DEPARTMENTAL LONG EXAMINATION SET A

Term 3, AY2017-18 ACC535M (Management Accounting & Control)

General Instructions
Please shade your final answers in the scannable answer sheet. For the problem
solving part, please show all your solutions properly and chronologically your
worksheets.

Part I. THEORY AND CONCEPTS

1. To measure controllable production inefficiencies, which of the following is
the best basis for a company to use in establishing the standard hours
allowed for the output of one unit of product?
A) Average historical performance for the last several years
B) Engineering estimates based on ideal performance.
C) Engineering estimates based on attainable performance.
D) The hours per unit that would be required for the present workforce to
satisfy expected demand over the long run.

2. Expense A is a fixed cost; expense B is a variable cost. During the current

year the activity level has increased, but is still within the relevant
range. In terms of cost per unit of activity, we would expect that
A) expense A has remained unchanged.
B) expense B has decreased.
C) expense A has decreased.
D) expense B has increased.

3. The total-cost approach and the incremental-cost approach to evaluating two

competing investment opportunities
A) are dissimilar in that one deals with net present value and the other
deals with internal rate of return.
B) are similar in that they will recommend the same alternative as the best.
C) are dissimilar in that one uses the cost of capital as a discount rate
and the other does not.
D) are similar in that neither considers the time value of money.

4. A company employing very tight (high) standards in a standard cost system

should expect that
A) No incentive bonus will be paid.
B) Most variances will be unfavorable.
C) Employees will be strongly motivated to attain the standard.
D) Costs will be controlled better than if lower standards were used.

5. If sales remain the same and the margin of safety increases, which of the
following is true?
A) The break-even point has decreased.
B) The common fixed costs have increased.
C) The break-even point has remained constant.
D) Variable costs have increased.

6. Micro Computer Company has set up a toll-free telephone line for customer
inquiries regarding computer hardware produced by the company. The cost of
this toll-free line would be classified as which of the following?
A) Product cost
B) Manufacturing overhead
C) Direct labor
D) Period cost

7. The corporate controller's salary would be considered a(n):

A) manufacturing cost.
B) product cost.
C) administrative cost.
D) selling expense.

8. The budget or schedule that provides necessary input data for the direct
labor budget is the:
A) raw materials purchases budget.
B) production budget.
C) schedule of cash collections.
D) cash budget.

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DEPARTMENTAL LONG EXAMINATION SET A
Term 3, AY2017-18 ACC535M (Management Accounting & Control)

9. The concept of responsibility accounting means that:

A) Budgetary data should be reviewed and approved by the budget committee.
B) Budgetary data should be reviewed and approved by all levels of
management.
C) An employee's performance should be evaluated only on those items under
his or her control.
D) An employee's performance should be evaluated only by his or her
immediate supervisor.

10. Which of the following is not a benefit of budgeting?

A) It uncovers potential bottlenecks before they occur.
B) It coordinates the activities of the entire organization by integrating
the plans and objectives of the various parts.
C) It ensures that accounting records comply with generally accepted
accounting principles.
D) It provides benchmarks for evaluating subsequent performance.

11. The best basis upon which cost standards should be set to measure
controllable production inefficiencies is
A) Engineering standards based on ideal performance.
B) Normal capacity.
C) Engineering standards based on attainable performance.
D) Practical capacity.

12. Field trials and quality engineering are examples of ____.

A) prevention costs
B) appraisal costs
C) failure costs
D) quality costs
E) value costs

13. A difference between standard costs used for cost control and the budgeted
costs representing the same manufacturing effort can exist because
A) standard costs must be determined after the budget is completed.
B) standard costs represent what costs should be while budgeted costs
represent expected actual costs.
C) budgeted costs are historical costs while standard costs are based on
engineering studies.
D) budgeted costs include some “slack” or “padding” while standard costs do
not.

14. JIT responds to the problems traditionally solved by carrying inventories by

A) ensuring that sufficient inventory is on hand to prevent stockouts.
B) purchasing extra materials when price discounts are offered.
C) negotiating long-term contracts with supplier to lock in low prices.
D) selecting an inventory level that minimizes the total of ordering and
carrying costs.
E) choosing a wide number of suppliers to increase the chance of receiving
quantity discounts.

15. The standards of ethical conduct for managerial accountants include

A) competence and performance.
B) integrity and respect for others.
C) confidentiality, confidence, integrity, and observance.
D) competence, confidentiality, integrity, and credibility.

16. Total quality management emphasizes

A) zero defects.
B) continuous improvement.
C) elimination of waste.
D) all of these are correct.

17. Activity-based costing

A) strives to create an environment that will enable workers to manufacture
zero-defect products.
B) is the process of choosing among competing alternatives.
C) was established in response to financial scandals.
D) encourages process-value analysis.

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DEPARTMENTAL LONG EXAMINATION SET A
Term 3, AY2017-18 ACC535M (Management Accounting & Control)
18. The objective of profit maximization
A) should be the only goal of an organization.
B) is an objective of financial accounting but not managerial accounting.
C) should be achieved through legal and ethical means.
D) should outweigh the goal of product quality.

19. The most useful information derived from a breakeven chart is the
A) amount of sales revenue needed to cover enterprise variable costs.
B) amount of sales revenue needed to cover enterprise fixed costs.
C) Relationship among revenues, variable costs, and fixed costs at various
levels of activity.
D) volume or output level at which the enterprise breaks even.

20. Which of the following costs are always irrelevant in decision making?
A) avoidable costs.
B) sunk costs.
C) opportunity costs.
D) fixed costs.

Part II. APPLICATION OF CONCEPTS

21. The management of Rush Products Inc. is exploring four different investment
opportunities. Information on the four projects follow:

P R O J E C T N U M B E R
111 222 333 444
Investment P(270,000) P(450,000) P(360,000) P(480,000)
required
Present value of 336,140 522,970 433,400 567,270
cash inflows at
10% discounted
rate
Net present P66,140 P72,970 P73,400 P87,270
value
Internal rate of 18% 19% 14% 16%
return

Using profitability index, ranking of the projects would be

A) Project 111, 222, 333, 444

B) Project 111, 333, 444, 222
C) Project 444, 333, 222, 111
D) Project 222, 111, 333, 444

22. B. Knedler Corporation is preparing a bid for a special order that would
require 720 liters of material C01D. The company already has 200 liters of
this raw material in stock that originally cost P9.90 per liter. Material
C01D is used in the company's main product and is replenished on a periodic
basis. The resale value of the existing stock of the material is P9.60 per
liter. New stocks of the material can be readily purchased for P10.10 per
liter. What is the relevant cost of the 720 liters of the raw material when
deciding how much to bid on the special order?

A) ₱7,232
B) ₱7,272
C) ₱6,912
D) ₱6,972

23. A study has been conducted to determine if one of the departments in Parry
Company should be discontinued. The contribution margin in the department is
P50,000 per year. Fixed expenses charged to the department are P65,000 per
year. It is estimated that P40,000 of these fixed expenses could be
eliminated if the department is discontinued. These data indicate that if
the department is discontinued, the company's overall net operating income
would

A) decrease by ₱25,000 per year.

B) increase by ₱25,000 per year.
C) decrease by ₱10,000 per year.
D) increase by ₱10,000 per year.

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DEPARTMENTAL LONG EXAMINATION SET A
Term 3, AY2017-18 ACC535M (Management Accounting & Control)
Use the following information to answer the next three (3) questions
The following information was taken from the segmented income statement of
Restin, Inc., and the company's three divisions:
Los Central
Restin, Bay Area
Angeles Valley
Inc. Division
Division Division
Revenues PhP750,000 PhP200,000 PhP235,000 PhP325,000
Variable operating expenses 410,000 110,000 120,000 180,000
Controllable fixed expenses 210,000 65,000 75,000 70,000
Noncontrollable fixed expenses 60,000 15,000 20,000 25,000

In addition, the company incurred common fixed costs of PhP18,000.

24. The profit margin controllable by the Central Valley segment manager is:

A) PhP32,000.
B) PhP44,000.
C) PhP50,000.
D) PhP75,000.
E) PhP145,000.

25. Which of the following amounts should be used to evaluate whether Restin,
Inc., should continue to invest company resources in the Los Angeles
division?

A) PhP4,000.
B) PhP8,000.
C) PhP10,000.
D) PhP25,000.
E) PhP90,000.

26. Assume that the Los Angeles division increases its promotion expense, a
controllable fixed cost, by PhP10,000. As a result, revenues increase by
PhP50,000. If variable expenses are tied directly to revenues, the new Los
Angeles segment profit margin is:

A) PhP12,500.
B) PhP22,500.
C) PhP32,500.
D) PhP50,000.
E) PhP60,00

27. Allegiance, Inc. has PhP125,000 of inventory that suffered minor smoke
damage from a fire in the warehouse. The company can sell the goods "as is"
for PhP45,000; alternatively, the goods can be cleaned and shipped to the
firm's outlet center at a cost of PhP23,000. There the goods could be sold
for PhP80,000. What alternative is more desirable and what is the relevant
cost for that alternative?

A) Sell "as is," PhP125,000.

B) Clean and ship to outlet center, PhP23,000.
C) Clean and ship to outlet center, PhP103,000.
D) Clean and ship to outlet center, PhP148,000.
E) Neither alternative is desirable, as both produce a loss for the firm.

28. Torrey Pines is studying whether to outsource its Human Resources (H/R)
activities. Salaried professionals who earn PhP390,000 would be terminated;
in contrast, administrative assistants who earn PhP120,000 would be
transferred elsewhere in the organization. Miscellaneous departmental
overhead (e.g., supplies, copy charges, overnight delivery) is expected to
decrease by PhP30,000, and PhP25,000 of corporate overhead, previously
allocated to Human Resources, would be picked up by other departments. If
Torrey Pines can secure needed H/R services locally for PhP410,000, how much
would the company benefit by outsourcing?

A) PhP10,000.
B) PhP35,000.
C) PhP130,000.
D) PhP155,000.
E) Nothing, as it would be cheaper to keep the department open.

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DEPARTMENTAL LONG EXAMINATION SET A
Term 3, AY2017-18 ACC535M (Management Accounting & Control)
29. Shirts Unlimited sells a wide variety of ice shirts and sweat shirts.
Steven Neri, the owner, is thinking of expanding the sales by hiring local
students on a commission basis, selling sweatshirts bearing the name and the
mascot of the local high school.

The sweatshirts will have to be ordered from the manufacturer six weeks in
advance and they could not be returned because of the unique printing
required. The sweatshirts would cost Mr. Neri P80 each with a minimum order
of 75 sweatshirts. Any additional sweatshirts would have to be ordered in
increments of 75.

Since Mr. Neri’s plan would no require any additional facility, the only
cost associated with the project would be the cost of the sweatshirts and
the cost of the sales commissions. The selling price of the sweatshirts
would be P135. Each. Mr. Neri would pay the students a commission of P15
for every shirt sold.

To make the project worthwhile, Mr. Neri would require a P12,000 profit for
the first three months. of he venture. What level of sales in units and in
pesos would be required to reach this target net operating net income?

A) 300 pcs and P40,500

B) 218 pcs. and P29,430
C) 150 pcs and P20,250
D) 225 pcs. and P30375

30. Jim's 5-year-old Hyundai Elantra requires repairs estimated at PhP3,000 to

make it roadworthy again. His friend, Julie, suggested that he should buy a
5-year-old used Honda Civic instead for PhP3,000 cash. Julie estimated the
following costs for the two cars:
Hyundai Elantra Honda Civic
Acquisition cost PhP15,000 PhP3,000
Repairs PhP3,000 ---
Annual operating costs (Gas, maintenance) PhP2,280 PhP2,100

What should Jim do? What are his savings in the first year?
A) Buy the Honda Civic; PhP9,780.
B) Fix the Hyundai Elantra; PhP5,518.
C) Buy the Honda Civic; PhP180.
D) Fix the Hyundai Elantra; PhP5,280.

Use the following information to answer the next three (3) questions
Fair Engineering Company manufactures part QE767 used in several of its engine
models. Monthly production costs for 10,000 units are as follows:
Direct materials PhP 80,000
Direct labor 20,000
Variable support costs 50,000
Fixed support costs 40,000
Total costs PhP190,000

It is estimated that 20% of the fixed support costs assigned to part QE767 will
no longer be incurred if the company purchases the part from the outside
supplier. Fair Engineering Company has the option of purchasing the part from an
outside supplier at PhP16 per unit.

31. If Fair Engineering Company accepts the offer from the outside supplier, the
monthly avoidable costs (costs that will no longer be incurred) total:

A) PhP 32,000.
B) PhP 82,000.
C) PhP 158,000.
D) PhP190,000.

32. If Fair Engineering Company purchases 10,000 QE767 parts from the outside
supplier per month, then its monthly operating income will:

A) decrease by PhP2,000.
B) increase by PhP30,000.
C) decrease by PhP16,000.
D) decrease by PhP58,000.

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DEPARTMENTAL LONG EXAMINATION SET A
Term 3, AY2017-18 ACC535M (Management Accounting & Control)

33. The maximum price that Fair Engineering Company should be willing to pay the
outside supplier for each unit of part QE767 is:
A) PhP10.
B) PhP15.
C) PhP15.80.
D) PhP16.

34. Colby Company manufactures and sells a single product called the par.
Operating at capacity, the company can produce 30,000 pars per year. Costs
associated with this level of production and sales are given below:

Unit Total
Direct material PhP15 PhP450,000
Direct labor 8 240,000
Variable manufacturing overhead 3 90,000
Fixed manufacturing overhead 9 270,000
Variable selling expense 4 120,000
Fixed selling expense 6 180,000
Total PhP45 PhP1,350,000

The Pars normally sell for P50 each. Fixed manufacturing overhead is
constant at P270,000 per year. Due to a recession, Colby Company expects to
sell 25,000 Pars through regular channels next year. A large retail chain
has offered to purchase 5,000 Pars if Colby is willing to accept a
16%discount off the regular price. There will be no sales commissions on
this order thus variable selling expenses would be slashed by 75%. However,
Colby will have to purchase a special machine for Colby to engrave the
chain’s name on the 5,000 units. The machine would cost P10,000. Colby has
no assurance that the chain will purchase additional units in the future.
What is the impact of the special order on next year’s profit?

A) Decrease of P100,000 in the net operating income.

B) Decrease of P35,000 in the net operating income.
C) The special order narrowed down the decrease in the net operating income
by P65,000.
D) The special order narrowed down the decrease in net operating income by
P35,000.

35. Freeman Company uses a predetermined overhead rate based on direct labor-
hours to apply manufacturing overhead to jobs. At the beginning of the year,
the company estimated manufacturing overhead would be PhP150,000 and direct
labor-hours would be 10,000. The actual figures for the year were PhP186,000
for manufacturing overhead and 12,000 direct labor-hours. The cost records
for the year will show:

A) overapplied overhead of PhP30,000.

B) underapplied overhead of PhP30,000.
C) underapplied overhead of PhP6,000.
D) overapplied overhead of PhP6,000.

Use the following information to answer the next four (4) questions
The following information for the second quarter of 2011 pertains to Hu Company:
Month Sales Purchases
April PhP90,000 PhP48,000
May PhP120,000 PhP60,000
June PhP150,000 PhP84,000
• Cash is collected from customers in the following manner:
Month of sale 30%
Month following the sale 70%
• 40% of purchases are paid for in cash in the month of purchase, and the
balance is paid the following month.
• Labor costs are 20% of sales. Other operating costs are PhP45,000 per
month (including PhP12,000 of depreciation). Both of these are paid in
the month incurred.
• The cash balance on June 1 is PhP6,000. A minimum cash balance of
PhP4,500 is required at the end of the month. Money can be borrowed in
multiples of PhP3,000.
• No loans outstanding on June 1.

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DEPARTMENTAL LONG EXAMINATION SET A
Term 3, AY2017-18 ACC535M (Management Accounting & Control)

36. How much cash will be collected from customers in June?

A) PhP129,000
B) PhP141,000
C) PhP150,000
D) None of the above is correct.

37. How much cash will be paid to suppliers in June?

A) PhP69,600
B) PhP56,000
C) PhP88,000
D) None of the above is correct.

38. How much cash will be disbursed for labor and operating costs in June?

A) PhP63,000
B) PhP70,000
C) PhP88,400
d. PhP96,400

39. What is the ending cash balance for June?

A) (PhP50,000)
B) PhP6,000
C) PhP5,400
D) PhP11,400

40. Products at Aljonh Manufacturing are sent through two production

departments: Fabricating and Finishing. Overhead is applied to products in
the Fabricating Department based on 150 percent of direct labor cost and
Php18 per machine hour in Finishing. The following information is available
about Job #297:
Fabricating Finishing
Direct material 1,590 580
Direct labor cost ? 48
Direct labor hours 22 6
Machine hours 5 15
Overhead applied 429 ?

What is the total cost of Job #297?

A) 2,647
B) 3,005
C) 3,093
D) 3,203

41. Alyssa A. is a young attorney who has decided to leave her current employer
and set up her own law practice. She has prepared the following monthly
cost estimates:
Salary of legal secretary PhP 30,000
Office rent and utilities 12,000
Other costs 15,000
Total PhP 57,000

Alyssa would like to earn P33,000 a month and feels that she will be able to
bill 150 hours of her time per month to clients. Assuming that Alyssa is
correct in her estimates, what fee per hour should Alyssa charge her client?

A) 400 per hour

B) 500 per hour
C) 600 per hour
D) 700 per hour

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DEPARTMENTAL LONG EXAMINATION SET A
Term 3, AY2017-18 ACC535M (Management Accounting & Control)
42. Misemer Corporation is developing standards for its products. One product
requires an input that is purchased for PhP57.00 per kilogram from the
supplier. By paying cash, the company gets a discount of 8% off this
purchase price. Shipping costs from the supplier's warehouse amount to
PhP3.60 per kilogram. Receiving costs are PhP0.26 per kilogram. The standard
price per kilogram of this input should be:

A) PhP57.70
B) PhP56.30
C) PhP65.42
D) PhP57.00

43. Harnish Corporation is developing standards for its products. One product
requires an input that is purchased for PhP55.00 per kilogram from the
supplier. By paying cash, the company gets a discount of 8% off this
purchase price. Shipping costs from the supplier's warehouse amount to
PhP5.17 per kilogram. Receiving costs are PhP0.28 per kilogram. Each unit of
output of the product requires 0.75 kilogram of this input. The allowance
for waste and spoilage is 0.04 kilogram of this input for each unit of
output. The allowance for rejects is 0.11 kilogram of this input for each
unit of output.

The standard price per kilogram of this input should be:

A. PhP55.00
B. PhP56.05
C. PhP53.95
D. PhP64.85

44. The Watts Company uses predetermined overhead rates to apply manufacturing
overhead to jobs. The predetermined overhead rate is based on labor cost in
Dept A and on machine-hours in Dept B. At the beginning of the year, the
company made the following estimates:

Dept A Dept B
Direct labor cost PhP30,000 PhP30,000
Manufactured overhead PhP60,000 PhP50,000
Direct labor hours 6,000 8,000
Machine hours 2,000 10,000

What predetermined overhead rates would be used in Dept A and Dept B,

respectively?

A) 50% and PhP8.00

B) 50% and PhP5.00
C) PhP15 and 110%
D) 200% and PhP5.00

45. Lucy Sportswear manufactures a specialty line of T-shirts. The company uses
a job-order costing system. During March, the following costs were incurred
on Job ICU2: direct materials PhP13,700 and direct labor PhP4,800. In
addition, selling and shipping costs of PhP7,000 were incurred on the job.
Manufacturing overhead was applied at the rate of PhP25 per machine-hour and
Job ICU2 required 800 machine-hours. If Job ICU2 consisted of 7,000 shirts,
the Cost of Goods Sold per shirt was:

A) PhP6.50
B) PhP6.00
C) PhP5.70
D) PhP5.50

46. Beaver Company used a predetermined overhead rate last year of PhP2 per
direct labor-hour, based on an estimate of 25,000 direct labor-hours to be
worked during the year. During the year, actual manufacturing overhead costs
incurred were PhP47,000 and actual direct labor hours worked were 24,000. The
underapplied or overapplied overhead last year was:

A) PhP1,000 underapplied
B) PhP1,000 overapplied
C) PhP3,000 overapplied
D) PhP2,000 underapplied

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DEPARTMENTAL LONG EXAMINATION SET A
Term 3, AY2017-18 ACC535M (Management Accounting & Control)

47. Mergy Company uses process costing in accounting for its production
department, which uses two raw materials. Material Alpha is placed at the
beginning of the process. Inspection is at the 85% completion stage.
Material Bravo is then added to the good units. Normal spoilage units amount
to 5% of good output. The company records contain the following information
for April:

Started during the period 20,000 units

Material Alpha PhP26,800
Material Beta PhP22,500
Direct labor cost PhP75,160
Factory overhead PhP93,950
Transferred to finished goods 14,000
Work in process (95% complete), April 30 4,000

How much were Material cost per equivalent unit for Alpha and Bravo,
respectively?

A) PhP1.40 and PhP1.36

B) PhP1.40 and PhP1.06
C) PhP1.34 and PhP1.36
D) PhP1.34 and PhP1.25

48. Elizarraras Air uses two measures of activity, flights and passengers, in
the cost formulas in its budgets and performance reports. The cost formula
for plane operating costs is PhP39,820 per month plus PhP2,938 per flight
plus PhP8 per passenger. The company expected its activity in June to be 64
flights and 229 passengers, but the actual activity was 66 flights and 225
passengers. The actual cost for plane operating costs in June was
PhP234,570. The plane operating costs in the planning budget for June would
be closest to:

A) PhP229,684
B) PhP227,462
C) PhP234,570
D) PhP235,528

49. Guilbault Midwifery's cost formula for its wages and salaries is PhP2,340
per month plus PhP154 per birth. For the month of June, the company planned
for activity of 115 births, but the actual level of activity was 112 births.
The actual wages and salaries for the month was PhP19,530. The wages and
salaries in the planning budget for June would be closest to:

A) PhP19,530
B) PhP19,588
C) PhP20,053
D) PhP20,050

50. Blackwelder Snow Removal's cost formula for its vehicle operating cost is
PhP1,240 per month plus PhP348 per snow-day. For the month of December, the
company planned for activity of 12 snow-days, but the actual level of
activity was 14 snow-days. The actual vehicle operating cost for the month
was PhP6,330. The vehicle operating cost in the planning budget for December
would be closest to:

A) PhP5,426
B) PhP6,112
C) PhP5,416
D) PhP6,330
***END OF EXAMINATIONS***
REVIEW YOUR WORK. WE WILL SUBMIT THE TEST PAPER AND SOLUTIONS AT THE SAME TIME.

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