MASTERS TECHNOLOGICAL INSTITUTE OF MINDANAO Acctg 321 – Management Accounting Part 1 Long Quiz 1. On January 1, 2018, AAA Corporation increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect AAA Corporation’s budgeted breakeven point and budgeted margin of safety? Budgeted Budgeted Breakeven Point Margin of Safety a. Increase Increase b. Increase Decrease c. Decrease Decrease d. Decrease Increase 2. A company’s breakeven point in sales pesos may be affected by equal percentage increases in both selling price and variable cost per unit (assume all other factors are equal within the relevant range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven point in sales pesos to: a. Decrease by less than the percentage increase in selling price. b. Decrease by more than the percentage increase in the selling price. c. Remain the same. d. Increase by more than the percentage increase in selling price. 3. For a profitable company, the amount by which sales can decline before losses occur is known as the: a. Sales volume variance b. Hurdle rate c. Variable sales ratio d. Margin of safety 4. Which of the following is a true statement about sales mix? a. Profits may decline with an increase in total peso of 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 of sales if the sales mix shifts to sell more of the lower contribution margin product. c. Profits will remain constant with an increase in total peso of sales if the total sales in units remain constant. d. Profits will remains constant with a decrease in total peso of sales if the sales mix also remains constant. 5. Which of the following is true about absorption costing?
a. No fixed factory overhead is charged to production. b. It is also known as direct costing. c. The term used to designate the difference between sales and cost of goods sold is the “manufacturing margin”. d. Over-applied factory overhead is reflected in the income statement as a reduction in cost of goods sold. 6. The most likely strategy to reduce the breakeven point, would be able to: a. Increase the fixed costs and decrease the contribution margin. b. Decrease the fixed costs and increase the contribution margin. c. Increase both the fixed costs and the contribution margin. d. Decrease both the fixed costs and the contribution margin. 7. Which of the following assumptions is inherent to C-V-P analysis? a. In manufacturing firms, the beginning and ending inventory levels are the same. b. In a multi-product organization, the sales mix varies over time. c. The behavior of total revenue is curvilinear. d. The relevant range is not a consideration. 8. Unabsorbed fixed overhead costs in an absorption costing system are: a. Fixed factory costs not allocated to units produced. b. Variable overhead costs not allocated to units produced. c. Excess variable overhead costs. d. Costs that should be controlled. 9. Fixed costs are ignored in allocating scare resources because: a. They are sunk. b. They are unaffected by the allocation of scare resources. c. There are no fixed costs associated with scare resources. d. Fixed costs only apply to long run decisions. 10. Which of the following is incorrect? a. In variable costing income statement variable selling and administrative expenses are used both in the computation of
contribution margin and operating income. b. When using a variable costing system, the contribution margin discloses the excess of revenue over variable costs. c. In an income statement prepared as an internal report using the variable costing method, fixed overhead is used in the computation of operating income and contribution margin. d. Using absorption costing, fixed manufacturing overhead costs are best described as indirect product cost. 11. Calculating income under variable costing does NOT require knowing: a. Unit sales b. Unit variable manufacturing costs c. Selling price d. Unit production 12. Absorption costing differs from variable costing in that: a. Standards can be used with absorption costing, but not with variable costing. b. Production influences income under absorption costing, but not under variable costing. c. Absorption costing inventories are more correctly valued. d. Companies using absorption costing have lower fixed costs. 13. The variable cost of a unit of product made yesterday is: a. An incremental cost. b. An opportunity cost. c. A differential cost. d. A sunk cost. 14. Why is income statement under variable costing diverse? a. It uses terminologies that are difficult to understand. b. Income may still increase though unit sales decrease. c. Income is rarely affected by the number of units produced. d. It considers cost variances as adjustment to cost of goods sold. 15. A manufacturing company prepares income statements using both absorption and variable costing methods. At the end of the period, actual sales revenue, total gross profit, and total contribution margin approximated budgeted figures, whereas net income was substantially greater than the budgeted amount.
There were no beginning or ending inventories. The most likely explanation of the net income increase is that, compared to budget, actual: a. Manufacturing fixed costs had increased. b. Selling and administrative fixed expenses had decreased. c. Sales prices and variable costs had increased proportionately. d. Sales prices had declined proportionately less than the variable costs. 16. Which of the following statements regarding absorption and variable costing is correct? a. Absorption costing results in higher income when finished goods inventory increases. b. Variable manufacturing costs are lower under absorption costing. c. Overhead costs are treated in the same manner under both variable and absorption costing methods. d. Profits are always the same under the two costing methods. 17. Under variable costing, all fixed costs are expensed during the current period because: a. Fixed costs are usually immaterial in amount. b. Fixed costs are non-controllable costs. c. Fixed costs are incurred whether or not there is production, so it is not proper to allocate these costs to production and defer a current cost of doing business. d. Allocation of fixed costs is usually done arbitrarily and could lead to erroneous decision by management. 18. Which of the following statements about a make or buy decision analysis is not correct? a. Available resources should be used as efficiently as possible before outsourcing. b. The analysis should involve available costs only. c. If the total relevant cost of production is less than the cost to buy the item, it should be produced in house. d. The decision depends on whether the company is operating at or below the normal capacity. 19. All of the following are relevant to a decision to accept or reject an order, except: a. Differential costs
b. Out of pocket costs c. Replacement costs d. Sunk costs 20. When a multiproduct plant operates at full capacity, quite often decisions must be made as to which products to emphasize. These decisions are frequently made with a short run focus. In making such decisions, managers should select products with the: a. Highest sales price per unit b. Highest individual unit contribution margin c. Highest sales volume potential d. Highest contribution margin per unit of the constraining resource 21. Product A has a selling price of P80 per unit, a contribution margin ration of 50%, and requires 4 machine hours to produce. Product B has a selling price of P120 per unit, a contribution margin ratio of 40%, and requires 5 machine hours to produce. If the company has limited machine hours available, then it should produce and sell: a. Product B since it has the higher contribution margin per unit. b. Product A since it requires fewer machine hours per unit than does Product B. c. Product B contribution hour. d. Product A contribution hour.
since it has higher margin per machine since it has higher margin per machine
22. The Mark X Corp. contemplates the temporary shutdown of its plant facilities in a provincial area which are economically depressed due to natural disasters. Below re certain manufacturing and selling expenses: i. Depreciation ii. Property tax iii. Interest expense iv. Insurance of facilitie v. Sales commission vi. Delivery expenses vii. Security of premises Which of the following expenses will continue during the shutdown period? a. All expenses in the list b. All except items v and vi c. Items i,ii, and iii only d. Items i,ii,iii,iv,vi and vii only 23. ABC Company has fixed costs of P90,300. At a sales volume of P360,000, return on sales is 10%; at a P600,00
volume, return on sales is 20%. What is the breakeven volume? a. P225,000 b. P240,000 c. P258,000 d. P301,000 24. In 2017, DEF Company had a net loss of P8,000. The company sells one product with a selling price of P80 and a variable cost per unit of P60. In 2018, the company would like to earn a before tax profit of P40,000. How many additional units must the company sell in 2018 than it sold in 2017? Assume that the tax rate is 40 percent. a. 1,600 units b. 2,400 units c. 2,000 units d. 3,400 units 25. The November contribution format income statement of SF Co. appears below. Sales P564,400 Variable expenses 312,800 Contribution margin 251,600 Fixed expenses 193,800 Net operating income P 57,800 The degree of operating leverage is closest to: a. 0.45 b. 0.10 c. 4.35 d. 0.23 26. The management is considering installing a new, automated manufacturing process that will increase fixed costs by P50, 000 and reduce variable manufacturing costs by P3.50 per unit. The management sets a target profit of P70,000 before and after the acquisition of the automated machine. After the installation of the automated machine, what will be the change in the units required to achieve the target profit? a. 6,600 unit increase b. 5,600 unit decrease c. 4,000 unit decrease d. 4,400 unit decrease 27. STU Corp. would like to market a new product at a selling price of P15 per unit. Fixed costs for this product are P1,000,000 for less than 500,000 units of output and P1,500,000 for 500,000 or more units of output. The contribution margin percentage is 35%. How many units of this product must be sold to earn
an after tax income of P600,000? Assume a 40 percent tax rate. a. 366,667 b. 476,190 c. 256,410 d. 380,952 28. The management of MNO Company has performed cost studies and has projected the following annual costs on 60,000 units of production and sales: % of Variable Total Portion of Annual Cost Total Annual Cost Direct Material 600,000 100 % Direct Labor 720,000 80 % Mfg. Overhead 400,000 50 % Selling Costs 192,500 25 % What selling price will yield a 15 percent profit from sales of 60,000 units? a. P41.67 b. P37.50 c. P27.30 d. P35.42 29. AM Co. has two segments: Audio and Video. Sales for the Audio segment were P500,000 and variable costs were 40% of sales. The Video segment also had sales of P500,000 but variable costs were 60% of sales. Fixed costs directly traceable to the Audio and Video segments were P150,000 and P120,000 respectively. Common fixed costs of P200,000 were arbitrarily allocated equally to each segment. What was the segment margin of the Video Segment? a. (P20,000) b. P200,000 c. P150,000 d. P80,000 30. The following economic data were provided by the corporate planning staff of GHI, Inc.: Sales volume Sales price per unit Unit variable costs: Variable manufacturing Other variable costs Unit variable costs Unit contribution margin Fixed costs: Manufacturing Other fixed costs Total fixed costs
30,000 units P 30 P13 8 P 21 P 9 P 150,000 50,000 P 200,000
At a breakeven point of 400 units sold, the variable costs were P400 and the fixed costs were P200. What will the 401st unit sold contribute to profit before income taxes? a. P0
b. P0.50 c. P1.00 d. P1.50 31. PQR Company has the following operating data for its manufacturing operations: Unit selling price P250 Unit variable cost P100 Total fixed costs P840,000 The company’s decision to increase the wages of hourly workers will increase the unit variable cost by 10 percent. Increases in the salaries of factory supervisors and property taxes for the factory will increase total fixed costs by 4 percent. If sales price is held constant, the next year’s breakeven point for PQR Company will be: a. Increased by 640 units. b. Increased by 400 units. c. Decreased by 640 units. d. Decreased by 400 units. 32. The following information was extracted from the first year of absorption based accounting records of SA Co. Total fixed costs incurred Total variable costs incurred Total period costs incurred Total variable period costs incurred Units produced Units sold Unit sales price
P100,000 50,000 70,000 30,000 20,000 12,000 P12
Based on variable costing, if SA Co. had sold 12,001 units instead of 12,000, its income before taxes would have been: a. P9.50 higher b. P8.50 higher c. P11.00 higher d. P8.33 higher 33. The production manager of Rafa Corp. is declining on what to do with P5,000 units of scrap output. The company spent P12,500 in producing these items. Two options are available: i. Sell the product as a scrap per se at P0.88 each; ii. Rework the units at a cost of P6,250 and then sell it for P22.50 per unit. The net advantage or disadvantage to the company if proposal B is followed is: a. P6,250 advantage b. P1,850 advantage c. P4,400 disadvantage d. P6,250 disadvantage
34. The following data pertain to Company’s production and sales activities for the month of November: Production 9,000u Sales 7,000u Std. variable manufacturing costs P20/u Std. fixed manufacturing costs P25/u Selling and admin. expense (all fixed) P80,000 Normal capacity is 10,000u per month. There was no inventory at the beginning of November. The product sells for P75/u. All costs were incurred as expected. Of the standard variable manufacturing cost of P20, P12 is for materials. Income under throughput costing is: a. P105,000 b. P 80,000 c. P 55,000 d. P 15,000 35. A company produces a single product. Production is done only when orders are received from customers. Thus, no inventory is kept at the end of the period. For the last period, the following data were available: Sales P 32,000 Materials 7,240 Labor 4,840 Rent (90% factory, 10% office) 2,400 Depreciation (80% factory, 20% office) 2,000 Supervision (2/3 factory, 1/3 office) 1,200 Salesmen’s salaries and commission 1,040 Insurance (60% factory, 40% office) 960 Office supplies 600 Advertising 560 If the company uses absorption costing, the cost of goods sold during the period was: a. P18,640 b. P17,216 c. P20,840 d. P12,080 Items 36 & 37 are based on the following information: XYZ Corporation’s records for the year 2017 show the following data: Net Sales (6,000 units) P21,000 Cost of goods manufacturing (7,000 units): Variable 9,450 Fixed 4,725 Operating expenses: Variable 1,470 Fixed 2,100 There was no finished goods inventory at the beginning of the period. Neither was there any work-in process inventory at the beginning and end of the year. 36. XYZ Corporation’s finished goods inventory costs at the end of 2017 under
both absorption and variable costing methods are: Absorption Costing Variable Costing a. P1,350 P2,025 b. 2,535 1,560 c. 2,025 1,350 d. 1,560 2,535 37. XYZ Corporation’s operating income figures during the year under both absorption and variable costing methods are: Absorption Costing Variable Costing a. P5,280 P4,605 b. 11,430 8,850 c. 8,850 11,430 d. 4,605 5,280 38. Gata, Inc. plans to discontinue a department with a P48,000 contribution to overhead, and allocated overhead of P96,000, of which P42,000 cannot be eliminated. What would be the effect of this discontinuance on Gata’s pretax profit? a. P48,000 increase b. P48,000 decrease c. P6,000 increase d. P6,000 decrease 39. Consider the FM Company’s segment analysis: Division Division Total A B Company Sales P300,000 P200,000 P500,000 VC 150,000 150,000 300,000 CM 150,000 50,000 200,000 Direct FC 50,000 30,000 80,000 SM 100,000 20,000 120,000 Common FC 90,000 60,000 150,000 Inc/ Loss P10,000 (P40,000) (P30,000) Common costs are allocated arbitrarily based on peso sales. If FM eliminates Segment B, what is the impact on the operating loss of the company? a. The loss decreases by P40,000. b. The loss increases by P20,000. c. The loss decreases by P20,000. d. The loss increases by P40,000. 40. Arlene Inc. currently has annual cash revenues of P2,400,000 and an annual operating cost of P1,850,000 (all cash items except depreciation of P350,000). The company is considering the purchase of new machine costing P1,200,000 per year. The new machine would increase (1) revenues to P2,900,000; (2) operating cost to P2,050,000; (3) depreciation to P500,000 per year. Assuming a 35% income tax rate, Arlene’s annual incremental after
tax cash flows from the machine would be: a. P330,000 b. P345,000 c. P292,500 d. P300,000
43. During 2017, Fitness Corp. experienced the following outages: Number of Number Outages/ month of Months 0 3 1 2 2 4 3 3 Each power outage results in out of pocket costs of P200. For P250 per month, Fitness can lease an auxiliary generator to provide power during outages. If Fitness leases an auxiliary generator in 2018, the estimated savings (or additional expenditure) for: a. P800 b. P950 c. (P600) d. (P1,800)
41. Apple Company, which manufactures sneakers, has enough idle capacity available to accept a special order of 20,000 pairs of sneakers at P6 per pair. The normal selling price is P10 per pair. Variable manufacturing costs are P7.50 per pair, and fixed manufacturing costs are P1.50 per pair. Apple will not incur any selling expenses as a result of the special order. Compute for Apple (1) Unit relevant cost and (2) Effect on operating income if the special order is accepted without affecting normal sales. a. P5.50 and P0 b. P7.50 and P30,000 decrease c. P6.00 and P90,000 increase d. P4.00 and P120,000 increase
Items 44 & 45 are based on Kingston Company, which needs 10,000 units of a certain part to be used in its production cycle. If Kingston buys the part from Utica Company instead of making it, Kingston could not use the realized facilities in another manufacturing activity. 60% of the fixed overhead applied will continue regardless of what decision is made. The following information is available:
42. Ysabelle Industries, Inc. has an opportunity to acquire a new equipment to replace one of its existing equipment. The new equipment would cost P900,000 and has a five-year useful life, with a zero terminal disposal price. Variable operating costs would be P1 million per year. The present equipment has a book value of P500,000 and a remaining life of five years. Its disposal price now is P50,000 but would be zero after five years. Variable operating costs would be P1,250,000 per year. Considering the five years in total, but ignoring the time value of money and income taxes, Ysabelle should: a. Replace due to P400,000 advantage. b. Not replace due to P150,000 disadvantage. c. Replace due to P350,000 advantage. d. Not replace due to P100,000 disadvantage.
Cost of Kingston to make the part: Direct material P6 Direct labor 24 Variable overhead 12 Fixed overhead applied 15 Cost to buy the part: P53 44. In deciding whether to make or buy the part, Kingston’s total relevant costs to make the part are: a. P342,000 b. P480,000 c. P530,000 d. P570,000 45. Which alternative is more desirable for Kingston and by what amount? a. Make, P50,000 b. Buy, P50,000 c. Make, P40,000 d. Buy, P40,000
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