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Managerial Accounting 2(fr.


1. Moon Company has a variable selling cost. If sales volume increases, how will the total
variable cost and the variable cost per unit behave?
Total Variable Cost Variable Cost per Unit
A. Increase Increase
B. Increase Remain constant
C. Increase Decrease
D. Remain constant Decrease

2. A company observed a decrease in the cost per unit. All other things being equal, which
of the following is probably true?
A. The company is studying a variable cost, and total volume has increased.
B. The company is studying a variable cost, and total volume has decreased.
C. The company is studying a fixed cost, and total volume has increased.
D. The company is studying a fixed cost, and total volume has decreased.

3. May Co. has the following budgeted costs t its anticipated production level (expressed in
hours): variable overhead, P150,000; fixed overhead, P240,000. If May now revises its
anticipated production slightly downward, it would expect:
A. total fixed overhead of P240,000 and a lower hourly rate for variable overhead.
B. total fixed overhead of P240,000 and the same hourly rate for variable
C. total fixed overhead of P240,000 and a higher hourly rate for variable overhead.
D. total variable overhead of less than P150,000 and a lower hourly rate for variable

4. A review of Patty Corporations accounting records found that a volume of 90,000 units,
the Variable and fixed cost per unit amounted to P8 and P4, respectively. On the basis of
this information, what amount of total cost would Patty anticipate at a volume of 85,000
A. P1,020,000 C. P1,060,000
B. P1,040,000 D. P1,080,000

5. High, Inc., uses the high-low method to analyze cost behavior. The company observed
that at 12,000 machine hours of activity, total maintenance costs averaged P7 per hour.
When activity jumped to 15,000 machine hours, which was still within the relevant range,
the average cost per machine hour totaled P6.40. On the basis of this information, the
variable cost per machine hour was:
A. P4.00 C. P6.70
B. P6.40 D. P7.00

6. Cost behavior analysis focuses on

A. how cost react to changes in profit
B. how costs change over time
C. how costs react to changes in activity level
D. none of these

7. The cost estimation method that gives the most mathematically precise cost prediction
equation is
A. the high-low method C. the scatter-diagram method
B. the contribution margin method D. regression analysis

8. A cost is variable if it varies with the

A. number of units manufactured C. number of units sold
B. level of some activity D. selling price of the product

9. Identifying cost drivers

A. is not necessary with regression analysis
B. is an important part of cost management
C. is the same as identifying cost pools
D. is useful only with step-variable costs.

10. Direct costs are

A. associated with a specific activity
B. usually committed
C. always variable
D. usually discretionary.

11. Which cost is most likely to be avoidable in deciding whether to shut down one of the
four assembly lines in a factory?
A. Depreciation on the factory building
B. Salaries of maintenance workers who service all assembly lines.
C. Power used to operate equipment on the assembly line.
D. Heat and light for the building.

12. Breakeven analysis assumes that over the relevant range total
A. Revenues are linear.
B. Costs are unchanged
C. Variable costs are nonlinear
D. Fixed costs are nonlinear.

13. Cost-volume-profit analysis is most important for the determination of the

A. Volume of operation necessary to break-even.
B. Relationship between revenues and costs at various levels of operations.
C. Variable revenues necessary to equal fixed costs.
D. Sales revenue necessary to equal variable costs.

14. The contribution margin ratio always increase when

A. Break-even point decreases.
B. Break-even point increases.
C. Variable cost as a percentage of net sales increases.
D. Variable cost as a percentage of net sales decreases.

15. The break-even point in units increases when unit costs

A. Increase and sales price remains unchanged.
B. Decrease and sales price remains unchanged.
C. Remain unchanged and sales price increases.
D. Increase and sales price increases.

16. The percentage change in earnings before interest and taxes associated with the
percentage change in sales volume is the degree of
A. Operating leverage C. Breakeven leverage
B. Financial leverage D. Combined leverage

17. Sun Company breaks even at P300,000 sales and earns P40,000 at P400,000 sales. Which
of the following is true?
A. Fixed costs are P120,000
B. The selling price per unit is P4
C. Profit at sales of P500,000 would be P50,000
D. Contribution margin is 10% of sales
18. If a company is operating at a loss,
A. fixed costs are greater than sales.
B. selling price is lower than variable cost per unit.
C. selling price is less than average total cost per unit.
D. fixed cost per unit is greater than variable cost per unit.

19. As volume increases, average cost per unit

A. increases
B. remains constant
C. decreases
D. increases in proportion to the change in volume.

20. If variable cost as a percentage of sales increases, the

A. contribution margin percentage increases.
B. break-even point in pesos increases.
C. selling price increases.
D. fixed costs decrease.

21. If a company raises its target peso profit, its

A. break-even point rises
B. fixed cost increase
C. required total contribution margin increases
D. selling price rises.

22. Sunrise Corporation 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 les than 500,000 units of output and
P1,500,000 for 500,000 or more units of output. The contribution margin percentage is
20%. How many units of this product must be sold to earn a target operating income of
P1 million?
A. 754,900 C. 825,530
B. 833,334 D. 785,320

23. An organizations sales revenue is expected to be P72,600, a 10% increase over last year.
For the same period, total fixed costs of P22,000 are expected to be the same as last year.
If the number of units sold is expected to increase by 1,100, the marginal revenue per unit
will be
A. P4 C. P20
B. P6 D. P46

24. Last year, the contribution margin ratio of Upuan Company was 30%. This year, fixed
costs are expected to be P120,000, the same as last year, and sales are forecasted at
P550,000, a 10% increase over last year. For the company to increase income by P15,00
in the coming year, the contribution margin ratio must be
A. 20% C. 40%
B. 30% D. 70%

25. Cost-volume-profit (CVP) analysis is a key factor in many decisions, including choice of
product lines, pricing of products, marketing strategy, and utilization of productive
facilities. A calculation used in a CVP analysis is the break-even point. Once the break-
even point has been reached, operating income will increase by the:
A. gross margin per unit for each additional unit sold.
B. contribution margin per unit for each additional unit sold.
C. fixed costs per unit for each additional unit sold.
D. variable costs per unit for each additional unit sold.
E. sales price per unit for each additional sold.

26. 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. marginal income rate
D. variable sales ratio
E. margin of safety

27. Cost of capital is

A. The amount the company must pay for its plant assets.
B. The dividends a company must pay on its equity securities.
C. The cost the company must incur to obtain its capital resources.
D. The cost the company is charged by investment bankers who handle the issuance
of equity or long-term debt securities.
28. The theory underlying the cost of capital is primarily concerned with the cost of
A. Long-term funds and old funds.
B. Short-term funds and new funds.
C. Long-term funds and new funds.
D. Any combination of old or new, short-term or long-term funds.

29. The overall cost of capital is the

A. Rate of return on assets that covers the costs associated with the funds
B. Average rate of return a firm earns on its assets.
C. Minimum rate a firm must earn on high-risk projects.
D. Cost of the firms equity capital at which the market value of the firm will remain

30. An investor uses the capital asset pricing model (CAPM) to evaluate the risk-return
relationship on a portfolio of stocks held as an investment. Which of the following would
not be used to estimate the portfolios expected rate of return?
A. Expected risk premium on the portfolio of stocks.
B. Interest rate for the safest possible investment.
C. Expected rate of return on the market portfolio.
D. Standard deviation of the market returns.

31. According to the capital asset pricing model (CAPM), the relevant risk of a security is its
A. Company-specific risk
B. Diversifiable risk
C. Systematic risk
D. Total risk

32. A company has made the decision to finance next years capital projects through debt
rather than additional equity. The benchmark cost of capital for these projects should be
A. The before-tax cost of new-debt financing.
B. The after-tax cost of new-debt financing
C. The cost of equity financing
D. The weighted-average cost of capital.

33. A capital investment decision is essentially a decision to:

A. Exchange current assets for current liabilities.
B. Exchange current cash outflows for the promise of receiving future cash
C. Exchange current cash flow from operating activities for future cash inflows from
investing activities.
D. Exchange current cash inflows for future cash outflows.

34. In addition to incremental revenues, cash inflows form capital investments can be
generated from all of the following sources except:
A. Debt financing
B. Salvage value
C. Cost savings
D. Reduction in the amount of working capital

35. An optimal budget is determined by the point where the marginal cost of capital is
A. Minimized.
B. Equal to the average cost of capital.
C. Equal to the rate return on total assets.
D. Equal to the marginal rate of return on investment.

36. The payback method assumes that all cash inflows are reinvested to yield return equal to
A. The discount rate.
B. The hurdle rate.
C. The internal rate of return.
D. Zero.

37. The bailout payback period is

A. The payback period used by firms with government insured loans.
B. The length of time for payback using cash flows plus the salvage value to
recover the original investment.
C. (A) and (B)
D. None of the above.

38. An advantage of the net present value method over the internal rate of return model in
discounted cash flow analysis is that the net present value method
A. Computes a desired rate of return for capital projects.
B. Can be used when there is no constant rate of return required for each year
of the project.
C. Uses a discount rate that equates the discounted cash inflows with the outflows.
D. Uses discounted cash flows whereas the internal rate return model does not.

39. The relationship between payback period and IRR is that

A. A payback period less than one-half the life of a project.
B. The payback period is the present value factor for the IRR.
C. A project whose payback period does not meet the companys cutoff rate for
payback will not meet the companys criterion for IRR.
D. None of the above.

40. Cost of capital is

A. The amount the company must pay for the plant assets.
B. The dividends a company must pay on its equity securities.
C. The cost the company must incur to obtain its capital resources.
D. The cost the company is charged by investment bankers who handled the issuance
equity or long-term debt securities.

41. The technique most concerned with liquidity is

A. Payback
D. Book rate of return

42. If the IRR on an investment is zero,

A. Its NPV is positive
B. Its annual cash flows equal its required investment.
C. Its generally a wise investment.
D. Its cash flows decrease over its life.

43. Glow Company invested P180,000 in a new machine. The machine will generate cash
flows before taxes at year-end of P90,000, P80,000, P70,000 for the next three years. The
company uses a 15 percent cost of capital. What is the net present value of purchasing the
A. P25,826
B. P9,230
C P60,000
D. P4,778

44. Equipment will be purchased at cost of P250,000. It will have no salvage value. The cash
flows are expected to be: P37,000, P48,000, P65,000, P71,000, P73,000, and P53,000
over the life of the equipment. What is the payback period?
A. 3.43 years
B. 4.40 years
C. 5.25 years
D. 6.00 years

45. An asset was purchased for P66,000. The asset is expected to last for 6 years and will
have a salvage value of P16,000. The company expects the income before tax to be
P7,200 and the tax rate of the company is 30%. What is the average return on investment
(accounting rate of return)?
A. 17.6%
B. 7.6%
C. 10.9%
D. 12.3%

46. Mayden invested P1,953,833 in a 7-year project that generates P350,000 per year. What
is the Internal Rate of Return associated with this project?
A. 16%
B. 5%
C. 6%
D. 7%

47. Pam Co. is reviewing the following data relating to an energy saving investment proposal:

Cost P50,000
Residual value at the end of 5 years 10,000
Present value of an annuity of at 12% for 5 years 3.60
Present value of 1 due in 5 years at 12% 0.57

What would be the annual savings needed to make the investment realize a 12% yield?
A. P8,189
B. P11,111
C. P12,306
D. P13,889

48. MDG Corporation is evaluating the purchase of P500,000 die attach machine. The cash
inflows expected from the investment is P145,000 per year for five years with no equipment
salvage value. The cost capital is 12%. The net present value factor for five (5) years at 12%
is 3.6048 and at 14% is 3.4331. The internal rate of return for their investment is

A. 3.45%
B. 2.04%
C. 13.8%
D. 15.48%

49. Win Company purchased a new machine on January 1 of this year for P90, 000, with an
estimated useful life of 5 years and a salvage value of P10, 000. The machine will be
depreciated using the straight-line method. The machine is expected to produce cash flow
from operations, net of income taxes, of P36,000 a year in each of the next 5 years. The
new machines salvage value is P20,000 in years 1 and 2, and P15,000 in years 3 and 4.
What will be the bailout period (rounded) for the new machine?
A. 1.4 years.
B. 2.2 years.
C. 1.9 years.
D. 3.4 years.

50. A new machine that costs P172,100 is expected to save annual cash operating costs of
P40,000 over each of the next nine years. The machines rate of return is:
A. Approximately 14%
B. Approximately 18%
C. Approximately 16%
D. Approximately 20%

51. Matthew Company had budgeted 50,000 units of output using 50,000 units of raw
materials at a total material cost of P100,000. Actual output was 50,000 units of product,
requiring 45,000 units of raw materials at a cost of P2.10 per unit. The direct material
price variance was

A. P4,500 unfavorable
B. P5,000 favorable
C. P5,000 unfavorable
D. P10,000 favorable

52. Using the same information in No. 14 , the material usage variance was

A. P10,000 favorable
B. P10,500 unfavorable
C. P10,500 favorable
D. P4,500 unfavorable

53. During March, Yoly Companys direct material costs for the manufacture of Product T
were as follows:

Actual unit purchase price P 6.50

Standard quantity allowed for actual production 2,100
Quantity purchased and used for actual production 2,300
Standard unit price P 6.25

Yolys material usage variance for March was

A. P1,250 unfavorable
B. P1,250 favorable
C. P1,300 unfavorable
D. P1,300 favorable

54. Information on Kim Companys direct material costs is as follows:

Standard unit price P 3.60

Actual quantity purchased 1,600
Standard quantity allowed for actual production 1,450
Materials purchase price variance favorable P 240

What was the actual purchase price per unit, rounded to the nearest centavo?
A. P3.06
B. P3.11
C. P3.45
D. P3.75

55. Information on Mark Companys direct labor costs for the month of January is as follows:
Actual direct labor hours 34,500
Standard direct labor hours 35,000
Total direct labor hours P241,500
Direct labor efficiency variance favorable P 3,200

What is Marks direct labor rate variance?

A. P17,250 unfavorable
B. P20,700 unfavorable
C. P21,000 unfavorable
D. P21,000 favorable

56. The direct labor standards for producing a unit of a product are two hours at P10 per
hour. Budgeted production was 1,000 units. Actual production was 900 units and direct
labor cost was P19,000 for 2,000 direct labor hours. The direct labor efficiency variance
A. P1,000 favorable
B. P1,000 unfavorable
C. P2,000 favorable
D. P2,000 unfavorable

57. Pia Company uses a standard cost system. The following information pertains to direct
labor for product B for the month of October:

Standard hours allowed for actual production 2,000

Actual rate paid per hour P8.40
Standard rate per hour 8.00
Labor efficiency variance P1,600 U

What were the actual hours worked?

A. 1,800
B. 1,810
C. 2,190
D. 2,200

58. Bronze Companys records for April disclosed the following data relating to direct labor:

Actual cost P10,000

Rate variance 1,000 favorable
Efficiency variance 1,500 unfavorable
Standard cost P 9,500

Actual direct labor hours for April amounted to 2,000. Bronzes standard direct labor rate
per hour was
A. P5.50
B. P5.00
C. P4.75
D. P4.50

59. Happy Manufacturing Co. has an expected production level of 175,00 product units for
2009. Fixed factory overhead is P450,000 and the company applies factory overhead on
the basis of expected production level at the rate of P5.20 per unit. The variable overhead
cost per unit is
A. P2.57
B. P2.63
C. P2.93
D. P3.02

60. Morris Co. normally uses 40,000 direct labor hours for manufacturing 120,000 units 0f
product. Three units are produced in one hour, and the direct labor rate is P15 per hour.
At normal capacity of 40,000 hours, the factory overhead is estimated as follows:

Fixed overhead P100,000

Variable overhead 120,000
Total overhead P220,000

If 30,000 direct labor hours are used, total factory overhead costs would amount to:
A. P165,000
B. P190,000
C. P195,000
D. P220,000

61. The following direct manufacturing labor information pertains to the manufacture of
product B:

Time required to make one unit 2 direct labor hours

Number of direct workers 50
Number of productive hours per week, per worker 40
Weekly wages per worker P500
Workers benefits treated as direct manufacturing labor cost 20% of wages

What is the standard direct manufacturing labor cost per unit of product B?
A. P30
B. P24

C. P15
D. P12

62. Sunrise, Inc. uses a standard cost system. Overhead cost information for Production for
the month of October is as follows:

Total actual overhead incurred P12,600

Fixed overhead budgeted P 3,300
Total standard overhead rate per DLH P 4
Variable overhead rate per DLH P 3
Standard hours allowed for actual production 3,500
What is the overall or net overhead variance?
A. P1,200 favorable
B. P1,200 unfavorable
C. P1,400 favorable
D P1,400 unfavorable
63. Paul Company uses a flexible budget system and prepared the following information for
the year:

Percent of capacity 80% 90%

Direct labor hours 24,000 27,000

Variable factory overhead P 48,000 P 54,000
Fixed factory overhead P 108,000 P108,000
Total factory overhead rate per DLH P 6.50 P 6.00

Paul operated at 80% of capacity during the year, but applied factory overhead based on
the 90% capacity level.

Assuming that actual factory overhead was equal to the budgeted amount for the attained
capacity, what is the amount of overhead variance for the year?
A. P6,000 overabsorbed
B. P6,000 underabsorbed
C. P12,000 overabsorbed
D. P12,000 underabsorbed

64. Doris Processing applied factory overhead based on machine hours at the following rates
per machine hour: Mixing, P7.75; Washing, P15.10; and, Packing, P2.125. In 2009,
actual machine hours are 19,000, 27500, and 5,500 respectively, for Mixing, Washing,
and Packing departments. If the actual factory overhead incurred is P574,375, the amount
of over-applied(under-applied) overhead is:
A. (P 187.50)
B. P11,875.00
C. P23,562.50
D. (P76,125.00)

65. The following were among the Lady Cos 2009 costs:

Normal spoilage P 5,000

Freight out 10,000
Excess of actual manufacturing costs over standard cost 20,000
Standard manufacturing costs 100,000
Actual prime manufacturing costs 80,000

Ladys 2009 actual manufacturing overhead was:

A. P 40,000
B. P 45,000
C. P 55,000
D. P120,000

66. Zey Inc. has maintenance shop where repairs to its motor vehicles are done. During last
months labor strike, certain records 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

B. P28.80 per hour
C. P30.25 per hour
D. P31.40 per hour

67. Information on Downtown Companys direct labor costs for May is as follow:

Standard direct labor rate P 6.00

Actual direct labor rate P 5.80
Standard direct labor hours 20,000
Actual direct labor hours 21,000
Direct labor rate variance favorable P4,200

What is Downtowns total direct labor payroll for May?

A. P116,000
B. P117,600
C. P120,000
D. P121,800

68. Information on Weng Companys direct labor costs is as follows:

Standard direct labor hours 10,000

Standard direct labor rate P 3.75
Actual direct labor rate 3.50
Direct labor usage (efficiency) variance unfavorable P 4,200

What were the actual hours worked, rounded to the nearest hour?
A. 10,714
B. 11,120
C. 11,200
D. 11,914
69. Using the following information:

Actual direct labor hours used 4,700

Units produced 1,500
Standard labor hours per unit produced 3
Budgeted variable overhead per standard direct labor hour P 2
Actual variable overhead incurred P9,500

The variable overhead efficiency variance is

A. P400 favorable
B. P300 favorable
C. P100 unfavorable
D. P400 unfavorable

70. Using the same information in No. 26, the variable overhead spending variance is
A. P400 favorable
B. P400 unfavorable
C. P100 favorable
D. P100 unfavorable

71. Using the information presented below, the total overhead spending variance.

Budgeted fixed overhead P10,000

Standard variable overhead (2 DLH at P2 per DLH) P 4 per unit
Actual fixed overhead P10,300
Actual variable overhead P19,500
Budgeted volume (5,000 units x 2 DLH) 10,000 DLH
Actual direct labor hours (DLH) 9,500
Units produced 4,500

The total overhead spending variance is

A. P500 unfavorable
B. P800 unfavorable
C. P1,000 unfavorable
D. P1,300 unfavorable

72. Bay Company uses a standard costing system in connection with the manufacture of a
one-size fits all article of clothing. Each unit of finished product contains 2 yards of
direct material. However, a 20% direct material spoilage calculated on input quantities
occurs during the manufacturing process. The cost of the direct material is P3 per yard.

The standard direct material cost per unit of finished product is:
A. P4.80
B. P6.00
C. P7.20
D. P7.50
73. Dagupan Company had total underapplied overhead of P15,000. Additional data:

Variable Overhead:
Applied based on standard DLH allowed P42,000
Budgeted based on standard DLH 38,000
Fixed Overhead:
Applied based on standard DLH allowed 30,000
Budgeted based on standard DLH 27,000

What is the actual total overhead?

A P50,000
B. P57,000
C. P80,000
D. P87,000

74. Galvan Company uses a standard cot accounting system. The following overhead costs
and production data are available for August:

Standard fixed overhead rate per DLH P 1

Standard variable overhead rate per DLH P 4
Budgeted monthly DLH 40,000
Actual DLH worked 39,500
Standard DLH allowed for actual production 39,000
Overall overhead variance favorable P 2,000

The applied factory overhead for August should be

A. P195,000
B. P197,000
C. P197,500
D. P199,500

75. Ilocos Company has a standard absorption and flexible budgeting system and uses a two-
way analysis of overhead variances. Selected data for the February production activity

Budgeted fixed factory overhead costs P 64,000

Actual factory overhead incurred P230,000
Variable factory overhead rate per DLH P 5
Standard DLH 32,000
Actual DLH 32,000

The budget(controllable) variance for February is

A. P1,000 favorable
B. P1,000 unfavorable
C. P6,000 favorable
D. P6,000 unfavorable

76. Lingayen Corporations master budget calls for the production of 5,000 units of product
monthly. The master budget includes indirect labor of P144,000 annually. Lingayen
considers indirect labor to be a variable cost. During the moth of April, 4,500 units of
product were produced, and indirect labor costs of P10,100 were incurred.

A performance report utilizing flexible budgeting would report a budget variance for
indirect labor of
A. P1,900 unfavorable
B. P 700 favorable
C. P1,900 favorable
D. P 700 unfavorable

77. Information on Wood Companys overhead costs for the January production activity is as

Budgeted fixed overhead P 75,000

Standard fixed overhead rate per DLH P 3
Standard variable overhead rate per DLH P 6
Standard DLH allowed for actual production 24,000
Actual total overhead incurred P220,000

Wood Company has a standard absorption and flexible budgeting system, and uses the
two-variance method (two-way analysis ) for overhead variances. The volume
(denominator) variance for January is
A. P3,000 unfavorable
B. P3,000 favorable
C. P4,000 unfavorable
D. P4,000 favorable