QUIZ 3

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Time taken: 1 min 35 sec
Question 1
Which of the following is the most likely to be a relevant item in deciding whether to sell joint products at split
off point or process them further?
 a. The unavoidable costs of further processing
 Selected: b. The avoidable costs of further processing This answer is correct.
 c. The variable costs of operating the joint process
 d. The cost of material used to make the joint products
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Question 2
Denver Co. operates a plant with a productive capacity to manufacture 20,000 units of its product a year. The
following information pertains to the production costs at capacity:
Variable Costs 160,000
Fixed costs 240,000
A supplier has offered to sell 4,000 units to Denver annually. Assume no change in the fixed costs. What is the
price per unit that makes Denver indifferent between the “make or buy” options? (Do not use Peso sign
anymore. Use only numeric values: e.g., 1,234,567.)
_
Denver Co. operates a plant with a productive capacity to manufacture 20,000 units of its product a year. The
following information pertains to the production costs at capacity:
Variable Costs 160,000
Fixed costs 240,000
A supplier has offered to sell 4,000 units to Denver annually. Assume no change in the fixed costs. What is the
price per unit that makes Denver indifferent between the “make or buy” options? (Do not use Peso sign
anymore. Use only numeric values: e.g., 1,234,567.)
8Correct.
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Time taken: 2 min 26 sec
Question 3
Delhi Co. operates at full capacity. The minimum selling price that must be set for a special order must cover
 a. Fixed cost plus foregone contribution margin on lost regular sales
 b. Variable cost
 Selected: c. Variable cost plus foregone contribution margin on lost regular sales This
answer is correct.
 d. Fixed cost
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Time taken: 1 min 5 sec
Question 4
In the development of the accounting data for decision making purchases, a relevant cost is defied as
 a. The change in prime cost under each alternative course of action
 Selected: b. Future costs which will differ under each alternative course of action This
answer is correct.
 c. Standard costs which hare developed by time and motion study techniques because
of their relevance to managerial control
 d. Historical costs which are the best available basis for estimating future costs
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Question 5
The following information was taken from the first year absorption based accounting records of Red Co.
Total fixed costs incurred 100,000
Total variable costs incurred 50,000
Total period costs incurred 70,000
Total variable period costs incurred 30,000
Units produced 20,000
Units sold 12,000
Units sales price P12
If Red Co. used variable costing in its first year of operations, how much income (loss) before income taxes
would it have reported?
 a. (6,000)
 Selected: b. 2,000 This answer is correct.
 c. 26,000
 d. 54,000
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Question 6
The Independent Co. is considering dropping its Dream Toy due to continuing losses. Revenue and cost data
on the toy for the past year follow:
Sales (P10 each) 150,000
Variable costs 120,000
Contribution Margin 30,000
Fixed costs 40,000
Net loss (10,000)
If the toy were discontinued, then Independent could avoid P8,000 per year in fixed costs. At what level of
annual sales of Dream Toy (in units) should Independent be indifferent to discontinue Dream Toy or continue
the production and sale of Dream Toy? (Use only numeric values: e.g., 1,234,567)
_
The Independent Co. is considering dropping its Dream Toy due to continuing losses. Revenue and cost data
on the toy for the past year follow:
Sales (P10 each) 150,000
Variable costs 120,000
Contribution Margin 30,000
Fixed costs 40,000
Net loss (10,000)
If the toy were discontinued, then Independent could avoid P8,000 per year in fixed costs. At what level of
annual sales of Dream Toy (in units) should Independent be indifferent to discontinue Dream Toy or continue
the production and sale of Dream Toy? (Use only numeric values: e.g., 1,234,567)
190,000Incorrect.
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Time taken: 23 sec
Question 7
The shutdown point is the point at which loss from continued operation is equal to the costs of
shutdown; hence, it is likewise referred to as the indifference point.
 Selected: True This answer is correct.
 False
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Time taken: 28 sec
Question 8
Joint product costs involving the decision to sell or process further are irrelevant and therefore, not to
be considered for product costing purposes.
 True
 Selected: False This answer is correct.

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Time taken: 51 sec
Question 9
A company that has a limited number of labor hours and abundant machine hours should produce first
the product that has the highest
 a. Contribution per machine hour
 Selected: b. Contribution margin per labor hour This answer is correct.
 c. Demand in units
 d. Contribution margin per unit
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Time taken: 40 sec
Question 10
If there is excess capacity, the minimum acceptable price for a special order must cover
 a. Variable manufacturing cost plus contribution margin foregone on lost regular units
 Selected: b. Variable manufacturing costs associated with the special order This answer
is correct.
 c. Variable and usual fixed manufacturing costs
 d. Usual fixed manufacturing costs
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Question 11
Saudi Arabia Co. is operating at 70% capacity. The plant manager is considering making Part A now being
purchased form outside suppliers for P110 each, a price that is projected to increase in the near future. The
plant has the equipment and labor force required to Manufacture Part A. The design engineer estimates that
each part requires P40 of direct materials and P30 of direct labor. The plant overhead is 200% of direct labor
peso cost, and 40% of the overhead is fixed cost. A decision to manufacture Part A will result in a gain or
(loss) for each component of (Do not use Peso sign anymore. Use only numeric values: e.g., 1,234,567.)
_
Saudi Arabia Co. is operating at 70% capacity. The plant manager is considering making Part A now being
purchased form outside suppliers for P110 each, a price that is projected to increase in the near future. The
plant has the equipment and labor force required to Manufacture Part A. The design engineer estimates that
each part requires P40 of direct materials and P30 of direct labor. The plant overhead is 200% of direct labor
peso cost, and 40% of the overhead is fixed cost. A decision to manufacture Part A will result in a gain or
(loss) for each component of (Do not use Peso sign anymore. Use only numeric values: e.g., 1,234,567.)
4Correct.
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Question 12
Turkey Co. manufactures a particular computer component. Currently, the costs per unit are as follows:
direct Materials, P50;
direct labor, P500;
variable overhead, P250;
fixed overhead, P400
Pakistan Co. has obtained Turkey with an offer to sell 10,000 units of the component for P1,100 per unit. If
Turkey accepts the proposal, P2,500,000 of the fixed overhead will be eliminated. Should Turkey make or buy
the component?
 a. make due to savings of P3,000,000
 b. buy due to savings of P2,500,000
 c. buy due to savings of P1,000,000
 Selected: d. make due to savings of P500,000 This answer is correct.
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Time taken: 28 sec
Question 13
If the level of expected operations falls below the shutdown point, then the company should discontinue
the operations.
 Selected: True This answer is correct.
 False
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Question 14
Tyler Co. currently sells 1,000 units of product M for P1 each. Variable costs are P0.40 and avoidable fixed
costs are P400. A discount store has offered P0.80 per unit for 400 units of product M. the mangers believe that
if they accept the special order, they will lose some sales at regular price. Determine the number of units they
could lose before the order becomes unprofitable.
 a. 600 units
 Selected: b. 267 units This answer is correct.
 c. 667 units
 d. 500 units
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Question 15
Department A of Decision Co. is being evaluated for elimination. It has contributing to overhead of P400,000.
It receives an allocated overhead of P1M, 10% of which cannot be eliminated. The elimination of Division A
would affect pre-tax income by
 a. 400,000 decrease
 Selected: b. 500,000 increase This answer is correct.
 c. 400,000 increase
 d. 500,000 decrease
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Time taken: 18 sec
Question 16
The salary you would otherwise earn by working rather than attending the class is a good example of
 a. A sunk cost
 Selected: b. An opportunity cost This answer is correct.
 c. An incremental cost
 d. A out-of-pocket cost
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Time taken: 1 min 11 sec
Question 17
Which of the following is most likely to be a relevant item in deciding whether to shut down one of the four
assembly lines in a factory?
 Selected: a. Power used to operate equipment on the assembly line This answer is
correct.
  b. Salaries of maintenance workers who service all assembly line
 c. Depreciation on the factory building
 d. Heat and light for the building
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Time taken: 32 sec
Question 18
An opportunity cost is usually;
 a. Relevant, and is part of traditional accounting records
 Selected: b. A relevant, but is not part of traditional accounting records This answer is
correct.
 c. Not relevant, and is not part of traditional accounting records
 d. Not relevant, but is part of traditional accounting records
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Time taken: 25 sec
Question 19
If there are shutdown costs, a company’s shutdown point is always below the break-even point.
 Selected: True This answer is correct.
 False
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Time taken: 33 sec
Question 20
Variable costs are relevant cost in decision making, whereas fixed costs are irrelevant.
 True
 Selected: False This answer is correct.
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Time taken: 46 sec
Question 21
A relevant cost in special order decisions is
 a. The salary of the plant manager where the special order is produced with many
other projects
 b. Committed rent of space used to produce the special order that would otherwise be
idle
 Selected: c. Onetime costs to redesigns the standard product for the special order This
answer is correct.
 d. Undepreciated cost of equipment used to produce the special order and not
otherwise used
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Time taken: 28 sec
Question 22
The kind of cost that can be ignored in a short term decision making is a(an)
 Selected: a. sunk cost This answer is correct.
 b. differential costs
 c. joint cost
 d. incremental cost
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Time taken: 33 sec
Question 23
Which of the following cost classification schemes is most relevant to decision making?
 a. direct – common
  b. joint – common
 Selected: c. avoidable – unavoidable This answer is correct.
 d. Fixed – variable
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Time taken: 31 sec
Question 24
If the margin that will be lost by dropping a product line is more than the fixed costs that will be
avoided, then the line should be dropped.
 True
 Selected: False This answer is correct.
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Question 25
Dhabi Co.’s regular selling price for its product is P10 per unit. Variable costs are P6 per unit. Fixed costs total
P1 per unit based o 100,000 units and remain constant within the relevant range of 50,000 units to a total
capacity of 200,000 units. After sales of 80,000 units were projected for 2007, a special order was received
for an additional 10,000 units. To increase its operating income by a total of P10,000, what price per unit
should Dhabi charge for this special order? (Do not use Peso sign anymore. Use only numeric values: e.g.,
1,234,567.)
_
Dhabi Co.’s regular selling price for its product is P10 per unit. Variable costs are P6 per unit. Fixed costs total
P1 per unit based o 100,000 units and remain constant within the relevant range of 50,000 units to a total
capacity of 200,000 units. After sales of 80,000 units were projected for 2007, a special order was received
for an additional 10,000 units. To increase its operating income by a total of P10,000, what price per unit
should Dhabi charge for this special order? (Do not use Peso sign anymore. Use only numeric values: e.g.,
1,234,567.)
10Incorrect.
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Question 26
Ram Co. currently sells 10,000 units of Product M for P18.00 each. Variable cost is P8.00 and traceable
(avoidable) fixed costs are P4,000. A discount store has offered P16.00 for 4,000 units of product M. the
mangers believe that if they accept the special order, they will lose some sales at the regular price. Determine
the number of units Ram could lose before the order becomes unprofitable. (Use numeric values only: e.g.,
1,234,567)
_
Ram Co. currently sells 10,000 units of Product M for P18.00 each. Variable cost is P8.00 and traceable
(avoidable) fixed costs are P4,000. A discount store has offered P16.00 for 4,000 units of product M. the
mangers believe that if they accept the special order, they will lose some sales at the regular price. Determine
the number of units Ram could lose before the order becomes unprofitable. (Use numeric values only: e.g.,
1,234,567)
1,500Incorrect.
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Time taken: 35 sec
Question 27
The role of sunk costs in decision making can be summed up in which of the following sayings?
 a. No pain, no gain
 b. The love of money is the root of all evil
 Selected: c. Bygones are bygones This answer is correct.
 d. A penny saved is a penny earned
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Time taken: 1 min 9 sec
Question 28
Which of the following is not part of the decision making process?
 Selected: a. Reversing the decision if not economically sound This answer is correct.
 b. Quantifying the factors associated with the alternatives
 c. Reaching a decision
 d. Identifying the problem
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Time taken: 33 sec
Question 29
The opportunity cost of making a component part in a factory with excess capacity for which there is no
alternative use is
 a. The fixed cost of the component
 b. The variable cost of the component
 c. The total manufacturing cost of the component
 Selected: d. Zero This answer is correct.
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Time taken: 55 sec
Question 30
Which of the following statements is true?
 Selected: a. All past costs are irrelevant This answer is correct.
 b. Avoidable fixed costs are irrelevant
 c. All future costs are irrelevant
 d. Prime costs are usually irrelevant
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Question 31
Middle Co. prepared the following tentative forecast concerning Product A for 2019
Sales P500,000
Selling price per unit 5.00
Variable costs 300,000
Fixed costs 150,000
Study made by the sales manager disclosed that the unit selling price could be increased by 20%, with an
expected volume decrease of only 10%. Assuming Middle incorporates these changes in its 2019 forecast,
what should be the operating income from Product A? (Do not use Peso sign anymore. Use only numeric
value: e.g., 1,234,567.)
_
Middle Co. prepared the following tentative forecast concerning Product A for 2019
Sales P500,000
Selling price per unit 5.00
Variable costs 300,000
Fixed costs 150,000
Study made by the sales manager disclosed that the unit selling price could be increased by 20%, with an
expected volume decrease of only 10%. Assuming Middle incorporates these changes in its 2019 forecast,
what should be the operating income from Product A? (Do not use Peso sign anymore. Use only numeric
value: e.g., 1,234,567.)
120,000Correct.
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Time taken: 56 sec
Question 32
An opportunity cost is usually
 a. not relevant and is not part of traditional accounting records
 Selected: b. relevant but is not part of traditional accounting records This answer is
correct.
 c. not relevant but is part of traditional accounting records
 d. relevant and is part of traditional accounting records

QUIZ 4

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Time taken: 48 sec
Question 1
Direct, step-down, and reciprocal are names for
 a. Transfer-pricing methods
 b. The allocation methods most likely to produce goal congruence
 c. Alternative organizational structures
 Selected: d. Methods for allocating costs of service departments to operating
departments. This answer is correct.

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Time taken: 2 min 19 sec
Question 2
A segment of an organization is referred to as a service center if it is a
  Selected: a. Authority to provide specialized support to other units within the
organization. This answer is correct.
 b. Responsibility for combining the raw materials, direct labor, and other factors of
production into a final output.
 c. Authority to make decisions affecting the major determinants of profits including the
power to choose its market and sources of supply.
 d. Responsibility for developing markets and selling the output of the organization
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Question 3
If Division C has a 10% return on sales, income of P5,000, and an investment turnover of 4 times,
divisional investment is
(Do not use Peso sign anymore. Use only numerical values: e.g., 1,234,567.)
_
If Division C has a 10% return on sales, income of P5,000, and an investment turnover of 4 times,
divisional investment is
(Do not use Peso sign anymore. Use only numerical values: e.g., 1,234,567.)
12,500Correct.
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Time taken: 35 sec
Question 4
The least complex segment or area of responsibility for which costs are allocated is a(an)
 a. Contribution center
 Selected: b. Cost center This answer is correct.
 c. Profit center
 d. Investment center
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Question 5
Jade Co.’s industrial photo finishing division VVV incurred the following costs and expenses in 2020:
Variable Fixed

Direct materials 200,000

Direct labor 150,000

Factory Overhead 70,000 42,000

General, selling and administrative 30,000 48,000

Total 450,000 90,000

During 2020, VVV produced 300,000 units of industrial photo-prints, which were sold for P2.00 each.
Jade’s investment in VVV was P500,000 and P700,000 at January 1, 2020 and December 31, 2020,
respectively. Jade normally imputes interest on investment at 15% of average invested capital.
For the year ended December 31, 2020, VVV’s return on investment was _
Assume that the net operating income was P60,000 and that average invested capital was P600,000. For
the year ended December 31, 2020, VVV’s residual income (loss) was _
Jade Co.’s industrial photo finishing division VVV incurred the following costs and expenses in 2020:
Variable Fixed

Direct materials 200,000

Direct labor 150,000

Factory Overhead 70,000 42,000

General, selling and administrative 30,000 48,000

Total 450,000 90,000

During 2020, VVV produced 300,000 units of industrial photo-prints, which were sold for P2.00 each.
Jade’s investment in VVV was P500,000 and P700,000 at January 1, 2020 and December 31, 2020,
respectively. Jade normally imputes interest on investment at 15% of average invested capital.
For the year ended December 31, 2020, VVV’s return on investment was 10%Correct.
Assume that the net operating income was P60,000 and that average invested capital was P600,000. For
the year ended December 31, 2020, VVV’s residual income (loss) was (30,000)Correct.
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Time taken: 2 min 21 sec
Question 6
The step down of allocating service department costs:
 Selected: a. Ignores some interdepartmental services
This answer is correct.
 b. Can’t be used when a company has more than two service departments
 c. Is a simpler allocation method than direct method
 d. Is a less accurate method of allocation than the direct method
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Question 7
A firm earning a profit can increase its return on investment by
 a. Decreasing sales revenues and operating expenses by the same percentage
 b. Decreasing sales revenues and operating expenses by the same peso amount
  Selected: c. Increasing sales revenues and operating expenses by the same
percentage This answer is correct.
 d. Increasing sales revenues and operating expenses by the same peso amount
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Question 8
Sapphire Co. has two service departments and two producing departments. Square footage of space
provided by each department follows:
Custodial services 1,000 ft.
General administration 3,000 ft.
Producing department A 8,000 ft.
Producing department B 8,000 ft.
20,000 ft.
The fixed costs of Custodial services are allocated on the basis of square footage of space. If these costs
are budgeted at P38,000 during a given period, the amount of cost allocated to General Administration
under the direct method would be:
 Selected: a. P0 This answer is correct.
 b. P7,125
 c. P5,700
 d. P6,000
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Question 9
Which equation is residual income? (I = investment, N = Income, and K = minimum required ROI)
 a. (K x I) – (N/I)
 b. N/I – K
 Selected: c. N – (K x I) This answer is correct.
 d. (K x I) – N
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Time taken: 55 sec
Question 10
In responsibility accounting, a center’s performance is measured by controllable costs. Controllable
costs are best described as including
 a. Only discretionary costs
 b. Direct material and direct labor only
 c. Those costs about which the manager is knowledge and informed
 Selected: d. Only those costs that the manager can influence in the current time
period This answer is correct.

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Question 11
Listed below is selected financial information for Western Division of the Pearl Co. for last year
Average working capital P625
General and administrative expenses 75
Net sales 4,000
Average plant and equipment 1,775
Cost of goods sold 3,525
If Pearl treats the Western Division as an investment center for performance measurement purposes,
what is the before tax return on investment (ROI) for the last year?
  a. 22.54%
 b. 19.79%
 Selected: c. 16.67% This answer is correct.
 d. 34.78%
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Time taken: 1 min 26 sec
Question 12
A successful responsibility accounting reporting system is dependent upon
 a. A responsible separation of costs into their fixed and variable components since fixed
costs are not controllable and must be eliminated from the performance report
 b. Identification of the management level at which hall costs are controllable
 c. The correct allocation of controllable variable costs
 Selected: d. The proper delegation of responsibility and authority This answer is
correct.
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Time taken: 1 min 2 sec
Question 13
Comparing budgeted and actual amounts is important in evaluating the performance of
 a. The manager of a profit center
 Selected: b. Investment center This answer is correct.
 c. The manager of a cost center
 d. The manager of an investment center
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Question 14
If the operating asset turnover increased by 50% and the operating income margin increased by 50%,
then ROI would increase by
(Express your answer in terms of percentage. Do not use space between the number and percentage
sign. Round off to the nearest 1st digit. e.g., 12.37% to 12%.)
_
If the operating asset turnover increased by 50% and the operating income margin increased by 50%,
then ROI would increase by
(Express your answer in terms of percentage. Do not use space between the number and percentage
sign. Round off to the nearest 1st digit. e.g., 12.37% to 12%.)
125%Correct.
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Question 15
Mr. Respond Sy is the general manager of the XXX Division, and his performance is measured using the
residual income method. Mr. Sy is reviewing the information for his division for the next year:
Category Amounts
Working capital 1,800,000
Revenue 30,000,000
Plant and equipment 17,200,000
If the imputed interest charge is 15% and Mr. Sy wants to achieve a residual income of P2,000,000, what
will costs have to be in order to achieve the targeted residual income?
 Selected: a. 25,150,000 This answer is correct.
 b. 9,000,000
 c. 25,690,000
  d. 10,800,000
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Question 16
Sedimentary Co. has two service departments (A and B) and two producing departments (X and Y). Data
provided are as follows:
Service Departments Operating Departments
A B X Y
Direct costs P 400 P 800
Services 20% 40% 40%
performed by
Dept. A
Service 30% 60% 10%
performed by
Dept. B
Sedimentary uses the reciprocal method to allocate service department costs. The service department
cost allocated to Department X is
 Selected: a. P 834 This answer is correct.
 b. P936
 c. P680
 d. P600
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Time taken: 1 min 21 sec
Question 17
Residual income is a performance evaluation that is used in conjunction with, or instead of, return on
investment (ROI). In many cases, residual income is preferred to ROI because
 a. Average investment is employed with residual income while year-end investment is
employed with ROI.

 b. Residual income is a measure over time, while ROI represents the results for one
period.
 c. The imputed interest rate used in calculating residual income is more easily derived
than the target rate that is compared to the calculated ROI.
 Selected: d. Residual income concentrates on maximizing absolute amount of income
rather than a percentage return like ROI. This answer is correct.

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Time taken: 29 sec
Question 18
Decentralized firms can delegate authority and yet retain control and monitor manager’s performance
by structuring the organization into responsibility centers. Which one of the following organizational
segments is almost like an independent business?
 a. Profit center
 Selected: b. Investment center This answer is correct.
 c. Cost center
 d. Revenue center
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Time taken: 26 sec
Question 19
In evaluating an investment center top management should concentrate on
 a. Profit percentage
 Selected: b. Return on investment This answer is correct.
 c. Peso rates
 d. Net income

Midterm Major Examination

ATTEMPT SCORE
50/ 50
01Multiple Choice
1/ 1
In evaluating an investment center top management should concentrate on

 Peso rate
Peso rate
 Net income
Net income
 Return on investment
Return on investment
 Profit percentages
Profit percentages

02Multiple Choice
1/ 1
The following information pertains to Silver Co.’s Gold Division for the current year:
Sales P 311,000
Variable cost 250,000
Traceable fixed cost 50,000
Average invested capital 40,000
Imputed interest rate 10%
Silver’s return on investment was

 10%
10%
 30%
30%
 13.33%
13.33%
  27.50%
27.50%

03Multiple Choice
1/ 1
Frankincense Co. is a computer center. For the month of May, Frankincense had the following
operating statistics:
Sales P 450,000 Total assets P
500,000
Operating income 25,000 Shareholders’ equity
200,000
Net profit after taxes 8,000 Cost of capital
6%
Based on the above information, which one of the following statements is correct?

 Residual income of (P22,000)

Residual income of (P22,000)
 Return on investment of 4%
Return on investment of 4%
 Residual income of (P5,000)
Residual income of (P5,000)
 Return on investment of 1.6%
Return on investment of 1.6%

04Multiple Choice
1/ 1
Pebble Co. has one service department, H123, and two operating department, A1 and B2. 30% of
H123’s service goes to A1 and the rest goes to B2. Service department costs are allocated by the direct
method. (No distinction is made between fixed and variable service department costs.) During March,
H123 allocated P7,200 in cost to A1. The amount of cost allocated from H123 to B2 for March would
have been

 16,800
16,800
 7,200
7,200
 20,500
20,500
 12,400
12,400

05Multiple Choice
1/ 1
If a manufacturing company uses responsibility accounting, which one of the following items is least
likely to appear in a performance report for a manager of an assembly line?
  Repairs and maintenance
Repairs and maintenance
 Depreciation on equipment
Depreciation on equipment
 Labor payroll
Labor payroll ,
 Materials
Materials

06Multiple Choice
1/ 1
The least complex segment area of responsibility for which costs are allocated is a(n)

 Contribution center
Contribution center
 Profit center
Profit center
 Cost center
Cost center
 Investment center
Investment center

07Multiple Choice
1/ 1
Residual income is a better measure for performance evaluation of an investment center manager than
return on investment because

 Desirable investment decisions will not be neglected by high-return investment.

Desirable investment decisions will not be neglected by high-return investment.
 Only the gross book value of assets needs to be calculate.
Only the gross book value of assets needs to be calculate.
 The problems associated with measuring the asset based are eliminated.
The problems associated with measuring the asset based are eliminated.
 The arguments about the implicit cost of interest are eliminated.
The arguments about the implicit cost of interest are eliminated.

08Multiple Choice
1/ 1
Lebanon Co. produces and sells 8,000 units of Product X each year. Each unit of Product X sells for P10
and has a contribution margin of P6. It is estimated that if Product X is discontinued, P50,000 of the
P60,000 in fixed costs charged to Product X could be eliminated. These data indicate that if Product X is
discontinued, overall company operating income should
  Increase by P2,000 per year
Increase by P2,000 per year ,
 Increase by P38,000 per year
Increase by P38,000 per year
 Decrease by P38,000 per year
Decrease by P38,000 per year
 Decrease by P2,000 per year
Decrease by P2,000 per year

09Multiple Choice
1/ 1
Middle East Co. prepared the following tentative forecast concerning Product A for 2019:
Sales P 500,000
Selling price per unit 5.00
Variable costs 300,000
Fixed costs 150,000
Study made by the sales manager disclosed that the unit selling price could be increased by 20%, with an
expected volume decrease of only 10%. Assuming Middle East incorporates these changes in its 2019
forecast, what should be the operating income from Product A?

 66,000
66,000
 90,000
90,000
 120,000
120,000
 145,000
145,000

10Multiple Choice
1/ 1
Which of the following techniques would be best for evaluating the management performance of
department that is operated as a cost center?

 Return on investment ratio

Return on investment ratio
 Return on asset ratio
Return on asset ratio ,
 Payback method
Payback method
 Variance analysis
Variance analysis
11Multiple Choice
1/ 1
Oman Inc. manufactures coolers that contain a freezable ice bag. For an annual volume of 10,000 units
fixed manufacturing costs of P500,000 are incurred. Variable costs per unit amount are:
Direct materials P 80
Direct labor 15
Variable factory overhead 20
Dubai Corp. offered to supply the assembled ice bag for P40 with a minimum order of 5,000 units. If
Oman accepts the offer it will be able to reduce variable labor and overhead costs by 50%. The direct
material for the freezable ice bag will cost Oman P20 if it will product it. Considering Dubai’s offer, Oman
should:

 Produce the freezable ice bad due to the P225,000 advantage

Produce the freezable ice bad due to the P225,000 advantage
 Buy the freezable ice bad due to P50,000 advantage
Buy the freezable ice bad due to P50,000 advantage
 Produce the freezable ice bag due to P25,000 advantage
Produce the freezable ice bag due to P25,000 advantage,
 Buy the freezable ice bad due to P150,000 advantage
Buy the freezable ice bad due to P150,000 advantage

12Multiple Choice
1/ 1
The imputed interest rate used in the residual income approach to performance evaluation can be best
be described as the

 Average return on investment for the company over the last several years
Average return on investment for the company over the last several years
 Historical weighted-average cost of capital for the company
Historical weighted-average cost of capital for the company
 Average lending rate for the year being evaluated
Average lending rate for the year being evaluated
 Target return on investment set by the company’s management
Target return on investment set by the company’s management

13Multiple Choice
1/ 1
The income statement of product Pabigat, one of the several products being sold by Palugi co. is
reproduced below:
Sales P 80,000
Cost and expenses 92,000
P37,600 of the costs and expenses above are fixed of which P21,600 is unavoidable regardless of
whether the product will be dropped or not. What is the product elimination point?
  P16,000
P16,000 ,
 P54,400
P54,400
 P50,000
P50,000
 P70,400
P70,400

14Multiple Choice
1/ 1
If a company allocates costs of a service department to other departments, is should

 Allocate only the fixed costs of the service department.

Allocate only the fixed costs of the service department.
 Turn the service department into an investment center.
Turn the service department into an investment center.
 Use the method that best reflects the relative sizes of the departments.
Use the method that best reflects the relative sizes of the departments.
 Consider the likely effects of the allocations on the use of the services.
Consider the likely effects of the allocations on the use of the services.

15Multiple Choice
1/ 1
The segment margin of an investment center after deducting the imputed interest on the assets used
by the investment center is known as

 Operating income
Operating income
 Return on investment
Return on investment
 Return on assets
Return on assets
 Residual income
Residual income

16Multiple Choice
1/ 1
Saudi Arabia Co. is operating at 70% capacity. The plant manager is considering making Part A566 new
being purchased from outside suppliers for P110 each, a price that is projected to increase in the near
future. The plant has the equipment and labor force required to manufacture Part A566. The design
engineer estimates that each part requires P40 of direct materials and P30 of direct labor. The plant
overhead is 200% of direct labor peso cost, and 40% of the overhead is fixed cost. A decision to
manufacture Part A566 will result in a gain or (loss) for each component of:

 P26
P26
 P16
P16
 P(20)
P(20)
 P4
P4

17Multiple Choice
1/ 1
Somalia Co. produces three products, with costs and selling prices as shown below:
Product A Product B
Product C
Selling price per unit P 30 P 20
P 15
Variable cost per unit 18 15
6
A particular machine is a bottleneck. On that machine, 3 machine hours are required to product each
unit of Product A, 1 hour is required to produce each unit of Product B, and 2 hours are required to
produce each unit of Product C. In which order should it produce its products?
 C, A, B
C, A, B ,
 B, C, A
B, C, A
 The order of production doesn’t matter.
The order of production doesn’t matter.
 A, C, B
A, C, B

18Multiple Choice
1/ 1
Compared to a jewelry store, a supermarket has

 Lower margin and higher turnover

Lower margin and higher turnover
 Higher margin and lower turnover
Higher margin and lower turnover
 Higher margin and higher turnover
 Higher margin and higher turnover ,
 Lower margin and lower turnover
Lower margin and lower turnover

19Multiple Choice
1/ 1
Which of the following is a good reason for NOT allocating indirect costs to operating departments?

 The company saves money if operating departments do not pay for the services they use.
The company saves money if operating departments do not pay for the services they use.
 To encourage managers to use more services.
To encourage managers to use more services.
 The costs are not controllable by the operating departments.
The costs are not controllable by the operating departments.
 To remind managers of the need to cover indirect costs.
To remind managers of the need to cover indirect costs.

20Multiple Choice
1/ 1
Cairo Manufacturing uses 10 units of Part Number KJ45 each month in the production of radar
equipment. The unit cost to manufacture one unit of KJ45 is presented below:
Direct materials P 1,000
Materials handling (20% of direct material cost) 200
Direct labor 8,000
Manufacturing overhead (150% of direct labor) 12,000
Materials handling represents the direct variable costs of the Receiving Department that are applied to
direct materials and purchased components on their cost. This is a separate charge in addition to
manufacturing overhead. Cairo’s annual manufacturing overhead budget is one-third variable and two-
thirds fixed. Egypt Suppliers, one of Cairo’s reliable vendors, has offered to supply Part KJ45 at a unit
price of P15,000.
Cairo Manufacturing is able to rent all idle capacity for P25,000 per month. If Cairo decides to purchase
the 10 units from Egypt Supply, Cairo’s monthly cost for KJ45 would

 Decrease by P57,000
Decrease by P57,000
 Increase by P23,000
Increase by P23,000
 Decrease by P7,000
Decrease by P7,000
 Increase by P48,000
Increase by P48,000 ,

21Multiple Choice
1/ 1
How is the shutdown point (in units) computed?
 (Avoidable fixed costs – Additional costs) / Contribution margin ratio
(Avoidable fixed costs – Additional costs) / Contribution margin ratio,
 Avoidable fixed costs / Unit contribution margin
Avoidable fixed costs / Unit contribution margin
 Differential fixed costs / Contribution margin ratio
Differential fixed costs / Contribution margin ratio
 (Avoidable fixed costs – Additional costs) / Unit contribution margin
(Avoidable fixed costs – Additional costs) / Unit contribution margin

22Multiple Choice
1/ 1
Considering the following statements:
I. A division’s net operating income, after deducting both traceable and allocated
common corporate costs, is negative.
II. The division’s avoidable fixed costs exceed its contribution margin.
III. The division’s traceable fixed costs plus its allocated common corporate costs exceed
its contribution margin.
Which of the above statements give an economic reason for eliminating the division?

 Only I and II
Only I and II
 Only II
Only II
 Only III
Only III
 Only I
Only I

23Multiple Choice
1/ 1
The following is the summarized income statement of Ruby Co.’s profit center No. 5254 for May:
Contribution margin P 70,000
Period expenses:
Manager’s salary P 20,000
Facility depreciation 8,000
Corporation expense allocated 5,000 ( 33,000)
Profit center income P 37,000
Which of the following amounts is most likely subject to the control of the profit center’s manager?

 37,000
37,000
  50,000
50,000
 33,000
33,000
 70,000
70,000

24Multiple Choice
1/ 1
In considering a special order situation that will enable a company to make use of presently idle
capacity, which of the following costs would be irrelevant?

 Variable overhead
Variable overhead
 Materials
Materials,
 Depreciation
Depreciation
 Direct labor
Direct labor

25Multiple Choice
1/ 1
The opportunity cost of making a component part in a factory with excess capacity for which there is
no alternative use is

 Total variable costs of the component

Total variable costs of the component
 Total production costs of component
Total production costs of component ,
 Fixed manufacturing costs of component
Fixed manufacturing costs of component
 Zero
Zero

26Multiple Choice
1/ 1
When using a contribution margin format for internal reporting purposes, the major distinction between
segment manger performance and segment performance is
 Unallocated fixed
Unallocated fixed ,
 Direct fixed cost controllable by others (non-controllable by the segment manager)
 Direct fixed cost controllable by others (non-controllable by the segment manager)
 Direct fixed cost controllable by the segment manager
Direct fixed cost controllable by the segment manager
 Direct variable costs of producing the product
Direct variable costs of producing the product

27Multiple Choice
1/ 1
The kind of cost that can be ignored in a short-term decision making is a(n):

 Sunk cost
Sunk cost
 Differential cost
Differential cost ,
 Joint cost
Joint cost
 Incremental cost
Incremental cost

28Multiple Choice
1/ 1
The following information pertains to Bronze Co. for the year ended December 31, 2020:
Sales, P600,000 Income, P100,000 Capital investment,
P400,000
Which of the following equations should be used to complete Bronze’s return on investment?

 (6/4) x (1/6) = ROI

(6/4) x (1/6) = ROI
 (4/6) x (6/1) = ROI
(4/6) x (6/1) = ROI ,
 (6/4) x (6/1) = ROI
(6/4) x (6/1) = ROI
 (4/6) x (1/6) = ROI
(4/6) x (1/6) = ROI

29Multiple Choice
1/ 1
A company has an inventory of 1,000 assorted missile parts for a line of missiles that has been junked.
The inventory costs P100,000. The parts can either be (a) re-machined at a total cost of P30,000 and
then sold for P35,000 or (b) scrapped for P2,000. Which of the following amounts may be considered as
relevant?
 P100,000, P35,000, P30,000, P2,000
 P100,000, P35,000, P30,000, P2,000 ,
 P35,000, P30,000, P2,000
P35,000, P30,000, P2,000
 P2,000
P2,000
 P100,000, P35,000, P30,000
P100,000, P35,000, P30,000

30Multiple Choice
1/ 1
An organization’s executive committee, meeting to solve an important problem, spent 30 minutes
analyzing data and debating the cause of the problem. Finally, they agreed and could move on to the
next step. Possible steps in the creative problem-solving process are listed below. Which step should the
committee perform next?

 Consider the reaction of competitors to various courses of action

Consider the reaction of competitors to various courses of action
 Generate alternative solutions
Generate alternative solutions
 Select a solution
Select a solution,
 Identify the problem
Identify the problem

31Multiple Choice
1/ 1
Myrrh Co. reported these data at year-end:
Pre-tax operating income P 4,000,000 Current liabilities P
2,000,000
Current assets 4,000,000 Long-term liabilities
5,000,000
Long-term assets 16,000,000
Assuming a tax rate of 25% and a weighted average cost of capital (WACC) of 9%, what is Myrrh Co.’s
economic value-added (EVA)?

 1,620,000
1,620,000
 1,830,000
1,830,000
 3,000,000
3,000,000
 1,380,000
 1,380,000

32Multiple Choice
1/ 1
If a division’s ROI and the minimum required ROI are the same, the division’s residual income is

 None of these
None of these
 Zero
Zero
 Positive
Positive
 Negative
Negative

33Multiple Choice
1/ 1
Doha Corp. manufactures batons. Doha can manufacture 300,000 batons a year at a variable cost of
P750,000 and a fixed cost of P450,000. Based on Doha’s predictions, 240,000 batons will be sold at the
regular price of P5.00 each. In addition, a special order was placed for 60,000 batons to be sold at a 40%
discount off the regular price. By what amount would income before taxes be increased or decreased as
a result of the special order?

 P180,000 increase
P180,000 increase
 P30,000 increase
P30,000 increase ,
 P36,000 increase
P36,000 increase
 P60,000 decrease
P60,000 decrease

34Multiple Choice
1/ 1
The acceptance of a special order will improve overall net operating income so long as the revenue from
the special order exceeds

 The incremental costs associated with the order

The incremental costs associated with the order
 The variable costs associated with the order
The variable costs associated with the order
 The sunk costs associated with the order
 The sunk costs associated with the order
 The contribution margin on the order
The contribution margin on the order,

35Multiple Choice
1/ 1
Angola Co. sells a product for P30. Variable cost is P16. Angola could accept a special order for 1,000
units at P23. If Angola accepted the order, how many units could it lose at the regular price before the
decision became unwise?

 1,000
1,000
 500
500
 0
0
 200
200

36Multiple Choice
1/ 1
A special order will increase profit when the additional revenue from the special order is greater than

 The indirect costs of producing the order

The indirect costs of producing the order
 The direct materials and labor costs in producing the order
The direct materials and labor costs in producing the order,
 The fixed costs incurred in producing the order
The fixed costs incurred in producing the order
 The marginal costs of producing the order
The marginal costs of producing the order

37Multiple Choice
1/ 1
In deciding whether or not to eliminate a branch or division, which of the following is considered
relevant?

 All fixed costs of the branch

All fixed costs of the branch
 All indirect costs of the branch
All indirect costs of the branch
 All variable costs of the branch
All variable costs of the branch ,
  All direct costs of the branch
All direct costs of the branch

38Multiple Choice
1/ 1
When only differential manufacturing costs are taken into account for special order pricing, an essential
assumption is that
 Manufacturing fixed and variable costs are linear
Manufacturing fixed and variable costs are linear,
 Selling and administrative fixed and variable costs are linear
Selling and administrative fixed and variable costs are linear
 Acceptance of the order will not cause unit selling and administrative variable costs to increase
Acceptance of the order will not cause unit selling and administrative variable costs to
increase
 Acceptance of the order will not affect regular sales
Acceptance of the order will not affect regular sales

39Multiple Choice
1/ 1
Which of the following is not part of the decision making process?
 Identifying the problem
Identifying the problem,
 Reaching a decision
Reaching a decision
 Reversing the decision if not economically sound
Reversing the decision if not economically sound
 Quantifying the factors associated with the alternatives
Quantifying the factors associated with the alternatives,

40Multiple Choice
1/ 1
An item whose entire amount is usually a differential cost is

 Conversion cost
Conversion cost
 Period cost
Period cost
 Direct cost
Direct cost
 Factory overhead
Factory overhead ,
41Multiple Choice
1/ 1
Istanbul Co. budgets sales of 400,000 calculators at P40 per unit for 2020. Variable manufacturing costs
were budgeted at P16 per unit and fixed manufacturing costs at P10 per unit. A special order offering to
buy 40,000 calculators for P23 each was received by Istanbul in March 2020. Istanbul has sufficient plant
capacity to manufacture the additional quantity; however, the production would have to be done on an
overtime basis at an estimated additional cost of P3 per calculator. Acceptance of the special order
would not affect Istanbul’s normal sales and no selling expense would be incurred. What would be the
effect on operating profit if the special order were accepted?

 P40,000 decrease
P40,000 decrease
 P280,000 increase
P280,000 increase
 P120,000 decrease
P120,000 decrease ,
 P160,000 increase
P160,000 increase

42Multiple Choice
1/ 1
The relevance of a particular cost to a decision is determined by the

 Potential effects on the decision

Potential effects on the decision
 Accuracy and verifiability of the cost
Accuracy and verifiability of the cost
 Size of the cost
Size of the cost ,
 Risk level of the decision
Risk level of the decision

43Multiple Choice
1/ 1
Allocated common fixed costs

 Are always relevant in decision involving dropping a product line

Are always relevant in decision involving dropping a product line
 Can make a product line appear to be unprofitable
Can make a product line appear to be unprofitable,
 Responses A, B and C are all correct
Responses A, B and C are all correct
  Are always incremental costs
Are always incremental costs

44Multiple Choice
1/ 1
1. Data regarding four different products manufactured by an organization are presented below.
Direct material and direct labor are readily available from the respective resource markets.
However, the manufacturer is limited to a maximum of 3,000 machine hours per month:
Product A Product B Product C
Produce D
Selling price per unit P 15 P 18 P
20 P 25
Variable cost per unit 7 11
10 16
Units produced per machine hour 3 units 4 units 2
units 3 units
The product that is the most profitable for the manufacturer in this situation is

 Product C
Product C
 Product B
Product B
 Product D
Product D
 Product A
Product A

45Multiple Choice
1/ 1
The Uganda Co. has two divisions – East and West. The divisions have the following revenues and
expenses:
Sales P 720,000 P
350,000
Variable cost 370,000
240,000
Traceable fixed costs 130,000
80,000
Allocated common corporate costs 120,000 50,000
Operating income (loss) P 100,000 (P
20,000)
The management of Uganda is pondering the elimination of the West division since it has shown an
operating loss for the past several years. If the West division were eliminated, its traceable fixed costs
could be avoided. The total common corporate costs would be unaffected by this decision. Given these
data, the elimination of the West division would result in an overall company operating income of:
  80,000
80,000
 100,000
100,000
 120,000
120,000
 50,000
50,000

46Multiple Choice
1/ 1
Cairo Manufacturing uses 10 units of Part Number KJ45 each month in the production of radar
equipment. The unit cost to manufacture one unit of KJ45 is presented below:
Direct materials P 1,000
Materials handling (20% of direct material cost) 200
Direct labor 8,000
Manufacturing overhead (150% of direct labor) 12,000
Materials handling represents the direct variable costs of the Receiving Department that are
applied to direct materials and purchased components on their cost. This is a separate charge in
addition to manufacturing overhead. Cairo’s annual manufacturing overhead budget is one-third
variable and two-thirds fixed. Egypt Suppliers, one of Cairo’s reliable vendors, has offered to
supply Part KJ45 at a unit price of P15,000
If Cairo purchases the KJ45 units from Egypt, the capacity Cairo used to manufacture these parts
would be idle. Should Cairo decide to purchase the parts from Egypt, the unit cost of KJ45 would
 Increase by P4,800
Increase by P4,800 ,
 Decrease by P3,200
Decrease by P3,200
 Decrease by P6,200
Decrease by P6,200
 Increase by P1,800
Increase by P1,800

47Multiple Choice
1/ 1
In a sell now or process further decision, consider the following costs:
I. A variable production cost incurred prior to split-off
II. A variable production cost incurred after split-off
III. An avoidable fixed production cost incurred after split-off
Which of the above costs is (are) not relevant in a decision regarding whether the product should be
processed further?

 Only I
 Only I
 Only I and III
Only I and III
 Only III
Only III
 Only I and II
Only I and II

48Multiple Choice
1/ 1
The basic purpose of a responsibility accounting system is

 Variance analysis
Variance analysis
 Authority
Authority
 Budgeting
Budgeting ,
 Motivation
Motivation

49Multiple Choice
1/ 1
A company produces and sells three products as follows:
Products C J P
Sales P 200,000 P
150,000 P 125,000
Separate (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?

 15,000
15,000
 20,000
20,000
 10,000
 10,000
 25,000
25,000

50Multiple Choice
1/ 1
Comparing budgeted and actual amounts is important in evaluating the performance of

 The manager of an investment center

The manager of an investment center
 Any manager
Any manager
 The manager of a cost center
The manager of a cost center
 The manager of a profit center