FIRST TERM EXAM (SBA)

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1. An objective of activity-based management is to *

1 point

a. eliminate the majority of centralized activities in an organization

b. reduce or eliminate non-value-added activities incurred to make a product or provide a service

c. institute responsibility accounting systems in decentralized organizations

d. AOTA

2. A tool that focuses on manufacturing processes and seeks to reduce or optimize the
activities performed within the process is *

1 point

a. process value analysis

b. re-engineering

c. benchmarking

d. NOTA

3. A non-value adding cost is *

1 point

a. usually direct of product

b. the same as a discretionary cost

c. unavoidable

d. not essential to manufacturing a product

4. A value-added employee in a construction firm would be *

a. an accountant

b. a secretary

c. a painter

d. AOTA

5. "Waste" is another name for *

1 point

a. non-value added costs

b. idle costs

c. trash costs

d. AOTA

6. Non-value added costs include: *

1 point

a. move time

b. storage time

c. inspection time

d. AOTA

7. Machine hours is an example of a(n)*

1 point

a. batch-level

b. facility-level

c. product-level

d. unit-level

8. Machine setup is an example of a(n)*

1 point

a. batch-level

b. facility-level
c. product-level

d. unit-level

9. TV advertisement is an example of a(n) *

1 point

a. batch-level

b. facility-level

c. product-level

d. unit-level

10. Landscaping is an example of a(n)*

1 point

a. batch-level

b. facility-level

c. product-level

d. unit-level

This is a required question

11. Which of the following level costs should not be included in production costs (mainly
because it is indirect to product line segment) for internal management reports that are used
for decision-making? *

1 point

a. unit-level activities

b. batch-level activities

c. product-level activities

d. facility-level activities

12. These activities arise because a company does particular types of business or maintains a
particular product. *

1 point

a. batch-level activities
b. facility-level activities

c. sustaining activities

d. unit-level activities

13. Property taxes and insurances is an example of a cost that would be considered to be *

1 point

a. unit level

b. batch level

c. product level

d. organization sustaining

This is a required question

14. Which of the following is typically regarded as a cost driver in traditional costing
practices? *

1 point

a. number of purchase order processed

b. number of customers served

c. number of transactions processed

d. number of direct labor hours worked

15. Activity-based costing (ABC) *

1 point

a. requires the identification of cost drivers

b. is used only in just-in-time (JIT) operations

c. applied only to discretionary fixed costs

d. does not help to identify activities as value adding or non-value adding

16. A company using activity-based costing *

1 point

a. tries to identify cost drivers

c. looks for the activity with which total costs are most closely associated

d. is probably using the JIT philosophy

17. The term "cost driver" refers to *

1 point

a. any activity that can be used to predict cost changes

b. the attempt to control expenditures at a reasonable level

c. the gathering and transferring of cost data to the management accountant

d. any activity that causes costs to be incurred

18. A cost pool is *

1 point

a. all costs of a production department

b. the material and labor costs used on a particular job

c. over-applied or under-applied overhead costs

d. a group of overhead costs driven by the same activity

19. In ABC, preliminary cost allocations assign costs to *

1 point

a. departments

b. processes

c. products

d. activities

20. In ABC, final cost allocations assign costs to *

1 point

a. departments

b. processes

c. products

d. activities
21. Lebanon manufactures two versions of a product. Production and cost information show
the following: MODEL A (units produced 100, material moves 10, direct labor hours per unit 1)
MODEL B (units produced 200, material moves 40, direct labor hours per unit 2). Under ABC,
the material handling costs of P100,000 allocated to a unit of Model A is: *

2 points

a. P10

b. P200

c. P333

d. P400

e. some other number

22. North Korea Company produces three products with the following production and cost
information: MODEL A (units produced 2,000, direct labor hours 4,000, number of setups 100,
number of shipments 200, engineering change orders 15) MODEL B (units produced 6,000,
direct labor hours 2,000, number of setups 150, number of shipments 225, engineering change
orders 10) MODEL C (units produced 13,000, direct labor hours 4,000, number of setups 250,
number of shipments 275, engineering change orders 5) Overhead costs include setups of
P45,000; shipping costs P70,000; and engineering costs P90,000. What would be the per unit
overhead cost for Model C if ABC were used? *

2 points

a. P 5.00

b. P 16.25

c. P 122.64

d. P 50.00

e. some other number

For items 23-25: SERENO company is preparing its annual profit plan. As part of its analysis of
the profitability of individual products, the controller estimates the amount of overhead that
should be allocated to the individual product lines from the information given as follows:
WALL MIRRORS (units produced 25, material moves per product line 5, direct labor hours per
unit 200) SPECIALTY WINDOWS (units produced 25, material moves per product line 15, direct
labor hours per unit 200) Budgeted materials handling costs P50,000. Under a costing system
that allocates overhead on the basis of direct labor hours, the materials handling costs
allocated to one unit of wall mirrors would be: *

2 points

a. P 500

b. P 1,000

c. P 2,000

d. P 5,000

e. some other number

24. Under ABC, the materials handling costs allocated to one unit of wall mirrors would be *

2 points

a. P 500

b. P 1,000

c. P 1,500

d. P 2,500

e. some other number

25. The principal reason for using more than one rate to apply overhead is: *

1 point

a. to keep individual rates low

b. that overhead costs are driven by more than one activity

c. that such rates recognize the seasonal nature of some costs

d. to simplify recordkeeping

26. When the selling division in an internal transfer has unsatisfied demand from outside
customers for the product that is being transferred, then the lowest acceptable transfer price
as far as the selling division is concerned is: *

2 points

a. variable cost of producing a unit of product

b. the full absorption cost of producing a unit of product

c. the market price charged to outside customers, less costs saved by transferring internally
d. the amount that the purchasing division would have to pay an outside seller to acquire a
similar product for its use

27. A segment of a business responsible for both revenues and expenses would be called: *

1 point

a. cost center

b. revenue center

c. profit center

d. residual income

28. Which of the following are benefits of decentralization? I. Giving a manager of a division
greater decision making control over his/her division provides vital training for a manager who
is on the rise in the company. II. Managers at corporate headquarters have greater control in
seeing that the goals of the company are realized. III. Added decision-making authority and
responsibility often leads to increased job satisfaction and often persuades a manager to put
forth his/her best efforts. *

1 point

a. Only I and II

b. Only II and III

c. Only I and III

d. Only I

29. Consider the following statements: I. A profit center has control over both cost and
revenue. II. An investment center has control over invested funds but not over costs and
revenue. III. A cost center has no control over sales. Which statement/s is/are correct? *

2 points

a. Only I

b. Only II

c. Only I and III

d. Only III

30. Division X makes a part that it sells to customers outside of the company. Data
concerning this part appear as follows: selling price to outside customers P50, variable cost
per unit P30, total fixed costs P400,000, capacity in units 25,000. Division Y of the same
company would like to use the part manufactured by Division X in one of its products. Division
Y currently purchases a similar part made by an outside company for P49 per unit and would
substitute the part made by Division X. Division Y requires 5,000 units of the part each period.
Division X has ample excess capacity to handle all of Division Y's needs without any increase
in fixed costs and without cutting into outside sales. According to the transfer pricing formula,
what is the lower limit on the transfer price? *

3 points

a. P50

b. P49

c. P46

d. P30

e. some other number

31. Division A makes a part that it sells to customers outside of the company. Data
concerning this part appear as follows: selling price to outside customers P40, variable cost
per unit P30, total fixed costs P10,000, capacity in units 20,000. Division B of the same
company would like to use the part manufactured by Division A in one of its products. Division
B currently purchases a similar part made by an outside company for P38 per unit and would
substitute the part made by Division A. Division B requires 5,000 units of the part each period.
Division A has ample capacity to produce the units for Division B without any increase in fixed
costs and without cutting into outside sales. If Division A sells to Division B rather than to
outside customers, the variable cost per unit would be P1 lower. What should be the lowest
acceptable transfer price from the perspective of Division A? *

3 points

a. P40

b. P38

c. P30

d. P29

e. some other number

32. Division X of Charter Corporation makes and sells a single product which is used by
manufacturers of fork lift trucks. Presently it sells 12,000 units per year to outside customers
at P24 per unit. The annual capacity is 20,000 units and the variable cost to make each unit is
P16. Division Y of Charter Corporation would like to buy 10,000 units a year from Division X to
use in its products. There would be no cost savings from transferring the units within the
company rather than selling them on the outside market. What should be the lowest
acceptable transfer price from the perspective of Division X? *

3 points

a. P24.00

b. P21.40

c. P17.60

d. P16.00

e. some other number

33. Division P of Turbo Corporation has the capacity for making 75,000 wheel sets per year
and regularly sells 60,000 each year on the outside market. The regular sales price is P100 per
wheel set, and the variable production cost per unit is P65. Division Q of Turbo Corporation
currently buys 30,000 wheel sets (of the kind made by Division P) yearly from an outside
supplier at a price of P90 per wheel set. If Division Q were to buy the 30,000 wheel sets it
needs annually from Division P at P87 per wheel set, the change in annual net operating
income for the company as a whole, compared to what it is currently, would be: *

3 points

a. P600,000

b. P225,000

c. P750,000

d. P135,000

e. some other number

For items 34-39. LENI Company has two service departments (Maintenance & Engineering)
and three producing departments (A, B & C) each producing a separate product. For a number
of years, the company has allocated the overhead costs of the service departments to the
producing departments on the basis of annual sales pesos which lead serious inequities. The
auditor recommended that maintenance and engineering service hours be used as a better
service cost allocation basis. The following data was available: Maintenance hours
(Engineering 400, Dept A 800, Dept B 200, Dept C 200), Engineering hours (Maintenance 400,
Dept A 800, Dept B 400 & Dept C 400), Overhead costs (Maintenance P12,000, Engineering
P54,000, Dept A P80,000, Dept B P90,000 & Dept C P50,000) Using the simultaneous
equations, what would be the total Engineering Department cost after allocation of inter-
service department costs but before allocation to the Maintenance and Production
Departments? *

3 points

a. P12,000

b. P54,000

c. P57,000

d. P60,000

e. some other number

35. Using the reciprocal method, what would be the total Maintenance Department Cost after
allocation of inter-service department costs but before allocation to the Engineering and
Production departments? *

3 points

a. P24,000

b. P22,500

c. P12,000

d. P28,000

e. some other number

36. Using the direct method of cost allocation, how much maintenance cost would be
allocated to the Engineering Department? *

3 points

a. P3,000

b. P1,500

c. P6,000

d. P 0

e. some other number

 
This is a required question

37. Under the direct method of cost allocation, what amount of Engineering Department's cost
would be allocated to Department A?*

3 points

a. P20,800

b. P27,000

c. P54,000

d. P0

e. some other number

38. Under the step method of cost allocation, assuming that the cost of Maintenance
Department is allocated first, what amount of maintenance cost would be allocated to
Department B? *

3 points

a. P3,000

b. P2,000

c. P8,000

d. P 0

e. some other number

39. Under the step method, if the Maintenance Department cost is allocated first, what
amount of Engineering Department's cost would be allocated to Department C? *

3 points

a. P9,000

b. P14,250

c. P9,500

d. P6,000

e. some other number

40. Which of the following formulas is the best representation of the concept of target
costing? *
1 point

a. target cost + profit margin = selling price

b. selling price - target cost = profit margin

c. selling price - profit margin = target cost

d. target cost - standard cost = profit margin

41. Successful product development should include *

1 point

a. kaizen costing.

b. value engineering.

c. kanban implementation.

d. all of the above.

42. Target costing *

1 point

a. can be applied to services if they are sufficiently uniform.

b. can be applied to services only if they are automated.

c. can be applied to services that are performed in a manufacturing environment.

d. cannot be applied to services.

43. In a JIT system, the quality of each product begins with *

1 point

a. a company's vendors.

b. employees.

c. inspection of finished goods inventory.

d. a good product warranty.

44. The JIT environment has caused a reassessment of product costing techniques. Which of
the following statements is true with respect to this reassessment? *

1 point

a. Traditional cost allocations based on direct labor are being questioned and criticized.
b. The federal government, through the SEC, is responsible for the reassessment.

c. The reassessment is caused by the replacement of machine hours with labor hours.

d. None of the above is true.

45. Which of the following might be appropriate for items in the "C" category of a Pareto
inventory analysis? *

1 point

a. a red-line system

b. a two-bin system

c. a periodic inventory system

d. all of the above

46. The repairs and maintenance department of Victory Liner *

1 point

Cost Center

Revenue Center

Profit Center

Investment Center

47. The Magnolia product division of San Miguel Corporation *

1 point

Cost Center

Revenue Center

Profit Center

Investment Center

48. The SM City car park ticket outlets*

1 point

Cost Center

Revenue Center

Profit Center
Investment Center

49. The Dapitan branch of Star box coffee. *

1 point

Cost Center

Revenue Center

Profit Center

Investment Center

50. The accounting department of Banco de Orocan *

1 point

Cost Center

Revenue Center

Profit Center

Investment Center

51. The College of Business Administration and Accountancy of CLSU *

1 point

Cost Center

Revenue Center

Profit Center

Investment Center

52. The parts department of Honda Cars Corporation *

1 point

Cost Center

Revenue Center

Profit Center

Investment Center

53. The convenience store that is owned by a chain organization. The head office supplies all
the goods to be sold and determines the selling price. *
1 point

Cost Center

Revenue Center

Profit Center

Investment Center

54. A good example of a common cost which normally could not be assigned to products on a
segmented income statement except on an arbitrary basis would be: *

1 point

a. product advertising outlays

b. salary of a corporation president

c. direct materials

d. the product manager's salary

55. All other things being equal, if a division's traceable fixed expenses increase: *

2 points

a. the division's contribution margin ratio will decrease

b. the division's segment margin ratio will remain the same

c. the division's segment margin will decrease

d. the overall company profit will remain the same

56. Turnover is computed by dividing average operating assets into: *

1 point

a. invested capital

b. total assets

c. net operating income

d. sales

57. Which of the following statements provide/s an argument in favor of including only a
plant's net book value rather than gross book value as part of operating assets in the ROI
computation? A. Net book value is consistent with how plant and equipment items are
reported on a balance sheet B. Net book value is consistent with the computation of net
operating income, which includes depreciation as an operating expense C. Net book value
allows ROI to decrease over time as assets get older. *

3 points

a. Only A

b. Only C

c. Only A and B

d. Only A and C

58. Delmar Corporation is considering the use of residual income as a measure of the
performance of its divisions. What major disadvantage of this method should the company
consider before deciding to institute it? *

2 points

a. this method does not make allowance for difference in the size of compare divisions

b. opportunities may be undertaken which will decrease the overall return on investment

c. the minimum required rate of return may eliminate desirable opportunities from consideration

d. residual income does not measure how effectively the division manager controls costs

59. Suppose a manager is to be measured by residual income. Which of the following will not
result in an increase in the residual income figure for this manager, assuming other factors
remain constant? *

2 points

a. an increase in sales

b. an increase in the minimum required rate of return

c. a decrease in expenses

d. a decrease in operating assets

60. More Company has two divisions, L and M. During July, the contribution margin in Division
L was 60,000. The contribution margin ratio in Division M was 40% and its sales P250,000.
Division M's segment margin was P60,000. The common fixed expenses were P50,000 and
the company net income was P20,000. The segment margin for Division L was: *

3 points

a. 0
b. 10,000

c. 50,000

d. 60,000

61. During April, Division D of Carney Company had a segment margin ratio of 15%, a variable
expense ratio of 60% of sales, and traceable fixed expenses of 15,000. Division D's sales were
closest to: *

2 points

a. 100,000

b. 60,000

c. 33,333

d. 22,500

62. Activity-based costing (ABC) *

1 point

a. requires the identification of cost drivers

b. is used only in just-in-time (JIT) operations

c. applied only to discretionary fixed costs

d. does not help to identify activities as value adding or non-value adding

63. The principal reason for using more than one rate to apply overhead is *

1 point

a. to keep individual rates low

b. that overhead costs are driven by more than one activity

c. that such rates recognize the seasonal nature of some costs

d. to simplify recordkeeping

64. An artificial profit center *

1 point

a. is not responsible for the costs that it incurs

b. has no investment
c. does not provide its goods or services outside the entity

d. could not be operated as a cost center

65. Given no idle capacity and a competitive market exists, that is, all goods internally can be
sold externally, the optimal method for establishing the transfer price is the market price
method, where the transfer price is equal to *

1 point

a. outlay cost plus opportunity cost

b. outlay cost

c. opportunity cost

d. cost plus any markup

66. Division Uno of Palacpac Company is currently operating at full capacity of 5,000 units. It
sells all its production in a perfectly competitive market for P250 per unit. Its variable cost is
170 per unit, while its total fixed cost amounts to P300,000. The minimum transfer price that
should be charged to Division Dos of Palacpac Company for each unit of product transferred
by Division Uno is *

2 points

a. 230

b. 170

c. 250

d. 470

67. It is the relationship between inputs and outputs. *

1 point

a. cycle time

b. gross profit ratio

c. productivity

d. inventory turnover

68. Which of the following statements about balanced scorecard is incorrect? *

2 points
a. The primary purpose of a balanced scorecard is to give managers a way to forecast future
performance

b. In a balanced scorecard, measurements should be directly linked to organizational strategy

c. A balanced scorecard can be used at multiple organizational levels by redefining the categories
and measurements

d. Using the balanced scorecard approach, an organization evaluates managerial performance

69. On a balanced scorecard, which of the following would be most appropriate to measure
the "customer perspective"? *

1 point

a. corporate financial profits

b. on-time delivery

c. on-time production

d. decrease in rework cost of defective units

70. On a balanced scorecard, which of the following would NOT be appropriate to measure the
"internal process perspective"? *

1 point

a. delivery cycle time

b. number of customer complaints

c. quality costs

d. manufacturing cycle efficiency

71. It is the difference between realization and sacrifice, where realization is what the
customer receives and sacrifice is what is given up in return. *

1 point

a. revenue growth

b. strategy

c. customer profitability

d. customer value
72. Ricky Corporation is composed of three operating divisions. Overall, the corporation has a
return on investment (ROI) of 25%. Division 1 has a ROI of 30%. If Ricky evaluates its
managers on the basis of return on investment, how would the Division 1 manager and the
Ricky Corporation president react to a new investment that has an estimated return on
investment of 28%? *

2 points

a. Both the President and the Division 1 Manager will accept the investment

b. The Division 1 Manager will accept but the President will reject the investment

c. The Division 1 Manager will reject but the President will accept the investment

d. Both will reject the investment

73. The following data pertain to Adan Corporation: Earnings before interest and taxes
P800,000;Current assets 800,000; Non-current assets 3,200,000; Current liabilities 400,000;
Non-current liabilities 1,000,000. Its weighted-average cost of capital is 10%. What is Adan
Corporation's Economic Value Added (EVA)? *

2 points

a. 200,000

b. 209,000

c. 160,000

d. 440,000

74. Consider the following: investment center's after operating profit P50,000; investment
center's total assets 800,000; investment center's current liabilities 80,000; WACC 6.5%. What
is the economic value-added (EVA)? *

3 points

a. 60,000

b. 3,200

c. 6,000

d. 50,000

75. Segment A generated sales revenues of P400,000 and variable operating expenses of
180,000. Its controllable fixed expenses were 40,000. It was assigned 20% of 200,000 of fixed
costs controlled by others. The common fixed costs were P25,000. What Segment A's
controllable segment profit margin? *

2 points

a. 220,000

b. 180,000

c. 140,000

d. 160,000

76. If the investment turnover increased by 30% and ROS decreased by 20%, the ROI would *

2 points

a. increase by 30%

b. increase by 4%

c. increase by 6%

d. none of these

77. If the investment turnover decreased by 10% and ROS decreased by 30%, the ROI would *

2 points

a. increase by 30%

b. decrease by 37%

c. decrease by 10%

d. none of the above

78. A responsibility center that is most like an independent business is called a/n *

1 point

a. profit center

b. revenue center

c. cost center

d. investment center

79. The performance of an investment center should be evaluated based on*

1 point
a. amount of investment

b. return on investment

c. residual value of investment

d. return of investment

80. The basic purpose of responsibility accounting is *

1 point

a. motivation

b. variance analysis

c. authority

d. budgeting