Management Advisory Services

MANAGEMENT ADVISORY SERVICES 3. Implementation Services

4. Transaction Services
- Management Consulting Services, Business Advisory Services, Management
5. Staff and Other Support Services
Services
6. Product Services
- Providing advice and technical assistance to help clients improve the use of their
resources to achieve their goals FACTORS AND THE EMERGENCE AND GROWTH OF MAS
CONSULTANCY:
*management consultant-qualified by education, experience, technical ability, and
1. Growth in size and complexity of business firms
temperament to advise or assist businessmen on a professional basis in identifying, defining,
2. Complexities in managing and conducting a business
and solving specific management problems involving the organization, planning, direction,
3. Lack of competent staff
control, and operation of the firm
4. Trend towards industrialization
ANALYTICAL APPROACH AND PROCESS/CONSULTING PROCESS: 5. Need for adequate and timely information in management decision-making
6. Development of techniques for the solution of management problems, and businessmen’s
1. Ascertaining the pertinent facts and circumstances
awareness of their usefulness
2. Seeking and identifying objectives
3. Defining the problem or opportunity for improvement ROLE OF CONSULTANTS AND CLIENTS IN MAS ENGAGEMENTS
4. Evaluating and determining possible solutions
1. FULL SCOPE ENGAGEMENT
5. Presenting findings and recommendations
(7 phases in the analytical process)
6. Planning and scheduling actions
2. SPECIAL STUDY ENGAGEMENTS
7. Advising and providing technical assistance
(5 phases in the analytical process) decision and action beyond the decision is solely the
responsibility of the client
***ANALYSIS STAGE (1, 2, 3)
3. INFORMAL ADVICE
***DESIGN STAGE (4, 5)
Consultants respond as practicable at the moment and express the basis for the response
***IMPLEMENTATION STAGE (6, 7)

MAS PRACTICE STANDARDS

CONSULTING SERVICES:
***GENERAL STANDARDS
1. Consultations
a. Professional Competence
2. Advisory Services

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 Management Advisory Services
b. Due Professional Care
c. Planning and Supervision International Certifications in Management Accounting
d. Sufficient Relevant Data  Certified Management Accountant by Institute of Management Accounting (by
e. Forecasts PAMA in the Philippines)
Part 1: Financial Planning, Performance, and Analytics
*** TECHNICAL STANDARDS
15% External Financial Reporting Decisions
a. Role of MAS Practitioner (should maintain role as adviser)
20% Planning, Budgeting, and Forecasting
b. Understanding with the Client
20% Performance Management
(State responsibilities of each party)
15% Cost Management
c. Client Interest (achieve the client’s goal objectives)
15% Internal Controls
d. Communication with Clients
15% Technology and Analytics
(Conflict of interest, objectivity, independence)

Part 2: Strategic Financial Management

MANAGEMENT ACCOUNTING
20% Financial Statement Analysis
-Managerial/Internal Accounting
20% Corporate Finance
25% Decision Analysis
MANAGEMENT FUNCTIONS AND THE NEED FOR MANAGEMENT
10% Risk Management
ACCOUNTING INFORMATION
10% Investment Decisions
1. Planning
15% Professional Ethics
a. Setting of Immediate and long range goals
b. Predicting future conditions
 Certified in Financial Management
c. Considering different means to achieve goals
d. Deciding which strategies to use
DISTINCTIONS: MANAGEMENT, COST and FINANCIAL ACCOUNTING
2. Directing and Motivating- overseeing day to day activities, seeing to it that members of
1. Users of Report
the org are mobilized to carry out plans
2. Purpose
3. Controlling
3. Types of Reports
-checking performance versus the plan or standard set, deciding what action to take
4. Basis of Reports
should there be any deviation

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 Management Advisory Services
5. Standards of Presentation ***Contact with levels above the IS should be initiated only with the superior’s
6. Reporting Entity knowledge, assuming the superior is not involved
7. Period Covered ***To authorities/ people not involved in the organization- only if there’s a clear
violation of the law
***Cost Accounting accumulates cost information for both management and financial 5. Impartial Advisor- for better understanding of possible course of action
accounting. It is part of the company’s overall accounting system
CONTROLLER: The Chief Management Accountant

STANDARDS OF ETHICAL CONDUCT FOR MANAGEMENT ACCOUNTANTS CONTROLLER- Chief Management accounting executive of an organization who is mainly
(From the American Institute of Management Accountants) responsible for the accounting aspects of management planning and control
1. Competence
FUNCTIONS:
2. Confidentiality
-keep except when disclosure is authorized or legally required 1. Planning for Control
3. Integrity 2. Reporting and Interpreting
Refrain from engaging in any conduct that would prejudice carrying out duties - comparing performance with operating plans and standard
ethically 3. Evaluating and Consulting
-mitigate actual conflicts of interest - Consult with all levels of management responsible for policy or action
-avoid tasks that might discredit the profession concerning any phase of the operation of the business as it relates to the
4. Credibility attainment of objectives.
-communicate info fairly and objectively 4. Tax Administration
Disclose all info that could reasonably be expected to influence user’s understanding 5. Government Reporting
of the reports. 6. Protection of Assets
- Assure protection for the assets through internal control, internal auditing, and
RESOLUTIONS OF ETHICAL CONFLICT assuring proper insurance coverage
1. Established policy of the organization regarding conflicts 7. Economic Appraisal
2. Immediate superior - Continuously appraise economic and social forces and government influences
3. Next higher managerial level (If the Immediate superior is involved) and to interpret their effect upon the business
4. Audit Committee, Executive Committee, Board of Directors, Board of Trustees,
DISTINCTIONS BETWEEN CONTROLLERSHIP AND TREASURERSHIP
Owners (If IS is the CEO)
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 Management Advisory Services
CONTROLLERSHIP TREASURERSHIP DIFFERENT COSTS FOR DIFFERENT PURPOSES
1. Planning and Control Provision of Capital
1. Manufacturing Costs/Product Cost
2. Reporting and Interpreting Investor Relations
2. Non-Manufacturing Costs/Commercial/Operating
3. Evaluating and Consulting Short-Term Financing
Expenses
4. Tax Administration Banking and Custody
a. R&D
5. Government Reporting Credit and Collections NATURAL
b. Marketing
6. Protection of Assets Investments CLASSIFICATION
c. Distribution
7. Economic Appraisal Insurance d. Selling
e. After-sales
f. General and Administrative
COSTS IN MANAGEMENT ACCOUNTING
APPLICABILTY 1. Capital Expenditures (major overhaul)
COSTS- monetary measure of the amount of resources given up or used for some TO ACCOUNTING 2. Revenue Expenditures (minor repairs)
purpose PERIOD
1. Direct Materials
TERMS:
2. Direct Labor
IN RELATION TO
1. Cost Objects- anything for which cost is computed 3. Factory Overhead
THE PRODUCT
2. Cost Driver- any variable that usually affects cost over a period of time a. Indirect Material
3. Cost Pool- grouping of individual cost item, variety of similar costs which are b. Indirect Labor
accumulated COSTS FOR 1. Budgeted Cost
4. Activity-transaction with a specified purpose PLANNING AND 2. Standard Cost
a. Value-adding Activities- necessary to produce the product (assembling the CONTROL
product) 1. Relevant Cost (Taxi with a fare of 70 or jeep with a
b. Non-value adding Activities- do not make the product more valuable to customer fare of 10)
FOR
(moving materials to/from stockroom) 2. Irrelevant Cost (Sunk cost- . A company spends
ANALYTICAL
P20,000 to train its sales staff in the use of new tablet
PROCESSES
computers, which they will use to take customer orders.
The computers prove to be unreliable, and the sales

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 Management Advisory Services
manager wants to discontinue their use. The training is right the first time 4. External Failure Cost
a sunk cost, and so should not be considered in any (conformance/nonco
decision regarding the computers.) nformance)
1. Differential Cost-difference in cost between 2 (Voluntary/nonvolu
alternatives ntary)
a. Incremental (happens when the decision results to
increased cost (when you choose to ride a taxi)
Cost segregation- this is done to determine the rate of past cost variability, then to
b. Decremental
establish the estimated fixed cost.
FOR DECISION- 2. Avoidable Cost- expense that will not be incurred if a
MAKING particular activity is not performed a. High-low point method
3. Out of Pocket Cost- expenses that could be incurred or b. Least square method
avoided depending on management's decisions (having c. Visual fit method
snack)
Exercise:
3. Opportunity Cost
4. Sunk Cost 1. Details of a company is as follows:
DEGREE OF 1. Controllable Cost (DL,DM) Sales 870 Raw Materials, beg 10
CONTROLLABILI 2. Non-Controllable Cost (rent) Purchases or Raw 190 Raw Material, end 40
TY Materials
1. Variable Cost Direct Labor 200 WIP, beg 20
AS TO BEHAVIOR
2. Fixed Cost Manufacturing Overhead 230 WIP, end 50
(Reaction to
a. Committed (depreciation Administrative Expenses 150 Finished Goods, Beg 90
Changes in Cost
b. Discretionary/ Managed Selling Expenses 140 Finished Goods, end 130
Driver)
3. Mixed Cost  Prepare a schedule of Cost of Goods Manufactures
QUALITY COST- 1. Prevention Cost-incurred to avoid defects  Computer the Cost of Goods Sold
sum of all cost that 2. Appraisal Cost-incurred to monitor and find defective  Prepare an Income Statement
would disappear if units
we did everything 3. Internal Failure Cost

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 Management Advisory Services
2. A management provided their cost data for two levels of their monthly sales
volume. The company sells their product for 133.60 per unit. 5. A review of Macks Corporation’s accounting records found that at a volume of
Sales volume (units) 4,000 5,000 90,000 units, the variable and fixed cost per unit amounted to P8 and P4,
Cost of Sales P383,600 479,500 respectively. On the basis of this information, what amount of total cost would
Selling, General, Administrative P124,400 P136,000 Macks anticipate at a volume of 85,000 units?
Cost
RELEVANT RANGE- range of activity that reflects the company’s normal
operating range
 Compute for the total contribution margin when 4,300 units are sold
TOTAL PER COST
3. Macks Corporation has provided the following production and average cost data AMOUNT DRIVER
for two levels of monthly production volume. The company produces a single Varies directly Constant
VC
product. with cost driver
Production Volume 1,000 units 2,000 units Constant Varies Inversely
FC
Direct materials P15.20 per unit P15.20 per unit with cost driver
Direct Labor P30.50 per unit P30.50 per unit
Manufacturing Overhead P54.10 per unit P37.40 per unit
COST-VOLUME PROFIT ANALYSIS
 Compute for the total monthly fixed manufacturing cost?
-systematic examination of the relationships among cost, cost driver, and profit
4. Use the data below to compute for the needed requirement:
ELEMENTS:
Warranty Cost P72,000
Employee Training 28,000 1. Sales
Repair of units prior to shipment to customers 14,000 2. Total Fixed Cost
Quality Engineering 61,000 3. Variable cost per unit
Product inspection during manufacturing 35,000 4. Sales Mix
Travel to customers sites to perform repairs 6,200
 Compute the company’s prevention, appraisal, internal failure, and APPLICATIONS (in planning and decision-making)
external failure cost. 1. Type of product to produce and sell

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2. Pricing policy to follow B. Multiple Products
3. Marketing strategy to use 1.
4. Type of productive facilities to acquire

CONTRIBUTION MARGIN INCOME STATEMENT a.

Sales-Variable Cost= CM
b.
KEY ASSUMPTION OF CVP ANALYSIS

1. All costs are classifiable as either variable or fixed *

2. Cost and revenue relationships are predictable and linear over a relevant range of
activity and a specified period of time. 2.
3. Total variable costs change directly with the cost driver, but variable costs per unit
are constant over the relevant range
a.
4. Total fixed costs are constant over the relevant range, but fixed costs per unit vary
inversely with the cost driver
b.
5. Selling prices per unit and market condition remain unchanged
6. Production equal sales (when there is no change in inventory)
7. The time value of money is ignored. *

BREAK-EVEN ANALYSIS
MARGIN OF SAFETY
Break-even point- neither profit nor loss
- Amount of peso-sales/ number of units by which actual or budgeted sales may be
A. Single-Product
decreased without resulting into a loss
1.

1.
2. 2.

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1.

3.
2.

MGMT GOALS Required Sales Required Sales (PESOS)

(QUANTITY) 3.
To earn desired profit
before tax (DP)  One conclusion companies can learn from examining operating leverage is that firms that
minimize fixed costs can increase their profits without making any changes to the selling
To earn desired profit price, contribution margin or the number of units they sell.
before tax (DP)  Companies with high operating leverage must cover a larger amount of fixed costs each
month regardless of whether they sell any units of product.
To earn Desired Profit  Low-operating-leverage companies may have high costs that vary directly with their sales
after Tax but have lower fixed costs to cover each month.
To earn desired profit  The operating leverage formula can show how a company's costs and profit relate to each
ratio (Profit as % of other, and show that reducing fixed costs can increase profits without changing sales
sales) quantity, contribution margin or selling price.

Examples of Operating Leverage

OPERATING LEVERAGE
1. Most of Microsoft’s costs are fixed, such as expenses for upfront development
-extent to which a company uses fixed cost in its cost structure and marketing. With each dollar in sales earned beyond the break-even point, the
- used to calculate a company’s break-even point and help set appropriate selling prices to company makes a profit, but Microsoft has high operating leverage.
cover all costs and generate a profit.
2. Conversely, Walmart retail stores have low fixed costs and large variable costs,
OPERATING LEVERAGE FACTOR (OLF) or DEGREE OF OPERATING especially for merchandise. Because Walmart sells a huge volume of items and
LEVERAGE (DOL) pays upfront for each unit it sells, its cost of goods sold increases as sales
-used to measure the extent of the change in EBIT resulting from the change in sales increase. Because of this, Walmart stores have low operating leverage.

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Most of a company’s costs are fixed costs that recur each month, such as rent, regardless of  If the company’s fixed expenses decrease by 20%, by how many units
sales volume. As long as a business earns a substantial profit on each sale and sustains will the break-even point will change?
adequate sales volume, fixed costs are covered and profits are earned.
3. Macks Enterprise is studying the addition of a new product that would have an
Other company costs are variable costs that are only incurred when sales occur. This includes
expected selling price of P160 and variable cost of P100. Anticipated demand is
labor to assemble products and the cost of raw materials used to make products. Some
8,000 units. A new salesperson must be hired because the company’s current sales
companies earn less profit on each sale but can have a lower sales volume and still generate
force is working at capacity. Two compensation plans are under consideration:
enough to cover fixed costs.
Plan 1: Annual salary of P32,000 plus 10% commission based on gross sales.
Exercise: Plan 2: Annual salary of P140,000 and no commission
 Compute the operating leverage factor of the two plans at 8,000 units.
1. Las month, Macks Corporation had earned a profit of P750,000. The company’s only
 Assume a general economic downturn occurred during year 2, with product
product had a contribution margin ratio of 30%, and break-even sales of P5,000,000.
demand falling from 8,000 to 6,400 units. Using the operating leverage
Compute for the :
factors, determine and show which plan would produce a larger percentage in
 Margin of Safety
net income.
 Fixed Cost
 Sales last month
4. Macks Co. sells a product for P5 per unit. Annual fixed expenses are P210,000 and
 Variable Cost
the unit variable expenses are 60% of selling price. How many units must the firm
sell in order for Macks to realize a profit of 10% of sales?
2. Macks Company bases its budget on the following data:
Sales 3,600 units ABSORPTION COSTING AND VARIABLE COSTING
Selling Price P50 per unit
Absorption Costing
Variable Cost P15 per unit
Fixed Cost P40,250 - Also referred to as Full Cost, traditional costing, Conventional costing or normal
 If the company wants to increase its total contribution margin by 40%, costing
how much is the increase in sales?
ABSORPTION VARIABLE
 If the company wants its margin of safety to equal P40,000, how many
Cost Seldom segregates Costs are segregated into variable
units should be sold?
Segregation costs into variable and fixed

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and fixed cost allocated to unsold units is treated as an
Cost of All costs: material, Only material, labor, variable FOH asset.
Inventory labor, variable,
fixed FOH
Relationship Between Net Income
Treatment of Product Cost Period Cost
Production and Sales
Fixed FOH
a. Production= Sales AC=VC
Income The one which Contribution Margin Statement
b. Production>Sales AC>VC;
Statement conforms with
FOH expensed in AC < FOH expensed in VC
GAAP
c. Production<Sales AC<VC;
Net Income Net Income bet. the two may differ from each other because
FOH expensed in AC > FOH expensed in VC
of the difference in the amount of fixed overhead costs
recognized as expense during an accounting period. This is
due to the variations between sales and production. In the RECONCILIATION OF ABSORPTION AND VARIABLE COSTING
long run, both methods give substantially the same results
Absorption Costing Income xx
since sales cannot continuously exceed production, nor
Add: FOH, beginning inventory xx
production can continually exceeds sales
Total: xx
Less: FOH, ending inventory xx
DISTINCTIONS BET. PERIOD AND PRODUCT COST Variable Costing Income xx

PERIOD COST PRODUCT COST

ACCOUNTING FOR DIFFERENCE IN INCOME
Cost that is charged against current Cost that is included in the computation
Change in inventory xx
revenue during a time period regardless of product cost that is apportioned
Multiply by: Fixed cost per unit xx
of the difference between production between the sold and unsold units
Difference in income xx
and sales volume
Does not form part of inventory Inventoriable Cost
EXTREMES:
Reduces income for the current period Reduces current income by the portion
1. SUPERVARIABLE COSTING/THROUGHPUT COSTING
by its full amount allocated to the sold units, the portion

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-treats direct materials as the only variable cost. The objective of this is to minimize -Seeks to estimate the cost of products by estimating the costs of many activities and in turn
the cost of ending inventory. using those estimates to estimate the cost of products by reference to how much of the
2. SUPERABSORPTION COSTING- treats costs from all links in the value chain as activity each product uses
inventoriable cost
-ABC is a response to problems created by using a single cost driver to assign costs to
Variable Costing and the Theory of Constraints
manufacture products.
Theory of Constraints focuses on managing the constraints in a company to maximize
*the traditional approach overstated costs of high volume products and understated costs of
products
low volume products because drivers were always volume related
 Companies that are involved in TOC make use of a form of variable costing where direct
BASIC METHOD OF ALLOCATING OVERHEAD COSTS
labor is not a variable cost but a fixed cost
1. Plantwide Allocation
Reasons:

1. In many companies, even though workers are paid on an hourly basis, management
has a commitment, sometimes in a labor contract or by law, to guarantee a minimum
hourly rate and a minimum number of paid hours. 2. Department Allocation
2. Direct Labor is usually not the constraint. In some cases, the constraint is a machine 3. Activity Based Costing
or a company policy that prevents a company from using its resources. Thus, if direct Steps:
labor is not the constraint, there is no reason to increase it. Hiring additional labor a. Identify costly activities (Activity Cost Pools) required to complete products
would increase cost without increasing output. Activity- any process of procedure that consumes overhead resources
3. TOC emphasizes continuous improvement to maintain competitiveness. Without Examples:
committed and motivated employees, continuous improvement cannot be sustained, Purchasing materials, setting up machinery, assembling products and inspecting
thus TOC companies are reluctant to lay off employees because it has an adverse products
effect on employee morale. b. Assign OH costs to activities identified in (a)
 Managers in TOC companies regard direct labor as a committed fixed cost rather c. Identify the cost driver for each activity
than a variable cost d. Calculate a predetermined OH rate for each activity

ACTIVITY BASED COSTING

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e. Allocate OH cost to products by multiplying the predetermined OH rate for each 3. Sales are increasing but profits are declining
activity times the level of cost driver activity used by the product 4. Marketing does not use costs reports for pricing decision
5. Product-line profit margins are hard to explain
BENEFITS:
6. Line managers do not believe the product costs reports
1. ABC leads to more cost pools
7. Some product that have reported high profit margins are not sold by competitor
2. ABC leads to enhanced control over OH costs
Setbacks of ABC
3. ABC leads to better management decisions
1. It necessitates a considerable amount of time and cost
TYPE OF ACTIVITY LEVELS
2. It does not comply with GAAP
1. UNIT-LEVEL
3. It does not, in itself, promote total quality management and continuous improvement.
-Costs of unit-level activities should be proportional to the number of units produced.
Though it can be implemented in conjunction with TQM, JIT and other techniques.
E.g. Inspecting FG tends to be in proportion with units produced
2. BATCH-LEVEL ACTIVITIES
ABC Costing is used in Activity Based Management to establish relationship between OH
- performed for each batch of products produced, rather than each unit
cost and activities so that we can better allocate OH cost. ABM focuses on managing
e.g. set-up, receiving and inspection, material-handling, shipping, and quality
activities to reduce cost
assurance
- Throughput time (manufacturing cycle)= Process time+Move Time+ Queue
3. PRODUCT LEVEL (Product Sustaining Level)
Time+Inspection Time
- activities that are needed to support the entire product line regardless of the number
of units and batches produced To maximize the value of the product delivered to customers, the firm must strive to
e.g. engineering cost, product development cost, advertising a product, designing a eliminated, or at least minimize Non-value adding and perform value adding activities more
product efficiently
4. FACILITY LEVEL (General Operation Level)
FINANCIAL PLANNING AND BUDGETS
- performed in order for the entire production process to occur
Budget- A realistic plan, expressed in quantitative terms for a certain period of time
e.g. plant maintenance, plant management, property taxes, and insurance,
-Its purpose is to promote a deliberate, well conceived business judgment instead of
accidental success in business management
FACTORS COMMONLY ASSOCIATED WITH THE NEED TO CONSIDER
- The budget serves as a road map that guides the managers along the way and a chart of the
ABC
firm’s course of operation
1. Product variety and product complexity
ADVANTAGES:
2. Direct labor is a small percentage of total costs

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1. Means of the top management to communicate its plans and goals throughout the f. Ending Finished Goods Inventory Budget
organization. g. Purchases Budget
2. Forces management to think about and plan for the future. Aside from that, they are h. Budgeted Cost of Sales
also motivated to enact the plan because they took part in its making thus take pride i. Selling and Administrative Expense Budget
in achieving it. They could also see clearly how their role fits in the company as a j. Budgeted Income Statement
whole. Since their incentives are based on performance, they’ll strive to achieve the
target budget.
3. Resources are more appropriately allocated
4. Potential bottlenecks can be discovered before they occur
5. Promotes coordination of the activities of the entire organization
6. Goals and objectives identified in the budgeting process can serve as benchmarks or
standards for evaluating performance

LIMITATIONS:
1. Lack of understanding of the fundamentals of budget preparation and execution
adversely affects the motivation and commitment of higher and lower management
2. Failure to realize that a budget is just a means to attaining profitable activity, and not
the end in itself, adversely affects the leadership styles of managers.

TYPES OF BUDGETS AND OTHER BUDGETING CONCEPTS:

1. Master Budget –encompasses the organization’s operating and financial plans
k. Cash Budget
for a certain future period of time.
l. Budgeted Balance Sheet
a. Sales Budget- It provides the basis for projected cash receipts as well as for
constructing the other budgets
2. Continuous (Rolling) Budget-revised on a regular (continuous) basis. It’s a 12
b. Production Budget
month budget that rolls forward one month or quarter as the current month or
c. Direct materials Budget
quarter is completed
d. Direct Labor Budget
e. Manufacturing Overhead Budget
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- Irrespective of whether the budget is prepared on an annual or a continuous 10. Governmental Budget- not only a financial plan and a basis for performance
basis, it is important that monthly of four-weekly budgets be used for control evaluation but also an expression of public policy and a form of control having
purposes. the force of law.
3. Fixed Budget- based on only one level of activity. It does not segregate costs
into fixed and variable components. Actual results are compared to budgeted COMPUTATIONAL FORMATS
costs at the original budgeted activity level 1. BUDGETED PRODUCTION:
4. Flexible Budget- series of budgets prepared for many levels of activity. This Budgeted Sales Xx
budget adjusts revenues, costs and expenses to the actual level of activity in Add: Desired Ending Finished Goods
which the firm operated in order to provide a valid basis of comparison to actual Inventory Xx
cost. Total Xx
5. Incremental Budgeting-prepared based on previous period’s budget, adjusted Less: Expected Beginning Finished
based on changes expected to happen in the coming period. Managers are Goods Inventory xx
required to justify only the changes. Budgeted Production xx
6. Zero-Based Budgeting-managers are required to justify all expenditures as if
programs involved are being proposed for the first time.
7. Life Cycle-product’s revenue and expenses are estimated over its entire life cycle 2. BUDGETED MATERIALS PURCHASES:
(R&D to withdrawal of customer support). Useful in target costing and target Budgeted Production Xx
pricing Multiply by: Qty. of Materials required
8. Activity Based Budgeting- applies ABC principles and procedures to budgeting. per unit of product Xx
It requires three steps: identification of activities, estimation of activity output Total Materials to be used Xx
demands, and estimating the cost of resources needed to provide the activity Add: Desired Ending Materials Inventory Xx
output demanded. Total Xx
9. Kaizen Budgeting- kaizen (Japanese term): continuous improvement. Less: Expected Beginning Materials
-based on changes that are to be made Inventory Xx
-assumes the continuous improvement of products and processes; the effects of Budgeted Materials Purchases xx
improvement and the costs of their implementation are estimated
3. BUDGETED MERCHANDISE PURCHASES

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Budgeted Sales Xx 1. It is an updated form of cost analysis, in which the strategic elements are more clear and
Add: Desired Ending merchandise formal and improves the overall position of the company.
Inventory Xx 2. It is used to analyze cost information, and use it to develop various measures to achieve a
Total Xx sustainable competitive advantage.
Less: Expected Beginning Merchandise 3. It provides a better understanding of the overall cost structure in the quest of gaining a
Inventory Xx sustainable competitive advantage.
Budgeted Merchandise Inventory Xx 4. It uses cost information specifically to govern the strategic management process –
formulation, communication, implementation and control.
4. CASH BUDGET 5. It helps in identifying the cost relationship between value chain activities and its process
Cash balance, beg. Xx of management to gain competitive advantage.
Add: Receipts Xx
CURRENT FOCUS OF MANAGERIAL ACCOUNTING
Total Cash available before current
financing Xx 1. Customer Value-The difference between what is received and given up by the
Less: Disbursements Xx customer when buying a product or service
Excess(deficiency) of cash available over Value Chain- the set of activities required to design, develop, produce, market, and
disbursements Xx deliver products and services to customers
Financing Xx
Cash Balance, end xx 2. Total Quality Management
An approach to continuous improvement that focuses on serving customers and uses
STRATEGIC COST MANAGEMENT front-line workers to identify and solve problems systematically
 Quality Costs- costs incurred on quality related processes; these are costs
-Application of cost management technique that aims at reducing costs while strengthening
incurred to prevent defects, or incurred as a result of defects occurring.
the position of the business. It involves the recognition of the importance of cost relationships
*Conformance Cost and Non-conformance cost
among the various activities in the value chain, and managing those relationships to the firm’s
3. Just In Time(JIT)
advantage.
-What you need becomes available just in time you will use it.
NEED for STRATEGIC COST MANAGEMENT

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a. JIT PURCHASING- raw materials are received just in time to go into production. Feature: TOC is a process of continuous improvement
(For merchandising firms, goods for sale are received just in time to be delivered to Basic Steps:
customers) 1. Identify the constraint
b. JIT MANUFACTURING- manufactured parts are completed just in time to be 2. Study the constraint and decide on how to exploit or overcome such limitation.
assembled into the company’s products, and products are manufactured/ completed 3. Prioritize effective management of the existing constraint
just in time to be delivered to customers. 4. Introduce improvement into the system to break the constraint
ADVANTAGES OF USING THE JIT SYSTEM 5. If the constraint identified in Step 1 is broken, repeat step 1, find another weak
A. Inventory Cost savings point or constraint in the system
B. Release of Facilities
C. Prompt delivery of goods and services and quick response to customer’s needs 6. ACTIVITY BASED COSTING
D. Reduction of defective output resulting into minimization of wastages and losses
and greater satisfaction of customers 7. BALANCED SCORECARD- focuses on financial and non-financial objectives that are
attributed to four areas of an organisation. These are the Perspectives. They are:
4. BUSINESS PROCESS RE-ENGINEERING (BPR) Financial, Customer, Internal Processes and Organisational Capacity
-Redesigning or elimination of inefficient business processes 8. CORPORATE SOCIAL RESPONSIBILITY- Company’s commitment to manage the
PROCESS RE-ENGINEERING- a business process is diagrammed in detail, social, environmental and economic effects of its operations responsibly and in line with
analyzed, and then redesigned. public expectations.
Objectives: 4 corporate responsibility types your business can practice
a. Simplification of the business process a. Environmental efforts: One primary focus of corporate social responsibility is the
b. Elimination of non-value-added activities environment. Businesses, regardless of size, have large carbon footprints. Any steps
c. Reduction of opportunities for errors they can take to reduce those footprints are considered good for both the company
d. Cost reduction and society.
b. Philanthropy: Businesses can practice social responsibility by donating money,
5. THE THEORY OF CONSTRAINTS products or services to social causes and nonprofits. Larger companies tend to have a
-states that a key to success is the effective management of constraints lot of resources that can benefit charities and local community programs. It is best to
Constraint- anything that prevents an individual or a business organization from consult with these organizations about their specific needs before donating.
getting more of what the individual or organization wants; it prevents the individual c. Ethical labor practices: By treating employees fairly and ethically, companies can
or organization from achieving higher performance relative to its goal. demonstrate their social responsibility. This is especially true of businesses that
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operate in international locations with labor laws that differ from those in the United
States.
d. Volunteering: Attending volunteer events says a lot about a company's sincerity. By
doing good deeds without expecting anything in return, companies can express their
concern for specific issues and commitment to certain organizations
 TARGET COSTING- a company first determines the price (the target price of market
price) at which it can sell its products/ service, and then design the product or service that
can be produced at the target cost to provide the target profit
 VALUE ENGINEERING- a means of reaching the target cost. It involves a systematic
assessment of all the aspects of the value chain costs of a product/service- from R&D,
design of the product, process design, production, marketing, distribution, and customer
service. The objective is to minimize cost without sacrificing customer satisfaction.
------------------------------------------------------------------------
STANDARD COSTING
COST STANDARDS- indicate what the cost of the quantity standards should be
QUANTITY STANDARDS- indicate the qty. of raw materials or labor time required to
produce a unit of product or to provide services
VARIANCE- difference between actual cost and standard cost (Favorable/unfavorable)
STANDARD COSTING CONTROL LOOP
1. Establish standards
2. Measure actual performance
3. Compare actual performance with standard
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4. Analyze the variances
5. Investigate the variances that are material or significant in amount
6. Take corrective action when needed. This may include revision of standard.
*Management by exception- only those variance that are material or significant in
amount, whether favorable or unfavorable, should be investigated
TWO TYPES OF STANDARD:
1. Ideal Standards
- Theoritical/ Maximum-efficiency standards
2. Practical Standards
- Tight but attainable. They allow for normal machine downtime and employee
rest-period, normal wastages and work interruptions.
- Ones normally used for product costing and cash budgeting purposes
MATERIAL STANDARDS
1. Standard price per unit- reflect the final, delivered cost of materials, net of any discount
and inclusive of allowances for handling cost
2. Standard Quantity per unit- should reflect the units materials required to produce each
unit of product, including allowances for unavoidable wastages, spoilage, as well as other
normal inefficiencies
DIRECT LABOR STANDARDS
1. Standard Rate per hour- wages, fringe benefits, and other labor cost
2. Standard Time (hours) per unit- amount of labor time required to produce each unit,
including allowances for employee rest periods, personal needs of employees, and
even normal machine downtime.
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Fixed Oh Spending/ Budget
Variance
VARIABLE MANUFACTURING OH Volume /Capacity Variance
Same with the computation in standards for labor cost
FIXED MANUFACTUING OH ANALYSIS:
- Usually expressed in terms of total figures 2-WAY ANALYSIS
To set the standard rate for fixed OH, the total fixed OH costs is computed using the 1. Controllable variance:
practical/ normal capacity level as the base Variable Spending
STANDARDS AND BUDGETS Variable Efficiency
*Standard-unit Fixed Spending
*Budget-total 2. Volume or Capacity Variance
Total Budgeted Costs- cost that should be incurred Alternative Computation:
=Budgeted Production* Standard Cost per unit Controllable variance:
Total Standard Cost- should have been incurred Actual FOH xx
= Actual Production * Standard Cost per unit Less: Budget Allowed for Std. Hrs.
BFixedOH xx
Variable OH
VARIANCE ANALYSIS (ST*Std. variable rate) xx xx xx
Variance DM DL VOH Volume Variance:
Spending Same with DL except that Budget allowed for Std. Hrs xx
/Price/Rat the rates used are the Less: Std. FOH xx xx
e variable FOH rates
Efficienc Same with DL except that Total OH Variance xx
y/Qty./Ti the rates used are the
me variable FOH rates 3-WAY ANALYSIS
1. Spending Variance
FOH Variance Variable Spending

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Fixed Spending
2. Efficiency Variance MATERIALS PRICE, MIX, AND YIELD VARIANCE ANALYSIS
Variable Efficiency -used when the production process involves combining or mixing several materials in varying
3. Volume or Capacity Variance proportions.
Alternative Computation:
Spending Variance: *Actual Material Cost = Total actual cost of the several material used
Actual FOH xx *Standard material Cost= actual production * Average standard output cost
Less: Budget Allowed for Actual Hrs.
BFixedOH xx 1.
Variable OH (Computed for each type of materials, and then summarized to get the net price
(AT*Std. variable rate) xx xx xx variance)
Efficiency Variance: 2.
Budget Allowed for Actual Hrs. xx
Less: Budget Allowed for Std. Hrs.
BFixedOH xx
Variable OH
(ST*Std. variable rate) xx xx xx 3.

Volume Variance:
Budget allowed for Std. Hrs xx
Less: Std. FOH xx xx
Total Overhead Variance xx

4-WAY ANALYSIS
1. Variable Spending/Rate Variance
2. Variable efficiency/ Time Variance
3. Fixed Spending / Budget Variance
4. Volume/ Capacity Variance

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RESPONSIBILITY FOR VARIANCES

VARIANCES POSSIBLE CAUSES RESPONSIBLE DISPOSITION OF VARIANCES

PERSON
1. Closed to COGS when the variance is not very significant in amount
Materials  Quality of materials Purchasing Manager
2. Used as adjustment (prorated) to COGS and appropriate inventory accounts when the
spending or price  Quantity purchased
variance is significant or material in amount, so that actual costs are reflected in the
variance  Delivery time (rush
financial statements.
orders)
Materials  Quality of materials Production Managers
efficiency or qty  Defective machines
variance  Unskilled workers
 Poor supervision
Labor spending or  Workers’ skill  Supervisors
rate variance  Overtime Premiums if  Persons
premium is added to the responsible for
labor cost account setting labor rates
Labor Efficiency  Workers’ skill Production Manager
or time variance  Change in workers’
efficiency
 Imposition of control
measures in the
production process

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TEST 1: 2. MAS covers a wider area than the usual audit and tax work
3. Because of the broad scope covered by MAS, a wider variety of assignments are
Management Advisory Services
usually encountered
1. Management consulting (or management consultancy)
4. MAS engagements require highly qualified staff
a. Is limited to CPAs
a. All the statements are true
b. Is not limited to CPAs
b. Only three statements are true
c. May be practiced by anybody since it is not limited to CPAs
c. Only two statements are true
d. Is regulated by law, such that an individual must pass a government licensure
d. Only one statements are true
examination first before he could practice the same
2. Which of the following statements is incorrect?
5. Which of the following is FALSE?
a. Full scope engagements require client representation from both the working and
a. CPAs performing management services may be considered to be in the practice of
decision-making levels
management consulting
b. The consultant’s role in full scope engagement should be limited to that of an
b. Included in the practice of consulting is the provision of confidential in which the
objective adviser; and, in the implementation stage, his job is merely to provide
identity of the client is concealed
technical assistance, degrees of which depend on the knowledge and experience
c. Business firms hire management consultants to help define specific problems and
available in the client’s organization
develop solutions
c. In carrying out full scope engagements, the consultant should participate up to the
d. CPAs provide management services to go around the ethical constraints as mandated
implementation stage and should see to it that the client management accepts overall
by the Accountancy Act
responsibility for implementation of the chosen course of action
6. Which of the following is FALSE?
d. Once implementation is concluded, the consultant’s participation is also concluded
a. Managerial accounting is as concerned with providing information to stockholders as
and only the consultant’s personnel remain to carry on the solution
it is providing information to managers
3. The following characterize MAS except
b. Managerial accounting focuses more on the segments of an organization rather than
a. Involve decision for the future
on the organization as a whole.
b. Broader in scope and varied in nature
c. Managerial accounting need not follow the Generally Accepted Accounting
c. Utilize more junior staff than senior members of the firm
Principles
d. Relate to specific problems where expert help is required
d. Managerial Accounting is not mandatory-not require by any external law or
4. Which of the following statements are/is true?
regulation
1. MAS relates to the future

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7. 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 the problem with his/her immediate supervisor
d. Remain Silent
8. Management accounting is considered successful when it
a. Is relevant
b. Is accurate
c. Helps managers improve their decision
d. Is in accordance with GAAP
9. Provisions in this Ethical Standards for Management Accountants cover avoidance of
conflict of Interest, improprieties of accepting gifts or favors, and other matters generally
associated with professional behavior
a. Objectivity
b. Integrity
c. Competence
d. Confidentiality
10. Which of the following is NOT an objective of management accounting?
a. Maximization and profit and minimization of cost
b. Measuring the performance of managers of subunits
c. Providing information for planning and decision making
d. Providing assistance in directing and controlling operations

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11. Put X on the box that best describes the items under the particular column

VARIABLE FIXED DIRECT DIRECT FACTORY OPPORTUNITY

PARTICULAR PERIOD COST
COST COST MATERIALS LABOR OVERHEAD COST
Rental Revenue
Material Cost
Production Supervisor Salary
Production Line Workers wages
Factory Equipment Rental
Factory Bldg. Depreciation
Marketing Cost

PARTICULARS PREVENTION COST APPRAISAL COST INTERNAL COST EXTERNAL COST

Cost of downtime on machinery while rework is done
Cost to repair or replace returned units
Ill-will of customers who might not buy from you again and might
inform others of problems with your product
Inspection Costs for Materials, semi-finished, and finished units
Costs of Improving Production process and methods
Higher wages paid to workers who produce higher quality of work
Cost to produce defective units that must be scrapped
Cost of automated monitoring of processes and products

Cost of processing customer complaints

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TEST II: a. P1.20
b. P4.25
A company is making plans for next year, using CVP analysis as its planning tool.
c. P0.96
Next year’s sales data about its product are as follows: d. P2.44

Selling price P60.00

Variable manufacturing costs per unit P22.50 4. Following information pertains to Macks Company’s two products:
Variable selling and administrative costs P4.50
Fixed Operating costs (60% is manufacturing cost) P148, 500.00 Digicam Videocam
Income Tax Rate 30%
Break-even 240 360
point-units
1. How much should sales be next year if the company wants to earn profit after tax of
Selling Price P14,250 P4,500
P23, 100, the same amount that it earned last year?
Variable Cost 5,000 2,250
a. P310, 800
b. P397, 500 1. What is the weighted –average contribution Margin per unit
c. P330, 000 a. 11, 500
d. P222, 000 b. 5, 050
c. 19.17
2. If sales increase from P800,000 to P900,000, and if the degree of operating leverage d. 25,250
is 5, one would expect profit to increase by 2. How much is total fixed Cost?
a. 62.5% a. P3,030,000
b. 12.5% b. P5,040,000
c. 5.0% c. P2,010,000
d. 2.5% d. P5,050
3. How many units of each product should be sold if the company desires to earn
3. Macks Co manufactures and sells Product A. During the previous month, 77,500 profit before tax of P1,515,000?
units of Product A were sold. Total fixed costs amounted to P189,100. Its margin of Digicam Videocam
safety was 15,500 units or P65,875. The variable cost per unit of Product A is a. 900 900

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b. 360 240 4. The type of costing that provides the best information for breakeven analysis is:
c. 360 540 A) job-order costing.
d. 540 360 B) variable costing.
C) process costing.
TEST III:
D) absorption costing.
1. Under variable costing, fixed manufacturing overhead is:
A) carried in a liability account. 5. Advocates of variable costing argue that:
B) carried in an asset account. A) fixed production costs should be added to inventory because such costs have
C) ignored. future service potential and therefore are inventoriable as an asset.
D) immediately expensed as a period cost. B) fixed production costs should be capitalized as an asset and amortized over
future periods when benefits from such costs are expected to be received.
2. In an income statement prepared using the variable costing method, fixed selling and C) fixed production costs should be charged to the period in which they are
administrative expenses would: incurred unless sales do not equal production in which case any difference
A) be used in the computation of the contribution margin. should be capitalized as an asset and amortized over future periods.
B) be used in the computation of net operating income but not in the D) fixed production costs should be charged to the period in which they are
computation of the contribution margin. incurred.
C) be treated the same as variable manufacturing expenses.
D) not be used. 6. Net income computed using absorption costing can be reconciled to net income
computed using variable costing by computing the difference between
3. If production is less than sales (in units), then absorption costing net income will A) The gross profit under absorption costing and contribution margin under
generally be variable costing
A) Greater than variable costing net income B) The product costs per unit under the two costing methods
B) Less than variable costing net income C) Inventoried fixed factory overhead costs in the beginning and ending finished
C) Equal to variable costing net income goods inventory
D) Less than expected D) The selling prices under the two costing methods

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7. On the variable costing income statement, the difference between the “contribution A) Is none if the fixed costs in the beginning and ending inventories in both
margin” and “income before income tax” is equal to methods are equal.
A) The total operating expenses B) Is equal to the fixed cost per unit times the number of units sold.
B) The total fixed cost C) Is attributable to the variable manufacturing costs in the inventory
C) Fixed selling and administrative expenses D) Is attributable to the fixed selling and administrative costs in ending
D) The total variable cost inventory.

8. Which condition would cause absorption-costing net income to be greater than 11. The primary benefit of using ABC is that it provides
variable-costing net income? A) Better management decisions
A) Units sold exceeds units produced B) Enhanced control over overhead costs
B) Units sold equaled units produced C) More cost pools
C) Units sold were less than units produced D) More accurate product costing
D) Sales price decreased
E) Selling expense increased 12. What is the proper order of these tasks associated with an ABC system
1. Calculation of cost application rates
9. Which is least likely to be true about throughput costing? 2. Identification of cost drivers
A) It eliminates the incentive to produce excess inventory by spreading the 3. Assignment of cost to products
committed resource costs across more units. 4. Identification of cost pools
B) Non-throughput costs are expensed as period costs A) 1234
C) Maximizes the cost of the ending inventory B) 2413
D) The total COGS is equal to the total cost of materials placed in process. C) 3421
D) 4213
10. The President of Macks Co. requested you to explain the difference of net income
between variable costing income statement and absorption costing method. You 13. Which of the following costs should not be included in product costs for internal
would say that the difference: management reports that are used for decision-making?
A) Costs of unit-level activities.

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B) Costs of batch-level activities. C) Product-level activity.
C) Costs of product-level activities. D) Facility-Level activity.
D) Costs of organization-sustaining activities.
17. The plant manager's salary is an example of a:
14. Macks Electronics manufactures a variety of electronic gadgets for use in the home. A) Unit-level activity.
Which of the following would probably be the most accurate measure of activity to B) Batch-level activity.
use for allocating the costs of inspecting the finished products at Guerra? C) Product-level activity.
A) Machine-hours D) Facility-Level activity
B) Direct labor-hours
C) Setting-up Time 18. Which system focuses on the management of activities with the objective of
D) Inspection time improving the value received by customers and the profit received by providing this
value?
15. Which of the following statements is false? A) Activity based management
A) Under ABC, a product is allocated only those costs that pertain to its B) Traditional Cost Management
production, hence, the products are not cross-subsidized C) Contemporary Cost System
B) In ABC, the activities determined serve as cost objects. Costs for each D) Standard Cost System
activity are accumulated in a cost pool and then allocated using the
appropriate activity base or cost driver 19. An event, action, transaction or unit of work that consumes resources and with a
C) If a firm manufactures only one product, rather than multiple products, ABC specific purpose.
is more likely to result in major differences from traditional costing systems A) Activity
D) ABC is useful for allocating production costs, as well as marketing and B) Cost object
distribution costs C) Cost driver
D) Direct Labor
16. Designing a new product is an example of a:
A) Unit-level activity. 20. Under both absorption and variable costing, variable overhead and variable operating
B) Batch-level activity. expenses; respectively, would be treated as a product cost.

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A) Yes, Yes Prime Cost P400,000
B) Yes, No
C) No, no Straight –Line depreciation of factory 60,000
D) No, Yes equipment
Straight –Line depreciation of factory building 40,000
21. Macks Company has provided information concerning its projections for the coming Janitors’ salaries for cleaning factory premises 12,000
year as follows: Salesmen’s commission based on sales 20,000
Net Sales P10,000,000 Straight line depreciation for delivery van 15,000
Fixed Manufacturing Costs P1,000,000
Macks projects variable manufacturing costs of 60% of net sales. Assuming no How much of these costs should be inventoried for external reporting purposes?
change in inventory, what will be the projected cost of good sold be? A) P512,000
A) P5,000,000 B) P400,000
B) P6,000,000 C) P547,000
C) P7,000,000 D) P412,000
D) P8,000,000
22. Macks Company manufactures a single product using standard costing. Variable 24. Macks Corporation produced 10,000 units of Product A during the month of
production costs are P12 and fixed production costs are P125,000. Kings uses a January. Costs incurred during the month were as follows:
normal activity of 12,500 units to set its standard costs. Kings began the year with Direct Material Used P20,000
1,000 units in inventory, produced 11,000 units, and sold 11,500 units. The standard Direct Labor 16,000
costs of goods sold under absorption costing would be Variable Manufacturing 8,000
A) P115,000 Overhead
B) P132,000 Fixed Manufacturing Overhead 10,000
C) P242,000
Variable Selling and 2,400
D) P253,000
administrative expenses
Fixed Selling and 9,000
23. Macks Corporation’s 2021 manufacturing costs were as follows:

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administrative expenses *Inventory increase, therefore production was greater than sales, and absorption
Total P65,400 costing income was greater than variable costing income
What were Product A’s product cost per unit under absorption and variable costing?
26. Macks Corporation has provided the following data from its activity-based costing
Absorption Costing Variable Costing
system:
A) P6.54 P5.64
B) 4.40 5.40
Activity Cost Pool Total Cost Total Activity
C) 3.60 4.64
Assembly P313,490 29,000 machine-hours
D) 5.40 4.40
Processing orders P49,476 1,400 orders
Inspection P73,882 1,060 inspection-hours
25. Macks Company produces a single product. Last Year, the company’s net operating
income computed by the absorption costing method was P36,000. The company’s
The company makes 490 units of product B2 a year, requiring a total of 1,080
unit product cost was P18 under variable costing and P22 under absorption costing.
machine-hours, 60 orders, and 20 inspection-hours per year. The product's direct
During the period, inventory increased by 5,000 units. The company’s income under
material cost is P46.42 per unit and its direct labor cost is P20.22 per unit.
variable costing must have been:
According to the activity-based costing system, the average cost of product B2 is
A) P20,000
closest to:
B) P56,000
A) P97.63 per unit
C) P16,000
B) P66.64 per unit
D) P41,000
C) P93.31 per unit

Increase in inventory 5,000 D) P94.79 per unit

X Fixed Oh cost per unit (22-18) 4
Difference in income 20,000
AC income
=36,000-20,000
=16,000

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TEST IV: 5. Which of the four quality costs would be the most damaging to a company’s ability
1. Which of the following statements about Theory of Constraints (TOC) is correct? to build a reputation as a world class manufacturer of quality products
a. TOC is based on the idea that every organization has at least one constraint that a. Prevention Costs
prevents it from getting more of its objectives. b. Appraisal Costs
b. TOC maintains that effectively managing the constraint is a key to success. c. Internal Failure Costs
c. Under TOC, improvement efforts should be focused on the constraints. d. External Failure Costs
d. All of the above 6. JIT purchasing can be used by
2. Process re-engineering a. Retailers
a. Is less likely to result in employee resistance than total quality management b. Wholesalers
b. Is more likely to result in employee resistance than total quality management c. Manufacturers
c. Does not affect employees, hence, no resistance from employees is expected d. All of the above
when it is applied. 7. A characteristic of TQM is
d. Affects employees in a way that boosts their morale. a. Education and self-improvement
3. Which of the following is among the benefits of adopting a JIT system? b. Quality by final inspection
a. Reduction in the number of deliveries of materials c. Management by objectives
b. Increase in the number of suppliers d. On the Job training by other workers
c. Performance of non-value added activities 8. It refers to the difference between what the customer receives and what the customer
d. Maximization of standard delivery quality gives up when buying a product or service
4. TQM is an integrated system that identifies customers (internal and external) and a. Margin
establishes their requirements. Accordingly, the external, or ultimate customer, is b. Profit
best served when internal customers are also well served. In view of this, the primary c. Customer value
purpose for adopting TQM is to d. Benefit
a. Achieve greater employee satisfaction 9. Per the TOC, improvement efforts should be focused on the
b. Achieve greater customer satisfaction a. Non-constraint work centers
c. Reduce delivery time b. Work center that incurs the highest costs
d. Reduce delivery charges c. Cost center where most workers are senior citizens

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d. Work center that is the constraint 14. Standard costing is used to isolate the variances between standard costs and actual
10. An innovative manufacturing company does not costs. It allows management to measure performance and correct inefficiencies,
a. Respond to the changing business environment thereby helping to
b. Emphasize on continuous improvement a. Allocate costs accurately
c. Strive to improve customer satisfaction through product quality b. Determine the break-even point
d. Emphasize on existing product c. Control costs
11. A standard cost is an estimate of what a cost should be under normal operating d. Eliminate management’s need for subjective decisions
conditions. In establishing standard costs, the following organizational personnel may 15. In a standard costing system, actual costs are compared with standard costs. The
be involved except difference or variance is determined, and responsibility for such variance is assigned
a. Top management or identified to a particular person or department, in order to
b. Budgetary accountants a. Determine who is at fault and render the appropriate punishments
c. Quality control Personnel b. Be able to set the correct selling price of the product
d. Industrial engineers c. Use the knowledge about the variances to promote learning and continuous
12. The following describe ideal standards, except improvement in the manufacturing operations
a. Currently attainable standards d. Trace the variances to the proper at inventory accounts so that they may be
b. Theoretical or maximum-efficiency standards valued
c. Make no allowance for waste, machine downtime, and spoilage 16. The following direct labor information pertains to the manufacture of product Glu:
d. Perfection standards Time required to make one unit 2 direct labor-hours
13. Variance analysis should be used Number of direct labor workers 50 workers
a. As the only source of information for performance evaluation Number of productive hours per week, per worker 40 hours
b. To understand why variances arises Weekly wages per worker P500
c. To encourage employees to focus on meeting standards Workers’ benefits treated as direct labor costs 20% of wages
d. To administer appropriate disciplinary action to employees that do not meet What is the standard direct labor cost per unit of product Glu?
standards A. P30
B. P24
C. P15

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D. P12 D. P7.80
17. A quantity of a particular raw material was purchased for P43,250. The standard cost 20. Assume that 7 ounces of pecans are included in each bowling ball fruitcake. Because
of the material was P2.00 per kilogram and there was an unfavorable materials price Holiday wants only the best pecans in its fruitcakes, the pecans they buy are
variance of P3,250. How many kilograms were purchased? inspected and some are discarded as unacceptable for fruitcake production. The loss
A. 20,000 rate is expected to be 1 ounce of pecans for every 5 ounces inspected. Under
B. 21,625 traditional standard costing, how many ounces of pecans should Holiday use as a
C. 23,250 standard quantity per fruitcake?
D. 24,875 A. 7.20
18. The direct labor standards for a particular product are: B. 7.80
4 hours of direct labor @ P12.00 per direct labor-hour = P48.00 C. 8.40
During October, 3,350 units of this product were made, which was 150 units less than D. 8.75
budgeted. The labor cost incurred was P159,786 and 13,450 direct labor-hours were 21. Macks Company uses an annual cost formula for overhead of P72,000 + P1.60 for
worked. The direct labor variances for the month were: each direct labor hour worked. For the upcoming month Macks plans to manufacture
Labor Rate Labor Efficiency 96,000 units. Each unit requires five minutes of direct labor. Macks’ budgeted
Variance Variance overhead for the month is
A. P1,614 U P600U A. P12,800
B. P1,614 U P600F B. P84,800
C. P1,614 F P600U C. P18,800
D. P1,614 F P600F D. P774,000
22. The Macks Company has a standard absorption and flexible budgeting system and
19. Macks had a P750 unfavorable direct labor rate variance and an P800 favorable uses a two-way analysis of overhead variances. Selected data for the June production
efficiency variance. Macks paid P7,150 for 800 hours of labor. What was the activity are:
standard direct labor wage rate? Budgeted fixed factory overhead costs P 64,000
A. P8.94 Actual factory overhead 230,000
B. P7.94 Variable factory overhead rater per DLH P5
C. P8.00 Standard DLH 32,000

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Actual DLH 32,000
The budget (controllable) variance for June is
A company produces a product with the following standard costs:
A. P1,000 favorable
B. P6,000 favorable Materials, 2 pieces @ P5 per piece P10
C. P1,000 unfavorable Labor 4 hours @P8 per hour 32
D. P6,000 unfavorable Variable Overhead 4 hours @ P 6 per hour 24
23. Macks‘ production budget for the year ended December 31, 2020 was based on Fixed OH* 4 hours @P4 per hour 16
200,000 units. Each unit requires two standard hours of labor for completion. Total Total standard manufacturing cost per unit P82
overhead was budgeted at P900,000 for the year, and the fixed overhead rate was *Based on a capacity level of 5,000 units
estimated to be P3.00 per unit. Both fixed and variable overhead are assigned to the
product on the basis of direct labor hours. The actual data for the year ended 24. If a flexible budget for 4,500 units, 5,000 units, and 5,500 units is prepared for a
December 31, 2020 are presented below. certain month, the budgeted costs are
4,500 units 5,000 units 5,500 units
Actual production in units 198,000 a. P369,000 P410,000 P451,000
Actual direct labor hours 440,000 b. 297,000 330,000 363,000
Actual variable overhead P 352,000
c. 377,000 410,000 443,000
Actual fixed overhead P 575,000
d. 0 410,000 0
Macks’ variable overhead efficiency variance for the year ended December 31, 2020
is
A. P33,000 unfavorable
B. P66,000 unfavorable
C. P35,520 favorable
D. P33,000 favorable

Preliminary Term: Module 33 | P a g e