Pre-lim Exam

MAS 2

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1. Shipping costs at Junk Food Imports is a mixed cost with variable and fixed components. Past records
indicate total shipping cost was P18,000 for 16,000 pounds shipped and P22,500 for 22,000 pounds
shipped. If the company plans to ship 18,000 pounds next month, the expected shipping cost is *

2 points

P18,500

P20,400

P19,500

P24,000

Which of the following statements is FALSE? *

2 points

There is a cause and effect relationship between the cost driver and the level of activity.

Fixed costs have cost driver over the short run.

Over the long run all costs have cost drivers.

Volume of production is a cost driver of direct manufacturing costs.

If a cost cannot be allocated to certain segments of an organization, it should be: *

2 points

Excluded from the segmented income statement.

Included in it

Included in it but not allocated.

None of these

A profit center is any subunit or segment of an organization that is assigned: *

2 points

Both revenues and expenses.

Revenues only.
Expenses only.

Variable expenses only

The least complex segment or area of responsibility for which costs are allocated is a(n) *

2 points

Profit center

Investment center

Contribution center

Cost center

A regression equation *

2 points

Estimates the dependent variables.

Encompasses factors outside the relevant range.

Is based on objective and constraint functions.

Estimates the independent variable

An understanding of the underlying behavior of costs helps in all of the following EXCEPT *

2 points

Costs can be better estimated as volume expands and contracts.

True costs can be better evaluated.

Process inefficiencies can be better identified and as a result improved.

Sales volume can be better estimated.

A particular manufacturing job is subject to an estimated 80% learning curve. The first unit required 50
labor hours to complete. If the learning curve is based on a cumulative average time per unit
assumption, what is the time required to complete the second unit? *

2 points

30 hours

40 hours

45 hours

50 hours

If each furnace required a hose that costs P20 and 2,000 furnaces are produced for the month, the total
cost for hoses is *
2 points

Considered to be a direct fixed cost.

Considered to be a direct variable cost.

Considered to be an indirect fixed cost.

Considered to be an indirect variable cost.

A responsibility center is an organization unit headed by a responsible manager. It is known as a *

2 points

Cost center

Profit center

Investment center

None of the above

Which of the following items of cost would be least likely to appear in a performance report based on
responsibility accounting techniques for the supervisor of an assembly line in a large manufacturing
situation? *

2 points

Supervisor’s salary

Materials

Repairs and maintenance

Direct labor

Within the relevant range, if there is a change in the level of the cost driver then *

2 points

Fixed and variable costs per unit will change.

Fixed and variable costs per unit will remain the same.

Fixed costs per unit will remain the same and variable costs per unit will change.

Fixed costs per unit will change and variable costs per unit will remain the same.

Pongky Manufacturing Corporation uses a responsibility accounting system in its operations. Which one
of the following items is least likely to appear in a performance report for a manager of one of Pongky’s
assembly lines? *

2 points

Direct Labor
Materials

Repairs and maintenance

Depreciation on the manufacturing facility.

Which one of the following statements is true for a firm that uses variable costing? *

2 points

The unit product cost changes because of changes in the number of units manufactured.

Profit fluctuates with sales.

Any underapplied overhead is calculated into the product cost.

Product costs include variable administration costs.

A management decision may be beneficial for a given profit center, but not for the entire company.
From the overall company viewpoint, this decision could lead to action referred to as: *

2 points

Suboptimization

Centralization

Goal congruence

Maximization

Under variable costing: *

2 points

Net income will tend to move upward and downward in response to changes in levels of production.

Inventory costs will always be lower than under absorption costing.

Net income will tend to vary inversely with production changes.

Net income will always be higher than under absorption costing.

When 10,000 units are produced, fixed costs are P14 per unit. Therefore, when 20,000 units are
produced, fixed costs *

2 points

Will increase to P28 per unit.

Will remain at P14 per unit.

Will decrease to P7 per unit.

Will total P280,000

2 points

Administrative salaries

Electricity used by assembly-line machines

Sales commissions

Windows for each car produced

A particular manufacturing job is subject to an estimated 80% learning curve. The first unit required 50
labor hours to complete. What is the cumulative average time per unit after eight units are completed?
*

2 points

20 hours

25.6 hours

32 hours

40 hours

What term identifies an accounting system in which the operations of the business are broken down
into cost centers and the control function of a foreman, sales manager or supervisor is emphasized? *

2 points

Responsibility accounting

Operation research accounting

Control accounting

Budgetary accounting

Multiple regression analysis is used when: *

2 points

There is more than one cost category to analyze.

There is more than one activity that drives the variable component of a mixed cost.

The high-low method cannot be used because there is only one observation.

All of the points on a scattergraph fall exactly on a regression line.

When 10,000 units are produced, variable costs are P6 per unit. Therefore, when 20,000 units are
produced, *

2 points
Variable costs will total P120,000.

Variable costs will total P60,000

Variable unit costs will increase to P12 per unit.

Variable unit costs will decrease to P3 per unit.

Fixed costs depend on *

2 points

The amount of resources used.

The amount of resources acquired.

The volume of production.

The volume of sales.

When sales are constant, but the production level fluctuates, net income determined by the absorption
costing method will: *

2 points

Tend to fluctuate in the same direction as fluctuations in the level of production.

Tend to remain constant.

Tend to fluctuate inversely with fluctuation in the level of production.

None of these.

Under absorption costing, fixed factory overhead costs: *

2 points

Are deferred in inventory when production exceeds sales.

Are always treated as period costs.

Are released from inventory when production exceed sales.

None of these.

Clerical costs in the building department of Craig Company are a mixture of variable and fixed
components. Records indicate that average unit processing costs are P0.50 per account processed at an
activity level of 32,000 accounts. When only 22,000 accounts are processed, the total cost processing is
P12,500. Given these data, at a budgeted level of 25,000 accounts: *

2 points

Processing costs are expected to total P8,750.

Fixed processing costs are expected to be P10,400.

Processing costs are expected to total P14,975.

A regression equation *

2 points

Estimates the dependent variables.

Encompasses factors outside the relevant range.

Is based on objective and constraint functions.

Estimates the independent variable

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 most like an independent business? *

2 points

Revenue center

Profit center

Cost center

Investment center

In describing the cost formula equation, Y = a + bX, which of the following is correct? *

2 points

“Y” is the independent variable

“a” is the variable rate

“a” and “b” are valid for all levels of activity

In the high-low method, “b” equals the change in cost divided by the change in activity.

Variable production costs are P12 per unit and variable selling and administrative expenses are P3 per
unit. Fixed manufacturing overhead totals P36,000 and fixed selling and administration expenses total
P40,000. Assuming a beginning inventory of zero, production of 4,000 units and sales of 3,600 units, the
peso value of the ending inventory under variable costing would be: *

2 points

P4,800

P8,400

P6,000
P3,600

Net income computed using variable costing would exceed net income computed using absorption
costing if: *

2 points

Units sold exceed units produced.

Units sold are less than units produced.

Units sold equal units produced.

The unit fixed cost is zero.

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 *

2 points

P4,320

P10,368

P2,592

P17,280

Manga Inc., manufactured 700 units last year. The ending inventory consisted of 100 units. There was no
beginning inventory. Variable manufacturing costs were P6.00 per unit and fixed manufacturing costs
were P2.00 per unit. What would be the change in the peso amount of ending inventory if variable
costing was used instead of absorption costing? *

2 points

P800 decrease

P200 decrease

P0

P200 increase

WB Company computes net income under both the absorption costing approach and the variable
costing approach. For a given year, the absorption costing net income was greater than the variable
costing net income. This fact suggests that: *

2 points

Variable manufacturing costs were less than fixed manufacturing costs.

More units were produced during the year than were sold.

More units were sold during the year than were produced.
Common costs were greater than variable costs for the year.

Within the relevant range, if there is a change in the level of the cost driver then *

2 points

Total fixed costs and total variable costs will change.

Total fixed costs and total variable costs will remain the same.

Total fixed costs will remain the same and total variable costs will change.

Total fixed costs will change and total variable costs will remain the same.

A company that has a profit can increase its return on investment by: *

2 points

Increasing sales revenue and operating expenses by the same peso amount.

Increasing average operating assets and operating expenses by the same peso amount.

Increasing sales revenue and operating assets and sales by the same percentage.

Decreasing average operating assets and sales by the same percentage.

The costing method that treats all fixed costs as period costs is: *

2 points

Absorption costing

Job-order costing

Variable costing

Process costing

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 sixteenth unit produced as an approximate percentage of the first unit
produced? *

2 points

32%

40%

51%

64%

Under variable costing, fixed manufacturing overhead is: *

2 points
Carried in a liability account.

Carried in an asset account.

Ignored.

Immediately charged against sales as a period cost.

A principal difference between variable costing and absorption costing centers on: *

2 points

Whether variable manufacturing costs should be included as product costs.

Whether fixed manufacturing costs should be included as product costs.

Whether fixed manufacturing costs and fixed selling and administrative costs should be included as
product costs.

None of these.

The basic purpose of a responsibility accounting system is *

2 points

Budgeting

Motivation

Authority

Variance analysis

Last year, Mayumi Company had income of P40,000 using variable costing. Beginning and ending
inventories were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost was
P3.00 per unit, what was the income using absorption costing? *

2 points

P15,000

P25,000

P40,000

P55,000

When sales are constant, but the production level fluctuates, net income determined by the variable
costing method will: *

2 points

Fluctuate in direct proportion to changes in production.

Remain constant
Fluctuate inversely with changes in production.

Be greater than net income under absorption costing.

Which of the following is not true about a responsibility accounting system? *

2 points

It is a basis for judging management performance

It is helpful in pinpointing inefficiency.

It consists of a series of reports.

It holds management equally responsible for all costs.

In designing a responsibility accounting system, one should keep in mind a certain characteristic of each
cost. This characteristic is *

2 points

The degree of cost controllability by the manager

The degree of how the cost behaves with respect to volume.

The accuracy of cost allocation.

All of these.

Cost behavior refers to *

2 points

How costs react to a change in the level of activity.

Whether a cost is incurred in a manufacturing, merchandising, or service company.

Classifying costs as either inventoriable or period costs.

Whether a particular expense has been ethically incurred.

Which of the following is unlikely to be classified as a fixed cost with respect to the number of units
produced and sold? *

2 points

Property taxes on a headquarters building.

Legal department salaries

Cost of leasing the company’s mainframe computer.

Production supplies.

Utility costs at Service, Inc are a mixture of fixed and variable components. Records indicate that utility
costs are an average of P0.40 per hour at an activity level of 9,000 machine hours and P0.25 per hour at
an activity level of 18,000 machine hours. What is the expected total utility cost if the company works
13,000 machine hours? *

2 points

P4,225

P5,200

P4,000

P3,250

A company had a net income of P85,500 using variable costing and a net income of P90,000 using
absorption costing. Total fixed manufacturing overhead was P150,000 and production was 100,000
units. Between the beginning and the end of the year, the inventory level: *

2 points

Increased by 4,000 units.

Decreased by 4,500 units.

Increased by 3,000 units.

Decreased by 3,000 units.

The contribution approach to the income statement: *

2 points

Organizes costs on a functional basis.

Provides owners with more cash flows.

Is particularly helpful to the managers in planning and decision making.

Provides a gross margin figure from which selling and administrative expenses are deducted.

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