AE22 – CHAPTER TEST (5-8)

Name: _________________________________________________ Score _____________________

Program/Year/Section ____________________________________ Date: _____________________

MULTIPLE CHOICE: Write the letter corresponding to your answer choice on the table provided at the last page.

1. A decrease in margin of safety would be caused by:

a. an increase in total actual sales c. a decrease in variable cost per unit
b. an increase in total fixed cost d. a decrease in selling price per unit
2. Companies with a high degree of operating leverage:
a. have a lower fixed cost
b. have a low contribution margin ratio
c. are less dependent on volume to add profit
d. will have a more significant shift in income as sales volume changes
3. Which of the following is not an assumption underlying CVP Analysis?
a. The behavior of total revenue is linear
b. Unit variable expense remain unchanged as activity varies
c. The number of units produced exceeds the number of units sold
d. Inventory levels at the beginning and end of the period are the same
4. Which of the following assumption is closely relevant to CVP analysis?
a. For multiple products the sales mix is not important.
b. Inventory levels remained unchanged
c. Total fixed costs and variable cost per unit can be identified and remained unchanged within the relevant range.
d. (b) and (c)
5. If a company raises its target peso profit, then its/it:
a. requires total contribution margin to increase c. fixed costs to increase
b. break-even point rises d. variable costs to increase
6. An assumption in CVP Analysis is that a change in cost is caused by a change in
a. unit direct material cost c. sales commission per unit
b. the number of units d. efficiency due to learning curve effect
7. Advocates of CVP Analysis argue that:
a. Fixed Costs are irrelevant for decision making
b. Fixed Costs are mandatory for CVP analysis
c. Differentiation between the pattern of variable and fixed costs is critical
d. Fixed cost is necessary to calculate inventory valuation
8. If fixed costs attendant to the product increase while selling price and variable costs remain constant, what will happen to
Break-even point (BEP) and Contribution margin (CM)?
a b c d
Contribution Margin Increase Decrease Unchanged Unchanged
Break Even Point Decrease Increase Increase Unchanged
9. Introducing income taxed into CVP analysis
a. raises the break-even point c. decreases contribution margin
b. lowers the break-even point d. increases unit sales need to earn a particular profit
10. Which of the following is true about sales mix?
a. Profits may decline with an increase in total peso sales if the sales mix shifts to sell more of the high contribution margin
product.
b. Profits may decline with an increase in total peso sale if the sales mix shifts to sell more the lower contribution margin
product.
c. Profits will remain constant with an increase in total peso sales if the total sales in units remain constant.
d. Profits will remain constant with a decrease in total peso sales if the total sales in units remain constant
11. Degree of operating leverage is calculated as
a. Net income divided by contribution margin c. Net income divided by break-even sales.
b. Break-even sales divided by net income. d. Contribution margin divided by net income
12. Rabbit Company produces and sells three products. Rabbit is having difficulty making all of the three products because of its
limited machine hours that it can use to produce all the products. Determine the order in which the product should be made
to produce the most profit based on the below information:
Alpha Bravo Charlie
Selling price per unit ₱1,000 ₱800 ₱2,500
Variable Cost per unit ₱600 ₱250 ₱1,000
Machine hours per unit 1 hour 0.50 hour 1.50 hours
a. Alpha, Bravo, Charlie c. Bravo, Charlie, Alpha
b. Bravo, Alpha, Charlie d. Charlie, Alpha, Bravo
13. Based on the following data, calculate the degree of operating leverage of Minions Company:
Sales ₱850,000
Variable Costs 325,000
Contribution Margin ₱525,000
Fixed cost 300,000
Net Income ₱225,000
a. 2.33 c. 1.08
b. 1.61 d. 0.57
Use the following data for questions 14 to 19:
Basic Illustration Corp. produces and sells a single product. The selling price is P25 and the variable costs is P15 per unit. The
corporation's fixed costs is P100,000 per month. Average monthly sales is 11,000 units.
14. The corporation's contribution margin per unit and as a percent of sales (CMR) is
a. P10 per unit; 40% c. 10 units; 40%
b. P40 per unit; 160% d. P10 per unit; 60%
15. The corporation's break-even point
a. P10,000 c. 10,000 units or P250,000
b. 250,000 units d. 250,000 units or P10,000
16. If the corporation desires to earn profit of P20,000 before tax, it must generate sales of
a. P12,000 c. 10,000 units or P250,000
b. 300,000 units d. 12,000 units or P300,000
17. If the corporation pays corporate income tax at the rate of 30%, and it desires to earn after-tax profit of P21,000, it must generate
sales of
a. P325,000 or 13,000 units c. 12,040 units or P301,000
b. P13,000 or 325,000 units d. 16,375 units or P409,375
18. How much sales (in pesos) must be generated to earn profit that is 8% of such sales?
a. P270,000 c. P208,333.33
b. P312,500 d. P230,000
19. With an average monthly sale of 11,000 units, the corporation's margin of safety is
a. 1,000 units or P25,000 c. 11,000 units or P275,000
b. 10,000 units or P250,000 d. P10,000
20. Bell Inc. sells three products, A, B, and C. The company sells three (3) units of C for each unit of A and two (2) units of B for
each unit of C. Total fixed costs amount to P760,000. Product A's contribution margin per unit is P2, Product B's is 150% of
A's, and Product C's is twice as much as B's. How many units of each product must be sold to break-even?
Product A Product B Product C
a. 2,000 12,000 6,000
b. 20,000 120,000 60,000
c. 29,231 58,462 87,692
d. 69,091 414,546 207,273

Use the following data for questions 21 to 22

Following information pertains to X Company's two products:
Digicam Videocam
Break-even point – units 360 240
Selling Price P4,500 P14,250
Variable Costs P2,250 P 5,000
21. What is the weighted-average contribution margin?
a. P11,500 c. P19.17
b. P5,050 d. P25,250
22. How much is total fixed costs?
a. P3,030,000 c. P5,040,000
b. P2,010,000 d. P5,050,000
23. Which of the following statements is not correct? All other things remaining the same,
a. equal percentage increases in both the selling price and variable cost per unit will cause the break-even point in sales pesos
to remain unchanged.
b. equal percentage increases in both the selling price and variable cost per unit will cause the contribution margin ratio to
remain unchanged.
c. equal peso increases in both the selling price and variable cost per unit will cause the break-even point in units to remain
unchanged.
d. equal peso increases in both the selling price and variable cost per unit will cause the break-even point in pesos to remain
unchanged.
24. A company allocates its variable factory overhead based on direct labor hours. During the past 3 months, the actual direct labor
hours and the total factory overhead allocated were as follows:
January February March
Direct labor hours 1,000 3,000 5,000
Total factory overhead allocated P80,000 P140,000 P200,000
Based upon this information, monthly fixed factory overhead was
a. P50,000. c. P33,333.
b. P46,667. d. P30,000.
25. Which of the following statement is not an objective of Cost Accounting:
a. to ascertain cost c. cost control and reduction
b. to determine the selling price d. assisting shareholder in decision making
26. A manufacturing company reports cost of goods manufactured as
a. current asset on the balance sheet
b. an administrative expense on the income statement
c. a component in the calculation of cost of goods sold
d. a component of raw materials inventory on the balance sheet
27. For a manufacturing company, the cost of goods available for sale during a given accounting period is:
a. The beginning inventory of finished goods c. The sum of the above
b. The cost of goods manufactured during the period d. None of the above
28. Which of the following would not be classified as manufacturing overhead?
a. Indirect labor c. Insurance on factory building
b. Direct Materials d. Indirect materials
29. Direct cost incurred can be identified with ________.
a. each department. c. each month.
b. each unit of output. d. each executive
30. Operating costing is suitable for ___________.
a. job order business. c. sugar industries.
b. contractors. d. service industries.
31. Costing refers to the techniques and processes of __________
a. ascertainment of costs. c. apportion of costs.
b. allocation of costs. d. distribution of costs
32. Wages paid to a labour who was engaged in production activities can be termed as.
a. direct cost. c. sunk cost.
b. indirect cost. d. imputed cost
33. Direct expenses are also called ________ .
a. major expenses. c. overhead expenses.
b. chargeable expenses. d. sundry expenses
34. Cost of sales plus gross profit is __________.
a. selling price. c. value of goods produced.
b. value of finished product. d. value of stocks.
35. Which of the following statements is False?
a. Service organizations do not have input materials.
b. Most service organizations maintain a work in process inventory account for internal use.
c. The flow of costs in service organization is similar to the flow in manufacturing.
d. In a service business, output costs include the labor and overhead that are part of the service provided.
36. Which of the following is an expense account?
a. factory payroll c. work in process
b. factory overhead d. cost of goods sold
37. When direct materials that were previously issued for a particular job are returned to the storekeeper, the
journal entry to record the return is:
a. debit materials inventory and credit factory overhead
b. debit materials inventory and credit work in process inventory
c. debit purchase returns and credit work in process inventory
d. debit work in process inventory and credit materials inventory
38. When materials are issued in the production, the entry to record material usage is:
a. a debit to material inventory and a credit to accounts payable
b. a debit to materials inventory, a debit to factory overhead and a credit to accounts payable
c. a debit to work in process inventory, a debit to factory overhead and a credit to accounts payable
d. a debit to work in process inventory, a debit to factory overhead and a credit to materials inventory
39. Which of the following entry is prepared to record application of factory overhead to jobs?
a. debit factory overhead control for actual overhead, credit work in process inventory for applied overhead
b. debit factory overhead control for applied overhead, credit work in process inventory for actual overhead
c. debit work in process inventory for applied overhead, credit factory overhead control for actual overhead
d. debit work in process inventory for applied overhead, credit factory overhead control for applied overhead
40. Underapplied overhead represents:
a. the amount which the estimated overhead exceeds actual overhead
b. the amount which the actual overhead exceeds applied overhead
c. the amount which the applied overhead exceeds actual overhead
d. the amount which the estimated overhead exceeds applied overhead
41. Overapplied factory overhead represents:
a. an unfavorable variance
b. the amount in which the applied overhead exceeds actual overhead
c. the amount which the actual overhead exceeds applied overhead
d. the amount which the actual overhead exceeds the estimated overhead
42. Which of the following statements is correct?
a. Direct and indirect materials are charged to work in process account.
b. Direct materials and direct labor are debited to work in process account.
a. Direct materials and direct labor are credited to work in process account.
b. Direct materials and direct labor are credited to factory overhead control.
43. Which of the accounts below represent assets?
a. cost of goods sold c. factory overhead
b. work in process inventory d. expired insurance
44. The actual factory overhead is recorded as:
a. Debit: work in process inventory for actual overhead Credit: factory overhead control for actual overhead
b. Debit: work in process inventory for applied overhead Credit: factory overhead control for actual overhead
c. Debit: factory overhead control for actual overhead
d. Credit: work in process inventory for applied overhead
45. In a job order cost system, the use of indirect materials previously purchased usually is recorded as a decrease in
a. raw materials control c. factory overhead control
b. work in process control d. factory overhead applied
46. Which of the following is not a source document used in job order costing systems?
a. Cost of production report c. Job cost sheet
b. Employee time sheet d. Material requisition form
47. The correct journal entry to dispose off an over-applied manufacturing overhead balance to cost of goods sold account is:
a. Overapplied Manufacturing overhead Dr. & Cost of goods sold Cr.
b. Cost of goods sold Dr. & Overapplied Manufacturing overhead Cr.
c. Overapplied Manufacturing overhead Dr. & Work in process Cr.
 d. Cost of goods sold Dr. & Work in process Cr.
48. Jordan Company uses periodic inventory system. The following information was provided for the year 2015:
Materials purchased during the year P42,000
Materials available for use P55,000
Materials issued to production P30,000
How much did closing materials inventory exceed the opening materials inventory?
a. P12,000 c. P25,000
b. P13,000 d. P30,000
49. Paula Company had inventories at the beginning and end of 2023 as follows:
1/1/2023 12/31/2023
Raw Materials P 55,000 P 65,000
Work in Process P 96,000 P 80,000
Finished Goods P 50,000 P 85,000
During 2023 the following costs were incurred:
• Raw materials purchased 400,000
• Direct-labor payroll 220,000
• Factory overhead 330,000
Cost of goods completed
a. P921,000 c. P966,000
b. P956,000 d. P979,000
50. Rizza Company uses a predetermined factory overhead application rate based on direct labor cost. For the year ended December
31, 2023, Rizza's budgeted factory overhead was P600,000, based on a budgeted volume of 50,000 direct labor hours, at a
standard direct labor rate of P6.00 per hour. Actual factory overhead amounted to P620,000, with actual direct labor cost of
P325,000. For 2023, overapplied factory overhead was
a. P20,000 c. P30,000
b. P24,000 d. P50,000
51. Armie Corporation manufactures plastic coated metal clips. The following were among Armie's 2023 manufacturing costs
Wages Materials used
Machine operators P200,000 Metal wire P500,000
Maintenance workers 30,000 Lubricant for oiling machinery 10,000
Factory foreman 90,000 Plastic coating 380,000
Armie's 2023 direct labor amounted to:
a. P200,000 c. P290,000
b. P230,000 d. P320,000
53. Armie's 2023 direct materials amounted to
a. P890,000 c. P510,000
b. P880,000 d. P500,000
54. Wilma Company has underapplied overhead of P45,000 for the year. Before disposition of the underapplied overhead, selected
year-end balances from Wilma's accounting records were:
Sales P1,200,000
Cost of goods sold 720,000
Direct materials inventory 56,000
Work-in-process inventory 54,000
Finished goods inventory 90,000
Under Wilma's cost accounting system, over- or under-applied overhead is allocated to appropriate inventories and CGS based
on year-end balances (significant difference). In its year-end income statement, Wilma should report CGS of
a. P682,500 c. P757,500
b. P684,000 d. P765,000
55. Jane Company uses job order costing system and applies manufacturing overhead to work in process using a predetermined
annual overhead rate. During May 2022, Jane's transactions included the
Direct materials issued to production P50,000
Indirect materials issued to production 4,000
Manufacturing overhead incurred 75,000
Manufacturing overhead applied 80,000
Direct labor costs 60,000
Jane had neither beginning nor ending work in process inventory. What was the cost of jobs completed in May 2022?
a. P190,000 c. P186,000
b. P194,000 d. P189,000
56. Grace Company used a predetermined rate during 2022 of P2.00 per direct labor hour, based on an estimate of 20,000 direct
labor hours to be worked during the year. Actual costs and activity during 2022 were:
Actual manufacturing overhead cost incurred P38,000
Actual direct labor hours worked 18,000
The under-or overapplied overhead for 2022 would be:
a. P1,000 underapplied c. P3,000 underapplied
b. P2,000 underapplied d. P2,000 overapplied
57. Alaska Company provided the following data was available for the year ended December 31, 2022:
Raw materials purchases P 80,000
Total manufacturing costs 220,000
Decrease in raw materials inventory 4,000
Decrease in work in process inventory 20,000
Increase in finished goods inventory 45,000
Sales 330,000
Gross margin ratio 40%
Factory overhead is applied at 60% of direct labor. How much is the factory overhead cost incurred?
 a. P51,000 c. P85,000
b. P54,000 d. P136,000
Use the following information for the next three (3) questions:
Keri Pa Ba Corporation is a local manufacturer that uses a job order costing. Manufacturing overhead is applied using a
predetermined rate based on direct labor cost. The cost ledger shows the following information for the month of August:
Work in Process Inventory
Balance P650,000 P458,000 Goods Manufactured
Materials used 180,000
Direct Labor 200,000
Applied FOH 180,000
Keri Pa Ba Corp. had three outstanding jobs in ending work in process that are expected to be delivered in the following
month:
Job #108 with direct materials of P65,000 and direct labor of P80,000
Job #109 with direct materials of P75,000 and direct labor of P90,000
Job #110 with applied overhead of P99,000
58. The total cost of Job #108 was:
a. P217,000 c. P190,000
b. P180,000 d. P293,000
59. Refer to the data for KPB Corporation. The total cost of Job #109 was
a. P172,250 c. P293,000
b. P246,000 d. P201,250
60. Refer to the data for KPB Corporation. The total cost of Job #110 was:
a. P171,000 c. P389,000
b. P272,250 d. P289,000

Use the following information for the next four (4) questions:
The following data were obtained for the records of Kapit Lang Company for the month ended July 31, 2022:
Sales P3,000
Cost of jobs completed and sold 2,400
Factory overhead rate multiplied by actual direct labor hours incurred 900
Purchase of raw materials 1,500
Sales salaries and other expenses 270
Other factory overhead costs incurred 300
Cost of direct materials used 1,050
Cost of supplies used 180
Direct labor cost incurred 450
Cost of indirect labor incurred 240
Net factory payroll after withholding 630
61. Refer to the data for KL Company. If a control account is used for factory payroll, the entry to record the factory payroll is:
a. debit factory overhead P690 / credit factory payroll P690.
b. debit work in process inventory P450 / debit factory overhead P240 / credit salaries payableP630/credit withholding
accounts P60.
c. debit factory payroll P690 / credit salaries payable P630/credit withholding accounts P60.
d. debit factor payroll P690 / credit work in process inventory P450 / credit factory overhead P240.
62. Refer to the data for KL Company. The entry to record the distribution of payroll costs is:
a. debit work in process inventory P690/credit factory payroll P690.0
b. debit factory payroll P690 / credit salaries payable P630 / credit withholding accounts P60.
c. debit factory payroll P690 / credit work in process inventory P450 / credit factory overhead P240.
d. debit work in process inventory P450 / debit factory overhead P240 / credit factory payroll P690.
63. Refer to the data for KL Company. The entry to record applied factory overhead is:
a. debit work in process inventory P900/ credit factory overhead P900.
b. debit work in process inventory P720 / credit factory overhead P720.
c. debit factory overhead P720 / credit work in process inventory P720.
d. debit factory overhead P900 / credit materials control P180 / credit factory payroll P240/credit accounts payable
P300/credit overhead variances P180.
64. Refer to the data for KL Company. The entry to record cost of goods sold is:
a. debit cost of goods sold P2,220/debit net income P180/credit finished goods P2,400.
b. debit cost of goods sold P2,400/debit net income P600/credit sales P3,000.
c. debit cost of goods sold P2,400 / credit finished goods P2,400.
d. debit cost of goods sold P2,220/credit finished goods P2,220.
65. Marvin Company, a manufacturer of customized printing equipment, had ending inventory of P20,000 and P50,000 in 2014
and 2013, respectively. Manufacturing overhead is applied at a rate of 150% of direct labor. During 2014, Marvin reported
direct labor of P50,000. If total manufacturing costs was P235,000, how much is the total purchases during 2014?
a. P40,000 c. P70,000
b. P55,000 d. P80,000

66. The following data are obtained from Gianne Manufacturing Company:
Cost of goods manufactured is P187,500
Inventory variations are as follows: raw materials ending inventory is one-third based on raw materials beginning: No initial
inventory of work-in-process, but at end of period P12,500 was on hand; finished goods inventory was four times as large at
end of period as at the start.
Net income after taxes amounted to P26,000, income tax rate is 35%
 Purchase of raw materials amounted to net income before taxes.
Breakdown of costs incurred in manufacturing cost was as follows:
Raw materials consumed 50%
Direct labor 30%
Overhead 20%
Compute the amount raw materials beginning inventory:
a. P38,571 c. P90,000
b. P60,000 d. P40,000
67. Sebastian Products has no work-in-process or finished goods inventories at the close of business on December 31, 2019. The
balances of Sebastian’s accounts as of December 31, 2019 are as follows:
Cost of goods sold P2,040,000
General selling and administrative expenses 900,000
Sales 3,600,000
Factory overhead control 700,000
Factory overhead applied 648,000
Sebastian Products’ income before taxes for 2019 is:
a. P660,000 c. P712,000
b. P608,000 d. P1,508,000

Use the following information for questions 68 to 70: (write your answer on the answer sheet provided)
Meyers Company had the following inventory balances at the beginning and end of November.
November 1 November 30
Raw Materials……………………………. P17,000 P20,000
Finished Goods…………………………… P50,000 P44,000
Work in Process…………………………. P9,000 P11,000
During November, P39,000 in raw materials (all direct materials) were drawn from inventory and used in production. The
company’s predetermined overhead rate was P8 per direct labor-hour, and it paid its direct labor workers P10 per hour. A total
of 300 hours of direct labor time had been expended on the jobs in the beginning Work in Process inventory account. The
ending Work in Process inventory account contained P4,700 of direct materials cost. The Company incurred a P28,000 of
actual manufacturing overhead cost during the month and applied P26,400 in manufacturing overhead cost.
The raw materials purchased during November totaled P42,000
3,600
68. The direct materials cost in the November 1 Work in Process inventory account totaled :________________
3,300
69. The actual direct labor-hours worked during November totaled: ______________
3,500
70. The amount of direct labor cost in the November 30 Work in Process inventory was: ______________

ANSWER SHEET
1. 16. 31. 46. 61. .

2. 17. 32. 47. 62.

3. 18. 33. 48. 63.
4. 19. 34. 49. 64.
5. 20. 35. 50. 65.
6. 21. 36. 51. 66.
7. 22. 37. 52. 67.
8. 23. 38. 53. 68.
9. 24. 39. 54. 69.
10. 25. 40. 55. 70.
11. 26. 41. 56.
12. 27. 42. 57.
13. 28. 43. 58.
14. 29. 44. 59.
15. 30. 45. 60.