Both Company Y and Company Z produce similar products that need negligible

distribution costs. Their assets operation and accounting are very similar in all
respects except that Company Y uses direct costing and Company Z uses absorption
costing.
A. Co. Y would report a higher inventory value than Co. Z for the years in which production
exceeds sales
B. Co. Y would report a higher inventory value than Co. Z for the years in which production
exceeds the normal or practical capacity
C. Co. Z would report a higher inventory value than Co. Y for the years in which production
exceeds sales
D. Co. Z would report a higher net income than Co. Y for the years in which production equals
sales

A Cost-Volume-Profit graph contains an "Area of Loss" and an "Area of Profitability".

Which of the following best explains the difference between the two points on the
graph?
A. The area of loss represents the difference between Sales and Variable Cost.
B. The area of loss begins with the concept that fixed costs have to be recovered prior to sales
contributing to profit.
C. The area of profit represents the difference between Sales and Variable Cost.
D. The area of profit begins with the concept that no company would have any level of sales
below the break-even point.

All of the following are names for the product costing method in which both fixed and
variable costs are included in overhead rates, except:
A. absorption costing
B. conventional costing
C. direct costing
D. full costing

The Serenity Org. is planning its annual Riverboat Extravaganza. The Extravaganza
committee has assembled the following expected costs for the event: Dinner per
person P 70; Programs and souvenir per person 30; Orchestra 15,000; Tickets and
advertising 7,000; Riverboat rental 48,000; Floor show and strolling entertainment
10,000. The committee members would like to charge P300 per person for the
evening’s activities. Assume that only 250 persons are expected to attend the
extravaganza, what ticket price must be charged to breakeven?
A. P420
B. P350
C. P320
D. P390
At the end of Nabirukan Co.’s first year of operations, 1,000 units of inventory
remained on hand. Variable and fixed manufacturing cost per unit were P90 and P20,
respectively. If Nabirukan uses absorption costing rather than direct (variable) costing,
the result would be a higher pretax income of
A. P20,000.
B. P70,000.
C. P0.
D. P90,000.

Under absorption costing, fixed manufacturing overhead could be found in all of the
following except the
A. work-in-process account.
B. finished goods inventory account.
C. Cost of Goods Sold.
D. period costs.

Isem Co.’s 2019 manufacturing costs were as follows: Direct materials and direct labor
P700,000; Other variable manufacturing costs 100,000; Depreciation of factory
building and manufacturing equipment 80,000; Other fixed manufacturing overhead
18,000. What amount should be considered product cost for external reporting
purposes?
A. P700,000
B. P800,000
C. P880,000
D. P898,000

When comparing absorption costing with variable costing, which of the following
statements is not true?
A. Absorption costing enables managers to increase operating profits in the short run by
increasing inventories.
B. When sales volume is more than production volume, variable costing will result in higher
operating profit.
C. A manager who is evaluated based on variable costing operating profit would be tempted to
increase production at the end of a period in order to get a more favorable review.
D. Under absorption costing, operating profit is a function of both sales volume and production
volume.

Yes Industries manufactures a single product using standard costing. Variable

production costs are P13 and fixed production costs are P125,000. Yes uses a normal
activity of 12,500 units to set its standard costs. Yes began the year with 1,000 units in
inventory, produced 11,000 units, and sold 11,500 units. The standard cost of goods
sold under absorption costing would be
A. P115,000
B. P149,500
C. P253,000
D. P264,500

Absorption costing and variable costing are two different methods of assigning costs
to units produced. Of the following five cost items listed, identify the one that is not
correctly accounted for as a product cost.
A. Manufacturing supplies// Absorption - Yes ; Variable - Yes
B. Insurance on factory// Absorption - Yes ; Variable - No
C. Direct labor cost// Absorption - Yes ; Variable - Yes
D. Packaging and shipping costs// Absorption - Yes ; Variable - Yes

Green Corporation expects to sell 3,000 plants a month. Its operations manager
estimated the following monthly costs: Variable costs P 7,500; Fixed costs 15,000.
What sales price per plant does she need to achieve to begin making a profit if she
sells the estimated number of plants per month?
A. P7.51
B. P7.50
C. P5.00
D. P2.50

A very high degree of operating leverage (DOL) indicates that a firm:

A. has high fixed costs.
B. has a high net income.
C. has high variable costs.
D. is operating close to its breakeven point.

The total production cost for 20,000 units was P21,000 and the total production cost
for making 50,000 units was P34,000. Once production exceeds 25,000 units,
additional fixed costs of P4,000 were incurred. The full production cost per unit for
making 30,000 units is:
A. P0.30
B. P0.68
C. P0.84
D. P0.93

Big Company sells three products: A, B and C. Product A's unit contribution margin is
higher than Product B's which is higher than Products C's. Which one of the following
events is most likely to increase the company's overall break-even point?
A. The installation of new automated equipment and subsequent lay-off of factory workers.
B. A decrease in Product C's selling price.
C. An increase in the overall market demand for Product B.
D. A change in the relative market demand for the products, with the increase favoring Product A
relative to Product B and Product C.

Which of the following is not a benefit of using sensitivity analysis?

A. More people can see the impact of their ideas on the project.
B. The use of a spreadsheet program increases the accuracy of the projections.
C. What will happen is not known in advance so a variety of options can be explored prior to
making a decision.
D. A well-written spreadsheet will allow for a variety of questions to be answered in a minimal
amount of time.

Consider the following: Fixed expenses P78,000; Unit contribution margin 12; Target
net profit 42,000. How many unit sales are required to earn the target net profit?
A. 15,000 units
B. 10,000 units
C. 12,800 units
D. 20,000 units

On January 1, 2019, Finals Company increased its direct labor wage rates. All other
budgeted costs and revenues were unchanged. How did this increase affect
Incremental Company’s budgeted break-even point and budgeted margin of safety?
A// Budgeted break-even point - Increase; Budgeted margin of safety - Increase
B// Budgeted break-even point - Increase; Budgeted margin of safety - Decrease
C// Budgeted break-even point - Decrease; Budgeted margin of safety - Decrease
D// Budgeted break-even point - Decrease; Budgeted margin of safety - Increase

A company increased the selling price for its product from P1.00 to P1.10 a unit when
total fixed costs increased from P400,000 to P480,000 and variable cost per unit
remained unchanged. How would these changes affect the breakeven point?
A. The breakeven point in units would be increased.
B. The breakeven point in units would be decreased.
C. The breakeven point in units would remain unchanged.
D. The effect cannot be determined from the information given.

MNO Products, Inc. planned and actually manufactured 200,000 units of its single
product in 2020, its first year of operations. Variable manufacturing costs were P30
per unit of product. Planned and actual fixed manufacturing costs were P600,000, and
marketing and administrative costs totaled P400,000 in 2000. MNO sold 120,000 units
of product in 2020 at a selling price of P40 per unit. What is the cost of the ending
inventory assuming variable costing is used?
A. P2,400,000
B. P2,750,000
C. P2,250,000
D. P2,640,000
Solemnity Company produces a product that sells for P60. The variable manufacturing
costs are P30 per unit. The fixed manufacturing cost is P10 per unit based on the
current level of activity, and fixed selling and administrative costs are P8 per unit. A
selling commission of 10% of the selling price is paid on each unit sold. The
contribution margin per unit is:
A. P24.
B. P36.
C. P30.
D. P54.

If unit costs remain unchanged and sales volume and sales price per unit both
increase from the preceding period when operating profits were earned, operating
profits must
A. Increase under the absorption costing method.
B. Increase under the variable costing method.
C. Decrease under the absorption costing method.
D. Decrease under the variable costing method.

An organization's break-even point is 4,000 units at a sales price of P50 per unit,
variable cost of P30 per unit, and total fixed costs of P80,000. If the company sells 500
additional units, by how much will its profit increase?
A. P25,000
B. P15,000
C. P10,000
D. P12,000

If a company raises its target peso profit, its

A. break-even point rises.
B. fixed costs increase.
C. required total contribution margin increases.
D. selling price rises.

Jansen, Inc. pays bonuses to its managers based on operating income. The company
uses absorption costing, and overhead is applied on the basis of direct labor hours. To
increase bonuses, Jansen’s managers may do all of the following except
A. Produce those products requiring the most direct labor.
B. Defer expenses such as maintenance to a future period.
C. Increase production schedules independent of customer demands.
D. Decrease production of those items requiring the most direct labor.

Which of the following statements is true for a firm that uses variable costing?
A. The cost of a unit of product changes because of changes in number of units manufactured.
B. Profits fluctuate with sales.
C. An idle facility variation is calculated.
D. Product costs include variable administrative costs.

As the variable cost increases but the selling price remains constant, the
A. Degree of operating leverage declines
B. Margin of safety stays constant
C. Breakeven point goes down
D. Contribution margin ratio goes up

Under the variable-costing concept, unit product cost would most likely be increased
by
A. A decrease in the remaining useful life of factory machinery depreciated on the units-of-
production method.
B. A decrease in the number of units produced.
C. An increase in the remaining useful life of factory machinery depreciated on the sum-of-the-
year’s digits method.
D. An increase in the commission paid to salesman for each unit sold.

A firm presently has total sales of P100,000. If its sales rise, its
A. net income based on variable costing will go up more than its net income based on absorption
costing.
B. net income based on absorption costing will go up more than its net income based on variable
costing.
C. fixed costs will also rise.
D. per unit variable costs will rise.

With the aid of computer software, managers can vary assumptions regarding selling
prices, costs, and volume and can immediately see the effects of each change on the
break-even point and profit. Such an analysis is called
A. “What if” or sensitivity analysis.
B. Vary the data analysis.
C. Computer aided analysis.
D. Data gathering.

Given the following notations, what is the breakeven sales level in units? SP = selling
price per unit FC = total fixed cost VC = variable cost per unit
A. SP / (FC/VC)
B. FC/(VC/SP)
C. VC/(SP – FC)
D. FC/(SP – VC)

If the sales volume is estimated to be 2,100 tons in the next year, and if the prices and
costs stay at the same levels and amounts next year, the after-tax income that Davao
can expect for next year is
 135000

Your answer
. Answer: A
Operating Profit: (2,100 x 225) – 247,500 = P225,000
After–tax profit: 225,000 x 60% = 135,000

The gross profit margin percentage (rounded) was

46%

Your answer

Without prejudice to your answers to previous questions, and assume that Davao
plans to market its product in a new territory. Davao estimates that an advertising and
promotion program costing P61,500 annually would need to be undertaken for the
next two or three years. In addition, a P25 per ton sales commission over and above
the current commission to the sales force in the new territory would be required. How
many tons would have to be sold in the new territory to maintain Davao’s current after-
tax income of P94,500?

307.5

Your answer
. Answer: A
Additional FC/ New Unit CM
61,500 ÷ 200 = 307.5 tons

Davao has a potential foreign customer that has offered to buy 1,500 tons at P450 per
ton. Assume that all of Davao’s costs would be at the same levels and rates as last
year. What net income after taxes would Davao make if it took this order and rejected
some business from regular customers so as not to exceed capacity?

211500

Your answer
. Answer: C
 Contribution margin
Regular sales 1,500 x 225 337,500
Special sale 1500 x 175 262,500
Total Contribution 600,000
Fixed costs 247,500
Taxable income 352,500
Income tax 141,000
Net income 211,500

The breakeven volume in tons of product for the year is

1100

Your answer
. Answer: C
CM /unit 405,000 ÷ 1,800 225
BEV = 247,500 ÷ 225 1,100 units

Reported net income (or loss) for the first 6 months under variable costing is
 0

Your answer C. $0

The amount of fixed factory costs applied to product during the first 6 months under
absorption costing is over applied or under applied by what amount?

20000

Your answer A. Over-applied by $20,000.

Reported net income (or loss) for the first 6 months under absorption costing is
 40000

Your answer C. $40,000

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