FIN 073: Strategic Cost Management

Student Activity Sheet #18

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

SECOND PERIODICAL EXAM Materials:

Pen and non-scientific
calculator

GENERAL DIRECTIONS
READ THIS PAGE BEFORE STARTING THE ASSESSMENT

This is an 11 paged test and is composed of 1 section and has a total score of 45 points. You have 60
Minutes to finish this examination. The breakdown of the exam is as follows:

(1) Multiple-choice questions - The questions in this LEARNING OBJECTIVE:

section is with four answer choices. The test is
composed of 45 questions and is rated as 1 point each. This assessment measures the
competence of the student in terms of
All things unnecessary for the test must be put in front of the his/her application of knowledge and skills
testing area. Use BLACK or BLUE ink ballpen only. Write all your in the following topics:
answers on the designated answer sheet. Further, erasures are 1. Objectives, role and scope of
strictly NOT allowed and will invalidate your answers. Managerial Accounting.
2. Cost terms and concepts
You may NOT use smart phones or reference materials during 3. Cost Behavior
the testing session. Only the allowed calculators should be used. 4. CVP Analysis
5. Absorption costing
Try to answer all questions. In general, if you have some 6. Activity-based costing and
knowledge about a question, it is better to try to answer it. You Management
will not be penalized for guessing. 7. Standard costing

Be sure to allocate your time carefully so you can complete the entire test within the exam session. You
may go back and review your answers at any time during the exam session.

Those who are caught cheating or doing acts not allowed during the exam shall be instructed to
surrender their test papers and shall leave the testing room immediately. Subsequently, their papers
shall be rated as ZERO.

This concludes the instruction page.

You may now begin answering.

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 FIN 073: Strategic Cost Management
Student Activity Sheet #18

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

Shade the letter of your answer on the answer sheet.

1. The term "relevant range" as used in cost accounting means the range over which:
a. cost relationships are valid c. relevant costs are incurred
b. production may vary d. costs may fluctuate

2. A type of employee whose wages are not a component of indirect labor is a(n):
a. inspector b. supervisor c. assembler d. maintenance worker

3. Which of the following statements correctly distinguishes financial and managerial accounting?
a. managerial accounting reports on the whole organization
b. financial accounting is oriented toward the future
c. financial accounting is primarily concerned with providing information for internal users
d. managerial accounting is oriented more toward the planning and control aspects of
management

4. Which of the following best describes the relationship between fixed costs per unit and variable
costs per unit, as total volume increases?
a. Fixed cost per unit stays the same and variable cost per unit stays the same.
b. Fixed cost per unit stays the same and variable cost per unit increases.
c. Fixed cost per unit increases and variable cost per unit increases.
d. Fixed cost per unit decreases and variable cost per unit stays the same.

5. Atlanta, Inc., which uses the high-low method to analyze cost behavior, has determined that
machine hours best explain the company's utilities cost. The following data being available for
the first six months of the year:
Month Utilities Machine Hours
January ₱8,700 800
February 8,360 720
March 8,950 810
April 9,660 920
May 9,625 950
June 9,150 900
Using the high-low method, the utilities cost associated with 980 machine hours would be:
a. ₱9,630. b. ₱9,670. c. ₱9,790. d. ₱10,050.

6. If the coefficient of correlation between two variables is zero, a scatter diagram of these
variables would appear as:
a. random points
b. a least squares line that slopes up to the right
c. a least squares line that slopes down to the right
d. under this condition, a scatter diagram could not be plotted on a graph

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 FIN 073: Strategic Cost Management
Student Activity Sheet #18

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

7. Which of the following is true?

I. Total revenues less total fixed costs equal the contribution margin.
II. If a company increases fixed costs, then the breakeven point will be lower.
a. I only b. II only c. I and II d. Neither I nor II

8. Cost-volume-profit analysis assumes all of the following EXCEPT:

a. all costs are variable or fixed
b. units manufactured equal units sold
c. total variable costs remain the same over the relevant range
d. total fixed costs remain the same over the relevant range

9. The following diagram is a cost-volume-profit graph for a manufacturing company.

P
C
D

A
B

O
Volume

The difference between line AB and line AC (area BAC) is the

a. contribution ratio. c. total variable cost.
b. contribution margin per unit. d. total fixed cost.

10. Which of the following is true?

I. A company with a high degree of operating leverage is at lesser risk during downturns in the
economy.
II. Margin of safety measures the difference between budgeted revenues and breakeven
revenues.
a. I only b. II only c. I and II d. Neither I nor II

11. Marquez Co. manufactures a single product. For 2006, the company had sales of P90,000,
variable costs of P50,000, and fixed costs of P30,000. Marquez expects its cost structure and
sales price per unit to remain the same in 2007; however total sales are expected to jump by
20%. If the 2007 projections are realized, net income in 2007 should exceed net income in
2006 by
a. 180% b. 100% c. 80% d. 20%

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 FIN 073: Strategic Cost Management
Student Activity Sheet #18

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

12. Bulusan Company has sales of P400,000 with variable costs of P300,000, fixed costs of
P120,000, and an operating loss of P20,000. How much increase in sales would Bulusan need
to make in order to achieve a target operating income of 10% of sales?
a. P400,000 b. P462,000 c. P500,000 d. P800,000

13. Mercado, Inc. had the following economic data for 2007:
Net sales P400,000
Contribution margin 160,000
Margin of safety 40,000
What is Mercado’s breakeven point in 2007?
a. P360,000 b. P320,000 c. P288,000 d. P80,000

14. Which of the following statements is true?

a. Absorption costing net income exceeds variable costing net income when units produced and
sold are equal.
b. Variable costing net income exceeds absorption costing net income when units produced
exceed units sold.
c. Variable costing net income exceeds absorption costing net income when units produced
equal units sold.
d. Absorption costing net income exceeds variable costing net income when units produced are
greater than units sold.

15. Which of the following is not true of variable costing?

a. Profits may increase though sales decrease.
b. Profits fluctuate with sales.
c. The cost of the product consists of all variable production costs.
d. The income statement under variable costing does not include overhead volume variance.

16. When variable costing is used, all of the following costs are considered product costs except
a. variable administrative costs c. variable selling costs
b. fixed overhead d. all of the choices

17. Variable costing net income is

a. higher than absorption net income when more units are sold than produced
b. lower than absorption net income when more units are produced than sold
c. the same as absorption net income when all units produced are sold
d. all of the above

18. During May, Roy Co. produced 10,000 units of Product X. Costs incurred by Roy during May
were as follows
Direct materials P10,000
Direct labor 20,000
Variable manufacturing overhead 5,000

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 FIN 073: Strategic Cost Management
Student Activity Sheet #18

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

Variable selling and general 3,000

Fixed manufacturing overhead 9,000
Fixed selling and general 4,000
Total P51,000
What are the unit product costs under absorption and variable costing methods, respectively?
a. P5.10; P3.80 b. P3.80 P5.10 c. P4.40; P3.50 d. P3.50: P4.40

19. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
Selling price ........................................................... ₱100
Units in beginning inventory ................................. 0
Units produced ...................................................... 2,400
Units sold ............................................................... 2,100
Units in ending inventory ...................................... 300

Variable costs per unit:

Direct materials .................................................. ₱31
Direct labor ......................................................... ₱11
Variable manufacturing overhead ...................... ₱1
Variable selling and administrative .................... ₱8

Fixed costs:
Fixed manufacturing overhead ........................... ₱79,200
Fixed selling and administrative ........................ ₱8,400

What is the total period cost for the month under the absorption costing approach?
a. ₱106,800 b. ₱27,600 c. ₱104,400 d. ₱25,200

20. Luna Company had income of P65,000 using absorption costing for a given period. Beginning
and ending inventories for that period were 13,000 units and 18,000 respectively. Ignoring
income taxes, if the fixed overhead application rate were P2.50 per unit, what would the income
have been using variable costing?
a. P 77,500 b. P 60,000 c. P 52,500 d. P 20,000

21. At its present level of operations, a small manufacturing firm has total variable costs equal to
75% of sales and total fixed costs equal to 15% of sales. Based on variable costing, if sales
change by P1.00, income will change by
a. P 0.25 b. P 0.12 c. P 0.75 d. P 0.10

22. Which of the following is true?

I. Under variable costing, inventoriable product costs consist of direct materials, direct labor,
variable manufacturing overhead and variable selling and administration expenses.

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 FIN 073: Strategic Cost Management
Student Activity Sheet #18

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

II. If production equals sales for the period, absorption costing and variable costing will produce
the same net operating income under FIFO method.
a. I only b. II only c. I and II d. Neither I nor II

23. Which of the following is true?

I. Under variable costing, an increase in the fixed factory overhead will have no effect on the unit
product cost.
II. The inventory value shown on the balance sheet is generally higher under absorption costing
than under variable costing.
a. I only b. II only c. I and II d. Neither I nor II

24. Which of the following is true?

I. Production order processing is an example of a batch-level activity.
II. Activity-based management seeks to eliminate waste by allocating costs to products that
waste resources.
a. I only b. II only c. I and II d. Neither I nor II

Use the following to answer questions 28-29:

Esmail Company is a wholesale distributor that uses activity-based costing for all of its overhead costs.
The company has provided the following data concerning its annual overhead costs and its activity
based costing system:
Overhead costs:
Wages and salaries ............ ₱380,000
Other expenses .................. 220,000
Total .................................. ₱600,000

Distribution of resource consumption:

Activity Cost Pools
Filling Orders Customer Support Other Total
Wages and salaries .............. 55% 35% 10% 100%
Other expenses .................... 25% 55% 20% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization sustaining costs.

The amount of activity for the year is as follows:

Activity Cost Pool Activity
Filling orders ..................... 4,000 orders
Customer support .............. 60 customers

25. What would be the total overhead cost per order according to the activity based costing system?
In other words, what would be the overall activity rate for the filling orders activity cost pool?
a. ₱60.00 b. ₱66.00 c. ₱82.50 d. ₱37.50

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 FIN 073: Strategic Cost Management
Student Activity Sheet #18

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

26. What would be the total overhead cost per customer according to the activity based costing
system? In other words, what would be the overall activity rate for the customer support activity
cost pool?
a. ₱3,500 b. ₱5,500 c. ₱4,233 d. ₱4,500

Use the following to answer questions 30-33:

Acklin Company has two products: A and B. Annual production and sales are 600 units of Product A
and 900 units of Product B. The company has traditionally used direct labor-hours as the basis for
applying all manufacturing overhead to products. Product A requires 0.5 direct labor hours per unit and
Product B requires 0.3 direct labor hours per unit. The total estimated overhead for next period is
₱63,322.

The company is considering switching to an activity-based costing system for the purpose of computing
unit product costs for external reports. The new activity-based costing system would have three
overhead activity cost pools—Activity 1, Activity 2, and General Factory— with estimated overhead
costs and expected activity as follows:
Expected Activity
Activity Cost Pool Estimated Overhead Cost Product A Product B Total
Activity 1 .................. ₱18,900 700 200 900
Activity 2 .................. 15,631 1,000 100 1,100
General factory ......... 28,791 300 270 570
Total ......................... ₱63,322

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor hours.)

27. The predetermined overhead rate under the traditional costing system is closest to:
a. ₱21.00 b. ₱14.21 c. ₱111.09 d. ₱50.51

28. The overhead cost per unit of Product A under the traditional costing system is closest to:
a. ₱10.50 b. ₱55.55 c. ₱25.26 d. ₱7.11

29. The predetermined overhead rate (i.e., activity rate) for Activity 1 under the activitybased costing
system is closest to:
a. ₱27.00 b. ₱94.50 c. ₱21.00 d. ₱70.36
30. The overhead cost per unit of Product A under the activity-based costing system is closest to:
a. ₱25.26 b. ₱73.44 c. ₱42.21 d. ₱55.55

31. Which of the following is not a trait of a traditional cost management system?
a. unit-based drivers c. focus on managing activities
b. allocating intensive d. narrow and rigid product costing

32. When a firm redesigns a product to reduce the number of component parts, the firm is
a. increasing consumer value. c. decreasing product variety.

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 FIN 073: Strategic Cost Management
Student Activity Sheet #18

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

b. increasing the value added to the product. d. decreasing non-value-added costs.

33. Jackson manufactures products X and Y, applying overhead on the basis of labor hours. X, a
low-volume product, requires a variety of complex manufacturing procedures. Y, on the other
hand, is both a high-volume product and relatively simplistic in nature. What would an activity-
based costing system likely disclose about products X and Y as a result of Jackson's current
accounting procedures?
X Y
A. Undercosted Undercosted
B. Undercosted Overcosted
C. Overcosted Undercosted
D. Overcosted Overcosted

34. Which of the following is true?

I. Ideal standards can be used in forecasting and planning whereas practical standards cannot
be used for such purposes.
II. A direct material quantity standard generally includes an allowance for waste.
a. I only b. II only c. I and II d. Neither I nor II

35. Which of the following is true?

I. A materials price variance is favorable if the actual price exceeds the standard price.
II. Most companies compute the materials price variance when materials are placed into
production.
a. I only b. II only c. I and II d. Neither I nor II

36. Which of the following is true?

I. An unfavorable labor rate variance can occur if workers with high hourly wage rates are
assigned to work on products whose standards assume workers with low hourly wage rates.
II. If variable manufacturing overhead is applied based on direct labor-hours, it is impossible to
have a favorable labor efficiency variance and unfavorable variable overhead efficiency
variance for the same period.
a. I only b. II only c. I and II d. Neither I nor II

37. During the month of May, Domino Manufacturing Corporation purchased materials that had a
total standard cost of ₱57,000. The Materials Price Variance on these materials was ₱3,000
favorable. What summary journal entry would Domino make to record this purchase and
variance for May?

a. Work in Process 57,000

Materials Price Variance 3,000
Raw Materials 60,000

b. Work in Process 54,000

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 FIN 073: Strategic Cost Management
Student Activity Sheet #18

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

Materials Price Variance 3,000

Raw Materials 57,000

c. Raw Materials 57,000

Materials Price Variance 3,000
Accounts Payable 54,000

d. Raw Materials 57,000

Materials Price Variance 3,000
Accounts Payable 60,000

Use the following to answer questions 41-44:

The Dresden Company uses standard costing for the single product the company makes and sells. The
following data are for the month of April:
• Actual cost of direct material purchased and used: ₱62,400
• Material price variance: ₱4,800 unfavorable
• Total materials variance: ₱14,400 unfavorable
• Standard cost per pound of material: ₱6
• Standard cost per direct labor hour: ₱8
• Actual direct labor hours: 3,800 hours
• Labor efficiency variance: ₱1,600 favorable
• Standard number of direct labor hour per unit of product: 2
• Total labor variance: ₱680 unfavorable

38. The total number of units produced during April was:

a. 8,000 b. 12,000 c. 2,000 d. 3,800

39. The standard quantity of material allowed to produce one unit of product was:
a. 1 pound b. 4 pounds c. 6 pounds d. 2 pounds

40. The actual material cost per pound was:

a. ₱6.50 b. ₱6.00 c. ₱5.00 d. ₱7.20

41. The actual direct labor rate per hour was:

a. ₱16.00 b. ₱6.50 c. ₱8.00 d. ₱8.60
Use the following to answer questions 45-48:
Garch, Inc. analyzes manufacturing overhead in the production of its only one product, CD. The
following set of information applies to the month of May, 2006:
Budgeted Actual
Units produced 40,000 38,000
Variable manufacturing OH P 4/DLH P16,400
Fixed manufacturing overhead P20/DLH P88,000
Direct labor hours 6 min/unit 4,200 hr

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 FIN 073: Strategic Cost Management
Student Activity Sheet #18

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

42. What is the fixed overhead spending variance?

a. P4,000 F b. P8,000 F c. P8,000 U d. P4,000 U

43. What is the volume variance?

a. P4,000 F b. P4,000 U c. P8,000 F d. P8,000 U

44. How much was the variable overhead spending variance?

a. P 400 F b. P1,200 F c. P400 U d. P1,200 U

45. How much overhead efficiency variance resulted for the month of May?
a. P1,600 F b. P 800 F c. P1,600 U d. P800 U

- End -

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