Paule, Heinie Joy B.

Acc 501

1. Demand for refinements to the costing system has accelerated due to ________.
A. increase in direct costs
B. decrease in product diversity
C. decrease in indirect costs
D. competition in product markets

2. Over costing a particular product may result in:

A. pricing the product too high
B. pricing the product too low
C. operating efficiencies
D. understating total product costs

3. Refining a cost system involves which of the following?

A. classifying as many costs as indirect costs as is feasible
B. creating as many cost pools as possible to capture all costs
C. identifying the activities involved in a process and understanding how those activities consume
resources
D. Seeking an easier and more cost effective way to calculate average costs

4. The fundamental cost objects of ABC are ________.

A. activities
B. cost drivers
C. products
D. services

5. Which of the following statements is true of activity-based costing?

A. In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-
manufacturing indirect costs.
B. Activity based costing is more suited to companies with high product diversity than companies with
single product line.
C. Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such
as products or services.
D. The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of
all direct costs to the products.

6. Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________.
A. establish a cause-and-effect relationship with the activities performed
B. use single cost pool for all overhead costs, thereby enabling simplicity
C. use a broad average to allocate all overhead costs
D. never consider interactions between different departments in assigning support costs

7. The net present value and internal rate of return methods of capital budgeting are superior to the payback
method in that they:
A. are easier to implement.
B. considers the time value of money.
C. require less input
D. reflect the effects of depreciation and income taxes

8. An increase in the discount rate:

A. will increase the present value of future cash flows
B. will have no effect on net present value.
C. will reduce the present value of future cash flows.
D. is one method of compensating for reduced risk
9. The payback method measures:
A. how quickly investment dollars may be recovered.
B. the cash flow from an investment.
C. the economic life of an investment.
D. the profitability of an investment

10. The capital budgeting method that divides a project's annualincremental net income by the initial
investment is the:
A. internal rate of return method.
B. the simple ( or accounting) rate of return method.
C. the payback method.
D. the net present value method

11. When determining a net present value in an inflationary environment, adjustments should be made to:
A. decrease the discount rate only.
B. increase the estimated cash flows and increase the discount rate.
C. increase the estimated cash flows only.
D. increase the estimated cash flows and decrease the discount rate

12. From a financial point of view, a company that decides to develop new product is making
A. a financing decision.
B. an investment decision.
C. a capital structure decision.
D. a cash flow decision.

13. Working capital management refers to

A. long-term financing decisions.
B. the management of cash flows.
C. investing in product development.
D. capital structure.

14. The personal decision to obtain a college degree in business is primarily a(n) ________ decision.
A. social
B. investment
C. ethical
D. financing

15. Finance managers need to interact constantly with

A. marketing managers.
B. accounting staff.
C. management information systems staff.
D. all of the above.

16. A cost which remain constant per unit at various levels of activity is a
A. Variable Cost
B. Fixed Cost
C. Mixed Cost
D. Manufacturing Cost

17. The ratio of fixed expenses to the unit contribution margin is the:
A. break-even point in unit sales.
B. profit margin.
C. contribution margin ratio.
D. margin of safety
18. The margin of safety percentage is computed as:
A. Break-even sales/Total sales.
B. Total sales - Break-even sales.
C. (Total sales - Break-even sales)/Break-even sales.
D. (Total sales - Break-even sales)/ Total sales.

19. The amount by which a company's sales can decline before losses are incurred is
called the:
A. contribution margin ratio.
B. degree of operating leverage.
C. margin of safety.
D. contribution margin ratio

20. The degree of operating leverage can be calculated as:

A. contribution margin divided by sales.
B. gross margin divided by net income.
C. net income divided by sales.
D. contribution margin divided by net income.

21. If company A has a higher degree of operating leverage than company B, then:
A. the company A has higher variable expenses.
B. the company A's profits are more sensitive to percentage changes in sales.
C. the company A is more profitable.
D. the company A is less risky.

22. Marston enterprises sells three chemicals: petrol, septine, and tridol. Petrol's unit
contribution margin is higher than septine's which is higher than tridol's. Which one of
the following events is most likely to increase the company's overall break-even point?
A. The installation of new computer-controlled equipment and subsequent lay-off of
assembly-line workers.
B. A decrease in tridol's selling price.
C. An increase in the overall market demand for septine.
D. A change in the relative market demand for the products, with the increase
favoring petrol relative to septine and tridol

23. The margin of safety is equal to:

A. Sales - Net income.
B. Sales - (Variable expenses/Contribution margin).
C. Sales - (Fixed expenses/Contribution margin ratio).
D. Sales - (Variable expenses + Fixed expenses)

24. Standard Costs may be used for:

A. Product Costing
B. Planning
C. Controlling
D. All of the above

25. A favorable labor rate variance indicates that

A. actual hours exceed standard hours. 
B. standard hours exceed actual hours.
C. the actual rate exceeds the standard rate.
D. the standard rate exceeds the actual rate

26. If the actual labor hours worked exceed the standard labor hours allowed, !hat type of variance will occur?
A. Favorable labor efficiency variance. 
B. Favorable labor rate variance.
C. Unfavorable labor efficiency variance.
D. Unfavorable labor rate variance

27. A favorable material price variance coupled with an unfavorable material usage variance would MOST
likely result from:
A. problems with processing machines.
B. the purchase of low quality materials.
C. problems with labor efficiency.
D. changes in the product mix.

28. A labor efficiency variance resulting from the use of poor quality materials should be charged to:
A. the production manager.
B. the purchasing agent.
C. manufacturing overhead.
D. the engineering department

29. Which of the following represents value-added time in the manufacturing cycle?
A. Inspection time.
B. Queue time.
C. Move time.
D. Process time

30. To measure controllable production inefficiencies, which of the following is the best basis for a company to
use in establishing the standard hours allowed for the output of one unit of product?
A. Average historical performance for the last several years.
B. Engineering estimates based on ideal performance.
C. Engineering estimates based on attainable performance.
D. The hours per unit that would be required for the present
workforce to satisfy expected demand over
the long run

31. f a company follows a practice of isolating variances at the earliest point in time, what would be the
appropriate time to isolate and recognize a direct material price variance?
A. When material is issued.
B. When material is purchased.
C. When material is used in production.
D. When production is completed.

32. Which of the following is not considered in the calculation of divisional ROI?

 A. Divisional income.
B. Earnings velocity.
C. Capital turnover.
D. Sales margin.

33. Which of the following is the correct mathematical expression for return on investment? 
A. Sales margin ÷ capital turnover.
B. Sales margin + capital turnover.
C. Sales margin - capital turnover.
D. Sales margin x capital turnover.

34. What practice is present when divisional managers throughout an organization work together in an effortto
achieve the organization's goals? 
A. Participatory management.
B. Goal attainment.
C. Goal congruence.
D. Centralization of objectives.
35. ROI is most appropriately used to evaluate the performance of: 
A. cost center managers.
B. revenue center managers.
C. profit center managers.
D. investment center managers

36. The biggest challenge in making a decentralized organization function effectively is: 
A. earning maximum profits through fair practices.
B. minimizing losses.
C. taking advantage of the specialized knowledge and skills of highly talented managers.
D. obtaining goal congruence among division managers

37. The total contribution margin decreases if sales volume remains the same and:
A. fixed expenses increase.
B. fixed expenses decrease.
C. variable expense per unit increases.
D. variable expense per unit decreases

38. The contribution margin ratio always increases when the:

A. variable expenses as a percentage of sales increase.
B. variable expenses as a percentage of sales decrease.
C. break-even point increases.
D. break-even point decreases

39. The ratio of fixed expenses to the unit contribution margin is the:
A. break-even point in unit sales.
B. profit margin.
C. contribution margin ratio.
D. margin of safety

40. If company A has a higher degree of operating leverage than company B, then:
A. the company A has higher variable expenses.
B. the company A's profits are more sensitive to percentage changes in sales.
C. the company A is more profitable.
D. the company A is less risky
41. Candelaria Inc. produces and sells a single product. The company has provided it’s contribution format
income statement for June.

Sales (8,800 units) ₱528,000

Variable expenses 290,400
Contribution margin 237,600
Fixed expenses 211,700
Net operating income ₱25,900

If the company sells 9,200 units, it’s net operating income should be closest to:
A. ₱27,077
B. ₱49,900
C. ₱36,700
D. ₱25,900

42. Joy Company reported the following information:

Sales (400 cases) ₱100,000

Variable expenses 60,000
Contribution margin 40,000
Fixed expenses 35,000
Net operating income ₱5,000

How much will the sale of one additional case add to Joy’s net operating income?
A. ₱250.00
B. ₱100.00
C. ₱150.00
D. ₱12.50

43. Gay Corporation’s contribution margin ratio is 12% and its fixed monthly expenses are ₱84,000. If the
company’s sales for a month are ₱738,000, what is the best estimate of the company’s net operating income?
Assume that the fixed monthly expenses do not change.
A. ₱565,440
B. ₱654,000
C. ₱88,560
D. 4,560

44. Coil Corporation has provided its contribution format income statement for June. The company produces
and sells a single product.

Sales (8,400 units).......................... ₱764,400

Variable expenses.......................... 445,200
Contribution margin....................... 319,200
Fixed expenses............................... 250,900
Net operating income..................... ₱68,300

If the company sells 8,200 units, its total contribution margin should be closest to:
A. ₱301,000
B. ₱311,600
C. ₱319,200
D. ₱66,674
45. Copi Company provides the following ABC costing information:

Activities Total Costs Activity-cost drivers

Labor ₱384,000 8,000 hours
Gas ₱36,000 6,000 gallons
Invoices ₱180,000 7,500 invoices
Total costs ₱600,000
The above activities used by their three departments are:

Law Department Bus Department Plow Department

Labor 2,500 hours 1,400 hours 4,100 hours
Gas 1,800 gallons 1,000 gallons 3,200 gallons
Invoices 1,300 invoices 300 invoices 5,900 invoices

How much of invoice cost will be assigned to the Bus Department?

A. ₱7,200
B. ₱141,600
C. ₱31,200
D. ₱180,000

46. Copi Company provides the following ABC costing information:

Activities Total Costs Activity-cost drivers

Labor ₱490,000 10,000 hours
Gas ₱18,000 3,000 gallons
Invoices ₱56,000 3,500 invoices
Total costs ₱564,000

The above activities used by their three departments are:

Law Department Bus Department Plow Department

Labor 2,800 hours 1,400 hours 5,800 hours
Gas 1,800 gallons 900 gallons 300 gallons
Invoices 1,600 invoices 300 invoices 1,600 invoices

How much of the total cost will be assigned to the Plow Department?
A. ₱564,000
B. ₱311,600
C. ₱188,000
D. ₱173,600

47. Columbus Company provides the following ABC costing information:

Activities Total Costs Activity-cost drivers
Labor ₱336,000 8,000 hours
Gas ₱84,000 7,000 gallons
Invoices ₱180,000 7,500 invoices
Total costs ₱600,000
The above activities used by their three departments are:

Law Department Bus Department Plow Department

Labor 3,100 hours 1,500 hours 3,400 hours
Gas 1,900 gallons 900 gallons 4,200 gallons
Invoices 1,300 invoices 400 invoices 5,800 invoices

If labor hours are used to allocate the non-labor, overhead costs, what is the overhead allocation rate?
A. ₱75.00 per hour
B. ₱26.67 per hour
C. ₱42.00 per hour
D. ₱33.00 per hour

48. Dalry Company produces a special spray nozzle. The budgeted indirect total cost of inserting the
spray nozzle is ₱68,750. The budgeted number of nozzles to be inserted is 11,000. What is the budgeted
indirect cost allocation rate for this activity?
A. ₱0.16
B. ₱0.32
C. ₱1.16
D. ₱6.25

49. Extra Manufacturing Company provides the following ABC costing information:

Activities Total Costs Activity-cost drivers

Account inquiry ₱750,000 15,000 hours
Account billing ₱250,000 5,000,000 lines
Account verification accounts ₱173,250 70,000 accounts
Correspondence letters ₱42,000 7,000 letters
Total costs ₱1,215,250

The above activities are used by Departments A and B as follows:

Department A Department B
Account inquiry hours 2,000 hours 3,500 hours
Account billing lines 900,000 lines 750,000 lines
Account verification accounts 9,000 accounts 7,000 accounts
Correspondence letters 1,200 letters 1,600 letters

How much of the total costs will be assigned to Department B?

A. ₱282,460
B. ₱246,925
C. ₱239,425
D. ₱256,825
50. The Dance Company expects to have sales of ₱30,000 in January, ₱33,000 in February, and ₱38,000 in
March. If 20 percent of sales are for cash, 40 percent are credit sales paid in the month following the sale, and
40 percent are credit sales paid 2 months following the sale, what are the cash receipts from sales in March?
A. ₱55,000
B. ₱47,400
C. ₱38,000
D. ₱32,800

51. If Cold Tubs Inc. had sales of ₱2,027,773 per year (all credit) and its days sales outstanding was equal to 35
days, what was its average amount of accounts receivable outstanding? (Assume a 365-day year.)
a. ₱194,444
b. ₱ 57,143
c. ₱ 5,556
d. ₱ 97,222

52. Spartan Sporting Goods has ₱5 million in inventory and ₱2 million in accounts receivable. Its average
daily sales are ₱100,000. The company’s payables deferral period (accounts payable divided by daily
purchases) is 30 days. What is the length of the company’s cash conversion cycle?
A. 100 days
B. 60 days
C. 50 days
D. 40 days

53. For the County Company, the average age of accounts receivable is 60 days, the average age of accounts
payable is 45 days, and the average age of inventory is 72 days. Assuming a 365-day year, what is the length
of the firm’s cash conversion cycle?
A. 87 days
B. 90 days
C. 65 days
D. 48 days

54. Chad Corporation’s budgeted monthly sales are ₱3,000. Forty percent of its customers pay in the first
month and take the 2 percent discount. The remaining 60 percent pay in the month following the sale and
don’t receive a discount. Chad’s bad debts are very small and are excluded from this analysis.
Purchases for next month’s sales are constant each month at ₱1,500. Other payments for wages, rent, and
taxes are constant at ₱700 per month. Construct a single month’s cash budget with the information given.
What is the average cash gain or (loss) during a typical month for Chad Corporation?
A. ₱2,600
B. ₱ 800
C. ₱ 776
D. ₱ 740

55. Taste Company is planning to sell 400,000 hammers for ₱3 per unit. The contribution margin ratio is 20%.
If Taste will break even at this level of sales, what are the fixed costs?
A. ₱24,000
B. ₱560,000
C. ₱800,000
D. ₱960,000
56. Fixed costs are ₱600,000 and the variable costs are 75% of the unit selling price. What is the break-even
point in Peso?
A. ₱1,400,000
B. ₱1,800,000
C. ₱ 2,400,000
D. ₱800,000

57. Fixed costs are ₱2,400,000 and the contribution margin per unit is ₱150. What is the break-even point?
A. ₱6,000,000
B. ₱16,000,000
C. 6,000 units
D. 16,000 units

58. Pascual Inc. is planning to sell 800,000 units for ₱1.50 per unit. The contribution margin ratio is 20%. If
Pascual will break even at this level of sales, what are the fixed costs?
A. ₱240,000
B. ₱560,000
C. ₱800,000
D. ₱960,000

59. June Industries sells a product with a contribution margin of ₱12 per unit, fixed costs of ₱148,800, and
sales for the current year of ₱200,000. How much is June’s break-even point?
A. 9,200 units
B. ₱51,200
C. 12,400 units
D. 4,267 units

60. Cool Wines has fixed costs of ₱15,000 per year. Its warehouse sells wine with variable costs of 80% of its
unit selling price. How much in sales does Cool need to break even per year?
A. ₱12,000
B. ₱3,000
C. ₱18,750
D. ₱75,000
1. D 41. C
2. A ₱528,000/8,800 = ₱60 sales price per unit
3. C ₱290,400/8,800 = ₱33 variable expense per unit
4. A Sales (9,200x₱60) ₱552,000
5. B Variable exp (9,200x ₱33) 303,600
6. A Contribution margin 248,400
7. B Fixed expenses 211,700
8. C Net operating income ₱36,700
9. A 42. B
10. B ₱40,000 / 400 = ₱100 Contribution margin per case
11. B If one additional case is sold, net operating income
12. B will decrease by ₱100.
13. B
14. B 43. D
15. D Sales ₱738,000
16. A Variable exp (738,000x88%) 649,440
17. A Contribution margin (738,000x12%) 88,560
18. D Fixed expenses 84,000
19. C Net operating income ₱4,560
20. D
21. B 44. B
22. D ₱319,200 / 8,400 = ₱38 Contribution margin per
23. C unit. If 8,200 units are sold, the total contribution
24. D margin will be 8,200 x ₱38 = ₱311,600
25. D
26. C 45. A
27. B (₱180,000 / 7,500 invoices) × 300 invoices = ₱7,200
28. B
29. D 46. B
30. C (₱490,000 / 10,000) × 5,800 = ₱284,200
31. B (₱18,000 / 3,000 × 300 = ₱1,800
32. B (₱56,000 / 3,500) × 1,600 = ₱25,600
33. D ₱311,600
34. C
35. D 47. D
36. D (₱84,000 + ₱180,000) ÷ 8,000 = ₱33.00
37. C
38. B 48. D
39. A ₱68,750 / 11,000 = ₱6.25
40. B
49. C (0.98x0.40x₱3,000) 1,176
Account inquiry costs Collections (last month’s sales)
=(₱750,000/15,000)x3,500 ₱175,000 (1.00x0.60x₱3,000) 1,800
Billing costs Total collections 2,976
=(₱250,000/5M)x750,000 ₱37,500 Purchases payments 1,500
Account verification costs Other payments 700
=(₱173,250/70,000)x7,000 ₱17,325 Total payments 2,200
Correspondence costs Net Cash gain (loss) ₱776
=(₱42,000/7,000)x1,600 ₱9,600
₱239,425 55. A
Fixed costs = ₱400,000 x 20%
50. D = ₱80,000 x ₱3 = ₱240,000
March Receipts = (0.20)( ₱38,000) + (0.40)
( ₱33,000) + (0.40)( ₱30,000) = ₱32,800 56. C
= ₱600,000/25% = ₱2,400,000
51. A
35(₱2,027,773/365) = ₱194,444 57. D
=₱2,400,000/₱150 = 16,000units
52. D
₱5,000,000 / ₱100,000 = 50 days 58. A
₱2,000,000 / ₱100,000 = 20 days = 800,000 X 20%
Cash conversion cycle = 50 + 20 – 30 =40 days =160,000 X ₱1.50
= ₱240,000
53. A
Cash conversion cycle = 72 + 60 – 45 = 87 days 59. C
=₱148,800 / ₱12 = 12,400 units
54. C
Sales ₱3,000 60. D
Collections (same month’s sales) = ₱15,000 / 20% = ₱75,000