Management Accounting

Select the incorrect statement from the following.

• If changes occur in selling price or cost, new computations must be made for break-even and CVP analysis.
• In the future, the only nonmonetary variable included in the break-even model will be sales volume.
• Fixed costs exist only in a short-term perspective.
• In the long-term, fixed costs should be regarded as a long-term variable cost.

Which of the following describes management accounting information?

• It is prepared in accordance with GAAP.
• It is reliable and verifiable.
• It provides reasonable and timely estimates.
• It is prepared for shareholders.

The product life cycle has five stages. Which of the following is the fourth stage?

• Infancy
• Expansion
• Growth
• Maturity

Compute for the inventory under the direct costing method using the data given: units unsold at the end of the period 45,000; raw materials used, P6.00 per unit; raw materials inventory, beginning, P5.90 per unit; direct labor, P3.00 per unit; variable overhead per unit, P2.00 per unit; indirect labor for the month, P33,750, total fixed costs, P67,500.

• P19.15
• P16.90
• P11.00
• P17.45

Shampoo Company is a chemical manufacturer that supplies industrial users. The company plans to introduce a new chemical solution and needs to develop a standard product cost for this new solution.

• P 834.56
• P1,043.20
• P1,304.00
• P1,234.00

Which of the following fails to satisfy conformance quality?

• All of these answers are correct
• depositing a customer's check into the correct account
• machines that break down
• machines that fail to meet the needs of customers

Quality management provides an important competitive edge because it:

• reduces costs
• often results in substantial savings and higher revenues in the short run
• increases customer satisfaction
• All of these answers are correct

Which of the following is a helpful tool in identifying the frequency of quality-control problems?

• Pareto diagrams.
• Decision trees.
• Scatter diagrams.
• Flowcharts.

Cascades Company, a merchandising firm, is preparing its master budget and has gathered the following data to help budget cash disbursements:

• P1,460,000
• P1,900,000
• P1,760,000
• P1,600,000

Which of the following should be least considered when deciding whether to investigate a variance?

• Whether the variance is favorable or unfavorable
• Trend of the variances over time
• Significance of the variance
• Cost of investigating the variance

Which of the following is least likely to be classified as a batch-level activity in an activity-based costing system?

• Production setup
• Property taxes
• Receiving and inspection
• Shipping

PTO Company desires an ending inventory of P140,000. It expects sales of P800,000 and has a beginning inventory of P130,000. Cost of sales is 65% of sales. Budgeted purchases are

• P1,070,000
• P 810,000
• P 790,000
• P 530,000

In the budgeting process, top management should

• Separate the budgeting process and the business planning process into two separate processes.
• Limit their involvement because they lack the detailed knowledge of the daily operations.
• Be involved only in the approval process.
• Be involved, including using the budget process to communicate goals.

At this process level, examples of activity drivers are direct labor hours, direct labor pesos and machine hours.

• Product level
• Unit level
• Facility level
• Batch level

Absorption costing differs from variable costing in all of the following except

• Treatment of variable production costs.
• Treatment of fixed manufacturing overhead
• Acceptability for external reporting
• Arrangement of the income statement

Information on Katrina Company’s direct material costs is as follows:

• P3.75
• P3.06
• P3.11
• P3.45

Ernie Trading Co. budgeted merchandise purchases of P40,000 units next month. The expected beginning inventory is 12,000 units and the desired inventory at the end of next month is 15,000 units. Budgeted sales in units for next month is

• 43,000
• 37,000
• 55,000
• 52,000

Contemporary management accounting can be characterized by its

• Complexity
• Precision
• Standardization
• Flexibility

One of the major assumptions limiting the reliability of break-even analysis is that

• The cost of production factors varies with changes in technology
• Total variable costs will remain unchanged over the relevant range
• Efficiency and productivity will continually increase
• Total fixed costs will remain unchanged over the relevant range

A profit center is

• referred to as a loss center when operations do not meet the company's objectives
• evaluated by the rate of return earned on the investment allocated to the center
• a responsibility center that always reports a profit.
• a responsibility center that incurs costs and generates revenues

A learning curve of 80% assumes that direct labor costs are reduced by 20% for each doubling of output. What is the cost of the eighth unit produced?

• 51%
• 32%
• 64%
• 40%

This pricing model rationalizes that price equals cost plus mark-up.

• Target pricing
• Premium pricing
• Cost-based pricing
• Transfer pricing

A criticism of variable costing for managerial accounting purpose is that it

• Might encourage managers to emphasize the short term at the expense of the long term
• Overstates inventories
• Does not reflect cost-volume-profit relationships.
• Is not acceptable for product line segmented reporting

Charis Corporation produces a single product with a standard direct labor cost of 4 hours @ 12 per hour. During May, 1,000 units were produced using 4,100 hours @ P12.20 per hour. The total labor cost variance is

• P1,200 unfavorable
• P2,020 favorable
• P820 unfavorable
• P2,020 unfavorable

A calculation used in CVP analysis determines the break-even point. Once the break-even point has been reached, operating income will increase by the:

• contribution margin per unit for each additional unit sold.
• variable costs per unit for each additional unit sold
• fixed costs per unit for each additional unit sold
• gross margin per unit for each additional unit sold

Aristeo Company produced 3,200 units of product. Each unit requires 2 standard hours. The standard labor rate is P15 per hour. Actual direct labor for the period was P79,200 (6,600 hours x P12). What is the direct labor rate variance?

• P19,800 favorable
• P3,000 unfavorable
• P6,400 unfavorable
• P16,800 favorable

Marsh Company that had current operating assets of one million and net income of P200,000 had an opportunity to invest in a project that requires an additional investment of P250,000 and increased net income by P40,000. After the investment, the company's ROI will be

• 18.0%
• 20.2%
• 16.0%
• 19.2%

Which of the following would not affect the breakeven point?

• Total fixed costs
• Number of units sold
• Sales price per unit
• Variable cost per unit

The process of developing budget estimates by requiring all levels of management to estimate sales, production, and other operating data as though operations were being initiated for the first time is referred to as:

• Forecasting
• Program budgeting
• Zero-based budgeting
• Continuous budgeting

B Company sells a product for P7.50 whose variable cost is P2.25 per unit. The company needed to sell 20,000 shirts to break even and its net income was P5,040 before tax. How many units did the company sell?

• 20,960
• 20,672
• 2,240
• 20,000

As volume increases,

• Total fixed costs increase and per-unit fixed costs increase.
• Total fixed costs remain constant and per-unit fixed costs decrease.
• Total fixed costs remain constant and per-unit fixed costs remain constant.
• Total fixed costs remain constant and per-unit fixed costs increase.

LY & Company completed its first year of operations during which time the following information were generated:

• P 3,040,000
• P 2,100,000
• P 4,000,000
• P 2,480,000

Consider the following:

• 15,000 units
• 20,000 units
• 10,000 units
• 12,800 units

In responsibility accounting the most relevant classification of costs is

• fixed and variable
• discretionary and committed
• incremental and nonincremental
• controllable and noncontrollable

The sequence that reflects increasing breadth of responsibility is

• investment center, cost center, profit center
• cost center, profit center, investment center
• cost center, investment center, profit center
• profit center, cost center, investment center

Albatross Company has fixed costs of P90,300. At a sales volume of P360,000, return on sales is 10%; at a P600,000 volume, return on sales is 20%. What is the break-even volume?

• P301,000
• P240,000
• P225,000
• P258,000

Which of the following states that productivity increases as employees gain experience in his work?

• Learning curve theory
• Kaizen costing
• JIT
• Backflush costing

The costs that follow appeared on Omaha's quality cost report:

• P22,800
• P68,800
• P10,000
• P12,800

For a profitable company, the amount by which sales can decline before losses occur is known as the:

• sales volume variance
• marginal income rate
• hurdle rate
• margin of safety

Costs incurred by a nonconforming product detected before it is shipped to customers are:

• internal failure costs
• prevention costs
• appraisal costs
• external failure

It is the 80-20 rule, which states, for example, that 80% of the problems in a particular process is contributed by 20% of the total activities, or vice-versa.

• Kaizen
• Pareto's law
• Learning curve theory
• Regression analysis

Information on Dulce’s direct material costs for May is as follows:

• P6,000 unfavorable
• P2,800 favorable
• P2,800 unfavorable
• P6,000 favorable

Costs incurred in detecting which of the individual units of products do not conform to specifications are:

• internal failure costs
• prevention costs
• appraisal costs
• external failure costs

The primary purpose of management accounting is to provide information

• To external users
• To internal users
• To both internal and external users
• To management and government

If the elasticity of demand is less than 1, demand is considered

• Elastic
• Either elastic or inelastic
• Neither elastic not inelastic
• Inelastic

Josefina Company expects to manufacture and sell 30,000 baskets in 2019 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 2019 budgeted income statement?

• P204,000
• P174,000
• P180,000
• P186,000

Which of the following would decrease unit contribution margin the most?

• A 15% increase in variable expenses
• A 15% increase in fixed expenses
• A 15% decrease in selling price
• A 15% decrease in variable expenses

V Company sold 10,000 units of its product for P100 per unit. Its unit variable costs are P20 and its total fixed costs are P600,000. Assuming the company has a 40% tax rate, what is its degree of operating leverage?

• 4.00
• 0.15
• 6.67
• 0.25

The variable costing method ordinarily includes in product costs the following:

• Direct materials cost, direct labor cost, and variable manufacturing overhead cost
• Prime cost but not conversion cost
• Prime cost and all conversion cost
• Direct materials cost, direct labor cost, but no manufacturing overhead cost.

An accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers is

• Target costing
• Variable costing
• Delivery cycle tie costing
• Activity-based costing

A strategic budget

• Describes the long-term position, goals, and objectives of an organization within it's environment.
• Is a short-range management tool.
• Is a short-range consideration related to liquidity.
• Involves evaluating specific long-term investment decisions.

In comparing management and financial accounting, which of the following more accurately describes management accounting information?

• Required, estimated, internal
• Historical, precise, useful
• Comparable, verifiable, monetary
• Budgeted, informative, adaptable

In analyzing manufacturing overhead variances, the volume variance is the difference between the:

• budget allowance based on standard hours allowed for actual production for the period and the amount budgeted to be applied during the period
• actual amount spent for overhead items during the period and the overhead amount applied to production during the period
• amount shown in the flexible budget and the amount shown in the debit side of the overhead control account
• predetermined overhead application rate and the flexible budget application rate times actual hours worked

Quality of conformance refers to:

• the extent to which a product adds value to a firm's product line
• the extent to which a product meets the specifications of its design
• the extent to which a product is designed for its intended use
• the extent to which a product maximizes non-value-added activities in the production process.

Costs incurred in precluding the production of products that do not conform to specifications are:

• external failure costs
• appraisal costs
• internal failure costs
• prevention costs

The materials efficiency variance is the difference between actual and standard quantities used in production, multiplied by the standard price. This variance may be the responsibility of

• Sales department
• Production department
• Personnel department
• Purchasing department

Which of the following costs would be classified as a prevention cost on a quality report?

• Rework
• Reliability engineering
• Warranty repairs
• Materials inspection

Which of the following would cause the break-even point to change?

• Total production decreased
• Total variable costs increased as a function of higher production
• Fixed costs increased owing to additional equipment in physical plant
• Sales increased

When developing a budget, an external factors to consider in the planning process is

• The implementation of employees' retirement plan.
• A change in management.
• Development of new product.
• The activities of competitors.

The books of Mariposa Company pertaining to the year ended December 31, 2018 operations, showed the following figures relating to product A:

• P 81,375.00
• P 60,750.00
• P 49,218.75
• P 87,000.00

The following is the Lux Corporation's contribution format income statement for last month:

• 0.12
• 0.40
• 3.30
• 2.50

The difference between the actual time used and the amount of time that should have been used for actual production, multiplied by the standard labor rate per time is called

• Quantity variance
• Spending variance
• Time variance
• Efficiency variance

A staff position

• Is directly involved in carrying out the basic company objectives
• Is more often superior in authority to a line position
• Is supportive in nature, providing services and assistance to other company segments
• Is exercised downward in doing the command function

Preventive equipment maintenance is an example of:

• prevention costs
• appraisal costs
• internal failure costs
• external failure costs

Gyro Products transferred 10,000 units to one department. An additional 3,000 units of materials were added in the department. At the end of the month, 7,000 units were transferred to finished goods; while 4,000 units remained in work in process inventory. There was no beginning inventory, and lost units were a result of normal production shrinkage. The production costs for the period in this department would be effectively allocated over:

• 12,000 units
• 11,000 units
• 7,000 units
• 10,000 units

The Dela Merced Company’s Household Products Division reported in 2018 sales of P15,000,000, an asset turnover ratio of 3.0, and a rate of return on average assets of 18 percent. The percentage of net income to sales is

• 5 percent
• 12 percent
• 6 percent
• 3 percent

Soda, Inc. desires to reduce its inventory of a particular raw material by 40%. The inventory at the beginning of the budget period is 240,000 units, and the company plans to manufacture 168,000 units of output. Each of these units requires 2.5 units of raw materials. How much of the raw materials should be purchased during the budget period?

• 139,600 units
• 324,000 units
• 316,000 units
• 276,000 units

Albania Company expects its June sales to be P300,000, which is 25% higher than its May sales. Purchases were P200,000 in May and are expected to be P240,000 in June. All sales are on credit and are collected as follows: 80% in the month of the sale and 20% in the following month. All payments in the month of sales are given 2% discount. Sixty percent of purchases are paid in the month of purchase to take advantage of purchase term of 1/10, n/40. The remaining amount is paid in the following month. The beginning cash balance on June 1 is P20,000. The ending cash balance on June 30 would be:

• P73,000
• P80,640
• P64,160
• P85,440

The following operating data are available from the records of Sheena Company for the month of January 2018:

• P 16,072
• P 12,096
• P 14,280
• P 16,968

The standard usage for raw materials is 5 pounds at P40.00 per pound. Cave Company spent P131,200 in purchasing 3,200 pounds. Cave used 3,150 pounds to produce 600 units of finished product. The material quantity variance is:

• P5,200 unfavorable
• P6,000 unfavorable
• P2,000 unfavorable
• P3,200 unfavorable

Which of the following is a term more descriptive of the type of cost accounting often called direct costing.

• Out-of-pocket costing
• Prime Costing
• Variable Costing
• Relevant Costing

Internal failure costs include all of the following except:

• rework
• downtime due to machine failures
• the cost of the scrap
• the cost of warranty repairs and replacements

The American Institute of Management Accountants came up with the Standards of Ethical Conduct for Management Accountants which have four sections, namely

• Competence, confidentiality, integrity, and maturity
• Competence, security, integrity and objectivity
• Competence, confidentiality, integrity, and objectivity
• Competition, confidentiality, integrity, and objectivity

Cost of quality reports usually do not consider:

• appraisal costs
• external failure costs
• internal failure costs
• opportunity costs

The standard hourly rate was P4.10. Standard hours for the level of production are 4,000. The actual rate was P4.27. The labor rate variance was P654.50, unfavorable. What were the actual labor hours?

• 4,150
• 3,700
• 4,000
• 3,850

Which of the following would produce the largest increase in the contribution margin per unit?

• A 15% decrease in selling price.
• A 17% decrease in fixed cost.
• A 14% increase in variable cost.
• A 7% increase in selling price.

In an activity-based costing system, materials receiving would typically be classified as a

• Batch-level activity
• facility-level activity
• Unit-level activity
• Period-level activity

In a company with a centralized approach to responsibility accounting, upper-level managers typically

• make key decisions only
• both make and implement key decisions
• review the outcomes of key decisions only
• implement key decisions only

Which of the following best describes a fixed cost?

• It may change in total when such change depends upon production or within the relevant range.
• It may change in total when such change is unrelated to changes in production.
• It is constant per unit of changes in production.
• It may change in total when such change is related to changes in production.

If there were 30,000 pounds of raw material on hand on January 1, 60,000 pounds are desired for inventory at December 31, and 180,000 pounds are required for annual production, how many pounds of raw material should be purchased during the year?

• 150,000 pounds
• 240,000 pounds
• 120,000 pounds
• 210,000 pounds

The unit contribution margin is calculated as the difference between:

• selling price and variable cost per unit.
• selling price and product cost per unit.
• fixed cost per unit and variable cost per unit.
• selling price and fixed cost per unit.

An organization's break-even point is 4,000 units at a sales price of P50 per unit, variable cost of P30 per unit, and total fixed costs of P80,000. If the company sells 500 additional units, by how much will its profit increase?

• P25,000
• P10,000
• P12,000
• P15,000

Which of the following is a characteristic of total quality management?

• On-the-job training by other workers
• Education and self-improvement
• Management by objectives
• Quality by final inspection

In developing an annual master budget, individual budget schedules are prepared. The budget schedule that would provide the necessary input data for the direct labor budget would be the

• Sales forecast
• Production budget
• Raw materials purchases budget
• Schedule of cash receipts and disbursements

The issue of this costing lies on how factory overhead and other indirect expenses are allocated among two or more products.

• Activity-based costing
• Backflush costing
• Life-cycle costing
• Kaizen costing

All of the following would generally be included in a cost-of-quality report except

• Warranty claims
• Supplier evaluations
• Lost contribution margin
• Design engineering

Under absorption costing, if sales remain constant from period 1 to period 2, the company will report a larger income in period 2 when

• Fixed production costs are larger in period 2 than period 1
• Variable production costs are larger in period 2 than period 1
• Period 1 production exceeds period 2 production
• Period 2 production exceeds period 1 production

Examples of nonfinancial measures of quality include the:

• number of customer complaints
• percent of products that experience early or excessive failure
• percentage of defective units shipped to customers as a percentage of total units shipped
• All of these answers are correct.

Which of the following costs would be classified as an internal failure cost on a quality report?

• Warranty repairs
• Materials inspection
• Reliability engineering
• Rework

Lion Company’s direct labor costs for the month of January were as follows:

• P6,000 favorable
• P6,300 favorable
• P6,450 favorable
• P6,150 favorable

In a master budget plan, sales forecast is under

• Performance budget
• Financial budget
• Operating budget
• Capital budget

An activity that adds costs to the product or service, but does not make such product or service more valuable to customers is called

• Valuable activity
• Value-adding activity
• Non-value-adding activity
• Costly activity

Which of the following is a strategic pricing model?

• Material-based pricing
• Product bundling
• Distress pricing
• Time pricing

The following information has been extracted from P Co.’s financial records for its first year of operations:

• P 270,000
• P 300,000
• P 200,000
• P 210,000

Management accounting includes the following processes, except

• Measurement
• Interpretation
• Communication
• Delegation

Within the relevant range, the amount of variable cost per unit

• Remains constant at each production level
• Increases as production increases
• Decreases as production increases
• Differs at each production level

It is an event, action, transaction, task, or unit of work that consumes resources and with a specified purpose.

• Activity
• Direct labor
• Cost driver
• Cost object

The most likely strategy to reduce the break-even point would be to

• Decrease the fixed costs and increase the contribution margin
• Increase both the fixed cost and the contribution margin
• Increase the fixed costs and decrease the contribution margin
• Decrease both the fixed costs and the contribution margin

Comparing one’s own product, service or practice with the best known similar activity is

• Benchmarking
• Backflush costing
• Actual costing
• Budgeting

The treasurer is usually not concerned with

• Financial reporting
• Cash custody and banking
• Credit extension and collection of bad debts
• Short-term financing

During the year 2018, Good Health Corporation manufactured 70,000 units of product A, a new product. Only 65,000 units were sold during the year. There was no beginning inventory. Manufacturing cost per unit was P20.00 variable and P50.00 fixed. What would be the effect on net income if absorption costing is used instead of variable costing?

• Profit is P 100,000 lower
• Profit is P 250,000 lower
• None of the above
• Profit is P250,000 higher

A traditional quality control process in manufacturing consists of mass inspection of goods only at the end of a production process. A major deficiency of the traditional control process is that

• It is expensive to do the inspections at the end of the process
• It is not 100% effective
• It is not possible to rework defective items
• It does not focus on improving the entire production process

Which cost is not subtracted from selling price to calculate contribution margin per unit?

• Variable selling expenses
• Variable manufacturing overhead
• Fixed manufacturing overhead
• Direct labor

If production is greater than sales (units), then absorption costing net income will generally be

• Equal to direct costing net income.
• Less than direct costing net income.
• Additional data is needed to be able to answer.
• Greater than direct costing net income

Assuming that sales and net income remain the same, a company’s return on investment will

• Decrease if the invested capital-employed turnover rate increases
• Decrease if the invested capital-employed turnover rate decreases
• Increase if invested capital increases
• Decrease if invested capital decreases

The process of creating a formal plan and translating goals into a quantitative format is

• Variance analysis
• Process costing
• Budgeting
• Activity-based costing

A learning curve of 80% assumes that direct labor costs are deduced by 20% for each doubling of output. What is the cost of the sixteenth unit produced?

• 64%
• 51%
• 40%
• 32%

An example of a nonfinancial measure for customer satisfaction is:

• process yield
• delivery delay
• employee turnover
• number of defects on the production line

In absorption costing, as contrasted with direct costing, the following are absorbed into inventory.

• Neither fixed nor variable manufacturing overhead.
• All the elements of fixed and variable manufacturing overhead.
• Only the fixed manufacturing overhead.
• Only the variable manufacturing overhead.

Robertson, Inc. uses target costing and sells a product for P36 per unit. The company seeks a profit margin equal to 25% of sales. If the current manufacturing cost is P29 per unit, the firm will need to implement a cost reduction of

• P20
• P2
• P27
• P0

An important difference between financial measures of quality and nonfinancial measures of quality is that:

• nonfinancial measures are generally too subjective to have any long-term
• value
• financial measures of quality tend to be useful indicators of future long-term performance, while nonfinancial measures have more of a short-term focus
• nonfinancial measures of quality tend to be useful indicators of future long-term performance, while financial measures of quality have more of a short-term focus
• None of these answers is correct

The quality costs that are associated with materials and products that fail to meet quality standards and result in manufacturing losses are known as:

• internal failure costs
• appraisal costs
• external failure costs
• prevention costs

Which of the following is least likely a reason why a company prepares its budget?

• To communicate the company’s plans throughout the entire business organization
• To make sure the company expands its operations.
• To control income and expenditure in a particular period.
• To provide a basis for comparison of actual performance

Using residual income for evaluating performance

• penalizes managers whose segments have low ROIs
• encourage managers to maximize ROI for the company
• encourages managers to maximize pesos of profit after a required ROI has been achieved
• penalizes managers of relatively large segment

The discipline of accounting concerned with providing information to management in making decisions about business operations.

• Government accounting
• Management accounting
• Financial accounting
• Cost accounting

Metropolitan Manufacturing expects to spend P400,000 in 20X9 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save P40,000 in fixed appraisal costs and variable costs of P0.40 per unit of finished product. The new method involves P60,000 in training costs and an additional P160,000 in annual equipment rental. It takes two units of material for each finished product.

• 220,000 increase
• 200,000 decrease
• 20,000 decrease
• P20,000 increase

Which of the following is not an assumption of CVP analysis?

• All revenues and variable cost are linear.
• Sales exceed production.
• Mixed costs can be accurately separated into their fixed and variable components.
• Labor productivity and market conditions will not change.

Green Corporation expects to sell 3,000 plants a month. Its operations manager estimated the following monthly costs:

• P7.50
• P5.00
• P2.50
• P7.51

The quantity of output divided by the quantity of one input

• Practical capacity
• Gross margin
• Residual income
• Partial productivity

Inventory under the variable costing includes

• Direct materials cost, direct labor cost, but no factory overhead cost.
• Prime cost and all conversion cost.
• Prime cost but not conversion cost.
• Direct materials cost, direct labor cost, and variable factory overhead.

This pricing model is most applicable in buyers market where the behavior of the market is significantly influenced by buyers than by sellers.

• Predatory pricing
• Loss leader pricing
• Skimming pricing
• Penetration-based pricing

Quality is achieved more economically if the company focuses on

• Appraisal costs
• External failure costs
• Prevention costs
• Internal failure costs

This pricing model is based on the principle of scarcity of resources and rationality of men.

• Economist's model
• Target pricing
• Premium pricing
• Controlled market-based pricing

It refers to anything (a product, product line, a business segment) for which cost is computed.

• Cost control
• Cost object
• Cost variance
• Cost driver

In the theory of constraints, the only direct costs are:

• direct materials
• investment costs
• direct material, direct labor, and variable overhead costs
• direct materials and direct labor

The ABC process may be summarized into 3 steps. Which of the following is the third step?

• Set up the ABC system
• None of the choices
• Identify the activity drivers
• Identify the resource drivers

A primary purpose of using a standard cost system is

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

The present break-even sale of Beng Company is P550,000 per year. It is computed that if the fixed cost will go up by P60,000, the sales required to break-even will also increase to P700,000, without any change in the selling price per unit and on the variable expenses. How much is the total fixed cost before the increase of P60,000?

• P280,000
• P200,000
• P330,000
• P220,000

Which item is not among the Standards of Ethical Conduct for Management Accountants?

• Competence
• Loyalty
• Integrity
• Objectivity

The most important component of quality control is

• Determining the appropriate timing of inspections
• Conforming with ISO-9000 specifications
• Satisfying upper management
• Ensuring goods and services conform to the design specifications

What is the function of management that compares planned results against actual results?

• Organizing
• Controlling
• Decision making
• Planning

Research and development and design engineering costs are

• Post-sales services costs
• Upward costs
• Production costs
• Downward costs

In which type of responsibility center is the manager held accountable for its profits?

• Profit centers or Investment centers
• Investment center
• Profit center
• Cost center

F Company manufactures and sells T-shirts. Last year, the shirts sold for P7.50 each, and the variable cost to manufacture them was P2.25 per unit. The company needed to sell 20,000 shirts to break even. The net income last year was P5,040. F Company’s expectation for the coming year include the following:

• 22,000
• 19,250
• 20,000
• 17,500

Bohol Company uses standard costing. The following data are available for October:

• 23,000 lbs
• 24,000 lbs
• 25,000 lbs
• 24,500 lbs

Quality of design measures how closely the characteristics of products or services match the needs and wants of customers. Conformance quality:

• is the performance of a product or service according to design and product specifications
• measures the same things
• focuses on fitness of uses from a customer perspective
• is making the product according to design, engineering, and manufacturing specifications

Sheridan Company has a standard of 15 parts of component BB costing P1.50 each. Sheridan purchased 14,910 units of component BB for P22,145. Sheridan generated a P220 favorable price variance and a P3,735 favorable quantity variance. If there were no changes in the component inventory, how many units of finished product were produced?

• 1,160 units
• 1,000 units
• 1,090 units
• 994 units

Which of the following statements is correct?

• When production and sales level are equal, variable costing net income is lower than absorption costing net income.
• If all the products manufactured during the period are sold in that period, variable costing net income is equal to absorption costing net income.
• When production is lower than sales, variable costing net income is lower than absorption costing net income.
• When production is higher than sales, absorption costing net income is lower than variable costing net income.

The difference between the actual price or rate paid and the standard price or rate that should have been paid, multiplied by the actual quantity or actual time is called

• Spending variance
• Efficiency variance
• Quantity variance
• Time variance

Assuming no change in sales volume, an increase in a firm's per-unit contribution margin would:

• increase fixed costs.
• have no effect on net income.
• decrease net income.
• increase net income.

The controller primarily

• Has no or very little influence in the decision making process
• Occupies a staff position
• Occupies a non-supervisory rank-and-file position
• Occupies a line position

With a production of 200,000 units of product A during the month of June, Bucayao Corporation had incurred costs as follows:

• P 2.05
• P 2.50
• P 2.20
• P 3.25

The cost of servicing a unit under a warranty agreement is known as aNo:

• production inefficiency cost
• internal failure cost
• prevention cost
• external failure cost

If the elasticity of demand is greater than 1, demand is considered

• Inelastic
• Neither elastic not inelastic
• Either elastic or inelastic
• Elastic

If the required direct materials purchases are 8,000 pounds and the direct materials required for production is three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct material in pounds?

• 32,000
• 4,000
• 12,000
• 20,000

The cost of quality measure has all of the following advantages EXCEPT:

• being a useful measure of comparing different quality improvement projects
• being in existence in almost every production circumstance
• serving as a common denominator for evaluating trade-offs among prevention and failure costs
• focusing on how costly poor quality can be

Carribean Company produces a product that sells for P60. The variable manufacturing costs are P30 per unit. The fixed manufacturing cost is P10 per unit based on the current level of activity, and fixed selling and administrative costs are P8 per unit. A selling commission of 10% of the selling price is paid on each unit sold.

• P54
• P24
• P36
• P30

A company sells a product for P9.00 which has a variable manufacturing cost of P3.00 per unit. Last year, the company needed to sell 20,000 shirts to break even. Assuming the company is subject to a 40% tax rate and wishes to earn P22,500 profit after tax for the coming year, what sales will be required?

• P213,750
• P257,625
• P236,250
• P180,000

Generous Company began its operations on January 1 of the current year. Budgeted sales for the first quarter are P240,000, P300,000, and P420,000, respectively, for January, February and March. Generous Company expects 20% of its sales cash and the remainder on account. Of the sales on account, 70% are expected to be collected in the month of sale, 25% in the month following the sale, and the remainder in the following month.

• 294,000
• P295,200
• P388,800
• P304,800

A mathematical technique used to monitor production quality and reduce product variability is:

• the method of least squares
• linear programming
• the statistical scattergraph method
• statistical process control

Broadway Company sells three products: A, B and C. Product A's unit contribution margin is higher than Product B's which is higher than Products C's. Which one of the following events is most likely to increase the company's overall break-even point?

• A change in the relative market demand for the products, with the increase favoring Product A relative to Product B and Product C.
• A decrease in Product C's selling price.
• The installation of new automated equipment and subsequent lay-off of factory workers.
• An increase in the overall market demand for Product B

A management decision may be beneficial for a given profit center, but not for the entire company. From the overall company viewpoint, this decision would lead to

• goal congruence
• suboptimization
• centralization
• maximization

Management accounting is used by a company's management for a multitude of purposes which are as follows, except

• Reporting
• Planning
• Evaluation
• Marketing

Companies that adopt just-in-time purchasing system often experience

• A reduction in the number of suppliers
• A greater need for inspection of goods as they arrive
• Less used for linkage with a vendor’s computerized order entry system
• An increase in carrying costs

Which of the following is not included in the basic management process?

• Subordinating
• Controlling
• Planning
• Rationalizing

The costs that follow appeared on Lexington’s quality cost report:

• P49,000
• P59,000
• P63,100
• P40,000

Tacloban Company manufactures a single product. Variable production costs are P20 and fixed production costs are P300,000. Tacloban uses a normal activity of 20,000 units to set its standard costs. Tacloban began the year with no inventory, produced 22,000 units, and sold 21,000 units. The standard cost of goods sold under variable costing would be

• P400,000
• Some other number
• P735,000
• P420,000

The primary reason for adopting total quality management is to achieve

• Greater employee participation
• Greater customer satisfaction
• Reduced delivery time
• Reduced delivery charges

A tool which identifies potential causes of failures or defects is a:

• cause-and-effect diagram
• Pareto diagram
• None of these answers is correct.
• control chart

Which of the following is a tactical pricing model?

• Penetration-based pricing
• Life-cycle-based pricing
• Cost-based pricing
• Skimming-based pricing

This applies when there is a main product with subsequent sales of parts and services.

• Pricing with additional features
• Product bundling
• Predatory pricing
• Loss leader pricing

The treasury function includes

• Financial reporting
• Cash custody and banking
• Preparation of tax returns
• Reporting to government

Select the incorrect equation for computing the breakeven point.

• Total Revenue = Total Costs
• Total Fixed Costs = Total Contribution Margin
• Total Variable Costs = Total Fixed Costs
• Total Profit = 0

If a firm is considering the use of learning curve analysis in the determination of labor cost standards for a new product, it should be advised that this technique ordinarily is most relevant to situation in which the production time per unit decreases as additional units are produced and the unit cost

• Increase lightly
• Does not change
• Decreases
• Increase or decrease in an unpredictable manner

Which of the following is a controller's responsibility?

• In-charge of credit and collection
• Custodian of funds
• Arranging short-term loans and financing
• Tax planning and accounting

Namuco, Inc. uses flexible budgeting for cost control. During the month of September, Namuco, Inc. produced 14,500 units of finished goods with indirect labor costs of P25,375. Its annual master budget reflects an indirect labor costs, a variable cost, of P360,000 based on an annual production of 200,000 units. In the preparation of performance analysis for the month of September, how much flexible budget should be allowed for indirect labor costs?

• P30,000
• P29,167
• P26,100
• P25,375

Which of the following costs is often considered the hardest to measure?

• External failure costs
• The cost of lost sales
• Prevention costs
• Appraisal costs

Life, Inc., manufactures a single product for which the costs and selling prices are:

• P 970,000
• P 920,000
• P 960,000
• P 950,000

A significant change in Y Company’s production technology caused its total fixed costs of P6,708,716 to increase by 9%. However, the change caused a 20% unit cost decrease in direct labor and a 25% decrease in the unit material cost leading to P25 increase in its P300 unit contribution margin. After incorporating these changes, what is Y Company’s new break-even point?

• 24,375 units
• 20,643 units
• 22,363 units
• 22,500 units

Razonable Company installs shingle roofs on houses. The standard material cost for a Type R house is P1,250, based on 1,000 units at a cost of P1.25 each. During April, Razonable installed roofs on 20 Type R houses, using 22,000 units of material cost of P26,400. Razonable’s material price variance for April is:

• P1,400 unfavorable
• P1,100 favorable
• P1,000 favorable
• P2,500 unfavorable

A responsibility center

• has a responsible manager in charge of it
• all of the above
• is an organization unit where management control exists over incurring costs or generating revenue
• is responsible for all other departments

Plant occupancy is a

• Product level activity
• Facility level activity
• Unit level activity
• Batch level activity

Which department is customarily held responsible for an unfavorable materials usage variance?

• Production
• Purchasing
• Engineering
• Quality control

The average labor cost per unit for the first batch produced by a new process is P120. The cumulative average labor cost after the second batch is P72 per product. Using a batch size of 100 and assuming the learning curve continues, the total labor cost of four batches will be

• P28,800
• P17,280
• P2,592
• P4,320

A liability claim is an example of:

• internal failure costs
• external failure costs
• appraisal costs
• prevention costs

STA Company uses a standard cost system. The following information pertains to direct labor costs for the month of June:

• 12,000
• 8,000
• 10,500
• 10,000

Why would a company decentralize?

• to allow division managers to concentrate on strategic planning
• to train and motivate division managers
• all of the above
• to focus top management’s attention to operating decisions

An unfavorable volume variance means that

• Actual output was less than the level used to set the standard fixed cost.
• Absorption costing income is lower than variable costing income.
• Cost control was probably poor.
• Actual output was more than the level used to set the standard fixed cost.

An activity that causes resources to be consumed is called a

• Just-in-time activity
• Cost driver
• Non-value-added activity
• Extracurricular activity

Issuing a purchase order is a

• Facility level activity
• Product level activity
• Batch level activity
• Unit level activity

A standard cost is an estimate of what a cost should be under normal operating conditions. In establishing standard costs, the following organizational personnel may be involved, except

• Quality control personnel
• Budgetary accountants
• Industrial engineers
• Top management

This management practice involves giving significant attention only to those areas in which material variances from expectations occur, giving less attention on areas operating as expected.

• Management by objectives
• Materials control
• Responsibility accounting
• Management by exception

All of the following are characteristics of total quality management except:

• the company maintains a loosely defined system of identifying quality problems so as not to stifle employee creativity
• all employees are actively involved in quality improvement
• the company's objective for all business activity is to serve its customers
• top management provides an active leadership role in quality improvement

Calma Company uses a standard cost system. The following budget, at normal capacity, and the actual results are summarized for the month of December:

• P10,500 Unfavorable
• P 3,000 Favorable
• P 9,000 Favorable
• P 5,000 Favorable

Consistency between goals of the firm and the goals of its employees is:

• goal compensation
• goal optimization
• goal conformance
• goal congruence

Abet Company plans to market a new product. Based on its market studies, Abet estimates that it can sell 5,500 units in 2018. The selling price will be P2 per unit. Variable cost is estimated to be 40% of the selling price. Fixed cost is estimated to be P6,000. What is the break-even point?

• 7,500 units
• 3,750 units
• 5,000 units
• 5,500 units

Palmas Company, which has a standard cost system, had 500 units of raw material X in its inventory at June 1, purchased in May for P1.20 per unit and carried at a standard cost of P1.00. The following information pertains to raw material X for the month of June:

• P130
• P 0
• P140
• P150

A difference between standard costs used for cost control and the budgeted costs representing the same manufacturing effort can exist because

• budgeted costs include some “slack” or “padding” while standard costs do not
• standard costs represent what costs should be while budgeted costs represent expected actual costs
• budgeted costs are historical costs while standard costs are based on engineering studies
• standard costs must be determined after the budget is completed

The cost of scrap, rework and tooling charges in a product quality cost system is categorized as

• External failure cost
• Internal failure cost
• Opportunity cost
• Training cost

The break-even point is that level of activity where:

• total revenue equals total cost.
• variable cost equals fixed cost.
• sales revenue equals total variable cost.
• total contribution margin equals the sum of variable cost plus fixed cost.

The best approach to quality improvement is to concentrate on:

• prevention
• increased production
• detection
• appraisal

It is the difference between sales and cost of goods sold.

• Net profit
• Profit before income tax
• Gross profit
• Operating profit

The overhead variances for Big Company were:

• P24,000 favorable
• P 7,600 favorable
• P13,600 favorable
• P31,600 favorable

The excerpt presented below was taken from Smurf Company’s records for the fiscal year ended November 30:

• 450,000
• 490,000
• 400,000
• 530,000

Seal Yard Ornaments sells lawn ornaments for P15 each. Seal's contribution margin ratio is 40%. Fixed costs are P32,000. Should fixed costs increase 30%, how many additional units will Seal have to produce and sell in order to generate the same net profit as under the current conditions?

• 1,067
• 5,333
• 1,600
• 6,933

Throughput contribution equals revenues minus

• direct material and direct labor costs
• direct material costs of goods sold
• operating costs
• direct material costs and minus operating costs

Return on investment (ROI) is calculated as

• divisional income – (divisional investment x required rate of return)
• divisional investment – divisional income
• divisional investment/divisional operating income
• divisional operating income/divisional investment

Samson Company uses a standard costing system in the production of its only product. The 84,000 units of raw materials inventory were purchased for P126,000 and 4 units of raw materials are required to produce one unit of final product. In October, the company produced 14,400 units of product. The standard cost allowed for materials was P72,000, and there was an unfavorable usage variance of P3.000. The materials price variance for the units used in October was

• P15,000 unfavorable
• P3,000 unfavorable
• P15,000 favorable
• P3,000 favorable

Standard costing systems may be used with

• Just-in-time systems
• Total quality management
• Computer-integrated manufacturing systems
• All of the above

The cost of statistical quality control in a product quality cost system is categorized as

• External failure cost
• Appraisal cost
• Internal failure cost
• Prevention cost

Which of the following is a type of costing that relates to the continuous accumulation of small betterment activities rather than innovative improvements?

• Process costing
• Kaizen costing
• Variable costing
• Target costing

The inventory model that follows the concept that 80% of the value of an inventory is in the 20% of the inventory items is the

• ABC system
• Economic order quantity (EOQ) model
• Just-in-time inventory system
• Materials requirements planning (MRP) system

Testing the prototype of a new product is a

• Facility level activity
• Batch level activity
• Unit level activity
• Product level activity

It is a grouping of individual cost items, or an account in which a variety of similar costs are accumulated.

• Cost driver
• Cost pool
• Income statement
• Cost variance

Controller's are ordinarily concerned with

• Credit extension and collection of bad debts
• Short-term financing
• Investor relations
• Preparation of tax returns

Which of the following costs would be classified as an appraisal cost on a quality report?

• Reliability engineering
• Materials inspection
• Rework
• Warranty repairs

Appraisal costs include all of the following except:

• obtaining information from customers about product satisfaction
• inspecting products during and after production
• inspecting and testing materials
• designing quality into the product and the production process

The theory of constraints is used for cost analysis when:

• All of these answers are correct
• using a long-term time horizon
• a manufacturing company produces multiple products and uses multiple manufacturing facilities and /or machines
• operating costs are assumed fixed

A Company sells a product for P7.50 whose variable cost is P2.25 per unit. The company needed to sell 20,000 shirts to break even. What was the company’s total fixed costs?

• P105,000
• P45,000
• P3,810
• P150,000

Controllable costs are costs that

• are likely to respond to the amount of attention devoted to them by a specified manager.
• fluctuate in total in response to small changes in the rate of capacity utilization.
• will be unaffected by current managerial decisions.
• management decides to incur in the current period to enable the company to achieve objectives other than filling customers’ orders.

Samar Co. manufactures a single product. Variable production costs are P20 and fixed production costs are P300,000. Samar uses a normal activity of 20,000 units to set its standard costs. Samar began the year with no inventory, produced 22,000 units, and sold 21,000 units. The volume variance under absorption costing would be

• 0
• Some other number
• P30,000
• P20,000

Which of the following would take place if a company experienced an increase in fixed costs?

• The contribution margin would increase.
• The contribution margin would decrease.
• The break-even point would increase.
• Net income would increase.

In which of the following organizational structures does total quality management (TQM) work best?

• Teams of people from the same specialty
• Teams of people from different specialties
• Hierarchal
• Specialists working individual

A segment of an organization for which management wants to report the cost of the activities performed separately is called aNo

• batch activity center
• cost center
• activity-based costing center
• activity center

A company has recently introduced total quality management (TQM). The company’s top management wants to determine a new and innovative approach to foster total participation throughout the company. Management should

• Bring the employees together for a brainstorming session
• Seek isolation from all distractions in order to think the problem through
• Rely on themselves to develop a new approach
• Use a disciplined problem-solving approach

One Company sells two products, A and B. A has a unit contribution margin of P40 while B has a unit contribution margin of P25. Last year the company sold 40,000 units of Product A and 60,000 units of Product B. What is the company’s weighted average contribution margin?

• (P40 x 40,000) + (P25 x 60,000)
• (P40 + P25) / 2
• None of the above
• (P40 x 0.4) + (P25 x 0.6)

The criteria used for evaluating performance

• motivate people to work in the company’s best interest
• should be designed to help achieve goal congruence
• can be used only with profit centers and investment centers
• should be used to compare past performance with current performance

Which of the following is not a cost of quality?

• External failure cost
• Prevention cost
• Production inefficiency cost
• Internal failure cost

D Company makes two products, X and Z. X is being introduced this period, whereas Z has been in production for 2 years. For the period about to begin, 1,000 units of each product are to be manufactured. Assume that the only relevant overhead item is the cost of engineering change orders that X and Z are expected to require eight and two change orders, respectively, that X and Z are expected to require 2 and 3 machine hours, respectively; and that the cost of a change order is P6,000. If D Company applies engineering change order costs on the basis of machine hours, the cross subsidy per unit arising from peanut-butter costing approach is

• P3.60
• P2.40
• P1.20
• P4.80

In which of the following aspects in Managerial Accounting similar to financial accounting?

• Emphasis between the past and future
• Type of data provided to users
• Reliance on the accounting database
• Users of reports

Which income statement format better facilitates the determination of a company’s break-even point?

• Absorption costing income statement
• None of the above
• Variable costing income statement
• Full costing income statement

This model states that each time the cumulative quantity of output doubles, the cumulative (or moving) average time to produce per unit decreases by a certain percentage.

• Wright Model
• Crawford Model
• Backflush costing
• Throughout accounting

Examples of opportunity costs include:

• lower production
• All of these answers are correct.
• lost sales
• forgone contribution margin

Marketing and channels of distribution costs are

• Post-sales services costs
• Downward costs
• Production costs
• Upward costs

Spoilage is an example of:

• appraisal costs
• internal failure costs
• external failure costs
• prevention costs

Management accounting information is deemed most successful if it

• Is easily understood by the user
• Is accurate
• Helps managers improve their decisions
• Helps creditors evaluate the company’s ability to pay its debts

Normal costing differs from actual costing in treating

• Overhead
• Materials, direct labor, and overhead
• Direct labor and overhead
• Materials and direct labor

The following economic data were provided by the corporate planning staff of Heaven, Inc.:

• 5,667 unit decrease
• 3,333 unit decrease
• 6,667 unit increase
• 4,333 unit decrease

Which of the following costs would be classified as an external failure cost on a quality report?

• Warranty repairs
• Materials inspection
• Reliability engineering
• Rework

Elite Company uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material in inventory were purchased for P105,000, and two units of raw material are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for material was P60,000, and there was an unfavorable quantity variance of P2,500. The materials price variance for the units used in November was

• P11,000 U
• P 2,500 U
• P 3,500 F
• P12,500 U

X Company sold a product last year that had a P5.00 unit contribution margin. A significant change in the company’s production technology has caused a 10% increase in annual fixed costs but a 20% decrease in unit variable costs. Assuming there was no change in the product’s P10.00 selling price, what is the company’s new contribution margin ratio?

• 60%
• 40%
• Can’t be determined from the information provided
• 50%

Which of the following may be scheduled in production planning by the use of learning curves?

• Delivery dates of finished products
• Purchases of materials
• Subassembly production
• All of the answers are correct

Management accounting

• Is concerned only with monetary information
• Is focused on business as a whole rather than on segments of the business
• Is discretionary rather than mandatory
• Is governed by Generally Accepted Accounting Principles (GAAP)

Responsibility accounting is a system whose attributes include

• responsibility, liability, and culpability
• performance evaluation, accountability, and responsibility
• culpability, liability, and accountability
• liability, accountability, and performance evaluation

Backstreet Corporation plans to sell 200,000 units of product Xey in July and anticipated a growth in sales of 5% per month. The target ending inventory in units of the product is 80% of the next month’s estimated sales. There are 150,000 units in inventory as of the end of June. The production requirement in units of Xey for the quarter ending September 30 would be

• 665,720
• 670,560
• 675,925
• 691,525

Variable overhead is applied on the basis of standard direct labor hours. If, for a given period, the direct labor efficiency variance is favorable, the variable overhead efficiency variance will be

• Zero
• Favorable
• Unfavorable
• The same amount as the labor efficiency variance

Montalban Company’s sales budget shows the following expected sales for the following year:

• 132,000
• 144,000
• 96,000
• 48,000

All of the following are traditional pricing models, except

• Premium pricing
• Controlled market-based pricing
• Transfer pricing
• Economist's model

A distinguishing characteristic of an investment center is that

• it is a responsibility center which only generates revenues.
• revenues are generated by selling and buying stocks and bonds
• the profitability of the center is related to the funds invested in the center.
• interest revenue is the major source of revenues

This is used to trace project schedules and activities as to their sequence, parallel undertakings, and time of completion.

• Gantt Chart
• Regression Analysis
• Pareto's Law
• Fish-bone analysis

The quality costs that are associated with designing, implementing, and maintaining the quality system are known as:

• external failure costs
• internal failure costs
• prevention costs
• appraisal costs

Information on Barber Company’s direct labor costs for the month of January is as follows:

• P17,250 U
• P20,700 U
• P21,000 F
• P21,000 U

In contrast to residual income (RI), economic value added (EVA) uses:

• the firm's minimum rate of return instead of its cost of capital.
• the firm's cost of capital instead of its minimum rate of return
• a required rate of return.
• values determined by using conventional accounting policies

W Company manufactures a product that sells for P800 per unit. The unit variable costs are P600 and total fixed costs are P6,600,000. The annual sales required for W Company to break even is

• P8,800,000
• P6,600,000
• P26,400,000
• None of the above

A tool which indicates how frequently each type of defect occurs is a:

• cause-and-effect diagram
• Pareto diagram
• control chart
• fishbone diagrams

Under the contemporary view of product quality, companies should strive to:

• balance failure costs with the sum of prevention and appraisal costs.
• inspect after-the-fact rather than install a series of preventative manufacturing controls.
• increase total quality costs.
• achieve zero defects in manufacturing.

If goods are inspected and found to be defective, any rework costs related to these units before the units are transferred to the finished-goods warehouse would be classified as aNo:

• production inefficiency cost
• prevention cost
• external failure cost
• internal failure cost