales of P200,000, a contribution margin of 20%, and a margin of safety of P80,000.
What is the company’s fixed cost?
a. P16,000
b. P80,000
c. P24,000
d. P96,000

34. If sales are P525,000, variable costs are 64% of sales, and operating income is P50,000, what is the
contribution margin ratio?
a. 36%
b. 26.5%
c. 9.5%
d. 64%

35. If the contribution margin ratio for Company X is 37%, sales were P425,000. and fixed costs were
P100,000, what is the income from operations?
a. P167,750
b. P57,250
c. P54,730
d. P125,310

36. If fixed costs are P1,400,000, the unit selling price is P220, and the unit variable costs are P120, what
is the amount of sales required to realize an operating income of P200,000?
a. 14,000 units
b. 12,000 units
c. 16,000 units
d. 13,333 units

For the next two (20 items:

A company sells two products X and Y. The sales mix consists of a composite unit of two (2) units of X for
every five (5) units of Y. Fixed costs are P49,500. The unit contribution margins for X and Y are P2.50 and
P1.20, respectively.

37. Considering the company as a whole, the number of composite units to break even is
a. 31,500
b. 4,500
c. 8,250
d. 9,900

38. If the company had an operating income of P22,000, the unit sales for Product X and Product Y must
have been
a. 5,000; 12,500
b. 13,000; 32,500
c. 23,800; 59,500
d. 28,600; 71,500

PRODUCT COSTING (ABSORPTION VS. VARIABLE)

39. In an income statement prepared as an internal report using the variable (direct) costing method,
fixed selling and administrative expenses would
a. Not be used
b. Be used in the computation of the contribution margin
c. Be used in the computation of operating income but not in the computation of the
contribution margin
d. Be treated the same as variable selling and administrative expenses

40. Which of the following statements is correct?

a. When production is higher than sales, absorption costing profit is lower than variable costing
profit
b. If all the products manufactured during the period are sold in that period, variable costing
profit is equal to absorption costing profit
c. When production is lower than sales, variable costing profit is lower than absorption costing
profit
d. When production and sales level are equal, variable costing profit is lower than absorption
costing profit
41. Variable costing and absorption costing will show the same income when there are no
a. Beginning inventories
b. Ending inventories
c. Variable costs
d. Beginning and ending inventories
42. Under variable costing, which of the following are costs that can be inventoried?
a. Variable selling and administrative expense
b. Variable manufacturing overhead
c. Fixed manufacturing overhead
d. Fixed selling and administrative expense

43. 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

44. Identify the following statements as true or false

Statement 1: In variable costing, fixed factory overhead forms part of the inventory value.
Statement 2: The difference in profit between variable costing and absorption costing is due
entirely to the treatment of fixed manufacturing overhead.
a. Statement 1 is true, Statement 2 is true
b. Statement 1 is true, Statement 2 is false
c. Statement 1 is false, Statement 2 is true
d. Statement 1 is false, Statement 2 is false

45. Which of the following statements is true?

a. Depreciation expense is always a product cost
b. Depreciation expense is always a period cost
c. Selling and administrative costs, whether variable or fixed, are always treated as period costs
under both the absorption and variable costing systems
d. Income under absorption costing is always greater than income under variable costing

46. An ending inventory valuation on an absorption costing balance sheet would

a. Sometimes be less than the ending inventory valuation under variable costing
b. Always be less than the ending inventory valuation under variable costing
c. Always be the same as the ending inventory valuation under variable costing
d. Always be greater than or equal to the ending inventory valuation under variable costing

47. Corporation X has the following data available to you:

Sales (P50 selling price) P500,000 Units:

Direct materials 20,000 Beg. Inventory 2,000
Direct labor 30,000 Production 12,000
Overhead:
Variable 10,000
Fixed 60,000
Selling & Admin:
Variable 15,000
Fixed 25,000

Compute for the following:

• Net income – abs. costing

• Net income – var. costing
• Ending inventory – abs. costing
• Ending inventory – var. costing
• Reconciliation of net income
 Use the following information for the next three questions:
Corporation X has the following standard costs associated with the manufacture and sale of one of its
products:

Direct material P3.00 per unit

Direct labor 2.50 per unit
Variable manufacturing overhead 1.80 per unit
Fixed manufacturing overhead 4.00 per unit (based on an estimate of 50,000
units per year)
Variable selling expenses 0.25 per unit
Fixed SG&A expense P75,000 per year

During its first year of operations, the company manufactured 50,000 units and sold 48,000. The
selling price per unit was P25. All costs were equal to standard.

48. Under absorption costing, the standard production cost per unit was
a. P11.30
b. P7.30
c. P11.55
d. P13.05

49. Under variable costing, the standard production cost per unit was
a. P11.30
b. P7.30
c. P7.55
d. P11.5

50. Based on variable costing, the income before income taxes for the year was
a. P570,600
b. P560,000
c. P562,600
d. P547,500

Use the following information for the next two questions:

The following information is available for Company X for its first year of operations:

Sales in units 5,000

Production in units 8,000
Manufacturing costs:
Direct labor P3 per unit
Direct material 5 per unit
Variable overhead 1 per unit
Fixed overhead P100,000
Net income (absorption method) P30,000
Sales price per unit P40

51. What would Company X have reported as its income before income taxes if it had used variable
costing?
a. P30,000
b. (P7,500)
c. P67,500
d. None of the choices

52. What was the total amount of SG&A expense incurred by Company X?
a. P30,000
b. P62,500
c. P6,000
d. None of the choices
ACTIVITY-BASED COSTING (ABC)

53. A(n)_______________ method first traces costs to activities and then to products.
a. Direct costing
b. Traditional costing
c. Absorption costing
d. Activity-based costing

54. A(n) _______________ method first traces costs to a department and then to products.
a. Direct costing
b. Traditional costing
c. Absorption costing
d. Activity-based costing

55. Of the following, which is the best reason for using activity-based costing?
a. To keep better track of overhead costs
b. To more accurately assign overhead costs to cost pools so that these costs are better controlled
c. To better assign overhead costs to products
d. To assign indirect service overhead costs to direct overhead cost pools

56. A basic assumption of activity-based costing (ABC) is that

a. All manufacturing costs vary directly with units of production
b. Products or services require the performance of activities, and activities consume resources
c. Only costs that respond to unit-level drivers are product costs
d. Only variable costs are included in activity-cost pools

57. Design of an ABC system requires

a. That the job bid process be redesigned
b. An adjustment to product mix
c. That a cause-and-effect relationship exists between resource costs and individual activities
d. Both (b) and (c)

58. ABC should be used in which of the following situations?

a. Single-product firms with multiple steps
b. Multiple-product firms with only a single process
c. Multiple-product firms with multiple processing steps
d. In all manufacturing firms

59. Company X produces two products, AB and XY, and uses a costing system in which all overhead is
accumulated in a single cost pool and allocated based on machine hours. The company’s
management has decided to implement ABC because a cost study has revealed significant amounts
of overhead cost related to setup activity and design activity. The number of setups and the number
of design hours will be the activity drivers for the two new cost pools, and machine hours will continue
as the base for allocating the remaining overhead. Selected information follows for the company’s
operations:

AB XY Total
Units produced ........................................................... 500 15,500 16,000
Direct material cost:
Per unit................................................................. P 200 P 20
Total ..................................................................... P100,000 P 310,000 P 410,000

Machine hours ............................................................ 3,000 47,000 50,000

Direct labor cost.......................................................... P 50,000 P 350,000 P 400,000
Setups ......................................................................... 120 80 200
Design hours ............................................................... 6,000 4,000 10,000

Overhead:
Setup-related ....................................................... P 250,000
Design-related...................................................... 350,000
Other .................................................................... 900,000
Total overhead ..................................................... P1,500,000
 a. Calculate the total and per unit costs reported for the two products by the existing traditional
costing system.
b. Calculate the total and per unit costs reported for the two products by the ABC system.

Use the following information for the next five questions:

Company X provides the following ABC costing information:

Activities Total Costs Activity-cost drivers

Account inquiry hours 400,000 10,000 hours
Account billing lines 280,000 4,000,000 lines
Account verification accounts 150,000 40,000 accounts
Correspondence letters 50,000 4,000 letters
Total costs 880,000

The above activities are used by Departments A and B as follows:

Department A Department B
Account inquiry hours 2,000 hours 4,000 hours
Account billing lines 400,000 lines 200,000 lines
Account verification accounts 10,000 accounts 8,000 accounts
Correspondence letters 1,000 letters 1,600 letters

60. How much of the account inquiry cost will be assigned to Department A?
a. P80,000
b. P400,000
c. P160,000
d. None of the choices

61. How much of the account billing cost will be assigned to Department B?
a. P28,000
b. P280,000
c. P14,000
d. None of the choices

62. How much of account verification costs will be assigned to Department A?

a. P30,000
b. P37,500
c. P150,000
d. P10,000

63. How much of correspondence costs will be assigned to Department B?

a. P1,600
b. P12,500
c. P50,000
d. P20,000

64. How much of the total costs will be assigned to Department A?

a. P158,000
b. P80,000
c. P224,000
d. P880,000

65. Company X has provided the following data from its activity-based costing system:

Activity Cost Pool Total Cost Total Activity

Assembly ......................... P613,250 55,000 machine-hours
Processing orders............ P 46,170 1,500 orders
Inspection ....................... P146,110 1,900 inspection-hours

Data concerning one of the company’s products, Product XY, appear below:

Selling price per unit ................................. P113.70

Direct materials cost per unit ................... P48.14
Direct labor cost per unit .......................... P11.62
Annual unit production and sales ............. 360
Annual machine-hours.............................. 1,040
 Annual orders ........................................... 60
Annual inspection-hours........................... 30

According to the activity-based costing system, the product margin for product ABC is:

a. P3,668.60
b. P5,515.40
c. P5,975.60
d. P19,418.40

BUDGETING

66. The process of creating a formal plan and translating goals into a quantitative format is
a. Process costing
b. Activity-based costing
c. Budgeting
d. Variance analysis

67. Which of the following objectives is not a primary purpose of preparing a budget?
a. To provide a basis for comparison of actual performance
b. To communicate the company’s plans throughout the entire business organization
c. To control income and expenditure in a given period
d. To make sure the company expands its operations

68. These statements are proper to the budgeting process, except

a. t is a part of management’s responsibility to plan the use of its resources
b. It is a tool to orchestrate the various functions of operations in a business
c. The involvement of the various levels of individuals in the company is necessary to gain its
acceptance and attain its goals
d. Actual results need not be compared with plan, since the process ends after budget is
approved
69. For a company that does not have resource limitations in what sequence would the budgets be
prepared?
1. Cash budget 4. Production budgets
2. Sales budget 5. Purchase budgets
3. Inventory budgets

a. Sequence 2, 3, 4, 5 and 1
b. Sequence 2, 4, 3, 5 and 1
c. Sequence 2, 3, 4,1 and 5
d. Sequence 4, 3, 2, 1 and 5

70. Which of the following is normally included in the financial budget of firm?
a. Direct materials budget
b. Selling expense budget
c. Budgeted balance sheet
d. Sales budget

71. The information contained in a cost of goods manufactured budget most directly relates to the
a. Materials used, direct labor, overhead applied, and ending work-in process budgets
b. Materials used, direct labor, overhead applied, and work-in-process inventories budgets
c. Materials used, direct labor, overhead applied, work-in-process inventories, and finished
goods inventories budgets
d. Materials used, direct labor, overhead applied, and finished goods inventories budgets

72. Company X has budgeted sales of 18,000 units, target ending finished goods inventory of 3,000 units,
and beginning finished goods inventory of 900 units. How many units should be produced next year?
a. 21,900 units
b. 20,100 units
c. 15,900 units
d. 18,000 units
73. ABC Company expects to manufacture and sell 30,000 baskets in 2025 for P6 each. There are 3,000
baskets in beginning finished goods inventory with target ending inventory of 4,000 baskets. The
company keeps no work-in-process inventory. What amount of sales revenue will be reported on the
2025 budgeted income statement?
a. P174,000
b. P180,000
c. P186,000
d. P204,000

74. The following is the sales budget of ABC Company for the period January to June 2025:

Month Units
January 100,000
February 90,000
March 90,000
April 80,000
May 70,000
June 70,000

The company’s projection is to have inventory on hand at the end of each month equal to 70% of the
sales for the month following. It is assumed that the inventory at the end of December 2025 will meet
this requirement. It is also estimated that the 80,000 units will be sold in July 2025. What is the total
production budget in units for the six months period ending June 30, 2025?
a. 556,000
b. 486,000
c. 524,000
d. 479,000

For the next two (2) items:

ABC Corporation has the following budget estimates for its second year of operations:

Projected sales P3,500,000

Projected income before tax 12% of sales
Estimated selling and administrative expenses 25% of sales

Direct labor and factory overhead are budgeted at 70% of the total manufacturing cost. Inventories are
estimated as follows:

Raw Materials Work-in-Process Finished Goods

Beginning P220,000 P250,000 P350,000
Ending P270,000 P300,000 P420,000

75. The estimated cost of goods sold would be

a. P2,275,000
b. P2,205,000
c. P2,325,000
d. P1,750,000

76. The estimated purchases of raw materials would be

a. P967,500
b. P732,500
c. P697,500
d. P747,500

77. Company X is preparing its budget for 2026. For 2025, the following were reported:

Sales (100,000 units) P1,000,000

Cost of Goods Sold 600,000
Gross Profit P 400,000
Operating Expenses (including depreciation of P40,000) 240,000
Net Income P 160,000

Selling prices will increase by 10% and sales volume in units will decrease by 5%. The cost of goods
sold as a percent of sales will increase to 62%. Other than depreciation, all operating costs are
variable. The company will budget a net income for 2026 of
 a. P167,100
b. P167,500
c. P168,000
d. P176,000

78. In preparing its budget for July 2025, ABC Company has the following accounts receivable information
available:
Accounts receivable on June 30, 2025 P350,000
Estimated credit sales for July 400,000
Estimated collections in July for credit sales in July and prior years 320,000
Estimated write-off in July for uncollectible credit sales 16,000
Estimated provision for doubtful accounts for credit sales in July 12,000

What is the projected balance of accounts receivable on July 31, 2025?

a. P402,000
b. P414,000
c. P426,000
d. P430,000

79. In preparing its cash budget for July, Company X made the following projections
Sales P1,500,000
Gross Profit 25%
Decrease in inventories P 70,000
Decrease in accounts payable for inventories 120,000

For July, what were the estimated cash disbursement for inventories?

a. P1,050,000
b. P1,055,000
c. P1,175,000
d. P 935,000

80. Company X prepared the following sales budget

Month Cash Sales Credit Sales

February P 80,000 P 340,000
March 100,000 400,000
April 90,000 370,000
May 120,000 460,000
June 110,000 380,000

Collections are 40% in the month of sale, 45% in the month following the sale, and 10% two months
following the sale. The remaining 5% is expected to be uncollectible.

The company’s total budgeted collection from April to June amounts to

a. P1,090,250
b. P1,325,500
c. P1,468,500
d. P1,397,500

81. Company X expects to sell 150,000 units during the first quarter with an ending inventory for the
quarter of 20,000 units. Variable manufacturing costs are budgeted at P50 per unit, with 70% of total
variable manufacturing costs requiring cash payments during the quarter. Fixed manufacturing costs
are budgeted at P120,000 per quarter, 40% of which are expected to require cash payment during the
quarter.

In the cash budget, payments for manufacturing costs during the quarter will total
a. P8,500,000
b. P5,950,000
c. P5,998,000
d. P5,298,000
82. he following information were made available for ABC Inc.
• June 30, cash balance, P900,000
• Dividends paid in July, P240,000
• Cash expenditures in July for operating expenses, P736,000
• Depreciation expense in July, P90,000
• Cash collections in July, P1,780,000
• Merchandise purchases paid in cash in July, P1,124,000
• Purchased equipment for cash in July, P350,000

It was the company’s policy to keep a minimum cash balance of P200,000. The company
a. Had to borrow P200,000
b. Did not borrow since its ending balance amounted to P200,000
c. Did not borrow since its ending balance amounted to P230,000
d. Had to borrow P60,000

STANDARD COSTING AND VARIANCE ANALYSIS

83. A company controls its production costs by comparing its actual monthly production costs with the
expected levels. Any significant deviations from expected levels are investigated and evaluated as a
basis for corrective actions. The quantitative technique that is most probably being used is
a. Time-series or trend regression analysis
b. Correlation analysis
c. Differential calculus
d. Standard cost variance analysis

84. A primary purpose of using a standard cost system is

a. To make things easier for managers in the production facility
b. To provide a distinct measure of cost control
c. To minimize the cost per unit of production
d. B and c are correct

85. The standard cost card contains quantities and costs for
a. Direct material only
b. Direct labor only
c. Direct material and direct labor only
d. Direct material, direct labor, and overhead

86. Of the following variances, the one that is most useful in assessing the performance of the Purchasing
Department is the
a. Idle capacity variance
b. Materials purchase price variance
c. Labor rate variance
d. Materials price usage variance

87. Materials usage variances are normally chargeable to the

a. Production Department
b. Purchasing Department
c. Finished Goods Department
d. Materials Storage Department

88. The most probable reason a company would experience a favorable labor rate variance and an
unfavorable labor efficiency variance is that
a. The mix of workers assigned to the particular job was heavily weighted toward the use of
higher paid, experienced individuals
b. The mix of workers assigned to the particular job was heavily weighted toward the use of
new, relatively low-paid, unskilled workers
c. Because of the production schedule, workers from other production areas were assigned to
assist in this particular process
d. Defective materials caused more labor to be used in order to produce a standard unit
89. A favorable fixed overhead volume variance occurs if
a. There is a favorable labor efficiency variance
b. There is a favorable labor rate variance
c. Production is less than planned
d. Production is greater than planned

90. Company X is developing standards for its products. Each unit of output of the product requires 0.92
kilogram of a particular input. The allowance for waste and spoilage is 0.02 kilogram of this input for
each unit of output. The allowance for rejects is 0.11 kilogram of this input for each unit of output.
The standard quantity in kilograms of this input per unit of output should be
a. 0.90
b. 0.92
c. 0.79
d. 1.05

91. Company X is developing direct labor standards. A particular product requires 0.71 direct labor-hours
per unit. The allowance for breaks and personal needs is 0.04 direct labor-hours per unit. The
allowance for cleanup, machine downtime, and rejects is 0.12 direct labor-hours per unit. The
standard direct labor-hours per unit should be
a. 0.71
b. 0.87
c. 0.67
d. 0.55

92. The following July information is for Company X:

Standards:
Material 3.0 feet per unit @ P4.20 per foot
Labor 2.5 hours per unit @ P7.50 per hour

Actual:
Production 2,750 units produced during the month
Material 8,700 feet purchased and used @ P4.50 per foot
Labor 7,000 direct labor hours @ P7.90 per hour

Compute the following:

• Material price variance

• Material usage variance
• Labor rate variance
• Labor efficiency variance

93. ABC Company uses a standard cost system for its production process and applies overhead based on
direct labor hours. The following information is available for the month when ABC made 4,500 units:

Standard: Actual:
DLH per unit 2.50 Direct labor hours 10,000
Variable overhead per DLH P1.75 Variable overhead P26,250
Fixed overhead per DLH P3.10 Fixed overhead P38,000
Budgeted variable overhead P21,875
Budgeted fixed overhead P38,750

Compute the following:

1) Total overhead variance (1-way approach)

2) Controllable variance (2-way approach)
3) Uncontrollable variance (2-way approach)
4) Spending variance (3-way approach)
5) Efficiency variance (3-way approach)
6) Volume variance (3-way approach)
7) Variable overhead spending variance (4-way approach)
8) Fixed overhead spending variance (4-way approach)
 9) Variable overhead efficiency variance (4-way approach)
10) Volume variance (4-way approach)

94. Information on ABC Company’s direct material costs is as follows

Standard unit price P3.60

Actual quantity purchased 1,600
Standard quantity allowed for actual production 1,450
Material purchase price variance – favorable P240

What was the actual purchase price per unit?

a. P3.00
b. P3.11
c. P3.45
d. P3.75

95. The information on ABC Company’s direct labor costs for the month of January 2025 is as follows:

Actual direct labor hours 34,500

Standard direct labor hours 35,000
Total direct labor payroll P241,500
Direct labor efficiency variance – favorable P3,200

What is ABC Company’s direct labor rate variance?

a. P17,250 unfavorable
b. P20,700 unfavorable
c. P21,000 unfavorable
d. P21,000 favorable

RELEVANT COSTING (DIFFERENTIAL COST ANALYSIS)

96. Incremental analysis would be appropriate for

a. Acceptance of an order at a special price
b. Retain or replace equipment
c. Sell or process further
d. All of these

97. When applying the cost-benefit approach to a decision, the primary criterion is how well management
goals will be achieved in relation to costs. Costs include all expected
a. Variable costs for the courses of action but not expected fixed costs because only the
expected variable costs are relevant
b. Incremental out-of-pocket costs as well as all expected continuing costs that are common to
all the alternative courses of action
c. Future costs that differ among the alternative courses of action plus all qualitative factors that
cannot be measured in numerical terms
d. Historical and future costs relative to the courses of action including all qualitative factors that
cannot be measured in numerical forms

98. If a firm is at full capacity, the minimum special-order price must cover
a. Variable costs associated with the special order
b. Variable and fixed manufacturing costs associated with the special order
c. Variable and incremental fixed costs associated with the special order
d. Variable costs and incremental fixed costs associated with the special order plus foregone
contribution margin on regular units not produced

99. There is a market for both product X and product Y. Which of the following costs and revenues would
be most relevant in deciding whether to sell product X or process it further to make product Y?
a. Total cost of making X and the revenue from sale of X and Y
b. Total cost of making Y and the revenue from sale of Y
c. Additional cost of making Y, given the cost of making X, and additional revenue from Y
d. Additional cost of making X, given the cost of making Y, and additional revenue from Y
 100. Relevant costs in a make-or-buy decision of a part include
a. Setup overhead for the manufacture of the product using the outsourced part
b. Currently used manufacturing capacity that has alternative uses
c. Annual plant insurance costs that will remain the same
d. Corporate office costs that will be allocated differently

101. What is the opportunity cost of making a component part in a factory given no alternative use of
the capacity?
a. The variable manufacturing cost of the component
b. The total manufacturing cost of the component
c. The total variable cost of the component
d. Zero

102. When a multi-product plant operates at full capacity, quite often decisions must be made as to
which products to emphasize. These decisions are frequently made with a short-run focus. In making
such decisions, manager should select products with the
a. Highest sales price per unit
b. Highest individual unit contribution margin
c. Highest volume potential
d. Highest contribution margin per unit of the scarce resource

103. Company X is approached by Mr. Y, a new customer, to fulfill a large one-time-only special order
for a product similar to one offered to regular customers. The following per unit data apply for sales
to regular customers:

Direct materials 455

Direct labor 300
Variable manufacturing support 45
Fixed manufacturing support 100
Total manufacturing costs 900
Markup (60%) 540
Targeted selling price 1440

The company has excess capacity. Mr. Y wants the cabinets in narra, so direct material costs will
increase by P30 per unit.

For the company, what is the minimum acceptable price of this one-time-only special order?
a. P830
b. P930
c. P785
d. P1,440

104. Company X manufactures furniture. The cost accounting system estimates manufacturing costs to be
P90 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity
available. It is the company’s policy to add a 50% markup to full costs.

The company is invited to bid on a one-time-only special order to supply 100 tables. What is the lowest
price it should bid on this special order?
a. P6,300
b. P7,200
c. P9,000
d. P13,500

105. Company X manufactures part X101 used in several of its engine models. Monthly production costs
for 1,000 units are as follows:

Direct materials P40,000

Direct labor 10,000
Variable overhead costs 30,000
Fixed overhead costs 20,000
Total costs P100,000

It is estimated that 10% of the fixed overhead costs assigned to X101 will no longer be incurred if the
company purchases it from the outside supplier. Company X has the option of purchasing the part
from an outside supplier at P85 per unit.
 If the company accepts the offer from the outside supplier, the monthly avoidable costs (costs that
will no longer be incurred) total:
a. P82,000
b. P98,000
c. P50,000
d. P100,000

106. Company X produces three products, X, Y and Z. One machine is used to produce the three products.
Additional information is available as follows:

Products CM per unit Time on Machine Demand

X P 50 25 minutes 60 units
Y 90 50 minutes 40 units
Z 112.5 75 minutes 50 units

The machine can be operated 7 days a week, for 10 hours per day. How many units should be
produced and sold to maximize the weekly contribution margin?

X Y Z

a. 60 40 9
b. 60 40 50
c. 56 28 18
d. 168 0 0

107. Company X produces weekly 15,000 units of Product X9 and 30,000 units of X10 for which P800,000
common variable costs are incurred. These two products can be sold as is or processed further.
Further processing of either product does not delay the production of subsequent batches of the
joint products. Below are some information:
X9 X10
Unit selling price without further processing P24 P18
Unit selling price with further processing P30 P22
Total separate weekly variable costs of further processing P100,000 P90,000

To maximize the company’s manufacturing contribution margin, the total separate variable costs of
further processing that should be incurred each week are
a. P95,000
b. P90,000
c. P100,000
d. P190,000

108. A company produces and sells three products:

Products

C J P
Sales P200,000 P150,000 P125,000
Separable (product) fixed costs 60,000 35,000 40,000
Allocated fixed costs 35,000 40,000 25,000
Variable costs 95,000 75,000 50,000

The company lost its lease and must move to a smaller facility. As a result, total allocated fixed costs
will be reduced by 40%. However, one of its products must be discontinued in order for the company
to fit in the new facility.

Because the company's objective is to maximize profits, what is its expected net profit after the
appropriate product has been discontinued?

a. P10,000
b. P15,000
c. P20,000
d. P25,000
SEGMENT REPORTING & DECENTRALIZATION

109. Goal congruence exists when

a. The goals of the company harmonize with each other
b. The company's managers are pursuing their own goals effectively
c. The company's managers are pursuing the goals of the company
d. All of the above are true

110. The sequence that reflects increasing breadth of responsibility is

a. Cost center, investment center, profit center
b. Cost center, profit center, investment center
c. Profit center, cost center, investment center
d. Investment center, cost center, profit center

111. A maintenance manager is most likely responsible for a(n)

a. Revenue center
b. Investment center
c. Cost center
d. Profit center

112. A manager of a profit center is responsible for all of the following, except
a. Sales revenue
b. The cost of merchandise purchased for resale
c. Expanding into new geographic areas
d. Selling and marketing costs

113. In a responsibility accounting, a center’s performance is measured by controllable costs.

Controllable costs are best described as including
a. Differential costs
b. Only those costs that the manager can influence in the current time period
c. Incremental and fixed costs
d. Only discretionary cost

114. Controllability may be difficult to pinpoint because of all the following, except
a. Some costs depend on market conditions
b. Current managers may have inherited inefficiencies of a previous manager
c. The current use of stretch or challenge targets
d. Few costs are under the sole influence of one manager

115. A major problem in comparing profitability measures among companies is the

a. Lack of general agreement over which profitability
b. Differences in the size of the companies
c. Differences in the accounting methods used by the companies
d. Differences in the dividend policies of the companies

116. Company X has two divisions. Division A has a contribution margin of P79,300 and Division B has
a contribution margin of P126,200. If total traceable fixed costs are P72,400 and total common fixed
costs are P34,900, what is the company’s net operating income?
a. P168,000
b. P170,600
c. P133,100
d. P98,200

117. The following data relate to the Division 10 of Company X:

Sales P10,000,000
Variable costs 3,000,000
Direct fixed costs 5,000,000
Invested capital 8,000,000
Allocated actual interest costs 800,000
Capital charge 12%

The divisional return on investment is

a. 15 percent
b. 13 percent
c. 25 percent
d. 20 percent
 118. Company X uses residual income to evaluate the performance of its divisions. The company's
minimum required rate of return is 14%. In January, Division 12 had average operating assets of
P970,000 and net operating income of P143,700. What was Division 12’s residual income in January?
a. P7,900
b. (P20,118)
c. P20,118
d. (P7,900)

119. Consider the following:

Investment center’s after-tax operating profit P 50,000

Investment center’s total assets 800,000
Investment center’s current liabilities 80,000
Weighted-average cost of capital 6.5%

What is the economic value added (EVA)?

a. P60,000
b. P 6,000
c. P 3,200
d. P50,000

120. Segment A generated sales revenues of P400,000 and variable operating expenses of P180,000.
Its controllable fixed expenses were P40,000. It was assigned 20% of P200,000 of fixed costs which
is considered controllable. The common fixed costs were P25,000. What was Segment A's
controllable segment profit margin?
a. P220,000
b. P140,000
c. P180,000
d. P160,000

TRANSFER PRICING

121. A transfer price is

a. An accounting device to turn profit centers into investment centers
b. The price charged by one segment of the company for goods or services provided to another
segment
c. Only useful in a segment that deals with outsiders as well as with other segments of the same
company
d. The amount charged by a cost center for a service performed for a profit center

122. The criteria used for evaluating performance

a. Should be designed to help achieve goal congruence
b. Can be used only with profit centers and investment centers
c. Should be used to compare past performance with current performance
d. Motivate people to work in the company's best interests

123. With two autonomous division managers, the price of goods transferred between the divisions needs
to be approved by
a. Corporate management
b. Both divisional managers
c. Both divisional managers and corporate management
d. Corporate management and the manager of the buying division

124. The minimum transfer price is determined by

a. Incremental costs in the selling division
b. The lowest outside price for the good
c. The extent of idle capacity in the buying division
d. Negotiations between the buying and selling division
 For the next three (3) items:
Company X produces various products used in the construction industry. Division A produces
100,000 copper fittings each month. Relevant information for last month follows:

Total sales (all external) P250,000

Expenses (all on a unit base):
Variable manufacturing P0.50
Fixed manufacturing .25
Variable selling .30
Fixed selling .40
Variable G&A .15
Fixed G&A .50
Total P2.10

Top-level managers are trying to determine how a transfer price can be set on a transfer of
10,000 of the copper fittings from Division A to Division B.
125. A transfer price based on variable cost will be set at ___ per unit.
a. P0.50
b. P0.95
c. P0.80
d. P0.75

126. A transfer price based on full production cost would be set at per unit.
a. P0.75
b. P1.45
c. P2.10
d. P1.60

127. If Division A sells 100,000 fittings per month to outside customers, the per-unit transfer price is not
likely to be below
a. P0.75
b. P2.10
c. P1.60
d. P2.50

For the next four (4) items:

Division A of Company X makes a part that can either be sold to outside customers or
transferred internally to Division B for further processing. Annual data relating to this part
are as follows:

Annual production capacity .................................. 80,000 units

Selling price of the item to outside customers ..... P35
Variable cost per unit............................................ P23
Fixed cost per unit................................................. P5

Division B of Company X requires 15,000 units per year and is currently paying an outside
supplier P33 per unit. Consider each part below independently.

128. If outside customers demand only 50,000 units per year, what is the lowest acceptable transfer price
from the viewpoint of the selling division?
a. P35
b. P33
c. P28
d. P23

129. If outside customers demand 80,000 units, what is the lowest acceptable transfer price from the
viewpoint of the selling division?
a. P35
b. P33
c. P28
d. P23
130. If outside customers demand 80,000 units and if, by selling to Division B, Division A could avoid P4
per unit in variable selling expense, what is the lowest acceptable transfer price from the viewpoint
of the selling division?
a. P35
b. P21
c. P31
d. P33

131. If outside customers demand 70,000 units, what is the lowest acceptable transfer price from the
viewpoint of the selling division for each of the 15,000 units needed by B?
a. P33
b. P27
c. P28
d. P29

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