MAS 1st Preboard

1. It could be argued that the reason a company has succeeded in a very competitive market while its rivals have failed is
because:
A. The strategies that the successful company pursues have a strong impact on its performance relative to its rivals.
B. The successful company has adopted more steps to its formal strategic planning process.
C. The company has evolved into a multi-divisional organization.
D. The company has adopted a strategy with a low propensity for risk-taking.

2. Which of the following is not a significant reason for planning in an organization?

A. Forcing managers to consider expected future trends and conditions.
B. Developing a basis for controlling operations.
C. Enabling selection of personnel for open positions.
D. Promoting coordination among operation units.

3. One of the key sources of competitive advantage is:

A. Slow adoption of more efficient business practices.
B. Responsiveness to customer needs.
C. Maintaining average quality.
D. Taking advantage of, and being a follower in, competitors' product innovation.

4. According to the BCG Growth-Share Matrix, all of the following are included in product life-cycle strategies except:
A. Increase investment in the product to maximize market share.
B. Aggressive pricing to increase market share quickly.
C. Superior responsiveness to customers.
D. "Milking" the product

5. Strategic managers use different business-level strategies to put the company's business model into action. Business-
level strategies include all of the following except
A. How to improve the product attributes, the service attributes and personnel attributes associated with the
company's product.
B. How and where to invest the company's capital in ways that will result in competitive advantage.
C. How much to differentiate and how to price the company's product or service.
D. What products should be offered and to which customer groups (market segments).

6. The four factors that derive from a company's distinctive competencies and which create competitive advantage are
A. continuous improvement, continuous learning, prior strategic commitments and absorptive capacity.
B. superior efficiency, quality, innovation, and customer responsiveness.
C. employee productivity, capital productivity, product innovation and process innovation.
D. the value (utility) customers place on the company's products, the price it charges for its products, the costs of
creating those products, and the profitability of the company.

7. Companies group customers in order to gain a competitive advantage. This is called:

A. Market segmentation.
B. Positioning.
C. Customer differentiation.
D. Product differentiation.

8. A firm's total assets are P3,000,000 and its total equity is P2,000,000. If current assets represent 50% of total assets
and current liabilities represent 30% of total liabilities, then what is the firm's current ratio?
A. 3.
B. 5.
C. 10.
D. 1.5.

9. If accounts payable is understated at the end of the year, which of the following statements is correct?
A. The current ratio is understated.
B. The times interest earned ratio is understated.
C. The days' purchases in accounts payable is understated
D. The long-term debt-to-equity ratio is understated.

10. Earmark Co. has a policy of returning a minimum of 40% of earnings to shareholders every year through dividend
issues and open-market stock repurchases. In each quarter this year, the company earned P0.35 per share. In each of
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the year's four quarters the company paid a regular cash dividend of P0.10 per share. What extra dividend should the
company's board approve at the end of the year to meet their target payout percentage?
A. No extra dividend is necessary; the company met its target payout percentage.
B. An extra dividend of P0.40 per share.
C. An extra dividend of P1.40 per share.
D. An extra dividend of P0.16 per share.

11. The company that will have the best ability to repay their interest expense is
A. Alfonso Spices, which has net income of P318,000, income tax of P171,000, and interest expense of P108,000.
B. Soares Helicopters, which has net income of P1,273,000, income tax of
P685,000, and interest expense of P646,000.
C. Albers Electronics, which has net income of P3,648,000, income tax of
P1,964,000, and interest expense of P2,927,000.
D. Murry Shoes, which has net income of P476,000, income tax of P256,000, and interest expense of P112,000.

12. A corporation has annual earnings per share of P12. It has a dividend payout ratio of 40% and an annual dividend
yield of 4%. The stock price per share must be:
A. P420.
B. P300.
C. P180.
D. P120.

13. Swiss Clothing Store had a balance in the accounts receivable account of P820,000 at the beginning of the year and a
balance of P780,000 at the end of the year. Net credit sales during the year amounted to P7,200,000. The accounts
receivable turnover ratio was
A. 9.2 times.
B. 9.0 times.
C. 8.8 times.
D. 4.5 times.

14. Which of the following statements is true regarding common-size statements?

A. Common-size statements indexed over two years for two companies, with both showing a 10% increase in profits,
show that both companies would make equally attractive investments.
B. All of the other three answers are correct.
C. Common-size statements can be used to compare companies of different sizes.
D. Horizontal common-size statements can be made only for companies with at least ten years of operational data.

15. In the last quarter, Perez Manufacturing had sales of P12.3 million, operating income of
P3.6 million, and assets of P15 million. What is Perez’s return on investment?
A. 24%
B. 29%
C. 4.17%
D. 82%

16. Each of the following are typically perspectives or segments of a balanced scorecard,
except:
A. Customer
B. Budgeted performance
C. Learning and growth
D. Internal business process

17. When using the return on investment (ROI) formula:

A. sales are divided by investment center assets.
B. net income is divided by sales.
C. sales are divided by net income.
D. operating income is divided by investment center assets.

18. Which of the following investment center managers would most likely be questioned by their superiors for poor
performance?
A. Janice, who had variable costs of P2.8 million rather than the expected P3.1 million
B. Nate, who had operating income of P970,000 rather than the expected P1.3 million
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C. Melody, who used the book value to value assets rather than fair value
D. Paul, who had fixed costs of P218,000 rather than the expected P217,500

19. Which of the following statements about a balanced scorecard is incorrect?

A. It seeks to address the problems associated with traditional financial measures used to assess performance.
B. It relies on the perception of the users with regard to service provided.
C. It is directly derived from the scientific management theories.
D. The notion of value chain analysis plays a major role in the drawing up of a balanced scorecard.

20. Last year, RL Enterprises had exceptional brand recognition and produced a high percentage of defect-free products.
Unfortunately, it also had a plummeting credit rating and reported numerous accidents within its facilities. Which of the
following best sums up RL’s balanced scorecard for the year?
A. Customer and internal process categories scored high, while the financial and learning and growth categories
scored low.
B. Financial and internal process categories scored high, while the learning and growth and customer categories
scored low.
C. Internal process and learning and growth categories scored high, while the customer and financial categories
scored low.
D. Financial and customer categories scored high, while the internal process and learning and growth categories
scored low.

21. Which of the following does not illustrate using a qualitative factor to justify unprofitable business unit?
A. “Dropping this business unit will make it impossible to offer a complete line of products and services that our
customers have come to expect from us.”
B. “Dropping this business unit will not impact other parts of the business since this business unit sells different
products and services.”
C. “Dropping this business unit may damage employee morale as a number of people will likely lose their jobs.”
D. “Dropping this business unit may make customers, suppliers, and competitors believe that we are in a weakened
position and further damage the business.”

22. An advantage of incremental budgeting when compared with zero-base budgeting is that incremental budgeting
A. Accepts the existing base as being satisfactory.
B. Encourages adopting new projects quickly.
C. Eliminates functions and duties that have outlived their usefulness.
D. Eliminates the need to review all functions periodically to obtain optimum use of resources.

23. Devin's Custom Construction designs and builds custom houses for consumers. Customers have several base plans
to choose from and modifications can be made from those plans. The modifications can range from being very minor to
significant. The houses generally take from 3 months to one year to design and build depending upon the amount of
customization. What is the best type of budgeting for this business situation?
A. Rolling/continuous budgeting.
B. Activity-based budgeting.
C. Project budgeting.
D. Flexible budgeting.

24. There are many different budget techniques or processes that business organizations can employ. One of these
techniques or processes is zero-base budgeting, which is:
A. Budgeting for cash inflows and outflows to time investments and borrowings in a way to maintain a bank account with a
minimum balance.
B. Developing budgeted costs from clear-cut measured relationships between inputs and outputs.
C. Budgeting from the ground up as though the budget process were being initiated for the first time.
D. Using the prior year's budget as a base year and adjusting it based on the experiences of the prior year and the
expectations for the coming year.

25. Playtime Toys estimates that it will sell 200,000 dolls during the coming year. The beginning inventory is 12,000 dolls;
the target ending inventory is 15,000 dolls. Each doll requires two shoes which are purchased from an outside supplier.
The beginning inventory of shoes is 20,000; the target ending inventory is 18,000 shoes. The number of shoes that should
be purchased during the year is
A. 398,000 shoes.
B. 402,000 shoes.
C. 404,000 shoes.
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D. 396,000 shoes.

26. The following information is presented to you by Rombus Compay.

Planned sales 4,000 units
Material cost P2.50 per pound
Direct labor 3 hours per unit
Direct labor rate P7 per hour
Finished goods beginning inventory 900 units
Finished goods ending inventory 600 units
Direct materials beginning inventory 4,300 units
Direct materials ending inventory 4,500 units
Materials used per unit 6 pounds
Rombus Company's production budget will show total units to be produced of
A. 4,000
B. 3,700
C. 4,600
D. 4,300

27. Berol Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per
month. The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales.
There are 150,000 finished units in inventory on June 30. Each unit of finished product requires 4 pounds of direct
materials at a cost of P1.20 per pound. There are 800,000 pounds of direct materials in inventory on June 30.
Assume Berol Company plans to produce 600,000 units of finished product in the 3-month period ending September 30,
and to have direct materials inventory on hand at the end of the 3-month period equal to 25% of the use in that period.
The estimated cost of direct materials purchases for the 3-month period ending September 30 is
A. P2,400,000.
B. P2,880,000.
C. P2,640,000.
D. P2,200,000.

28. Projected monthly sales of Wallstead Corporation for January, February, March and April are as follows. January
P300,000
February P340,000
March P370,000
April P390,000

The company bills each month's sales on the last day of the month. Receivables are booked gross and credit terms of
sale are: 2/10, n/30.
50% of the billings are collected within the discount period, 30% are collected by the end of the month, 15% are collected
by the end of the second month, and 5% become uncollectible.
Budgeted cash collections for Wallstead company during April would be
A. P349,300
B. P353,000.
C. P343,300.
D. P347,000.

29. Jeffries Company sells its single product for P30 per unit. The contribution margin ratio is 45%, and fixed costs are
P10,000 per month. Sales were 3,000 units in April and 4,000 units in May. How much greater is the May operating
income than the April operating income?
a. P16,500
b. P30,000
c. P13,500
d. P3,500

30. Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical flows. The following
cost information relates to the product.
Unit Costs
Direct materials P3.25
Direct labor 4.00
Distribution 0.75
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The company will also be absorbing P120,000 of additional fixed costs associated with this new product. A corporate fixed
charge of P20,000 currently absorbed by other products will be allocated to this new product.

If the selling price is P14 per unit, the breakeven point in units (rounded to the nearest hundred) for surge protectors is:
a. 10,000 units
b. 23,300 units
c. 8,600 units
d. 20,000 units

31. In the cost/volume/profit (CVP) model, the behavior of total revenues and total costs:
a. increase and decrease proportionately to changes in activity level.
b. increase and decrease inversely to changes in activity level.
c. remain constant within a limited range of output.
d. increase at an approximately linear rate within a relevant range of activity.

32. Phillips and Company produces educational software. Its current unit cost, based upon an anticipated volume of
150,000 units, is:
Selling price P150
Variable costs 60
Contribution margin 90
Fixed costs 60
Operating income 30

Sales for the coming year are estimated at 175,000 units, which is within the relevant range of Phillips’ cost structure.
Cost management initiatives are expected to yield a 20% reduction in variable costs and a reduction of P750,000 in fixed
costs. Phillips’ cost structure for the coming year will include:
a. per-unit contribution margin of P72 and fixed costs of P55.
b. total contribution margin of P15,300,000 and fixed costs of P8,250,000.
c. variable cost ratio (VCR) of 32% and operating income of P9,600,000.
d. contribution margin ratio of 68% and operating income of P7,050,000.

33. MultiFrame Company has the following revenue and cost budgets for the two products it sells.

Plastic Glass
Frames Frames
Sales price P10.00 P15.00
Direct materials 2.00 3.00
Direct labor 3.00 5.00
Fixed overhead 3.00 4.00
Net income per unit P2.00 P3.00
Budgeted unit sales 100,000 300,000

The budgeted unit sales equal the current unit demand, and total fixed overhead for the year is budgeted at P975,000. In
numerical calculations, MultiFrame rounds to the nearest cent and unit.

The total number of units needed to break even if sales were budgeted at 150,000 units of plastic frames and 300,000
units of glass frames with all other costs remaining constant is:
a. 150,000 units
b. 154,028 units
c. 162,500 units

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d. 308,056 units

34. Which of the following statements about contribution margin is correct?

A. A decrease in variable administrative expenses per unit will decrease contribution margin per unit.
B. A decrease in fixed administrative expenses per unit will not impact contribution margin per unit.
C. An increase in variable administrative expenses per unit will increase contribution margin per unit.
D. A decrease in variable administrative expenses per unit will not impact contribution margin per unit.

35. Taylor Corporation is determining the cost behavior of several items in order to budget for the upcoming year. Past
trends have indicated the following dollars were spent at three different levels of output.

In establishing a budget for 14,000 units, Taylor should treat Costs A, B, and C, respectively, as:

A. semivariable, fixed, and variable.

B. variable, fixed, and variable.
C. semivariable, semivariable, and semivariable.
D. variable, semivariable, and semivariable.

36. The Madison Company has decided to introduce a new product. The company estimates that there is a 30 percent
probability that the product will contribute $700,000 to profits, a 30 percent probability that it will contribute $200,000, and
a 40 percent probability that the contribution will be a negative $400,000. The expected contribution of the new product is
A. $500,000.
B. $166,667.
C. $110,000.
D. $380,000.

37. A company is considering three alternative machines to produce a new product. The cost structures (unit variable
costs plus avoidable fixed costs) for the three machines are shown as follows. The selling price is unaffected by the
machine used.
Single purpose machine P0.60x + P20,000
Semi-automatic machineP0.40x + P50,000
Automatic machine P0.20x + P120,000
The demand for units of the new product is described by the following probability distribution.
Demand Probability
200,000 0.4
300,000 0.3
400,000 0.2
500,000 0.1
Ignoring the time value of money, the expected cost of using the semi-automatic machine is
A. P210,000.
B. P170,000.
C. P250,000.
D. P130,000.

38. A company uses regression analysis in which monthly advertising expenses are used to predict monthly product
sales, both in millions of pesos. The results show a regression coefficient for the independent variable equal to 0.8. This
coefficient value indicates that
A. advertising is not a good predictor of sales because the coefficient is so small.
B. on average, every additional peso of advertising results in P0.8 of additional sales.
C. the average monthly advertising expenditure in the sample is P800,000.
D. when monthly advertising is at its average level, product sales will be P800,000.
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39. A linear relationship between an independent and a dependent variable means that
A. a forecast made using the historical data will be reasonably accurate.
B. when the independent variable increases, the dependent variable increases by the same amount as the independent
variable has increased.
C. the relationship between the two variables must be a direct one.
D. a graph of the two variables will result in a straight line within the relevant range.

40. A company is considering three alternative machines to produce a new product. The cost structures (unit variable
costs plus avoidable fixed costs) for the three machines are shown as follows. The selling price is unaffected by the
machine used.
Single purpose machine P0.60x + P20,000
Semi-automatic machineP0.40x + P50,000
Automatic machine P0.20x + P120,000
The demand for units of the new product is described by the following probability distribution.
Demand Probability
200,000 0.4
300,000 0.3
400,000 0.2
500,000 0.1

Using the expected value criterion,

A. The automatic machine should be used because of the high expected demand.
B. The semi-automatic machine should be used because it has the lowest expected cost.
C. The automatic machine has the lowest expected cost.
D. The single purpose machine should be used because of the low expected demand.

41. A company implements a new process to manufacture its product and spends P500 on labor to produce 50 units. It
expects that the new process will be subject to an 80% learning curve. If the company assumes the learning curve will
follow the cumulative average-time learning model, what will be the total labor cost to produce 200 units?
A. P1,280
B. P320
C. P1,024
D. P1,600

42. Which of the following is not a limitation of linear regression analysis?

A. Linear regression analysis assumes that there will be no changes in past performance in the future (for example,
efficiency will not improve).
B. Linear regression analysis can only be used to predict performance that is within the range of data used to
develop the regression equation.
C. Linear regression analysis assumes the relationship between the dependent variable and independent variable is
linear.
D. Regression analysis cannot be used when it is difficult to accurately measure the impact of efficiency
improvements.

43. Which of these variances is least significant for cost control?

A. Fixed O/H volume variance.
B. Variable O/H spending variance.
C. Materials quantity variance.
D. Labor price variance.

44. An organization that specializes in reviewing and editing technical magazine articles sets the following standards for
evaluating the performance of the professional staff:
Annual budgeted fixed costs for normal capacity level of 10,000 articles reviewed and edited: P600,000
Standard professional hours per 10 articles: 200 hours
Flexible budget of standard labor costs to process 10,000 articles: P10,000,000
The following data apply to the 9,500 articles that were actually reviewed and edited during the current year:
Total hours used by professional staff: 192,000 hours
Flexible costs: P9,120,000
Total cost: P9,738,000

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The fixed cost spending variance for the year is:
A. P48,000 unfavorable.
B. P30,000 favorable.
C. P18,000 unfavorable.
D. P18,000 favorable.

45. Selo Imports uses flexible budgeting for the control of costs. The company's annual master budget includes P324,000
for fixed production supervisory salaries at a volume of 180,000 units. Supervisory salaries are expected to be incurred
uniformly throughout the year. During the month of September 15,750 units were produced, and production supervisory
salaries incurred were P28,000. A performance report for September would reflect a budget variance of
A. P350 unfavorable.
B. P1,000 favorable.
C. P1,000 unfavorable.
D. P350 favorable.

46. Of the following pairs of variances found in a flexible budget report, which pair is most likely to be related?
A. Labor rate variance and variable overhead efficiency variance.
B. Labor efficiency variance and fixed overhead volume variance.
C. Material usage variance and labor efficiency variance.
D. Material price variance and variable overhead efficiency variance.

47. A company has a fixed overhead volume variance that is P10,000 unfavorable. The most likely cause for this variance
is that
A. less was produced than planned.
B. the production supervisory salaries were greater than planned.
C. the production supervisory salaries were less than planned.
D. more was produced than planned.

48. Franklin Glass Works' production budget for the year ended November 30 was based on 200,000 units. Each unit
requires two standard hours of labor for completion. Total overhead was budgeted at P900,000 for the year, and the fixed
overhead rate was 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 November 30 are presented as follows.
Actual production in units 198,000
Actual direct labor hours 440,000
Actual variable overhead P352,000
Actual fixed overhead P575,000

Franklin's fixed overhead spending variance for the year is:

A. P25,000 unfavorable.
B. P19,000 favorable.
C. P25,000 favorable.
D. P5,750 favorable.

49. Lee Manufacturing uses a standard cost system with overhead applied based on direct labor hours. The
manufacturing budget for the production of 5,000 units for the month of June included 10,000 hours of direct labor at P15
per hour, or P150,000. During June, 4,500 units were produced, using 9,600 direct labor hours, incurring P39,360 of
variable overhead, and showing a variable overhead efficiency variance of P2,400 unfavorable. The standard variable
overhead rate per direct labor hour was
A. P3.85
B. P6.00
C. P4.00
D. P4.10

50. American Coat Company estimates that 60,000 special zippers will be used in the manufacture of men's jackets
during the next year. Reese Zipper Company has quoted a price of P0.60 per zipper. American would prefer to purchase
5,000 units per month, but Reese is unable to guarantee this delivery schedule. In order to ensure availability of these
zippers, American is considering the purchase of all 60,000 units at the beginning of the year. Assuming American can
invest cash at 8%, the company's opportunity cost of purchasing the 60,000 units at the beginning of the year is
A. P1,440.
B. P1,500.
C. P2,640.
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D. P1,320.

51. A company has 7,000 obsolete toys carried in inventory at a manufacturing cost of P6 per unit. If the toys are
reworked for P2 per unit, they could be sold for P3 per unit. If the toys are scrapped, they could be sold for P1.85 per unit.
Which alternative is more desirable (rework or scrap) and what is the total peso amount of the advantage of that
alternative?
A. Scrap, P47,950.
B. Rework, P8,050.
C. Rework, P36,050.
D. Scrap, P5,950.

52. Adams Corporation’s goal is for operating income to equal 6% of sales. Adams estimates that the highest selling price
the market will bear is P115 per unit. Adams expects to sell 100,000 units, incur fixed costs of P3,500,000, and has an
effective income tax rate of 40%. To achieve these plans, the target variable cost per unit must be
A. P73.10.
B. P108.10.
C. P62.75.
D. P68.50.

53. Geary Manufacturing has assembled the data pertaining to two popular products as follows. Past
experience has shown that the fixed manufacturing overhead component included in the cost per machine hour
averages P10. Geary has a policy of filling all sales orders, even if it means purchasing units from outside
suppliers.
Blender Electric Mixer
Direct materials P6 P 11
Direct labor 4 9
Factory overhead at P16 per hour 16 32
Cost if purchased from an outside20 38
supplier
Annual demand (units) 20,000 28,000

If 50,000 machine hours are available, and Geary Manufacturing desires to follow an optimal strategy, it should
A. Produce 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed.
B. Produce 25,000 electric mixers and purchase all other units as needed.
C. Purchase all units as needed.
D. Produce 20,000 blenders and purchase all other units as needed.

54. Following are the operating results of the two segments of Parklin Corporation.
Segment A Segment B Total
Sales P10,000 P15,000 P25,000
Variable cost of goods sold 4,000 8,500 12,500
Fixed costs of goods sold 1,500 2,500 4,000
Gross margin P 4,500 4,000 8,500
Variable selling and2,000 3,000 5,000
administrative
Fixed selling and administrative 1,500 1,500 3,000
Operating income (loss) P 1,000 P (500) P 500

Variable costs of goods sold are directly related to the operating segments. Fixed costs of goods sold are allocated
to each segment based on the number of employees. Fixed selling and administrative expenses are allocated
equally. If Segment B is eliminated, P1,500 of fixed costs of goods sold would be eliminated. Assuming Segment B
is closed, the effect on operating income would be
A. a decrease of P2,000.
B. an increase of P2,000.
C. an increase of P500.
D. a decrease of P2,500.

55. Aspen Company plans to sell 12,000 units of product XT and 8,000 units of product RP. Aspen has a capacity
of 12,000 productive machine hours. The unit cost structure and machine hours required for each product is as
follows.

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Unit Costs XT RP
Materials P37 P24
Direct labor 12 13
Variable overhead 6 3
Fixed overhead 37 38
Machine hours required 1.0 1.5

Aspen can purchase 12,000 units of XT at P60 and/or 8,000 units of RP at P45. Based on the above, which one of
the following actions should be recommended to Aspen's management?
A. Produce XT internally and purchase RP.
B. Produce RP internally and purchase XT.
C. Produce both XT and RP.
D. Purchase both XT and RP.

56. Whitehall Corporation produces chemicals used in the cleaning industry. During the previous month,
Whitehall incurred P300,000 of joint costs in producing 60,000 units of AM-12 and 40,000 units of BM-36.
Whitehall uses the units-of-production method to allocate joint costs. Currently, AM-12 is sold at split-off for
P3.50 per unit. Flank Corporation has approached Whitehall to purchase all of the production of AM-12 after
further processing. The further processing will cost Whitehall P90,000.

Concerning AM-12, which one of the following alternatives is most advantageous?

A. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is
greater than P5.25, which maintains the same gross profit percentage.
B. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is
greater than P5.00.
C. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is
greater than P3.00, which covers the joint costs.
D. Whitehall should continue to sell at split-off unless Flank offers at least P4.50 per unit after further
processing, which covers Whitehall's total costs.

57. If the demand for a product is elastic, a price increase will result in
A. an indeterminate change in revenue.
B. a decrease in total revenue.
C. an increase in total revenue.
D. no change in total revenue.

58. Which one of the following is not a characteristic of market-based pricing?

A. It is used by companies facing stiff competition.
B. It starts with a target selling price and target profit.
C. It has a customer-driven external focus.
D. It is used by companies facing minimal competition.

59. Which one of the following statements best describes characteristics of the growth phase of the product life cycle?
A. There is limited competition and prices are high.
B. Competition increases and prices are high.
C. Competition increases and prices are falling.
D. There is limited competition and prices are falling.

60. Which one of the following situations best lends itself to a cost-based pricing approach?
A. A computer component manufacturer debating pricing with a new customer for a made to order, state of the art
application.
B. An industrial equipment fabricator negotiating pricing for one of its standard models with a major steel
manufacturer.
C. A paper manufacturer negotiating the price for supplying copy paper to a new mass merchandiser of office
products.
D. A computer component manufacturer debating pricing terms with a customer in a new channel of distribution.

61. A manufacturer produces a product that sells for P10 per unit. Variable costs per unit are P6 and total fixed costs are

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P12,000. At this selling price, the company earns a profit equal to 10% of total peso sales. By reducing its selling price to
P9 per unit, the manufacturer can increase its unit sales volume by 25%. Assume that there are no taxes and that total
fixed costs and variable costs per unit remain unchanged. If the selling price were reduced to P9 per unit, the profit would
be:
A. P5,000
B. P3,000
C. P4,000
D. P6,000

62. If a product’s price elasticity of demand is greater than one, then a 1% price increase will cause the quantity
demanded to
A. decrease by less than 1%.
B. increase by less than 1%.
C. increase by more than 1%.
D. decrease by more than 1%.

63. Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts
sold for P7.50 each, and the variable cost to manufacture them was P2.25 per unit. The company needed to sell
20,000 shirts to break even. The net income last year was P5,040. Donnelly's expectations for the coming year include
the following:
The sales price of the T-shirts will be P9
Variable cost to manufacture will increase by one-third Fixed costs will increase by 10%
The income tax rate of 40% will be unchanged
The selling price that would maintain the same contribution margin rate as last year is
A. P9.00
B. P8.25
C. P10.00
D. Some amount other than those given.

64. ________ method(s) include(s) fixed manufacturing overhead costs as inventoriable costs.
A. Variable costing
B. Absorption costing
C. Throughput costing
D. All of these answers are correct.

65. Variable costing regards fixed manufacturing overhead as an

A. administrative cost
B. inventoriable cost
C. period cost
D. product cost

66. The contribution-margin format of the income statement:

A. is used with absorption costing
B. highlights the lump sum of fixed manufacturing costs
C. distinguishes manufacturing costs from nonmanufacturing costs
D. calculates gross margin

67. If the unit level of inventory increases during an accounting period, then:
A. less operating income will be reported under absorption costing than variable costing
B. more operating income will be reported under absorption costing than variable costing
C. operating income will be the same under absorption costing and variable costing
D. the exact effect on operating income cannot be determined

68. When comparing the operating incomes between absorption costing and variable costing, and ending finished
inventory exceeds beginning finished inventory, it may be assumed that:
A. sales decreased during the period
B. variable cost per unit is more than fixed cost per unit
C. there is a favorable production-volume variance
D. absorption costing operating income exceeds variable costing operating income

69. Which of the following statements is FALSE?

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A. Absorption costing allocates fixed manufacturing overhead to actual units produced during the period.
B. Nonmanufacturing costs are expensed in the future under variable costing.
C. Fixed manufacturing costs in ending inventory are expensed in the future under absorption costing.
D. Operating income under absorption costing is higher than operating income under variable costing when production
units exceed sales units.

70. Given a constant contribution margin per unit and constant fixed costs, the period-to-period change in operating
income under variable costing is driven solely by:
A. changes in the quantity of units actually sold
B. changes in the quantity of units produced
C. changes in ending inventory
D. changes in sales price per unit

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