Answer Key for Strategic Cost Management

Accountancy (Bsa1)

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COURSE MATERIAL NO. 2
1. Which of the following is not a factory overhead allocation method?
a. Single Plantwide Rate Method
b. Multiple Production Department Rate Method
c. Traditional Costing Method
d. Activity-Based Costing Method
C

2. Which of the following does not support managerial decisions involving accurate product costing?
a. product constraints
b. emphasis of a product line
c. product mix
d. product price
A

3. Lasso Corp. budgeted P250,000 of overhead cost for 2019. Actual overhead costs for the year were
P240,000. Lasso's plant-wide allocation base, machine hours, was budgeted at 50,000 hours. Actual
machine hours were 40,000. Budgeted units to be produced are 100,000 units. Lasso's plant-wide
factory overhead rate for 2019 is:
a. P1.25 per unit
b. P6.00 per machine hour
c. P6.25 per machine hour
d. P5.00 per machine hour
D

4 The Nite Lite Factory has determined that its budgeted factory overhead budget for the year is
P6,750,000 and budgeted direct labor hours are 5,000,000. Using the single plantwide factory
overhead rate based on direct labor hours, determine the factory overhead rate for the year.
a. P1.35
b. P1.20
c. P0.74
d. cannot be determined
A

5. The Nite Lite Factory has determined that its budgeted factory overhead budget for the year is
P6,750,000 and budgeted direct labor hours are 5,000,000. If the actual direct labors for the period
are 180,000 and direct labor hours is the allocation base, the factory overhead allocation using the
single plantwide factory overhead rate is?
a. P375,000
b. P133,333
c. P243,000
d. cannot be determined
C

6. Nite Lite Factory produces two similar products - small lamps and desk lamps. The total plant
overhead budget is P640,000 with 400,000 estimated direct labor hours. It is further estimated that
small lamp production will have 275,000 direct labor hours and desk lamp production will require
125,000 direct labor hours. Using the single plantwide factory overhead rate with an allocation base
of direct labor hours, how much factory overhead will be allocated to the small lamp production if
the actual direct hours for the period is 290,000?
a. P220,690
b. P400,000
c. P440,000
d. P464,000
D

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7. Nite Lite Factory produces two similar products - small lamps and desk lamps. The total plant
overhead budget is P640,000 with 400,000 estimated direct labor hours. It is further estimated that
small lamp production will have 275,000 direct labor hours and desk lamp production will require
125,000 direct labor hours. Using the single plantwide factory overhead rate with an allocation base
of direct labor hours, how much factory overhead will be allocated to the desk lamp production if the
actual direct hours for the period is 121,000?
a. P220,690
b. P200,000
c. P193,600
d. P279,000
C

8. Nite Lite Factory produces two similar products - small lamps and desk lamps. The total plant
overhead budget is P640,000 with 400,000 estimated direct labor hours. It is further estimated that
small lamp production will use 3 direct labor hours for each unit and desk lamp production will
require 1.25 direct labor hours for each unit. Using the single plantwide factory overhead rate with
an allocation base of direct labor hours, how much factory overhead will be allocated to the desk
lamp production if the actual production for the period is 121,000 units?
a. P151,250
b. P242,000
c. P580,800
d. P363,000
B

9. Nite Lite Factory produces two similar products - small lamps and desk lamps. The total plant budget
is P640,000 with 400,000 estimated direct labor hours. It is further estimated that small lamp
production will use 3 direct labor hours for each unit and desk lamp production will require 1.25
direct labor hours for each unit. Using the single plantwide factory overhead rate with an allocation
base of direct labor hours, how much factory overhead will be allocated to the small lamp production
if the actual production for the period is 108,000 units?
a. P518,400
b. P324,000
c. P580,800
d. P363,000
A

10. The Nite Lite Factory produces two products - small lamps and desk lamps. It has two separate
departments - finishing and production. The overhead budget for the finishing department is
P550,000, using 500,000 direct labor hours. The overhead budget for the production department is
P400,000 using 80,000 direct labor hours. If the budget estimates that a desk lamp will require 1
hours of finishing and 2 hours of production, what is the total amount of factory overhead to be
allocated to desk lamps using the multiple production department factory overhead rate method with
an allocation base of direct labor hours, if 26,000 units are produced?
a. P540,000
b. P300,000
c. P400,000
d. P288,600
D

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11. Phelan Systems Corporation is estimating activity costs associated with producing disk drives, tapes
drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted
activity cost and activity base information, along with the estimated activity-base information, is provided
below.

Activity
Cost Activity Base
Procurement P 360,000 Number of purchase orders
Scheduling 240,000 Number of production orders
Materials handling 480,000 Number of moves
Product development 720,000 Number of engineering changes
Production 1,420,000 Machine hours

Number
Number of of Number Number of Number
Purchase Production of Engineering Machine of
Orders Orders Moves Changes Hours Units
Disk drives 4,000 300 1,400 10 2,000 2,000
Tape drives 2,000 150 600 5 8,000 4,000
Wire drives 12,000 800 4,000 25 10,000 2,500

Determine the activity rate for procurement per purchase order.

a. P192
b. P20
c. P80
d. P71
B

12. Determine the activity rate per purchase order for scheduling.
a. P192
b. P20
c. P80
d. P71
A

13. Determine the activity rate for materials handling per move.
a. P192
b. P20
c. P71
d. P80
D

14. Determine the activity rate for product development per change.
a. P72,000
b. P28,000
c. P36,000
d. P18,000
D

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15. Phelan Systems Corporation is estimating activity costs associated with producing disk drives, tapes
drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted
activity cost and activity base information, along with the estimated activity-base information, is provided
below.

Activity
Cost Activity Base
Procurement P 360,000 Number of purchase orders
Scheduling 240,000 Number of production orders
Materials handling 480,000 Number of moves
Product development 720,000 Number of engineering changes
Production 1,420,000 Machine hours

Number of Number of Number Number of Number

Purchase Production of Engineering Machine of
Orders Orders Moves Changes Hours Units
Disk drives 4,000 300 1,400 10 2,000 2,000
Tape drives 2,000 150 600 5 8,000 4,000
Wire drives 12,000 800 4,000 25 10,000 2,500

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 Determine the activity-based cost for each disk drive unit.
a. P193.70
b. P192.00
c. P142.90
d. P285.80
D

COURSE MATERIAL NO. 3 – STANDARD COST

1. Which of the following conditions normally would not indicate that standard costs should be revised?
a. The engineering department has revised product specifications in responding to customer
suggestions.
b. The company has signed a new union contract which increases the factory wages on average by
$2.00 an hour.
c. Actual costs differed from standard costs for the preceding week.
d. The world price of raw materials increased
C

2. Standards that represent levels of operation that can be attained with reasonable effort are called:
a. theoretical standards
b. ideal standards
c. variable standards
d. normal standards
D

3. Manufacturing companies use standard costs for the following except:

a. Variable costs
b. Direct Materials
c. Direct Labor
d. Factory Overhead
A

4. Standard costs are used in companies for a variety of reasons. Which of the following is not one of
the benefits for using standard costs?
a. Used to indicate where changes in technology and machinery need to be made.
b. Used to value inventory
c. Used to plan direct materials, direct labor, and factory manufacturing cost.
d. Used to control costs.
A

5. The principle of exceptions allows managers to

a. focus on correcting variances between standard costs and actual costs.
b. focus on correcting variances between variable costs and actual costs.
c. focus on correcting variances between competitor’s costs and actual costs.
d. focus on correcting variances between competitor’s costs and standard costs.
A

6. Several people play an essential part in setting standards. Which of the following is incorrect as to
setting standards?
a. Accountants expresses judgement in dollars and cents.
b. Engineers identify material, labor, and machine requirements.
c. Human resource managers provide personnel information.
d. Quality managers provide quality measures that will be used to evaluate rejects.
D

7. Periodic comparisons between planned objectives and actual performance are reported in:
a. zero-base reports
b. budget performance reports
c. master budgets
d. budgets
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8. The standard price and quantity of direct materials are separated because:
a. GAAP reporting requires this separation
b. direct materials prices are controlled by the purchasing department, and quantity used is
controlled by the production department
c. standard quantities are more difficult to estimate than standard prices
d. standard prices change more frequently than standard quantities
B

9. Standard costs are divided into which of the following components?

a. Price Standard and Quantity Standard
b. Materials Standard and Labor Standard
c. Quality Standard and Quantity Standard
d. Price Standard and Quantity Standard
D

10. A favorable cost variance occurs when

a. Actual costs are more than standard costs.
b. Standard costs are more than actual costs.
c. Standard costs are less than actual costs.
d. None of the above.
B

11. Total manufacturing cost variance includes:

a. Direct materials price variance, direct labor cost variance, and fixed factory overhead volume
variance
b. Direct materials cost variance, direct labor rate variance, and factory overhead cost variance
c. Direct materials cost variance, direct labor cost variance, variable factory overhead controllable
variance
d. Direct materials cost variance, direct labor cost variance, factory overhead cost variance
D

12. Which of the following is not a reason standard costs are separated in two components?
a. the price and quantity variances need to be identified separately to correct the actual major
differences.
b. identifying variances determines which manager must find a solution to major discrepancies.
c. if a negative variance is over-shadowed by a favorable variance, managers may overlook
potential corrections.
d. variances brings attention to discrepancies in the budget and requires managers to revise budgets
closer to actual.
D

13. The standard costs and actual costs for direct materials for the manufacture of 2,500 actual units of
product are as follows:

Standard Costs
Direct materials (per completed unit) 1.04 kilograms @$8.75

Actual Costs
Direct materials 2,500 kilograms @ $8

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 The amount of direct materials price variance is:
a. $1,875 unfavorable
b. $1,950 favorable
c. $1,875 favorable
d. $1,950 unfavorable
C

14. The standard costs and actual costs for direct materials for the manufacture of 2,500 actual units of
product are as follows:

Standard Costs
Direct materials 2,500 kilograms @ $8

Actual Costs
Direct materials 2,600 kilograms @ $8.75

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 The amount of the direct materials quantity variance is:
a. $875 favorable
b. $800 unfavorable
c. $800 favorable
d. $875 unfavorable
B

15. The following data relate to direct materials costs for November:

Actual costs 4,600 pounds at $5.50

Standard costs 4,500 pounds at $6.00

What is the direct materials price variance?

a. $2,250 favorable
b. $2,250 unfavorable
c. $2,300 favorable
d. $1,700 unfavorable
C

COURSE MATERIAL NO. 4 – TARGET COST

1. A practical approach which is frequently used by managers when setting normal long-run prices is
the:
a. cost-plus approach
b. economic theory approach
c. price graph approach
d. market price approach
A

2. Which of the following is NOT a cost concept commonly used in applying the cost-plus approach to
product pricing?
a. Total cost concept
b. Product cost concept
c. Variable cost concept
d. Fixed cost concept
D

3. In using the total cost concept of applying the cost-plus approach to product pricing, what is included
in the markup?
a. Total selling and administrative expenses plus desired profit
b. Total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit
c. Total costs plus desired profit
d. Desired profit
D

4. In using the product cost concept of applying the cost-plus approach to product pricing, what is
included in the markup?
a. Desired profit
b. Total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit
c. Total costs plus desired profit
d. Total selling and administrative expenses plus desired profit
D
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5. In using the variable cost concept of applying the cost-plus approach to product pricing, what is
included in the markup?
a. Total costs plus desired profit
b. Desired profit
c. Total selling and administrative expenses plus desired profit
d. Total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit
D

6. What cost concept used in applying the cost-plus approach to product pricing covers selling
expenses, administrative expenses, and desired profit in the "markup"?
a. Total cost concept
b. Product cost concept
c. Variable cost concept
d. Sunk cost concept
B

7. What cost concept used in applying the cost-plus approach to product pricing includes only desired
profit in the "markup"?
a. Product cost concept
b. Variable cost concept
c. Sunk cost concept
d. Total cost concept
D

8. What cost concept used in applying the cost-plus approach to product pricing includes only total
manufacturing costs in the "cost" amount to which the markup is added?
a. Variable cost concept
b. Total cost concept
c. Product cost concept
d. Opportunity cost concept
C

9. Managers who often make special pricing decisions are more likely to use which of the following
cost concepts in their work?
a. Total cost
b. Product cost
c. Variable cost
d. Fixed cost
C

10. Defense contractors would be more likely to use which of the following cost concepts in pricing their
product?
a. Variable cost
b. Product cost
c. Total cost
d. Fixed cost
C

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