Chapter 1

1. It is a field of accounting that provides financial information and nonfinancial information to an

organization’s managers and other internal decision makers.
a. Cost Accounting c. Managerial Accounting
b. Bookkeeping d. Financial Accounting

2. Which of the following is false?

a. Managerial Accounting is as concerned with providing information to stockholders as it is with
providing information to managers.
b. Managerial Accounting focuses more on the segments of an organization rather than an
organization as a whole.
c. Managerial Accounting need not follow the Generally Accepted Accounting Principles (GAAP)
d. Managerial Accounting is not mandatory, i.e., not required by any external law or regulation.

3. In which of the following aspects is managerial accounting similar to financial accounting?

a. Users of reports
b. Emphasis between the past and future
c. Type of data provided to users
d. Reliance on the accounting database

4. Which of the following describes management accounting information?

a. It is prepared for shareholders
b. It is reliable and verifiable
c. It is prepared in accordance with GAAP
d. It provides reasonable and timely estimates

5. The American Institute of Management Accountants came up with the Standards of Ethical
Conduct for Management Accountants which have four sections, namely
a. competence, confidentiality, integrity and objectivity
b. competence, security, integrity and objectivity
c. competence, confidentiality, integrity, and maturity
d. competition, confidentiality, integrity and objectivity

6. Financial and Managerial accounting differ in a number of ways. In contrast to financial

accounting, managerial accounting
a. Focuses on providing data for external users
b. Emphasizes relevance and flexibility rather than precision
c. Is mandatory
d. Is governed by GAAP

7. Managerial Accounting differs from financial accounting in that financial accounting is

a. Involved more heavily in decision analysis
b. Future-oriented
c. Concerned primarily with external financial reporting
d. Concerned with qualitative information
8. Managerial accountant are ordinarily concerned with
a. Preparation of tax returns
b. Preparation of budgets
c. Preparation of financial statements
d. Reporting to government

9. The treasury function includes

a. Preparation of tax returns
b. Cash custody and banking
c. Reporting to government
d. Financial Reporting

10. If a management accountant has a problem in resolving an ethical conflict, the first action that
should normally be taken is to
a. Resign from the company
b. Notify the police
c. Discuss problem with his/her immediate supervisor
d. Remain silent

1. C
2. A
3. D
4. D
5. A
6. B
7. C
8. B
9. B
10. C
Chapter 2

1. Product costs are

a. charged to expense when products become part of the finished goods inventory.
b. are inventoriable costs
c. are treated as assets after products are sold
d. are always charged to an asset account in the same period which they are incurred

Items 2 and 3 are based on the following information:

Following are costs incurred by David Ark Manufacturing Corporation during the previous month:

Direct Materials P5,000

Indirect Materials 2,000
Direct Labor 6,000
Indirect Labor 1,000
Factory Utilities 4,000
Advertising Costs 8,000
Sales commissions 12,000
Depreciation on Administration Building 3,000
Salaries of administrative personnel 20,000
Depreciation – delivery equipment 2,000
Overtime pay – factory workers 1,500
Rework cost on defective products
Discovered during quality inspection 2,500

2. Total Product Costs:

a. P67,000 c. 22,000
b. P45,000 d. 18,000

3. Total Period Costs

a. P67,000 c. P49,000
b. P45,000 d. P22,000

4. Manufacturing Costs do not include

a. Prime cost
b. Conversion cost
c. Indirect Materials
d. Salary of the company president, under whom is the vice president for production

5. Which of the following is a direct product cost?

a. Wood in a furniture factory
b. Salary of the foreman in the assembly division of an automobile company
c. Depreciation of factory equipment
d. Salesman’s commission
6. For product costing purposes, an indirect factory cost
a. is not directly chargeable to the company.
b. is chargeable to prime costs.
c. is chargeable to conversion costs.
d. is never included in the computation of product cost.

7. Which of the following is not a product cost?

a. Wages paid to workers for rework on defective products
b. Wages paid to truck loaders who load finished goods onto outgoing delivery trucks
c. Fringe benefits paid to factory workers
d. Wages paid to workers for idle time due to machine breakdown in a production department

Items 8 to 10 are based on the following information:

Data about Stella’s Company production and inventories for the month of June are as follows

Direct Materials P143,440

Direct Labor 175,000
Actual factory overhead 120,000
Applied factory overhead 140,000

8. Stella Company’s prime cost for June was

a. P154,000 c. P198,000
b. P329,000 d. P318,440

9. Stella Company’s conversion cost for June was

c. P315,000 c. P329,000
d. P295,000 d. P444,000

10. For the month of June, Stella Company’s total manufacturing cost was
a. P469,000 c. P644,000
b. P458,440 d. P449,000

11. B
12. C
13. B
14. D
15. A
16. C
17. B
18. D
19. C
20. B
Chapter 3

1. Which of the following alternatives does not correctly classify the business application to the
appropriate costing system?
Process Costing System Job-order Costing System
a. Car repair shop Paint manufacturer
b. Softdrinks Manufacturer Public Accounting Firm
c. Wallpaper Manufacturer Print Shop
d. Pen manufacturer Renovation job contractors

2. Craft Manufacturers order using job order cost system. For the month just ended, it registered
the following data.

Beginning work in process – 300,000

Orders completed – 2,400,000
Orders Shipped – 2,000,000
Materials requisitioned for the month – 1,700,000
Direct Labor Cost – 800,000
Factory Overhead Rate – 150% of Direct Labor Cost (1,200,000)

The ending work in process inventory was

a. 1,400,000
b. 500,000
c. 1,600,000
d. 700,000

3. The method of averaging costs and providing management with unit cost data used by
companies may depend on the type of products being produced – whether homogenous or
heterogeneous products. The appropriate costing methods for such types of products are
Homogenous Products Heterogeneous Products
a. Process Costing Job Order Costing
b. Process Costing Process Costing
c. Job Order Costing Job Order Costing
d. Job Order Costing Process Costing

Items 4 to 6 are based on the following information:

A company produces and sells two types of products. It classifies its costs as belonging to four
functions- production, marketing, distribution, and customer services. For purposes of setting selling
prices for the products, all company costs are assigned to the two products. The direct costs of the
four functions are traced directly to the two products. The indirect costs, on the other hand, are
accumulated into four separate cost pools and then assigned to the two products using appropriate
allocation bases.

4. The allocation base that would most likely be the best for allocating the indirect costs of
marketing function is
a. Number of shipments
b. Number of sales persons
c. Number of customer phone calls
d. Direct labor hours
5. The allocation base that would most likely be the best for allocating indirect costs of the
distribution function is:
e. Number of shipments c. Direct labor hours
a. Number of sales persons d. Machine hours

6. The allocation base that would most likely be the best for allocating the indirect costs of the
customer services function is
a. Number of shipments
b. Number of sales persons
c. Number of customer phone calls
d. Number of units produced

7. If activity-based costing is implemented in an organization without any other changes being

affected, total overhead costs will
a. be reduced because of the elimination of non-value-added activities.
b. be reduced because organizational costs will not be assigned to products or services.
c. be increased because of the need for additional people to gather information on cost drivers
and cost pools.
d. remain constant and simply be spread over products differently.

8. Which of the following statements about process costing system is incorrect?

a. In a process costing system, each processing department has a work in process account.
b. In a process costing system, equivalent units are separately computed for materials and for
conversion costs.
c. In a process costing system, overhead can be under- or overapplied just as in job order
costing.
d. In a process costing system, materials costs are traced to units of products

9. In a job-costing system, issuing indirect materials to production increases which account?

a. Materials control
b. Work in process control
c. Manufacturing overhead control
d. Manufacturing overhead allocated

10. Direct materials and direct labor costs total P120,000, conversion costs total P100,000, and
factory overhead costs total P400 per machine hour. If 150 machine hours were used for Job
#201, what is the total manufacturing cost for Job #201?
a. 120,000
b. 160,000
c. 180,000
d. 280,000
Chapter 4

1. Which of the following statements about cost behavior is correct?

a. Within the relevant range, total variable costs may vary directly with activity, while total
fixed costs remain unchanged for a given period despite fluctuations in activity
b. Within the relevant range, variable cost per unit varies directly with activity, while fixed
costs per unit remains unchanged for a given period despite fluctuations in activity
c. Within the relevant range, fixed cost per unit varies directly with activity, while variable cost
per unit remains unchanged for a given period despite fluctuations in activity
d. Within the relevant range, total variable costs may vary inversely with activity, while total
fixed costs remain unchanged for a given period despite fluctuations in activity

2. In cost accounting, the term relevant range refers to the range over which
a. Relevant costs are incurred
b. Production should be confined
c. Total fixed costs fluctuate
d. Costs relationships are valid

3. Fixed cost that would be considered a direct cost is

a. salary of the sales manager when the cost object is the sales department.
b. salary of the controller when the cost object is a unit of product.
c. fees of the Board of Directors when the cost object is the Production Department.
d. the rental cost of the finished goods warehouse when the cost object is the Accounting
Department

4. Which one of the following costs would decrease if production levels were increased within the
relevant range?
a. Total Fixed Costs
b. Variable Costs per unit
c. Total Variable Costs
d. Fixed Costs per unit

5. The following data were collected from the records of the Receiving Department of a company:
Month Number of Items Received Receiving and Handling Costs
January 2,800 P 17,500
February 2,000 12,500
March 1,190 7,450
April 5,200 32,500
May 4,410 27,600
June 4,016 25,100

The receiving and handling cost is most likely to be a

a. Step cost c. fixed cost
b. Variable cost d. semi-variable cost

Items 6 to 8 are based on the following information:

 Meng Company is preparing a flexible budget for next year and requires a breakdown of the
factory maintenance cost into the fixed and variable elements.

The maintenance costs and machine hours for the past six months are as follows:
Maintenance Cost Machine Hours
January P15,500 1,800
February 10,720 1,230
March 15,100 1,740
April 15,840 2,190
May 14,800 1,602
June 10,600 1,590

6. If Meng Company uses the high-low method of analysis, the estimated variable rate of
maintenance cost per machine hour is

a. P7.23 c. P5.46
b. P8.73 d. P5.33

7. The average annual fixed maintenance cost amounts to

a. P4,160 c. P49,920
b. P8,320 d. P5,120

8. What is the average rate per hour at a level of 1,500 machine hours?
a. P4,160 c. P49,920
b. P8,320 d. P5,120

Items 9 to 10 are based on the following information:

Frances Corporation conducted a regression analysis of its factory overhead costs. The analysis
yielded the following cost relationship:

Total factory overhead cost = P50,000 per month + 5H*

*H = number of direct labor hours, the selected cost driver for overhead costs.

Each unit of product requires 6 direct labor hours. The company’s normal production is 20,000
units of product per year.

9. The total overhead cost for a month’s production of 2,000 units is

a. P60,000 c. P110,000
b. P50,000 d. P0

10. The predetermined fixed overhead rate per hour

a. P6.00 c. P4
b. P5.00 d. P5,120
1. A
2. D
3. A
4. D
5. B
6. D
7. C
8. B
9. C
10. B