Management Services(MS)

Review Assessment | SY 2425 (S1) - SET A

NAME:_______________SECTION________SCHEDULE:_______

INSTRUCTIONS: On the provided answer sheet, shade the space corresponding to the letter of the best
answer. Erasure could be marked incorrectly. Answer the following questions to the best of your ability
Duration of Exam: 2 hours
while maintaining the highest standards of integrity.
1. Under the variable-costing concept, unit product cost would most likely
be increased by
A. A decrease in the number of units produced.
B. An increase in the commission paid to salesman for each unit sold.
C. A decrease in the remaining useful life of factory machinery
depreciated on the units-of-production method.
D. An increase in the remaining useful life of factory machinery
depreciated on the sum-of-the-year’s digits method.

2. Calculating income under variable costing does NOT require knowing

A. selling price. C. unit sales.
B. unit production. D. unit variable manufacturing costs.

3. Which of the following statements is true for a firm that uses variable
costing?
A. Profits fluctuate with sales.
B. An idle facility variation is calculated.
C. Product costs include variable administrative costs.
D. The cost of a unit of product changes because of changes in number
of units manufactured.

4. The change in period-to-period operating income when using variable

costing can be explained by the change in the
A. Unit sales level multiplied by the unit sales price.
B. Unit sales level multiplied by a constant unit contribution margin.
C. Finished goods inventory level multiplied by the unit sales price.
D. Finished goods inventory level multiplied by a constant unit
contribution margin.

5. A cost that is included as part of product costs under both absorption

costing and direct costing is:
A. insurance D. variable marketing expenses.
B. managerial staff costs E. variable materials handling labor
C. taxes on factory building
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Review Assessment | SY 2425 (S1) - SET A

6. If unit costs remain unchanged and sales volume and sales price per
unit both increase from the preceding period when operating profits were
earned, operating profits must
A. Increase under the variable costing method.
B. Decrease under the variable costing method.
C. Increase under the absorption costing method.
D. Decrease under the absorption costing method.

7. When comparing absorption costing with variable costing, which of the

following statements is not true?
A. When sales volume is more than production volume, variable
costing will result in higher operating profit.
B. Under absorption costing, operating profit is a function of both sales
volume and production volume.
C. Absorption costing enables managers to increase operating profits
in the short run by increasing inventories.
D. A manager who is evaluated based on variable costing operating
profit would be tempted to increase production at the end of a
period in order to get a more favorable review.

8. Absorption costing differs from variable costing in that

A. absorption costing inventories are more correctly valued.
B. companies using absorption costing have lower fixed costs.
C. standards can be used with absorption costing, but not with variable
costing.
D. production influences income under absorption costing, but not
under variable costing.

9. In a recent period, Marvel Co. incurred $20,000 of fixed manufacturing

overhead and deducted $30,000 of fixed manufacturing overhead. Marvel
Co. must be using
A. absorption costing. C. standard costing.
B. direct costing. D. variable costing.

10. Other things being equal, net income computed by direct costing
method would exceed net income computed by absorption costing method if
A. Units sold were to exceed units produced.
 Management Services(MS)

Review Assessment | SY 2425 (S1) - SET A

B. Units produced were to exceed units sold.

C. Fixed manufacturing costs were to increase.
D. Variable manufacturing costs were to increase.

11. A company had an income of P50,000 using direct costing for a given
month. Beginning and ending inventories for the month are 13,000 units
and 18,000 units, respectively. Ignoring income tax, if the fixed overhead
application rate was P2 per unit, what was the income using absorption
costing?
A. P40,000 C. P60,000
B. P50,000 D. P70,000

12. GHI Company had P100,000 income using absorption costing. GHI has
no variable manufacturing costs. Beginning inventory was P5,000 and
ending inventory was P12,000. What is the income under variable costing?
A. P88,000 C. P100,000.
B. P93,000 D. P107,000

13. Fleet, Inc. manufactured 700 units of Product A, a new product, during
the year. Product A’s variable and fixed manufacturing costs per unit were
$6.00 and $2.00 respectively. The inventory of Product A on December 31,
consisted of 100 units. There was no inventory of Product A on January 1.
What would be the change in the dollar amount of inventory on December 31
if variable costing were used instead of absorption costing?
A. $0 C. $200 increase.
B. $200 decrease. D. $800 decrease.

14. At the end of Killo Co.’s first year of operations, 1,000 units of
inventory remained on hand. Variable and fixed manufacturing cost per unit
were $90 and $20, respectively. If Killo uses absorption costing rather than
direct (variable) costing, the result would be a higher pretax income of
A. $0. C. $70,000.
B. $20,000. D. $90,000.

15. A company manufactures 50,000 units of a product and sells 40,000

units. Total manufacturing cost per unit is $50 (variable manufacturing cost,
$10; fixed manufacturing cost, $40). Assuming no beginning inventory, the
 Management Services(MS)

Review Assessment | SY 2425 (S1) - SET A

effect on net income if absorption costing is used instead of variable costing

is that:
A. net income is the same C. net income is $400,000 lower
B. net income is $200,000 higher D. net income is $400,000
higher

The following information is available for X Co. for its first year of operations:
Sales in units 5,000
Production in units 8,000

Manufacturing costs:
Direct labor $3 per unit
Direct material 5 per unit
Variable overhead 1 per unit
Fixed overhead $100,000
Net income (absorption method) $30,000
Sales price per unit $40

16. What would X Co. have reported as its income before income taxes if it
had used variable costing?
A. ($30,000) C. $30,000
B. ($7,500) D. $67,500

17. What was the total amount of SG&A expense incurred by X Co.?
A. $6,000 C. $36,000
B. $30,000 D. $62,500

18. Based on variable costing, what would X Co. show as the value of its
ending inventory?
A. $24,000 C. $64,500
B. $27,000 D. $120,000

Louder Industries manufactures a single product. Variable production costs

are $20 and fixed production costs are $150,000. Louder uses a normal
activity of 10,000 units to set its standard costs. Louder began the year with
no inventory, produced 11,000 units, and sold 10,500 units.
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Review Assessment | SY 2425 (S1) - SET A

19. Ending inventory under variable costing would be

A. $10,000 C. $17,500
B. $15,000 D. $20,000

20. Ending inventory under absorption costing would be

A. $10,000 C. $17,500
B. $20,000 B. $15,000

21. The best characteristics of a standard cost system is

A. all variances from standard should be reviewed
B. standard can pinpoint responsibility and help motivation
C. all significant unfavorable variances should be reviewed
D. standard cost involves cost control which is cost reduction

22. Standard costs are used for all of the following except:
A. controlling costs C. income determination
B. forming a basis for price setting D. measuring efficiencies

23. Standard costs are least useful for

A. Determining minimum inventory levels C. Measuring production
efficiency
B. Job order production systems D. Simplifying costing
procedures

24. To which of the following is a standard cost nearly like?

A. Budgeted cost. C. Period cost.
B. Estimated cost. D. Product cost.

25. A difference between standard costs used for cost control and
budgeted costs
A. Can exist because standard costs must be determined after the
budget is completed.
B. Can exist because budgeted costs are historical costs while
standard costs are based on engineering studies.
C. Can exist because establishing budgeted costs involves employee
participation and standard costs do not.
D. Can exist because standard costs represent what costs should be
while budgeted costs represent expected actual costs.
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Review Assessment | SY 2425 (S1) - SET A

26. The primary difference between a fixed (static) budget and a variable
(flexible) budget is that a fixed budget:
A. includes only fixed costs; while variable budget includes only
variable costs
B. cannot be changed after the period begins; while a variable budget
can be changed after the period begins
C. is concerned only with future acquisitions of fixed assets; while a
variable budget is concerned with expenses that vary with sales
D. is a plan for a single level of sales (or other measure of activity);
while a variable budget consists of several plans, one for each of
several levels of sales (or other measure of activity)

27. Standard costing will produce the same results as actual or

conventional costing when standard cost variances are distributed to
A. A balance sheet account C. Cost of goods sold
B. An income or expense account D. Cost of goods sold and
inventories

28. The type of standard that is intended to represent challenging yet

attainable results is:
A. controllable cost standard D. normal standard
B. expected actual standard E. theoretical standard
C. flexible budget standard

29. A company using very tight 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

30. Under a standard cost system, the materials efficiency variance are the
responsibility of
A. A Production and industrial engineering. C. Purchasing and
sales.
B. Purchasing and industrial engineering. D. Sales and
industrial engineering.
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Review Assessment | SY 2425 (S1) - SET A

31. Which of the following people is most likely responsible for an

unfavorable variable overhead efficiency variance?
A. accountant C. purchasing agent
B. production supervisor D. supplier

32. Which of the following standard costing variances would be least

controllable by a production supervisor?
A. Labor efficiency. C. Overhead efficiency.
B. Materials usage. D. Overhead volume.

Valenzuela Plastics Inc. has set a standard cost, P5.25 per unit for Material D
and P12.25 per unit for Material E. In June, Valenzuela bought 17,500 units
of Material D and 8,750 units of Material E. All Material D, except 1,400 units
were bought at the standard unit cost. The 1,400 units had a unit cost of
P6.15. Valenzuela bought 7,875 units of Material E at standard cost and 875
units at a unit cost of P14.
In accordance with the standard two units of Material D and one unit of
Material E should be used to make each unit of Product F. In January, 7,000
units of Product F were made and 15,050 units of Material D were used and
7,175 units of Material E were used.

33. The total materials price variance is

A. P2,791.25 FC. P13,781.25 F
B. P2,791,25 U D. P13,781.25 U

34. The total materials quantity variance is

A. P7,656.25 FC. P13,781.25 F
B. P7,656.25 U D. P13,781.25 U

35. Pane Company's direct labor costs for April are as follows:
Standard direct labor hours 42,000
Actual direct labor hours 41,200
Total direct labor payroll $247,200
Direct labor efficiency variance – favorable $3,840
What is Pane's direct labor rate variance?
A. $44,496 U C. $49,440 F
B. $49,440 U D. $50,400 F
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Review Assessment | SY 2425 (S1) - SET A

36. TAMARAW, Inc. has a maintenance shop where repairs to its motor
vehicles are done. During last month’s labor strike, certain recorded were
lost. The actual input of direct labor hours was 1,000, and the resulting
direct labor budget variance was a favorable P3,400. The standard direct
labor rate was P28.00 per hour, but an unexpected labor shortage
necessitated the hiring of higher-paid workers for some jobs and had resulted
in a rate variance of P800. The actual direct labor rate was
A. P27.20 per hour C. P30.25 per hour
B. P28.80 per hour D. P31.40 per hour

The Murray Company makes and sells a single product. The company
recorded the following activity and cost data for May:
Number of units completed 45,000 units
Standard direct labor-hours allowed per unit of product 1.5 DLHS
Budgeted direct labor-hours (denominator activity) 72,000 DLHS
Actual fixed overhead costs incurred $66,000
Volume variance $4,275 U
The fixed portion of the predetermined overhead rate is $0.95 per direct
labor-hour.

37. The amount of fixed overhead contained in the company's overhead

flexible budget for May was:
A. $64,125. C. $68,400.
B. $67,500. D. $70,275.

38. The amount of fixed manufacturing overhead cost applied to work in

process during May was:
A. $42,750. C. $62,700.
B. $61,725. D. $64,125.

39. The fixed overhead budget variance for May was:

A. $2,400 F. C. $6,000 F.
B. $2,400 U. D. $6,000 U.

40. Web Company uses a standard cost system in which manufacturing

overhead is applied to units of product on the basis of machine hours. During
February, the company used a denominator activity of 80,000 machine hours
 Management Services(MS)

Review Assessment | SY 2425 (S1) - SET A

in computing its predetermined overhead rate. However, only 75,000

standard machine hours were allowed for the month's actual production. If
the fixed overhead volume variance for February was $6,400 unfavorable,
then the total budgeted fixed overhead cost for the month was:
A. $96,000. C. $100,000.
B. $98,600. D. $102,400.