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MULTIPLE CHOICE: SHADE THE BEST ANSWER ON THE 10. A cost that has already been incurred and cannot be recovered or
PROVIDED ANSWER SHEET. ERASURES ARE STRICTLY changed by future decisions is:
PROHIBITED. a. A sunk cost
1. Which global organization offers widely recognized certifications b. An opportunity cost
specifically tailored for management accountants? c. A relevant cost
a. Philippine Association of Certified Tax Technicians (PACTT) d. A mixed cost
b. Institute of Management Accoutants (IMA) 11. Which statement correctly distinguishes between discretionary costs
c. International Accounting Standards Board (IASB) and committed costs?
d. Institute of Internal Auditors (IAA) a. Discretionary costs are costs that can be adjusted or
2. Which management function requires checking results against goals? eliminated based on managerial decisions, while committed costs are
a. Planning b. Organizing c. Directing d. Controlling fixed and cannot be changed regardless of managerial decisions.
3. Why is management accounting not governed by GAAP? b. Discretionary costs are incurred regardless of managerial
a. It is only concerned with historical data. decisions and are essential to the company's core operations, while
b. It focuses on internal decision-making and future estimate committed costs are variable and can be adjusted based on operational
c. It is primarily used by external stakeholders needs.
d. It only records quantitative aspects of the business. c. Discretionary costs are typically related to long-term
4. What is the primary focus of management accounting? investments and cannot be altered, while committed costs are short-term
a. Communicating information to external stakeholders expenses that can be modified.
b. Identifying and analyzing information for achieving d. Discretionary costs are costs that are incurred for specific
organizational goals projects or activities at the discretion of management, while committed
c. Reporting financial data to government agencies costs are necessary, long-term expenses that cannot be easily adjusted.
d. Managing the organization's payroll system 12 Which of the following employees would not be classified as indirect
5. Which of the following statements is false? labor?
a. Managerial accounting sometimes relies on past information. a. Custodian.
b. Financial accounting must conform to GAAP. b. Salesperson.
c. There is no overlap between financial and managerial c. Assembler of wooden furniture.
accounting. d. Plant security guard.
d. Managerial accounting does not need to conform to GAAP. e. Choices "B" and "C."
6. The chief management accountant called "controller" traditionally 13 A company is considering increasing automation to reduce its
performs these functions, except reliance on labor. The board is concerned about the impact on the cost
a. The establishment and implementation of the financial planning structure. Which of the following best describes the likely effects of
process automation on the company’s fixed and variable costs, and what should
b. Financial and management reporting and interpretation the company consider when making this decision?
c. Protection of company's resources and economic conditions a. Automation will increase both fixed and variable costs. The
d. Preparation of proposals for product promotions company should proceed only if it can significantly increase prices.
7. A management accountant discovers a conflict of interest that could b. Automation will increase fixed costs and decrease variable
potentially affect their decision-making process. According to the ethical costs. The company should proceed if it expects stable or growing
principles, which of the following actions would best demonstrate their demand and can manage the higher break-even point.
responsibility to uphold integrity and credibility? c. Automation will decrease fixed costs but increase variable
a. Disclose the conflict of interest to all relevant parties and take costs. The company should proceed if it expects fluctuating demand.
steps to manage or resolve the conflict, while ensuring that the potential d. Automation will have no significant effect on fixed costs but will
impact on their decisions is communicated transparently. decrease variable costs. The company should proceed if it wants to
b. Minimize the impact of the conflict by only disclosing it to their reduce short-term costs.
immediate supervisor and not informing other affected stakeholders. 14. A company is considering discontinuing one of its product lines due
c. Proceed with making decisions as planned but prepare a to declining sales. The product line incurs both avoidable and
document detailing the conflict of interest for future reference, without unavoidable costs. Which of the following approaches should the
immediate disclosure. company take to evaluate whether discontinuing the product line is the
d. Ignore the conflict and continue with their current decisions, as right decision?
long as they believe it won't impact the outcome. a. Evaluate the total contribution margin of the product line
8. X was tasked to design a report format that a manager might use if against only the avoidable costs, since unavoidable costs will remain
they were using management accounting principles to decide on an regardless of the decision.
investment in new machinery. Which of the following elements would X b. Consider both avoidable and unavoidable costs, but give more
be most concerned to include in the report? weight to the unavoidable costs, as they will still impact the company
a. Historical financial performance data after discontinuation.
b. Detailed estimates of future production capacity and costs c. Focus only on the avoidable costs, since they will be
c. Summary of the company’s financial position for external eliminated if the product line is discontinued, and ignore the unavoidable
stakeholders costs.
d. A detailed list of current assets and liabilities d. Ignore the distinction between avoidable and unavoidable
9. A decision-making concept, described as "the contribution to income costs and evaluate the decision based solely on total costs and
that is forgone by not using a limited resource for its best alternative use" revenues.
is called 15. Which method is known for separating a semi-variable cost into its
a. Prime Cost fixed and variable components with the highest degree of precision?
b. Incremental Cost a. Simplex method c. Scattergraph method
c. Potential Cost b. High-low method d. Least squares method
d. Opportunity Cost
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16. Which of the following is true regarding the regression equation Y = d. Variable, semivariable, fixed, and variable.
a + bX?
a. “b” represents fixed cost per unit 21. "Evaluate the following statements Statement I: The lower is the
b. “X” represents the dependent variable production within the relevant range, the lower is the total variable cost
c. “b” represents the amount of Y when X = 0 Statement II: In the high-low method, ‘b’ equals the change in cost (Y)
d. “a” represents the amount of Y when X = 0 divided by the change in activity (X)
Statement III: The major objective of preparing a scatter diagram is to
17 A company prepares a budget each month for manufacturing costs. find the high and low points to use for the high-low method of estimating
Formulas have been developed for all costs within a relevant range of costs"
5,000 to 15,000 units per month. The budget for electricity (a A. Only one (1) of the statements is FALSE
semivariable cost) is P19,800 at 9,000 units per month, and P21,000 at B. Only two (2) of the statements are FALSE
10,000 units per month. How much should be budgeted for electricity for C. All of the statements are FALSE
the coming month if 12,000 units are to be produced? D. None of the statements are FALSE
a. P26,400 b. P25,200 c. P23,400 d. P22,200
22. XYZ Manufacturing wants to reduce its total production costs by
18. "Below is an examination of last year's financial statements of X Co., understanding and managing its cost behaviors more effectively. Given
which manufactures and cells trivets. Labor hours and production cost that the company has identified certain costs as fixed, variable, and
for the last 4 months of the years, which are representative for the year, mixed, which of the following steps should XYZ Manufacturing take to
were as follows: create a new cost analysis plan using the High-Low Method?
Month Labor Hour Total Production Costs A. List all costs and categorize them as fixed, variable, or mixed based
September 2,500 P 20,000 on intuition.
October 3,500 P 25,000 Assume all costs increase proportionally with production levels.
November 4,500 P 30,000 B. Select the periods with the highest and lowest production levels.
December 3,500 P 25,000 Calculate the difference in total costs for these periods to determine the
Based upon the information given using the least squares method of variable cost per unit.
computation with letters listed below, select the best answer to the Use the variable cost per unit to establish fixed costs by subtracting from
question IF: a = Fixed variable cost per month b = Variable production total costs.
cost per labor hour n = Number of months C. Gather data on production levels and total costs for a single period.
Using the least squares method of computation the fixed monthly Estimate fixed and variable costs based on past averages.
production cost of trivets is approximately. Apply a scatter graph to visually confirm estimates.
a. P7,500 c. P100,000 D. Group all costs together and treat them as variable to simplify
b. b. P25,000 d. P20,000 analysis.
Calculate the average total cost per unit and apply this across all
19 .ABC Corporation wants to analyze its costs to better understand their production levels.
behavior. They have identified that their costs include rent for their
factory, wages for hourly employees, and utility costs that vary with 23. What does the "break-even point" in Cost-Volume-Profit (CVP)
production levels. Using the High-Low Method, they have calculated that analysis represent?
the fixed portion of the utility cost is PHP 5,000 and the variable portion a. The point where fixed costs equal variable costs
is PHP 15 per unit produced. b. The level of sales where total revenues equal total costs
Which of the following statements best describes the cost components
for ABC Corporation? c. The maximum profit that can be achieved
A. Rent is a variable cost. d. The point where variable costs are minimized
Wages are a fixed cost. 24. One of the major assumptions limiting to reliability of break-even
Utilities are a fixed cost. analysis is that
B. Rent is a fixed cost. a. The cost of productivity will continually increase.
Wages are a variable cost. b. The cost of production factors varies with changes in
Utilities are a mixed cost with both fixed and variable components. technology.
C. Rent is a semi-variable cost. c. Total variable cost will remain unchanged over the relevant
Wages are a step cost. range.
Utilities are a fixed cost. d. Total fixed cost will remain unchanged over the relevant range.
D. Rent is a fixed cost. 25. For the period just ended, JFK Company generated the following
Wages are a step cost. operating results in percentages: Revenues 100%
Utilities are a variable cost. Cost of sales:
Variable 50%
20. "An entity provides the following summary of its total budgeted Fixed 10%
production costs at three production levels: Total 60%
Volume in units 1,000 1,500 2,000 Gross profit 40%
Cost A P1,420 P2,310 P2,840 Operating expenses:
Cost B P1,550 P2,200 P2,900 Variable 20%
Cost C P1,000 P1,000 P1,000 Fixed 15%
Cost D P1,630 P2,445 P3,260 Total 35%
The cost behavior of each of the Costs A through D, respectively, is" Net operating income 5% Total sales amounted to P 3 million. How
a. Semivariable, variable, fixed, and variable. much was the break-even sales?
b. Variable, semivariable, fixed, and semivariable. a. P1,875,000 c. P2,850,000
c. Variable, fixed, fixed, and variable. b. P2,500,000 d. P3,750,000
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c. The break-even point will remain the same because the total
26. JFK, Inc. proposes to increase its sales volume and realize bigger number of units sold is unchanged.
profits. Previous year, the company sold 22,000 units of Product A for d. The break-even point will be zero because the higher
P11 per unit. The profits were modest because of the small difference contribution margin will fully cover fixed cos
between the selling price and the variable cost per unit and the relatively
low sales volume. The fixed cost is equal to P20,000 per annum. The 31. A company is deciding between two machines for production:
cost per unit is P10. The company feels that by reducing the selling price Machine XX and Machine YY. Machine XX has fixed costs of P225,000
to P10.80, the sales can be increased to 27,000 units a year and thereby and a variable cost of P20 per unit, while Machine YY has fixed costs of
increase, too, its profits.What profit before tax can be generated with the P300,000 and a variable cost of P14 per unit. The company expects
reduced selling price and the increase of sales volume? production volume to vary significantly, and they need to analyze at what
a. P2,000 b. P2,950 c. P22,950 d. P1,600 production level both machines will incur the same total cost. Which of
the following best describes the indifference point between the two
27. X Motors employs 40 sales personnel to market its line of machines?
automobiles. The average car sells for P 1,200,000 and a 6% A. The indifference point occurs when the production level
commission is paid to the salesperson. X Motors is considering a change reaches 11,250 units, favoring Machine XX due to its lower variable
to a scheme that would pay each salesperson a salary of P 24,000 per costs.
month plus a 2% commission of the sales made by that salesperson. B. The indifference point will be at 21,429 units due to the higher
What is the amount of total car sales at which Twice Motors would be fixed costs of Machine YY and lower variable costs of Machine XX.
indifferent as to which plan to select? C. The indifference point cannot be calculated because the
a. P 12,000,000 variable costs of Machine XX and Machine YY differ.
b. P 22,500,000 D. The indifference point occurs at 12,500 units, where both
c. P 24,000,000 machines will have the same total cost, and the company will be
d. P 30,000,000 indifferent between them.
28. MNO Enterprises produces two products, Product A and Product B,
with the following information: 32. JFK, Inc. is planning to produce two products, A and B. JFK is
planning to sell 100,000 units of A at P4 a unit and 200,000 units of B at
Product A: Selling Price = PHP 500, Variable Cost = PHP 300, Sales Mix P3 a unit. Variable cost is 70% of sales for A and 80% of sales for B. In
= 60% order to realize a total profit of P 160,000, what must the total fixed cost
Product B: Selling Price = PHP 700, Variable Cost = PHP 400, Sales Mix be?
= 40% a. P 80,000 c. P 600,000
Total Fixed Costs: PHP 150,000 b. P 90,000 d. P 240,000
To find the breakeven point for the combined sales of Product A and
Product B, what is the total number of units MNO Enterprises must sell? 33. Evaluate the following statements: Statement I: A target net income
A. 500 units is calculated by taking actual sales minus the margin of safety.
B. 625 units Statement II: Target net income is the income objective for an individual
C. 750 units product line.
D. 1,000 units a. Only Statement I is correct
b. Only Statement II is correct.
29. "A company has reached its break-even point and is considering c. Both of the statements are correct
increasing production and sales. Given the following data: Sales price d. None of the statements are correct
per unit: P50
Variable cost per unit: P30 34. A company is reviewing its financial planning and needs to assess
Fixed costs: P100,000 the importance of Cost-Volume-Profit
Analyze how operating income would be affected if the company sold (CVP) analysis in different decision-making processes. The management
1,000 additional units beyond the break-even point. Which of the team is debating which of the following business areas would benefit the
following best explains the impact on operating income?" least from CVP analysis. Given the following options, evaluate the impact
a. Operating income will increase by P20,000 due to the of CVP analysis and determine which area would be least affected by it:
contribution margin per unit for each additional unit sold. • Determining the optimal product mix to maximize profit.
b. Operating income will increase by P50,000 due to the total • Setting appropriate selling prices for products to cover costs and
sales revenue generated. achieve profit targets.
c. Operating income will decrease by P10,000 because fixed • Managing production facilities to ensure efficient use of resources.
costs will increase with higher production. • Calculating non-cash expenses like depreciation for financial reporting
d. Operating income will remain the same because fixed costs purposes.
have already been covered at the break-even point. Which of the following represents the least critical use of CVP analysis?
a. CVP analysis is least important in determining the product mix,
30. A company sells two products: Product A and Product B. The as it primarily focuses on cost control.
contribution margin per unit for Product A is P20, and for Product B is b. CVP analysis is least important in setting selling prices
P10. The company currently sells an equal number of each product but because pricing decisions are based more on market competition.
is planning to shift its sales mix to 70% Product A and 30% Product B.
Fixed costs remain at P100,000. c. CVP analysis is least important in calculating depreciation
a. The break-even point will decrease because the overall expense, as this is a non-cash cost that doesn’t directly impact profit
contribution margin per unit will increase. calculations in the short run.
b. The break-even point will increase because fixed costs will rise d. CVP analysis is least important in managing production
due to the shift in sales mix. facilities since it focuses on long-term capacity rather than short-term
cost behavior.
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A.200 units
35. DEF Corporation produces two products, X and Y. The company is B.400 units
considering three different strategies to increase profitability. Each C.500 units
strategy involves a different combination of pricing and cost changes, D.600 units
with the following details:
39. Which method of inventory costing treats direct manufacturing costs
Strategy 1: Increase the selling price of both products by 10% while and manufacturing overhead costs, both variable and fixed, as
keeping variable costs constant. inventoriable costs?
Strategy 2: Reduce the variable cost of Product X by 15% and increase a. Direct costing. c. Variable costing.
the sales mix of Product X from 50% to 70%. b. Variable costing. d. Conversion costing.
Strategy 3: Increase total fixed costs by 20% to expand production
capacity, which is expected to raise sales of Product Y by 50%. 40 Which one of the following statements is true regarding absorption
A. Strategy 1: This will likely increase the contribution margin per unit for costing and variable costing?
both products, thus maximizing profitability without increasing fixed a. Overhead costs are treated in the same manner under both
costs. costing methods.
B. Strategy 2: Reducing variable costs and shifting the sales mix towards b. If finished goods inventory increases, absorption costing
the more profitable product will likely increase the overall contribution results in higher income.
margin but could increase risk due to reliance on Product X. c. Variable manufacturing costs are lower under variable costing.
C.Strategy 3: Increasing fixed costs to boost sales could lead to higher
total profits, but it also raises the breakeven point, which may increase d. Gross margins are the same under both costing method
financial risk.
D.None of the above: All strategies increase risk in some way and do not 41 During the month of June, a corporation sold 1,000 units. The cost
guarantee higher profitability. per unit for June was as follows:
Cost per unit
36. JFK Company has the following data: Direct Materials P5.50
Variable costs are 60% of the unit selling price. Direct Labor 3.00
The contribution margin ratio is 40%. Variable Manufacturing Overhead 1.00
The contribution margin per unit is P500. Fixed Manufacturing Overhead 1.50
The fixed costs are P400,000. Variable administrative cost 0.50
Which of the following does not express the break-even point? Fixed Administrative cost 3.50
a.P400,000 + .60X = X c. P400,000 + .40X = X b.P400,000 ÷ May’s income using absorption costing was P9,500. The income for
P500 = X d. P400,000 ÷ .40 = X June, if variable costing had been used, would have been P9,125. The
number of units produced during June was?
37. GHI Company manufactures two products, Alpha and Beta, with the a. 750 units b. 925 units c. 1,075 units d. 1,250 units
following financial details:
42. Last year a company had sales of 75,000 units and production of
Product Alpha: 100,000 units. Other information for the year is shown below.
Selling Price = PHP 800 Direct manufacturing labor P187,500
Variable Cost = PHP 500 Variable manufacturing overhead 100,000
Current Sales Mix = 70% Direct Materials 150,000
Product Beta: Variable selling expenses 100,000
Selling Price = PHP 600 Fixed administrative expenses 100,000
Variable Cost = PHP 300 Fixed manufacturing overhead 200,000
Current Sales Mix = 30% Assuming no beginning inventory, what is the total value of ending
Total Fixed Costs: PHP 200,000 finished goods inventory under absorption costing?
a. P159,375 b. P184,375 c. P209,375 d. P279,175
The company wants to increase its profitability by creating a new
strategy that adjusts the sales mix and reduces fixed costs by 10%. 43. "Using absorption costing, a company’s income for October was
Which of the following strategies would be the most effective for P250,000. The company began the
achieving a lower breakeven point and a higher overall profit? month with 10,000 units in finished goods inventory that contained
P30,000 of fixed manufacturing overhead costs. During October, the
A. Shift the sales mix so that Product Beta accounts for 60% of sales. company produced 330,000 units and sold 325,000 units. The fixed
Keep the variable costs constant. manufacturing overhead for October totaled P990,000. If the company
B. Reduce the variable cost of Product Alpha by 10%. used variable costing, its income for October would be?
Increase the sales mix of Product Alpha to 80%. a. P265,000 b. P250,000 c. P235,000 d. P234,308
C. Shift the sales mix so that Product Alpha accounts for 50% and
Product Beta for 50%. Reduce total fixed costs by 10% as planned. 44. A company is using absorption costing to prepare its financial
D. Increase both products' selling prices by 5%. Reduce total fixed costs reports. During the year, the company increased its sales volume but
by 10% as planned, and maintain the current sales mix. maintained the same selling price and production costs. However,
despite the increase in sales, profits decreased. Which of the following
38. JKL Company sells a single product with the following details: factors could best explain this outcome?
Selling Price per unit: PHP 200 a. The company increased production more than sales, leading to
Variable Cost per unit: PHP 120 higher inventory levels and deferred fixed overhead costs.
Total Fixed Costs: PHP 40,000
How many units does JKL Company need to sell to break even?
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b. The company sold more units than it produced, resulting in but potentially leading to lower net income in periods of high inventory
more fixed overhead costs being expensed as part of cost of goods sold. levels, which can distort financial reporting
d. Under absorption costing, fixed manufacturing overhead is
c. The company lowered its selling prices while maintaining the included in product costs, which can lead to inflated net income when
same production volume and fixed costs production exceeds sales, making it more difficult to assess true
d. The company's variable costs per unit increased, reducing the profitability for decision-making.
contribution margin
48. Which of the following conditions will ensure that the income reported
45 "A company is calculating its inventory value under the direct under both costing methods will be the same?
(variable) costing method. The following data is provided: a. When there are only fixed costs with no variations in inventory
• Units unsold at the end of the period: 45,000 levels, as the treatment of fixed costs in product and period costs will not
• Direct materials used: P6.00 per unit impact the reported income.
• Direct labor: P3.00 per unit b. When there are no variable costs, as both costing methods will
• Variable overhead: P2.00 per unit treat the costs in the same way, leading to identical income reporting.
• Indirect labor for the month: P33,750 c. When there are no beginning inventories and no ending
• Total fixed costs: P67,500 inventories, since fixed manufacturing overhead costs will not be
Analyze the costs involved and determine which of the following is the included in the product costs or deferred in inventory.
correct inventory value per unit under the direct costing method: d. When there are no beginning inventories and with ending
a. The inclusion of indirect labor in the product cost results in an inventories, because fixed manufacturing overhead costs will be fully
inventory value of P16.90 per unit. expensed in the period, affecting both methods similarly.
b. Excluding both fixed costs and indirect labor, the inventory 49. A company produces 1,000 units of a product in a given period. The
value per unit is P11.00. variable manufacturing cost per unit is PHP 200, and the fixed factory
c. Including a proportion of fixed costs in the product cost results overhead for the period is PHP 300,000. Under absorption costing, fixed
in an inventory value of P17.45 per unit. overhead is allocated based on the number of units produced. If the
d. Allocating both fixed costs and indirect labor into the variable company sells 800 units and 200 remain in ending inventory, what is the
costs results in an inventory value of P19.15 per unit difference in the valuation of ending inventory between absorption and
46. A company is evaluating three different costing methods—Absorption variable costing?
Costing, Variable Costing, and Throughput Costing. Analyze the a. PHP 30,000
following costs and determine which would be classified as inventoriable b. PHP 50,000
under Throughput Costing, and how this classification differs from the c. PHP 60,000
other methods: d. PHP 40,000
• Direct Materials 50. A company produces and sells a single product. The variable cost
• Direct Labor per unit is PHP 150, and the fixed overhead for the period is PHP
• Variable Manufacturing Overhead 120,000. The company produces 1,000 units and sells 900 units. Under
• Fixed Manufacturing Overhead absorption costing, fixed overhead is allocated based on units produced.
a. Only direct materials are inventoriable under throughput If the company reports an operating income of PHP 300,000 under
costing, whereas other methods (absorption and variable) include more absorption costing, what would be the operating income under variable
production costs. costing?
b. Direct materials and direct labor are inventoriable under a. PHP 288,000
throughput costing, similar to variable costing but excluding overhead b. PHP 270,000
costs. c. PHP 290,000
c. All production-related costs (materials, labor, and both variable d. PHP 285,000
and fixed overhead) are inventoriable under throughput costing, which is 51. Activity-based-costing
identical to absorption costing. a. allocates overhead directly to products and services based on
d. Only direct materials and variable manufacturing overhead are activity levels.
inventoriable under throughput costing, while fixed costs are treated b. accumulates overhead in one cost pool, then assigns the
differently. overhead to products and services by means of a cost driver.
c. assigns activity cost pools to products and services, then
47. A company is considering the implications of using absorption allocates overhead back to the activity cost pools
costing versus variable costing for financial reporting and d. allocates overhead to multiple activity cost pools, and it then
decision-making. Evaluate the following statements about period and assigns the activity cost pools to products and services by means of cost
product costs under each costing method and determine which drivers.
statement most accurately reflects the impact on financial reporting and 52. Unit-level cost drivers in traditional cost systems distort product costs
decision-making. because they:
a. Variable costing defers fixed manufacturing overhead in a. assume that all support activities affect all products
inventory, which can result in a higher profit in periods of increased b. recognize specific activities that are required to produce a
production, potentially misleading managers about the true cost behavior product
and operational efficiency. c. do not consistently record costs
b. Absorption costing provides a clearer picture of period costs as d. fail to measure the correct amount of total costs for all products
it excludes fixed manufacturing overhead from the cost of goods sold, 53. A company produces two products, A and B. The company uses
thus offering a more accurate assessment of current period expenses ABC and has identified three cost pools: machine setup, machine hours,
and profitability and inspection. The cost pool rates are as follows:
c. Under variable costing, fixed manufacturing overhead is
treated as a period cost, providing a clearer view of product profitability Machine setup: PHP 10,000 per setup
Machine hours: PHP 200 per hour
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Inspection: PHP 500 per inspection 58. A manufacturing company produces two products, A and B. The
Product A requires 3 setups, 100 machine hours, and 5 inspections, company has identified three major activities that incur overhead costs:
while Product B requires 5 setups, 80 machine hours, and 10
Machine setups: PHP 180,000
inspections. What is the total overhead cost allocated to each product
Quality inspections: PHP 120,000
using ABC? Shipping: PHP 60,000
a. Product A: PHP 52,500, Product B: PHP 71,000 The following activity usage for each product has been identified:
b. Product A: PHP 45,000, Product B: PHP 36,000
c. Product A: PHP 40,000, Product B: PHP 36,000 Activity Product AProduct B
d. Product A: PHP 32,500, Product B: PHP 47,000 Machine setups 30 setups70 setups
54. A company sells to two customers, X and Y. Using traditional costing, Quality inspections 40 inspections 60 inspections
Shipping 50 shipments 50 shipments
overhead is allocated based on total sales. Customer X has total sales of
PHP 500,000, while Customer Y has total sales of PHP 300,000. The Design an ABC system to allocate the total overhead cost to Product A
total overhead is PHP 160,000, and sales-based allocation gives 5/8 of and Product B based on their activity usage. Calculate the total overhead
overhead to Customer X and 3/8 to Customer Y. cost allocated to Product A and choose the correct answer from the
In contrast, an ABC system identifies two activities: options below.
Order processing: PHP 80,000 (Customer X: 100 orders, Customer Y: 50 a) PHP 204,000
orders) b) PHP 198,000
c) PHP 180,000
Delivery: PHP 80,000 (Customer X: 20 deliveries, Customer Y: 30
d) PHP 132,000
deliveries) 59. A company produces two products, A and B. The company has the
What is the total overhead allocated to each customer using ABC? following overhead costs:
a) Customer X: PHP 90,000, Customer Y: PHP 70,000 Total Overhead Costs: PHP 150,000
b) Customer X: PHP 95,000, Customer Y: PHP 65,000 Activity Usage:
c) Customer X: PHP 105,000, Customer Y: PHP 55,000 Product A: 50 machine setups
Product B: 50 machine setups
d) Customer X: PHP 85,000, Customer Y: PHP 75,000
55. A manufacturing company is struggling to accurately allocate The overhead cost is allocated based on the number of setups.
overhead costs to its diverse range of products. The company is Calculate the overhead cost allocated to Product A.
considering implementing an activity-based costing (ABC) system to a) PHP 75,000
improve cost accuracy. The management team is evaluating various b) PHP 60,000
strategies for designing the system to ensure it captures the true cost of c) PHP 80,000
production activities. Which one of the following would the company d) PHP 100,000
60. A company is considering implementing an activity-based costing
consider in designing an activity-based costing system?
(ABC) system and has provided the following statements to assess the
a. Classifying as many costs as indirect costs as possible allows potential benefits and drawbacks. Based on your knowledge of ABC,
for simplified cost allocation but may obscure the true drivers of evaluate each statement and determine which one reflects a common
overhead, leading to less accurate product costing. misconception or misunderstanding about how ABC impacts cost control
b. Creating as many cost pools as possible increases complexity and allocation.
and administrative effort but could result in more detailed and precise a. ABC weakens control over overhead costs, as it requires
cost allocation if aligned with distinct activities. complex cost allocations that can be difficult to manage and monitor
effectively.
c. Identifying the activities involved in the process ensures that
b. Under ABC, companies can trace many overhead costs
overhead costs are tied directly to the actions that consume resources, directly to activities, improving accuracy in allocating costs to products or
leading to a more accurate reflection of product costs. services.
d. Seeking a broader focus rather than detail simplifies cost c. ABC allows some indirect costs to be identified as direct costs,
allocation but may result in less accurate product costing, as key cost providing more detailed and useful information for decision-making.
drivers may be overlooked. d. ABC encourages managers to become more aware of their
responsibility to control the activities that generate costs, improving
56. Each of the following is a limitation of activity-based costing except
overall cost management and accountability.
that 61. Standard costs are LEAST useful for
a. it can be expensive to use a. Measuring production efficiency
b. it is more complex than traditional costing. b. Simplifying costing procedures
c. more cost pools are used c. Estimating future costs
d. some arbitrary allocations continue d. Determining minimum inventory levels
57. A manufacturing company produces two products, Product X and 62. Which of the following factors should not be considered when
deciding whether to investigate a variance?
Product Y. The company has a total overhead cost of PHP 500,000,
a. Magnitude of the variance.
allocated based on direct labor hours in traditional costing. Product X b. Trend of the variances over time.
uses 1,200 labor hours, while Product Y uses 800 labor hours. c. Likelihood that an investigation will eliminate future
Using ABC, the company has identified two cost pools: occurrences of the variance.
● Machine setups: PHP 300,000 (Product X requires 15 setups, d. Whether the variance is favorable or unfavorable.
Product Y requires 25 setups) 63. JFK Co. uses a standard costing system in the manufacture of its
● Quality inspections: PHP 200,000 (Product X has 10 single product. The 35,000 units of direct materials in inventory were
purchased for P105,000, and two units of direct materials are required to
inspections, Product Y has 30 inspections)
produce one unit of final product. In November, the company produced
Evaluate the difference in overhead allocated to Product Y between 12,000 units of product. The standard allowed for materials was
traditional and ABC costing. P60,000, and the unfavorable quantity variance was P2,500. What is the
a) PHP 137,500 standard price per unit of direct materials?
b) PHP 120,000 a. P2.00 b. P2.50 c. P3.00 d. P5.00
c) PHP 105,000 64. JFK Co. performs oil changes and other minor maintenance services
d) PHP 90,000 (e.g., tire pressure checks) for cars. The company advertises that all
services are completed within 15 minutes for each service. On a recent
Saturday, 160 cars were serviced resulting in the following labor
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variances: rate, P19 unfavorable; efficiency, P14 favorable. If JFK Co.’s d) PHP 2,000 Unfavorable
standard labor rate is P7 per hour, determine the actual wage rate per 71. A company sets a standard direct labor rate of PHP 20.00 per hour
hour and the actual hours worked. for a job. In a month, the company planned for 150 hours of labor but
Wage Rate Hours Worked actually used 200 hours at a total labor cost of PHP 4,500. Calculate the
a. P6.55 42.00. direct labor variance.
b. P6.67 42.71. a) PHP 500 Favorable
c. P7.45 42.00 b) PHP 500 Unfavorable
d. P7.50 38.00 c) PHP 1,000 Unfavorable
65. A Company has a standard absorption and flexible budgeting system d) PHP 1,000 Favorable
and uses a two-way analysis for overhead variances. Selected data for 72. The following information is from the accounting records of JFK
the February production activity is as follows: Enterprises.
• Actual factory overhead incurred P 230,000 Static Budget Actual
• Budgeted fixed factory overhead costs P 64,000 Sales volume (units) 82,000 75,000
• Variable factory overhead rate per direct-labor hour P 5.00 Selling price/unit P 15.00 P 15.00
• Standard direct-labor hours 32,000 Variable cost/unit 9.00 9.25
• Actual direct-labor hours 33,000 Fixed cost 280,000 285,000
What is the budget (controllable) variance for February? A staff assistant performed a comparison of budget and actual data, and
a. 1,000 favorable calculated an unfavorable operating income variance of P65,750. The
b. 1,000 unfavorable assistant concluded that performance did not meet expectations because
c. 6,000 favorable there was an unfavorable variance in operating income. Which one of the
d. 6,000 unfavorable following is the best evaluation of this preliminary conclusion?
66. What is the normal year-end treatment of immaterial variances a. Both the conclusion and the variance calculation are correct.
recognized in a standard cost system? b. The conclusion is incorrect, but the variance calculation is
a. Allocated among cost of goods manufactured and ending work in informative.
process inventory c. The conclusion is correct, but the variance calculation could be
b. Reclassified to deferred charges until all related production is sold more informative.
c. Closed to cost of goods sold in the period in which they arose d. "Both the conclusion and the variance calculation are incorrect.
d. Capitalized as cost of ending finished goods inventory 73 Which of the following is a key feature of the Just-In-Time (JIT)
67. Which of the following is least likely to cause an unfavorable production system?
materials quantity (usage) variance? A. Maintaining large inventories to ensure continuous production.
a. Materials that do not meet specifications. B. Producing goods only as they are needed, reducing inventory
b. Machinery that has not been maintained properly. levels.
c. Labor that possesses skills equal to those required by the C. Using a push production strategy to maximize output.
standards. D. Emphasizing long production runs to minimize setup costs.
d. Scheduling of substantial overtime 74 It refers to the ongoing continuous improvement program that
68 The following information is available from the JFK co.: focuses on the reduction of waste in the production process, thereby
• Actual factory overhead P15,000 further lowering costs below the initial targets specified during the design
• Fixed overhead expenses, actual P7,200 phase."
• Fixed overhead expenses, budgeted P7,000 A. JIT production system
• Actual hours 3,500 B. Variable costing
• Standard hours 3,800 C. Kaizen costing
• Variable overhead rate per direct labor hour P 2.50 D. Cost leadership
Assuming that Honey uses a three-way analysis of overhead variance, 75 Which of the following best defines Business Process
what is the spending variance? Re-engineering (BPR)?
a. P750 favorable a. The incremental improvement of existing processes to enhance
b. P750 unfavorable efficiency.
c. P550 favorable b. The complete analysis and radical redesign of workflows to achieve
d. P1,500 unfavorable significant improvements in performance.
69 JFK Co.’s Marketing Department recently accepted a rush order for c. The automation of business processes through the use of
a nonstock item from a valued customer. The Marketing Department filed technology.
the necessary paperwork with the Production Department, which d. The optimization of individual tasks within a department to reduce
complained greatly about the lack of time to do the job the right way. costs.
Nevertheless, the Production Department accepted the manufacturing 76. The benefits of a Just-In-Time (JIT) system for raw materials usually
commitment and filed the required paperwork with the Purchasing include:
Department for the needed raw materials. A purchasing clerk temporarily a. Elimination of non-value-adding operations
misplaced the paperwork. By the time the paperwork was found, it was b. Increase in the number of suppliers, thereby ensuring competitive
too late to order from the company’s regular supplier. A new supplier was bidding
located, and that vendor quoted a very attractive price. The materials c. Maximization of the standard delivery quantity, thereby lessening
arrived and were rushed into production, bypassing the normal the paperwork of each delivery
inspection processes (as directed by the Production Department d. Decrease in the number of deliveries required to maintain
supervisor) to make up for lost time. Unfortunately, the goods were of low production
quality and created considerable difficulty for Fortune’s assembly-line 77. Which of the following scenarios best demonstrates the principle of
personnel. Which of the following best indicates the responsibility for the target costing?
materials usage variance in this situation? a. A company sets a product's selling price based on its production
a. Purchasing costs plus a desired profit margin.
b. Purchasing and Marketing b. A company analyzes its competitors' prices to determine the optimal
c. Marketing and Production price point for its new product.
d. Purchasing, Marketing, and Production c. A company determines the price customers are willing to pay for a
70 A company sets a standard cost of PHP 5.00 per unit for direct product and then designs it to ensure profitability at that price.
materials. During a month, the company produced 1,000 units and used d. A company increases the price of its existing product to maximize
5,500 units of materials at a total cost of PHP 27,500. Calculate the profits in the short term.
direct materials variance. 78 In a product’s life cycle, the first symptom of the decline stage is a
a) PHP 2,500 Favorable decline in the
b) PHP 2,500 Unfavorable a. Firm’s inventory levels.
c) PHP 2,000 Favorable b. Product’s sales
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c. Product’s production cost.
d. Product’s prices.
79 The cost of scrap, rework, and tooling changes in a product quality
cost system is categorized as a(n)
a. Training cost.
b. Internal failure cost
c. Prevention Cost
d. External failure cost
80 A company has the following quality financial data for its most
recent fiscal year. Rework costs P200,000 Warranty repair costs 280,000
Product line inspection 95,000 Design engineering 280,000 Supplier
evaluation 240,000 Labor training 150,000 Product testing 65,000
Breakdown maintenance 65,000 Product scrap 195,000 Cost of returned
goods 190,000 Customer support 35,000 Product liability claims 90,000
The total amount of prevention costs that should be reported in a Cost of
Quality report for the year is
a. P390,000
b. P420,000
c. P670,000
d. P870,000

ANSWER KEY:

1. B 51. D
2. D 52. A
3. B 53. A
4. B 54. D
5. C 55. C
6. D 56. C
7. A 57. A
8. B 58. D
9. D 59. A
10. A 60. A
11. A 61. D
12. E 62. D
13. B 63. B
14. A 64. D
15. D 65. D
16. D 66. C
17. C 67. C
18. A 68. A
19. B 69. D
20. D 70. E
21. A 71. B
22. B 72. C
23. B 73. B
24. D 74. C
25. B 75. B
26. D 76. A
27. C 77. C
28. B 78. B
29. A 79. D
30. A 80. B
31. D
32. A
33. B
34. A
35. D
36. B
37. D
38. C
39. C
40. B
41. D
42. A
43. C
44. B
45. B
46. A
47. D
48. C
49. C
50. A