University of Makati

College of Business and Financial Science

Department of Accountancy

Management Advisory Services – Midterm Exam FEN

MULTIPLE CHOICE
1. Which of the following statements is false?
a. A primary purpose of cost accounting is to determine valuations needed for external financial
statements.
b. A primary purpose of management accounting is to provide information to managers for use
in planning, controlling, and decision making.
c. The act of converting production inputs into finished products or services necessitates cost
accounting.
d. Two primary hallmarks of cost and management accounting are standardization of procedures
and use of generally accepted accounting principles.

2. Which of the following statements are false concerning line and staff functions?
I. Persons occupying staff functions have authority over persons occupying line functions.
II. Both line and staff functions are depicted on the organization chart.
III. Line functions are directly related to the basic objectives of an organization.
a. Only I c. Only I and II
b. Only II d. I, II, and III

3. Fixed costs expressed on a per unit basis:

a. Will increase with increases in activity.
b. Will decrease with increases in activity.
c. Are not affected by activity.
d. Should be ignored in making decisions since they cannot change.

4. The distinction between direct and indirect costs depends on whether a cost
a. is controllable or non-controllable.
b. is variable or fixed.
c. can be conveniently and physically traced to a cost object under consideration.
d. will increase with changes in levels of activity.

5. Which of the following is not a limiting factor of Cost-Volume-Profit analysis?

a. The process assumes a linear relationship among the variables.
b. The process assumes variable costs per unit are available.
c. Efficiency is assumed to be constant.
d. Inventory levels are assumed to not change.

6. Which of the following is true of a company that uses absorption costing?

a. Net operating income fluctuates directly with changes in sales volume.
b. Fixed production and fixed selling costs are considered to be product costs.
c. Unit product costs can change as a result of changes in the number of units manufactured.
d. Variable selling expenses are included in product costs.

7. Incremental analysis is the process of identifying the financial data that:

a. do not change under alternative courses of action
b. are mixed under alternative courses of action
c. change under alternative courses of action
d. no correct answer is given

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Management Advisory Services – Midterm Exam FEN
8. Variable-costing income will usually exceed absorption costing income when
a. sales exceed production c. production exceeds sales
b. production and sales are equal d. none of these

9. The amount of raw material purchased in a period may be different than the amount of material
used that period because
a. The number of units sold may be different from the number of units produced.
b. Finished goods inventory may fluctuate during the period.
c. The raw material inventory may increase/decrease during the period.
d. Companies often pay for material in the period after it is purchased.

10. In preparing a master budget, top management is generally best able to:
a. Prepare detailed departmental-level budget figures.
b. Provide a perspective on the company as a whole.
c. Point out the particular persons who are to blame for inability to meet budget goals.
d. All of the above.

11. Cocoy Company earned P50,000 on sales of P400,000. It earned P70,000 on sales of P450,000.
Total fixed costs are
a. P 0. b. P 50,000. c. P110,000. d. P180,000.

12. Atoy has an average unit cost of P45 at 20,000 units and P25 at 60,000 units. What is the total
fixed cost?
a. P400,000 c. P900,000
b. P600,000 d. An amount that cannot be determined without more information.

Use the following information for problem 13 and 14:

Honey Manufacturing, which uses the high-low method, makes a product called Yin. The company
incurs three different cost types (A, B, and C) and has a relevant range of operation between 2,500
units and 10,000 units per month. Per-unit costs at two different activity levels for each cost type
are presented below.
Type A Type B Type C Total
5,000 units P4 P9 P4 P17
7,500 units P4 P6 P3 P13
13. The cost types shown above are identified by behavior as:
Type A Type B Type C
a. Fixed Variable Semivariable
b. Fixed Semivariable Variable
c. Variable Semivariable Fixed
d. Variable Fixed Semivariable
14. If Honey produces 10,000 units, the total cost would be:
a. P90,000. b. P100,000. c. P110,000. d. P125,000.
15. During the month of February, direct labor cost totaled P13,000 and direct labor cost was 40% of
prime cost. If total manufacturing costs during February were P80,000, the manufacturing
overhead was:
a. P32,500 b. P19,500 c. P67,000 d. P47,500

16. Sugar Corporation has provided the following production and average cost data for two levels of
monthly production volume. The company produces a single product.
Production volume ......................... 4,000 units 5,000 units
Direct materials .............................. P99.20 per unit P99.20 per unit
Direct labor .................................... P45.50 per unit P45.50 per unit
Manufacturing overhead ................ P94.00 per unit P77.60 per unit

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Management Advisory Services – Midterm Exam FEN
The best estimate of the total monthly fixed manufacturing cost is:
a. P388,000 b. P954,800 c. P376,000 d. P328,000

17. At a sales level of P365,000, Sweet Company's gross margin is P20,000 less than its contribution
margin, its net operating income is P70,000, and it’s selling and administrative expenses total
P130,000. At this sales level, its contribution margin would be:
a. P295,000 b. P180,000 c. P220,000 d. P200,000

18. Cupcake, Inc. has a total of 2,000 rooms in its nationwide chain of hotels. On the average, 70
percent of the rooms are occupied each day. The company’s operating cost is P21 per occupied
room per day at this occupancy level, assuming a 30-day month. This P21 figure contains both
variable and fixed cost elements. During January, the occupancy dropped to only 45 percent. A
total of P792,000 in operating costs were incurred during the month.
What would be the expected operating costs, assuming that the occupancy rate increases to 60
percent during February?
a. P1,056,000 b. P 846,000 c. P 756,000 d. P 829,500

19. The Jumbo’s burger stand expects the following operating results for next year:
Sales ............................................... P280,000
Net operating income .................... P21,000
Contribution margin ratio .............. 70%
What is Jumbo's break-even point next year in peso sales?
a. P120,000 b. P181,300 c. P196,000 d. P250,000

20. Power Company is a medium-sized manufacturer of battery. During the year a new line called
“Duramax” was made available to Power's customers. The break-even point for sales of Duramax
is P200,000 with a contribution margin of 80%. Assuming that the profit for the Duramax line
during the year amounted to P100,000, total sales during the year would have amounted to?
a. P320,000 b. P325,000 c. P450,000 d. P475,000

21. Chocnut Corp. sells a product for P5 per unit. The fixed expenses are P210,000 and the unit
variable expenses are 60% of the selling price. What sales would be necessary in order for Chocnut
Corp. to realize a profit of 10% of sales?
a. P700,000 b. P525,000 c. P472,500 d. P420,000

Use the following information for problem 22-24:

FEN Company manufactures and sells solar calculators that doesn’t need any batteries. The
market strategy covers new unit purchases as well as replacement calculators. FEN developed its
2020 business plan based on the assumption that calculators would sell at a price of P400 each.
The variable costs for each calculator were projected at P200, and the annual fixed costs were
budgeted at P100,000. FEN’s after–tax profit objective was P240,000; the company’s effective tax
rate is 40 percent.
While FEN’s sales usually rise during the second quarter, the May financial statements reported
that sales were not meeting expectations. For the first five months of the year, only 350 units had
been sold at the established price, with variable costs as planned, and it was clear that the 2020
after-tax profit projection would not be reached unless some actions were taken. FEN’s president
assigned a management committee to analyze the situation and develop several alternative
courses of action. The following mutually exclusive alternatives, labeled A, B, and C, were
presented to the president.
Reduce the sales price by P40. The sales organization forecast that with the significantly reduced
sales price, 2,700 units can be sold during the remainder of the year. Total fixed and variable unit
costs will stay as budgeted.

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Management Advisory Services – Midterm Exam FEN
Lower the variable costs per unit by P25 through the use of less expensive materials and slightly
modified manufacturing techniques. The sales price will also be reduced by P30, and sales of 2,200
units for the remainder of the year are forecast.
Cut fixed costs by P10,000, and lower the sales price by 5 percent. Variable costs per unit will be
unchanged. Sales of 2,000 units are expected for the remainder of the year.
22. Assuming no changes were made to the selling price or cost structure, how many units must FEN
sell to break even?
a. 1,700 b. 500 c. 250 d. 167
23. Assuming no changes were made to the selling price or cost structure, how many units must FEN
sell to achieve its after-tax profit objective?
a. 1,250 b. 1,700 c. 2,000 d. 2,500
24. If management decides to reduce the selling price by P40, what will FEN's after-tax profit be?
a. P157,200 b. P160,800 c. P241,200 d. P301,200

Use the following information for problem 25 and 26:

RBB & Co., makes and sells two types of energy products, NIDO and MILO. Data concerning these
products are as follows:
NIDO MILO
Unit selling price P20.00 P35.00
Variable cost per unit 12.00 24.50
Sixty percent of the unit sales are NIDO, and annual fixed expenses are P45,000.
25. The weighted-average unit contribution margin is:
a. P4.80. c. P9.25.
b. P9.00. d. an amount other than those above.

26. Assuming that the sales mix remains constant, the total number of units that the company must
sell to break even is:
a. 2,432. b. 2,647. c. 4,737. d. 5,000.

27. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
Selling price ............................................... P86
Units in beginning inventory ..................... 0
Units produced .......................................... 3,500
Units sold ................................................... 3,400
Units in ending inventory .......................... 100
Variable costs per unit:
Direct materials ...................................... P37
Direct labor ............................................. P15
Variable manufacturing overhead .......... P5
Variable selling and administrative ........ P10
Fixed costs:
Fixed manufacturing overhead ............... P24,500
Fixed selling and administrative ............ P27,200
The total gross margin for the month under the absorption costing approach is:
a. P81,200 b. P74,800 c. P64,600 d. P13,600

28. H. Luna Company produces a single product. During March, the company had net operating
income under absorption costing that was P3,500 lower than under variable costing. The company
sold 7,000 units in March, and its variable costs were P7 per unit, of which P3 was variable selling
expense. If fixed manufacturing overhead was P2 per unit under absorption costing, then how
many units did the company produce during March?
a. 5,250 units b. 8,750 units c. 6,500 units d. 6,125 units

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Management Advisory Services – Midterm Exam FEN
29. The following information pertains to J. Rizal Corporation:
Beginning fixed manufacturing overhead in inventory P60,000
Ending fixed manufacturing overhead in inventory 45,000
Beginning variable manufacturing overhead in inventory P30,000
Ending variable manufacturing overhead in inventory 14,250
Fixed selling and administrative costs P724,000
Units produced 5,000 units
Units sold 4,800 units
What is the difference between operating incomes under absorption costing and variable costing?
a. P750 b. P7,500 c. P15,000 d. P30,750

Use the following information for problem 30 and 31:

Jedi Corporation incurred fixed manufacturing costs of P6,000 during 2020. Other information for
2020 includes:
The budgeted denominator level is 1,000 units.
Units produced total 750 units.
Units sold total 600 units.
Beginning inventory was zero.
The company uses absorption costing and the fixed manufacturing cost rate is based on the
budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
30. Fixed manufacturing costs expensed on the income statement (excluding adjustments for
variances) total
a. P3,600. b. P4,800. c. P6,000. d. zero.

31. Fixed manufacturing costs included in ending inventory total

a. P1,200. b. P1,500. c. P900. d. zero.

32. Consider the following:

Sales price, per unit P18 per unit
Standard absorption cost rate P12 per unit
Standard variable cost rate P8 per unit
Variable selling expense rate P2 per unit
Fixed selling and administrative expenses P40,000
Fixed manufacturing overhead P60,000
Last period, 13,000 units were produced. In the current period, 15,000 units were produced. In
each period, 13,000 units were sold. What is the difference in reported income under absorption
and variable costing for the current period?
a. The variable-costing income exceeded absorption-costing income by P4,000.
b. The absorption-costing income exceeded variable-costing income by P8,000.
c. The variable-costing income exceeded absorption-costing income by P6,000.
d. Net income will not be different between the two methods.

33. The following information pertains to Sharapova Corporation:

Beginning inventory 0 units
Ending inventory 5,000 units
Direct labor per unit P10
Direct materials per unit 8
Variable overhead per unit 2
Fixed overhead per unit 5
Variable selling costs per unit 6
Fixed selling costs per unit 8
What is the value of ending inventory using the variable costing method?
a. P155,000 b. P125,000 c. P100,000 d. P195,000

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Management Advisory Services – Midterm Exam FEN
34. Starwars Company had income of P65,000 using absorption costing for a given period. Beginning
and ending inventories for that period were 13,000 units and 18,000 respectively. Ignoring income
taxes, if the fixed overhead application rate were P2.50 per unit, what would the income have
been using variable costing?
a. P 77,500 b. P 60,000 c.P 52,500 d. P 20,000

35. Cocoy, Inc., produces three products: A, B, and C. Two machines are used to produce the products.
The contribution margins, sales demands, and time on each machine (in minutes) is as follows:
time time
Demand CM on M1 on M2
A 100 P12 5 10
B 80 18 10 5
C 150 25 5 10
There are 2,400 minutes available on each machine during the week. How many units should be
produced and sold to maximize the weekly contribution?
A B C
a. 100 80 150
b. 50 80 150
c. 90 0 150
d. 90 80 150

36. Cotton Company manufactures 100,000 units of Part Y annually for use in one of its main products.
The total manufacturing cost for 100,000 units of Part Y is as follows:
Direct materials P120,000
Direct labor 80,000
Variable overhead 40,000
Fixed overhead 160,000
Total cost P400,000
Bulac Company has offered to sell Cotton 100,000 units of Part Y per year. If Cotton accepts this
offer, the facilities used to produce Part Y can be used in the production of other components.
This change would save Cotton P10,000 in rent for the leased production facility used at present
to support the production of other components. What is the maximum price that Cotton should
be willing to pay Bulac for part X?
a. P1.20 b. P2.00 c. P2.40 d. P2.50

37. FEN, CPA & Co. produces three products from a joint process costing P100,000. The following
information is available:
Selling Price Costs to Selling Price After
Units at Split-off Process Further Further Processing
C 10,000 P35 P70,000 P40
P 20,000 P40 P30,000 P45
A 30,000 P20 P90,000 P25
Which products should be processed further?
a. C only. b. C and P. c. P and A. d. C, P, and A.

Use the following information for problem 38 and 39:

Tigerwoods manufactures rustic furniture. The cost accounting system estimates manufacturing
costs to be P90 per table, consisting of 80% variable costs and 20% fixed costs. The company has
surplus capacity available. It is Tigerwoods’ policy to add a 50% markup to full costs.
38. Tigerwoods is invited to bid on a one-time-only special order to supply 100 rustic tables. What is
the lowest price Tigerwoods should bid on this special order?
a. P7,200 b. P9,000 c. P10,800 d. P13,500

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Management Advisory Services – Midterm Exam FEN
39. A large hotel chain is currently expanding and has decided to decorate all new hotels using the
rustic style. Tigerwoods Incorporated is invited to submit a bid to the hotel chain. What is the
lowest price per unit Tigerwoods should bid on this long-term order?
a. P72 b. P90 c. P10.8 d. P135

40. ABC Company plans to discontinue a segment with a P32,000 segment margin. Common expenses
allocated to the segment amounted to P45,000, of which P20,000 cannot be eliminated if the
segment were closed. The effect of closing down the segment on ABC Company’s before tax profit
would be
a. P12,000 decrease c. P12,000 increase
b. P 7,000 decrease d. P 7,000 increase

41. Bulaclac Company normally produces and sells 30,000 units of Bionic Roses each month. Bionic
Roses is a creation of the Company wherein they incorporate plant-compatible electronic
materials into the roses which widely used by different hotels (its customers). The selling price is
P22 per unit, variable costs are P14 per unit, fixed manufacturing overhead costs total P150,000
per month, and fixed selling costs total P30,000 per month.
Employment-contract strikes in the hotels that purchase the bulk of the Bionic Roses have caused
Bulaclac Company’s sales to temporarily drop to only 9,000 units per month. Bulaclac Company
estimates that the strikes will last for about two months, after which time sales of Bionic Roses
should return to normal. Due to the current low level of sales, however, Bulaclac Company is
thinking about closing down its own plant during the two months that the strikes are on. If
Bulaclac Company does close down its plant, it is estimated that fixed manufacturing overhead
costs can be reduced to P105,000 per month and that fixed selling costs can be reduced by 10%.
Start-up costs at the end of the shutdown period would total P8,000. Since Bulaclac Company
uses just-in-time production method, no inventories are on hand.
At what level of unit sales for the two-month period should Bulaclac Company be indifferent
between temporarily closing the plant or keeping it open?
a. 11,000 b. 24,125 c. 10,000 d. 8,000

42. Cupid's Manufacturing Company can make 100 units of a necessary component part with the
following costs:
Direct Materials P80,000
Direct Labor 13,000
Variable Overhead 40,000
Fixed Overhead 27,000
If Cupid's Manufacturing Company can purchase the component externally for P145,000 and only
P4,000 of the fixed costs can be avoided, what is the correct “make or buy” decision?
a. Make and save P8,000 c. Make and save P20,000
b. Buy and save P8,000 d. Buy and save P20,000

43. Love Inc. sells three products with the following results:
X Y Z
Sales P10,000 P20,000 P30,000
Variable costs 4,000 12,000 15,000
What is the weighted average contribution margin percentage?
a. 48.3% b. 50.0% c. 51.7% d. cannot be determined with the information given.

44. Heart Inc. has projected sales to be P160,000 in April, P200,000 in May, and P240,000 in June.
Heart collects 40% of a month's sales in the month of sale, 40% in the month following the sale,
and 20% in the second month following the sale. The accounts receivable balance on June 30
would be
a. P184,000. b. P144,000. c. P 40,000. d. some other number.

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Management Advisory Services – Midterm Exam FEN
45. Mahal Co. makes payments for purchases 10% during the month of purchase, 60% in the following
month, and the remainder in the second month following the purchase. Purchases are projected
to be P130,000 in January, P140,000 in February, and P160,000 in March. The March 31 accounts
payable balance will be
a. P48,000. b. P96,000. c. P144,000. d. P186,000.

Use the following information for problem 46 and 47:

Mura Corporation makes and sells a single product called a Mahal. The company is in the process
of preparing its Selling and Administrative Expense Budget for the last quarter of the year. The
following budget data are available:
Variable Cost Per Mahal Sold Monthly Fixed Cost
Sales commissions P2.10
Shipping P3.90
Advertising P7.40 P34,000
Variable Cost Per Mahal Sold Monthly Fixed Cost
Executive salaries P198,000
Depreciation on office equipment P10,000
Other P0.60 P38,000
All of these expenses (except depreciation) are paid in cash in the month they are incurred.
46. If the company has budgeted to sell 19,000 Mahal in November, then the total budgeted variable
selling and administrative expenses for November would be:
a. P546,000 b. P280,000 c. P266,000 d. P536,000
47. If the budgeted cash disbursements for selling and administrative expenses for October total
P459,200, then how many Mahal does the company plan to sell in October?
a. 13,300 units b. 12,500 units c. 13,000 units d. 12,800 units

48. Bulls Co. manufactures basketballs. The company has a policy of maintaining a finished goods
inventory equal to 40 percent of the next month's planned sales. Each basketball requires 3 hours
of labor. The budgeted labor rate for the coming year is P13 per hour. Planned sales for the months
of April, May, and June are respectively 4,000; 5,000; and 3,000 units. The budgeted direct labor
cost for June for Bulls Co. is P136,500. What are budgeted sales for July for Bulls Co.?
a. 3,500 units b. 4,250 units c. 4,000 units d. 3,750 units

49. Golden State Company started its commercial operations on September 30 of the current year.
Projected manufacturing costs for the first three months of operations are P1,568,000,
P1,952,000, and P2,176,000, respectively. Depreciation, insurance, and property taxes represent
P288,000 of the estimated manufacturing costs. Insurance was paid on September 30, and
property taxes will be paid in July next year. Seventy-five percent of the remainder of the
manufacturing costs are expected to be paid in the month in which they are incurred, with the
balance to be paid in the following month. The cash payments for manufacturing costs in the
month of November are:
a. P1,568,000 b. P1,952,000 c. P1,664,000 d. P1,856,000

50. Warriors Company prepares its budgets on annual basis. The following beginning and ending
inventory unit levels are planned for the fiscal year of June 1, 2019 through May 31, 2020.
June 1, 2019 May 31, 2020
Raw material* 40,000 50,000
Work-in-process 10,000 10,000
Finished goods 80,000 50,000
*Two (2) units of raw material are needed to produce each unit of finished product.
If 500,000 finished units were to be manufactured during the 2019-2020 fiscal year by Warriors
Company, the units of raw material needed to be purchased would be
a. 950,000 units b. 1,010,000 units c. 1,020,000 units d. 990,000 units
- END. GLORY TO GOD! -

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