ASIA PACIFIC COLLEGE OF ADVANCED STUDIES

City Of Balanga

REVALIDA EXAMINATION
CAE 8 ( Strategic Cost Management)

PART 1: THEORIES
I. IDENTIFICATION
Variable Costing Method 1. Under this method, the Fixed factory overhead is treated as a
period cost.
Period Cost 2. Does not form part of the cost of inventory.
Relevant Cost 3.Expected future cost which differs for an alternative course.
Sunk Cost 4. Are all costs incurred or committed in the past that cannot be
changed by any decision made now or in the future.
Joint Product 5. When two or more products of equivalent importance are
produced simultaneously.
Outpocket Cost 6.Involve either an intermediate or near future cash outlay they are
Usually relevant decisions.
Strategic Cost Management 7.The application of cost management techniques that
simultaneously improve the strategic position of a firm and reduce
Costs.
Differential Cost 8.The cost that is present in one alternative in a decision-making
case, but are absent in whole or in part in another alternative.
Avoidable Cost 9.Cost can be eliminated, in a whole or in part when one alternative
is chosen over another in a decision-making case.
Life-Cycle Costing 10.Involves the determination of product's estimated revenues and
expenses over its expected life-cycle.

II. Multiple Choice

1. The stage in a product's life cycle when the product loses market acceptance and sales begin to
decrease.
A. Maturity Stage B. Decline Stage C. Growth Stage D.Introduction Stage
2. The stage in a product's life cycle when sales increase at an increasing rate.
A. Maturity Stage B. Decline Stage C. Growth Stage D.Introduction Stage
3. the stage in a product's life cycle when sales increase at a decreasing rate.
A. Maturity Stage B. Decline Stage C. Growth Stage D.Introduction Stage
4. a product life-cycle stage characterized by preproduction and startup activities, where the focus is on
obtaining a foothold in the market.
A. Maturity Stage B. Decline Stage C. Growth Stage D.Introduction Stage
5. What is the concept of prime costs?
A. fixed cost
B. Direct labor cost
C.Combination of direct materials and direct labor costs.
D. Combination of direct materials, direct labor, and overhead costs

6. The act of making a tactical choice between producing an item internally and buying it from an
outside supplier.
 A, Add or Drop a product or other segment
B.Sell Now or Process Further
C.Shutdown or Continue Operations
D. Make or Buy

7.What Cost is treated as product cost under variable costing.

A. All variables cost
B. All direct cost only
C. All Manufacturing costs
D. Only Variable production cost

8.The inventory costing method that treats direct manufacturing cost and indirect manufacturing
cost, both variable and fixed, as inventoriable cost is called
A. Variable Costing
B. Absorption Costing
C.Conversion Costing
D.Perpetual Inventory
9.If the firms used Variable costing
A. Its Product cost includes variable selling and administrative costs
B.Its profits fluctuate with sales
C.It Calculates an idle facility variation
D. Its Product cost per unit changes because of changes in the number of units produced

10. Just-In-Time (JIT) combines the benefits of:

A. Job order production and Line production
B. Batch production and Line producti
C.Job order production and Batch production
D.None of the following choice

11. Just-In-Time is

A. Single unit production

B. Big lot size production
C. Both (A) and (B)
D.None of the above

12. Absorption costing differs from variable costing in all of the following except
a. treatment of fixed manufacturing overhead.
b. treatment of variable production costs.
c. acceptability for external reporting.
d. arrangement of the income statement

13. How will a favorable volume variance affect net income under each of the following methods?
Absorption Variable
A. REDUCE NO EFFECT
B. REDUCE INCREASE
C. INCREASE NO EFFECT
D.INCREASE REDUCE
 14. Which of the following is an advantage of using variable costing?
A. Variable costing complies with Generally Accepted Accounting Principles.
B. Variable costing complies with the National Internal Revenue Code.
C. Variable costing is most relevant to long-run pricing strategies.
D. Variable costing makes cost-volume-profit relationships more easily apparent.

15. The opportunity cost of making a component part in a factory with excess capacity for which there is
no alternative use is
A. the total manufacturing cost of the component.
B. the total variable cost of the component.
C. the fixed manufacturing cost of the component.
D. zero.

III. True or False

True 1.Introduction phase cumulative cash is most likely negative due to the high investment
required to develop and market the product.
True 2. Kaizen costing focuses on the production phase.
True 3. target costing focuses on the expected costs of a product and what the market is
expected to pay for it.
False 4. Sunk costs should be considered in decisions.
-Sunk Cost is irrelevant in the decision.
True 5. Indirect Cost such as variable factory overhead cost are treated also as product cost
under variable costing.
True 6. The main objective of cost management is to reduce the costs expended by an
organization while strengthening the strategic position of the firm.
True 7.Target Costing, A company first determines the prices at which it can sell its product or
services that can be produced at the target cost to provide the target profit.
True 8. Most inventory models attempt to minimize is the inventory cost.
True 9.If annual demand was to double, the EOQ would also double.
True 10. If the carrying cost was to increase, the EOQ would fall.
True 11. If the ordering cost were to double, the EOQ would rise.
True 12. In the EOQ model, if carrying costs increase while all other costs remain unchanged,
the number of orders placed would be expected to increase.
True 13.In the EOQ model, the average inventory is defined as the order quantity divided by 2.

.
IV. Enumeration
A. Give the 4 elements in balance Scorecard
1. Financial Aspects
2. Customer
3. Internal Process
4. Development/ Continuous Improvement

B. Give the 7 types of of Decision in Relevant Costing

1. Make or buy
2. Add or drop product or other segment
3. Sell now or process further
4. Special sales price
5. Utilization of scarce resources
6. Shutdown or continue operations
7. Pricing

PART 2: PROBLEM-SOLVING
1-10 EOQ Problems
1.A product has demanded of 4,000 units per year. The ordering cost is P20 and the holding cost is
P4 per unit per year. The cost-minimizing solution for this product is to order.
A. 400 units
B. 150 units
C. 200 units
D. 300 units

2. A product has demanded 4,000 units per year. The ordering cost is P20 and the holding cost is P4 per unit
per year. The EOQ model is appropriate. The cost-minimizing solution for this product will cost _____ per year
in total annual inventory costs.

A. P 800
B. 800 units
C. 6,325 units
D. P 450

3. Del monte Products uses 800 units of a product per year on a continuous basis. The product has a carrying
cost of P50 per unit per year and order costs of P300 per order. Calculate the economic order quantity.

A. 98 units
B. 89 units
C. 900 units
D. 95 units
4.Camaya Company uses 12,600 baskets a year of apple shipment. The order costs per order is P600 and it
costs P2 to carry a unit of the basket in inventory per period. What is the total inventory costs?

A. 5,500 units
B. P 1,500
C. P5,500
D. 1,500 units

5. Chemistry Company uses 150,000 gallons of hydrochloric acid per month. The cost of carrying the chemical
in inventory is 50 centavos per gallon per year, and the cost of ordering the chemical is P150 per order. What
is the number of orders required for the year?

A. 54 orders
B. 12 order
C. 16 orders
D. 22 orders
6. Filipinas Products uses 800 units of a product per year on a continuous basis. The product has a carrying
cost of P50 per unit per year and order costs of P300 per order. Calculate the total carrying costs.

A. 2,450
B. 1,600
C. 2,500
D. 1,800

7. The GCC Company uses 150,000 gallons of hydrochloric acid per month. The cost of carrying the chemical
in inventory is 50 centavos per gallon per year, and the cost of ordering the chemical is P150 per order. What
is the economic order quantity?

A. 32,863
B. 9,465
C. 5,769
D. none

8. MS Company uses 12,600 baskets a year of apple shipment. The order costs per order is P600 and it costs
P2 to carry a unit of basket in inventory per period. What is the optimum order quantity.

A. 2,750 units
B. 1,788 units
C. 2,903 units
D. None

9. Savy Products uses 800 units of a product per year on a continuous basis. The product has a carrying costs
of P50 per unit per year and order costs of P300 per order. Calculate the number of orders required.

A. 18 orders
 B. 9 orders
C. 12 orders
D. 32 orders

10. A company has a monthly demand of 5,000 pcs of shirts. Its cost per order is P250 and its carrying cost
per unit is P5. Calculate the number of orders required in a year.

A. 16 orders
B. 24 orders
C. 9 orders
D. 3 orders

11-15 Job Order Cost Accounting

11. How much is the ending work in process inventory?

A. P334,000
B. P385,000
C. P156,400
D. P326,099

12. How much is the net income?

A. P 350,000
B. P120,000
C. P89,000
D. P75,000

13. How much is the beginning finished goods inventory?

A. P 485,000
B. P 900,000
C. P 685,000
D. P127,000

14. How much is the net purchase?

 A. P 120,000
B. P 800,000
C. P 450,000
D. P 965,000

15. How much is the cost of goods manufactured?

A. P 2,215,000
B. P 3,156,000
C. P 2,099,000
D. P 2,530,000

16-22 Absorption and Variable Costing

16. What amount should be considered product cost for external

reporting purposes?
A.P13.30
B.P11.80
C.P18.30
D.P14.80

17. What is the product cost per unit under variable costing?
A.P13.30
B.P18.30
C.P11.80
D.P14.80
18. What is the variable cost per unit for purposes of computing the contribution margin?
A.P13.30
B.P18.30
C.P11.80
D.P14.80

19. Under absorption costing, income for January 200A was

 A. P8,200.
B. P5,200
C. P6,700.
D. P1,700

20-21. During the month of May, Vinarao Corp. produced and sold 12,000
units of a product. Manufacturing and selling costs incurred during
May were:
Direct materials and direct labor P480,000
Variable factory overhead 108,000
Fixed factory overhead P 24,000
Variable selling cost 12,000

20. The product's unit cost under variable costing was

A. P51
B. P49
C P52
D. P50

21. The product's unit cost under absorption costing was

A. P51
B. P49
C. P52
D. P50

22-31.Silva Corporation uses an absorption costing system for internal reporting purposes.
 At present, however, it is considering using the variable costing system. Following are
some data regarding Silva Corporation's budgeted and actual operations for the calendar
year2008:

Budgeted Actual
(units) (units)
Finished goods beginning inventory
280 280
Production 1,120 1,040
Sales 1,120 1,000
The budgeted costs were computed based on
the budgeted production and sales of
1,120 units, the company's normal capacity level. Silva Corporation uses a predetermined factory
overhead rate for applying manufacturing overhead costs to its product. The denominator level
used in developing the predetermined rate is the firm's normal capacity. Any over- or
underapplied factory overhead cost is closed to the cost of goods sold at the end of the
year.There are no work-in-process inventories at either the beginning or end of the year. The
actual selling price was the same as the amount planned, P130.00 per unit.The previous year's
planned per unit manufacturing costs were the same as the current planned unit manufacturing
cost. The beginning inventory of finished goods for absorption costing purposes was valued at
such per-unit manufacturing cost.

22. The standard product costs per unit are:

Absorption Costing Variable Costing
A. P56.00 P46.50
B. 46.50 56.00
C. 93.50 74.75
D. 93.50 94.40
23. The manufacturing cost variances are:
Variable Fixed
Manufacturing Cost Manufacturing Cost
A. 0 P120 favorable
B. 0 120 unfavorable
C. 3,720 unfavorable 640 unfavorable
D. 3,720 favorable 640 favorable

24. Silva Corporation's operating income under both the absorption

and variable costing methods were:
Absorption Costing Variable Costing
A. P33,675 P34.055
B. 73,880 64,750
C. 34,175 33,675
D. 34,055 33,675

25.The values of Silva Corporation's actual ending finished goods inventory on the absorption and
variable costing methods were:
Absorption Costing Variable Costing
A. 320 320
B. 14,880 17,920
C. 17,920 14,880
D. 56 46

26. Silva Corporation's total fixed costs expensed this year on both costing methods were:

Absorption Costing Variable dosting

A. P30,695 P 31,075
B. 30,575 31,075
C. 30,575 30,575
D. 300,500 31,640

27. Silva Corporation's actual manufacturing contribution margin for the year calculated on the
Variable costing basis was
A. P46,500
B. P83,500
C. P65,250
D. P64,750

28. Silva Corporation's actual: contribution margin for the year calculated on the variable costing basis was
A.P45,500.
B.P83,500.
 C. P65,250.
D. P64,750

29. The total variable costs expensed currently by Silva Corporation on both the absorption and
variable costing bases were
A. The Same
B. P 65,550
C. P 46,500
D. P 73,080

30. The difference between Silva Corporation's operating income calculated on the absorption
costing basis and that on the variablie costing basis was:
A. P 380
B. P9,130
C. P 500
D. P14,880

31-32. The management of Sisa Company uses the following projected unit costs for the one
product
it manufactures:
Prime cost P 49
Variable indirect manufacturing cost 6
Fixed factory overhead cost (based on 10,000 units per month) 5
Variable selling and administrative cost 4
Fixed selling and administrative cost 2.80

The projected sales price is P80 per unit. The fixed costs remain fixed within the relevant
range
of 4,000 to 16,000 units of production and sales. All variances are charged to the Cost of
Goods
Sold each month.
Management has projected the following unit data for June:
Beginning inventory 2,000
Production 9.000
Available 11,000
Sales 7,500
Ending Inventory 3.500

31. Operating income under absorption costing amounts to

A. P87,000
B. P94,000
C. P92,000
D. P99,000
 32.Operating income under variable costing amounts to
A. P 86,500
B. P79,500
C. P157,500
D. P99,000

33-36. Marinara Company uses a standard costing system in the manufacture of its single
product. The 35,000 units of raw material in inventory were purchased for P 105,000, and two
units of raw material are required to produce one unit of final product. In November, the
company produced 12,000 units of product. The standard allowed for material was P 60,000, and
there was an unfavorable quantity variance of P 2,500.

33. What is Marinara’s standard price for one unit of material?

A. P 2.00
B. P 2.50
C. P 3.00
D. P 5.00

34. How many units were used to produce November output?

A. 12,000 UNITS
B. 12,500 UNITS
C. 23,000 UNITS
D. 25,000 UNITS

35-41. Italian Corporation provides the following information for the month of February
based on the production Of 20,000 units:
Direct materials P 50,000
Direct labor 30,000
Variable factory overhead costs 20,000
Fixed factory overhead costs 25,000
Variable selling and administrative expenses 40,000
Fixed selling and administrative expenses 15,000

35. What is the unit product cost under variable costing?

A. P 5.00
B. P 6.25
C. P 7.00
D. P 8.00

36.What selling price will earn a gross profit of P 2.50 per unit under absorption costing?
A. P 3.75
B. P 8.75
C. P 9.50
D. P10.50

37. Under full costing, what is the costs of goods manufactured if work-in-process inventory
 increased by P 15,000?
A. P 85,000
B. P 110,000
C. P 115,000
D. P 140,000

38. Assuming that production and sales are equal, what is the company’s margin of safety based
on a unit selling price of P 12.00?
A. 8,000 UNITS
B. P 60,000
C. P 84,000
D. P 144,000

39. Relay Corporation manufactures batons. Relay can manufacture 300,000 batons a year at a variable cost
of P750,000 and a fixed cost of P450,000. Based on Relay’s predictions, 240,000 batons will be sold at the
regular price of P5.00 each. In addition, a special order was placed for 60,000 batons to be sold at a 40
percent discount off the regular price. The unit relevant cost per unit for Relay’s decision is:
A.P3.00
B. P4.00
C. 1.50
D. P2.50

40. Stine Company incurs the following costs in producing 50,000 units of product:
Direct materials P100,000
Direct labor 50,000
Variable manufacturing overhead 100,000
Fixed manufacturing overhead 300,000
An outside supplier has offered to supply the 50,000 units at P7.00 each. All of Stine's related variable costs,
but only P200,000 of the fixed costs would be eliminated if the offer is accepted. Acceptance will result in a

A. SAVINGS OF P200,000.
B. LOSS OF P100,000.
C. SAVINGS OF P100,000.
D. LOSS OF P200,000

41. Part BX is a component that Motors and Engines Co. uses in the assembly of motors. The cost to produce
one BX is presented below:
Direct materials P 4,000
Materials handling (20% of direct materials) 800
Direct labor 32,000
Overhead (150% of direct labor) 48,000
Total manufacturing costs P84,800
Materials handling which is not included in manufacturing overhead, represents the direct variable costs of
the receiving department that are applied to direct materials and purchased components on the basis of
their cost.
The company’s annual overhead budget is one-third variable and two-thirds fixed. Pre-casts Co., offers to
supply BX at a unit price of P60,000. Should the company buy or manufacture?
 A. Buy, due to the advantage of P12,800 per unit.
B. Buy, due to the advantage of P24,800 per product.
C. Manufacture, due to advantage of P7,200 per unit.
D. Manufacture, due to advantage of P19,200 per unit.

42. Bikini Co. is a manufacturer operating at 95% of capacity. Kirklin has been offered a new order at P7.25
per unit requiring 15% of capacity. No other use of the 5% current idle capacity can be found. However, if the
order were accepted, the subcontracting for the required 10% additional capacity would cost P7.50 per unit.
The variable cost of production for Kirklin on a per-unit basis follows:
Materials P3.50
Labor 1.50
Variable overhead 1.50
P6.50
In applying the contribution margin approach to evaluating whether to accept the new order, assuming
subcontracting, what is the average variable cost per unit?
A. P6.83
B. P7.00
C. P7.17
D. P7.25

43. Jansport Corporation has developed the following flexible budget formula for monthly overhead:
For output of less than 200,000 units: P36,600 + P.80(units)
For output of 200,000 units or more: P43,000 + P.80(units)
How much overhead should Jansport expect if the firm plans to produce 200,000 units?

A. P52,600
B. P59,000
C. P196,600
D. P203,000

44. In its first year of operations, Nasty Company had the following costs when it produced 100,000 units
and sold 80,000 units of its only product:
Manufacturing costs:
Fixed P180,000
Variable 160,000
Selling and administrative costs:
Fixed 90,000
Variable 40,000

How much higher would Nasty’s net income be if it used full absorption costing instead of variable costing?
A. P94,000
B. P36,000
C. P68,000
D. P54,000
45.Mangit Company is currently operating at a loss of P15,000. The sales manager has received a special
order for 5,000 units of product, which normally sells for P35 per unit. Costs associated with the
product are: direct material, P6; direct labor, P10; variable overhead, P3; applied fixed overhead,
P4; and variable selling expenses, P2. The special order would allow the use of a slightly lower
grade of direct material, thereby lowering the price per unit by P1.50 and selling expenses would be
decreased by P1. If Mangit wants this special order to increase the total net income for the firm to
P10,000, what sales price must be quoted for each of the 5,000 units?
A.P23.50
B.P27.50
C.P24.50
D.P34.00

46. Company A manufactures bicycles. It can produce 1,000 units in a month for a fixed cost of
P100,000 and variable cost of P500 per unit. Its current demand is 600 units which it sells at P1,000
per unit. It is approached by Company B for an order of 200 units at P700 per unit. Should the
company accept the order?
A. No, Because manufacturing bicycle can be less the cost than to order
B. Yes, because the general contribution of order is P 200 per Bicycle
C. Maybe
D. None

47. The estimated costs of producing 6,000 units of a component are:

Per Unit Total

Direct Material P10 P60,000
Direct Labor 8 48,000
Applied Variable Factory Overhead 9 54,000
Applied Fixed Factory Overhead 12 72,000
P1.5 per direct labor dollar
P39 P234,000
The same component can be purchased from the market at a price of $29 per unit. If the component is
purchased from the market, 25% of the fixed factory overhead will be saved. Should the component be
purchased from the market?

A. P 5,000
B. P 6,000
C. P 9,000
D.P 7,000

48-50.Product A and B are produced in a joint process. At split-off point, Product A is complete
whereas
product B can be processed further. The following additional information is available
Product A B
Quantity in Units 5,000 10,000
Selling Price Per Unit:
At Split-Off P10 P2.5
If Processed Further P5
Costs After Split-Off P20,000
Perform sell-or-process-further analysis for product B.

48. What is the Contribution to income from selling at split-off?

A.P 25,000
B.P 90,000
C. P12,000
D. P 19,000

49. What is the Contribution to income from selling it after processing it further
A. P 23,000
B. P 17,000
C. P 14,000
D.P 30,000

50. What is the operating income if The company should sell B after processing it further.
A. Increase in operating income P 5,000
B. Decrease in operating income P 12,000
C. Decrease in operating income P 5,000
D. Increase in operating income P 12,000