Document No.

: FM-OAD-022
COLLEGE DEPARTMENT
Revision No.: 00
TEST QUESTION TEMPLATE Effectivity Date: May 11, 2022

SCHOOL OF ACCOUNTANCY, BUSINESS AND HOSPITALITY

Accountancy Department

MIDTERM EXAM in Strategic Cost Management (MGMT 1033)

Short Term, S.Y. 2021-2022

NAME:
CODE:
INSTRUCTOR:
PROCTOR:

Test I. Multiple Choice. Choose the letter of your choice that best corresponds to the correct answer. Place
your answers on a table provided at the last page of this test paper. (35 points)

1. When production levels are expected to increase within a relevant range and a flexible budget is used. What
effect would be anticipated with respect to each of the following costs?
A. B. C. D.
Fixed Costs per Unit Increase Increase Decrease Decrease
Variable Costs per Increase No change No change Decrease
Unit

2. If a company’s variable costs are 70% of sales, which formula represents the computation of dollar sales that
will yield a profit equal to 10% of the contribution margin when S equals sales in dollars for the period and FC
equals total fixed costs from the period?
A. S = FC  0.2 C. S = 0.2  FC
B. S = FC  0.27 D. S = 0.27  FC

3. As an accountant, the most useful information you can get from break-even chart is the
A. Volume or output level at which the enterprise breaks even.
B. Amount of sales revenue needed to cover enterprise fixed costs.
C. Amount of sales revenue needed to cover enterprise variable costs.
D. Relationship among revenues, variable costs, and fixed costs at various levels of activity.

4. In a cost-volume-profit graph
A. The total revenue line crosses the horizontal axis at the breakeven point.
B. An increase in unit variable costs would decrease the slope of the total cost line.
C. An increase in the unit selling price would shift the breakeven point in units to the left.
D. An increase in the unit selling price would shift the breakeven point in units to the right.
E. Beyond the breakeven sales volume, profits are maximized at the sales volume where total revenues
equal total costs.

5. Cost-volume-profit analysis is a key factor in many decisions, including choice of product lines, pricing of
products, marketing strategy, and utilization of productive facilities. A calculation used in CVP analysis is the
break-even point. Once the break-even point has been reached operating income will increase by the
A. Fixed cost per unit for each additional unit sold.
B. Sales price per unit for each additional unit sold.
C. Gross margin per unit for each additional unit sold.
D. Contribution margin per unit for each additional unit sold.

6. When used in cost-volume-profit analysis, sensitivity analysis

A. Determines the most profitable mix of products to be sold.
B. Allows the decision maker to introduce probabilities in the evaluation of decision alternatives.
C. Is limited because in cost-volume-profit analysis, costs are not separated into fixed and variable
components.
D. Is done through various possible scenarios and computes the impact on profit of various predictions of
future events.

Prepared by: Jilly Boy G. Bruno Jr. and Jerome Marquez (Set A) | 1
 Document No.: FM-OAD-022
COLLEGE DEPARTMENT
Revision No.: 00
TEST QUESTION TEMPLATE Effectivity Date: May 11, 2022

7. At its present level of operations, a small manufacturing firm has total variable costs equal to 75 percent of
sales and total fixed costs equal to 15 percent of sales. Based on variable costing, if sales change by $1.00,
income will change by
A. $0.10.
B. $0.25.
C. $0.75.
D. can't be determined from the information given.

8. A company increased the selling price of its product from $1.00 to $1.10 a unit when total fixed costs increased
from $400,000 to $480,000 and variable cost per unit remained unchanged. How will these changes affect the
breakeven point?
A. The breakeven point in units will be increased.
B. The breakeven point in units will be decreased.
C. The breakeven point in units will remain unchanged.
D. The effect cannot be determined from the information given.

9. Which of the following is a true statement about sales mix?

A. Profits will remain constant with an increase in total dollars of sales if the total sales in units
remains constant.
B. Profits will remain constant with a decrease in total dollars of sales if the sales mix also remains
constant.
C. Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of the
high contribution margin product.
D. Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of the
lower contribution margin product.

10. Saints Co. sells three chemicals: Simpol, Plutex, and Coplex. Simpol is the most profitable product while Coplex
is the least profitable. Which one of the following events will definitely decrease the firm’s overall B.E.P. for
the upcoming accounting period?
A. A decrease in Coplex’s selling price.
B. An increase in Simpol raw materials cost.
C. An increase in the overall market of Plutex.
D. An increase in anticipated sales of Simpol relative to the sales of Plutex and Coplex.

11. Under absorption costing, if sales remain constant from period 1 to period 2, the company will report a larger
income in period 2 when
a. period 1 production exceeds period 2 production.
b. period 2 production exceeds period 1 production.
c. fixed production costs are larger in period 2 than period 1.
d. variable production costs are larger in period 2 than period 1.

12. When comparing absorption costing with variable costing, which of the following statements is not true?
a. When sales volume is more than production volume, variable costing will result in higher operating
profit.
b. Under absorption costing, operating profit is a function of both sales volume and production volume.
c. Absorption costing enables managers to increase operating profits in the short run by increasing
inventories.
d. 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.

13. A company’s net income recently increased by 30% while its inventory increased to equal a full year’s sales
requirements. Which of the following accounting methods would be most likely to produce the favorable
income results?
A. Absorption costing. C. Standard direct costing.
B. Direct costing. D. Variable costing.

Prepared by: Jilly Boy G. Bruno Jr. and Jerome Marquez (Set A) | 2
 Document No.: FM-OAD-022
COLLEGE DEPARTMENT
Revision No.: 00
TEST QUESTION TEMPLATE Effectivity Date: May 11, 2022

14. Variable costing and absorption costing will show the same incomes when there are no
A. beginning and ending inventories.
B. beginning inventories.
C. ending inventories.
D. variable costs.

15. Other things being equal, net income computed by direct costing method would exceed net income computed
by absorption costing method if
A. Units sold were to exceed units produced.
B. Units produced were to exceed units sold.
C. Fixed manufacturing costs were to increase.
D. Variable manufacturing costs were to increase.

16. Which of the following is not a characteristic of a “Staff” authority?

a. It gives support, advise, and service to line managers.
b. It is exercised laterally or upward.
c. It has the authority to command action or give orders to subordinates.
d. None of the above

17. As business increase in complexity, the function of controllership has attained top level recognition in the
corporate area. Many areas related to finance and accounting have been identified with controllership. One
area that becomes controversial when included under the controller and viewed that such inclusion violates
basic internal control is
a. Credit and collection.
b. Internal auditing.
c. Long-range financial planning.
d. Taxation and reporting to government agencies.

18. Controllership has attained special recognition in corporate management as business expands in complexity
and reach, and as the controller exerts influence for management to take organization’s goals. Controllership
and treasurership constitute corporate finance. These are among the controller’s traditional functions:
1. Tax management.
2. Financial reporting and interpretation.
3. Credit management.
4. Sourcing and investing of funds.
5. Reporting to government regulatory agencies.
6. Risk management.
7. Economic appraisal.
8. Planning for control.
a. All eight items. c. Items 1, 2, 3, 4, 5, 7, and 8 only.
b. Items 1, 2, 5, 7, and 8 only. d. 2, 3, 5, and 7, and 8 only.

19. The chief management accountant called “controller” traditionally performs these functions except:
a. The establishment and implementation of the financial planning process.
b. Financial and management reporting and interpretation.
c. Protection of company resources and economic evaluation.
d. Preparation of proposals for product promotions.

20. The breakeven point in units sold for Jerome Corporation is 44,000. If fixed costs for Jerome are equal to
$880,000 annually and variable costs are $10 per unit, what is the contribution margin per unit for Jerome
Corporation?
a. $0.05
b. $20.00
c. $44.00
d. $88.00

Prepared by: Jilly Boy G. Bruno Jr. and Jerome Marquez (Set A) | 3
 Document No.: FM-OAD-022
COLLEGE DEPARTMENT
Revision No.: 00
TEST QUESTION TEMPLATE Effectivity Date: May 11, 2022

21. What is the breakeven point in units for a product that sells for $10 if fixed costs are $4,000 and variable costs
are 20%?
a. 250
b. 500
c. 800
d. 2,000

22. JeLly Animals, Inc. has decided to focus strictly on producing and selling one type of teddy bear. For the
upcoming year, JeLly Animals, Inc. hopes to make a 25% profit on sales. Fixed costs are set at $51,000 and
variable costs are $9.50 per unit. If teddy bears are sold at $15 each, how many bears must be sold to meet
the profit goal?
a. 5,514
b. 9,273
c. 13,600
d. 29,143

23. Jirome Corporation sells sets of encyclopedias. Jirome sold 4,000 sets last year at $250 a set. If the variable
cost per set was $175, and the fixed costs for Jirome were $100,000, what is Jirome's degree of operating
leverage (DOL)?
a. 0.67
b. 0.75
c. 1.5
d. 3.0

24. A manufacturer at the end of its fiscal year recorded the data below:
Prime cost………………………………………………… $800,000
Variable manufacturing overhead………………. 100,000
Fixed manufacturing overhead…………………….160,000
Variable selling and other expenses……………… 80,000
Fixed selling and other expenses………………….. 40,000

If the manufacturer uses variable costing, the inventoriable costs for the fiscal year are
a. $800,000
b. $900,000
c. $980,000
d. $1,060,000

25. Refer to the previous item. Using absorption (full) costing, inventoriable costs are
a. $800,000
b. $900,000
c. $1,060,000
d. $1,080,000

26. Almo Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The
market covers both new unit purchasers as well as replacement canopies. Almo developed its business plan
based on the assumption that canopies would sell at a price of $400 each. The variable costs for each canopy
were projected at $200, and the annual fixed costs were budgeted at $100,000. Almo's after-tax profit
objective was $240,000; the company's effective tax rate is 40%.

While Almo's sales usually rise during the second quarter, the May financial statements reported that sales
were not meeting expectations. For the first 5 months of the year, only 350 units had been sold at the
established price, with variable costs as planned, and it was clear that the after-tax profit projection would
not be reached unless some actions were taken. Almo's president assigned a management committee to
analyze the situation and develop an alternative course of action. The following was presented to the
president.
Reduce the sales price by $40. The sales organization forecasts that with the significantly reduced sales
price, 2,700 units can be sold during the remainder of the year.
Prepared by: Jilly Boy G. Bruno Jr. and Jerome Marquez (Set A) | 4
 Document No.: FM-OAD-022
COLLEGE DEPARTMENT
Revision No.: 00
TEST QUESTION TEMPLATE Effectivity Date: May 11, 2022

Total fixed and variable unit costs will stay as budgeted.

Assuming no changes were made to the selling price or cost structure, how many units must Almo sell to break
even?
a. 167
b. 250
c. 500
d. 1,700

27. Assuming no changes were made to the selling price or cost structure, how many units must Almo sell to
achieve its after-tax profit objective?
a. 1,250 c. 2,000
b. 1,700 d. 2,500

28. If management decides to reduce the selling price by $40, what will Almo's after-tax profit be?
a. $157,200 c. $301,200
b. $160,800 d. $241,200

29. The change in period-to-period operating income when using variable costing can be explained by the
change in the
a. Unit sales level multiplied by the unit sales price.
b. Finished goods inventory level multiplied by the unit sales price.
c. Unit sales level multiplied by a constant unit contribution margin.
d. Finished goods inventory level multiplied by a constant unit contribution margin.

30. Planners have determined that sales will increase by 25% next year, and that the profit margin will remain at
15% of sales. Which of the following statements is correct?
a. Profit will grow by 25%.
b. The profit margin will grow by 15%.
c. Profit will grow proportionately faster than sales.
d. Ten percent of the increase in sales will become net income.

31. The Jilly Machineries Corporation has been in existence for a little over 3 years; their sales have been
increasing each year as they build their reputation. The company manufactures dies to their customers'
specifications; as a consequence, a job order cost system is employed. Factory overhead is applied to the
jobs based on direct labor hours, utilizing the absorption (full) costing method. Overapplied or underapplied
overhead is treated as an adjustment to cost of goods sold.

The company's income statements for the last 2 years are presented below.
Jilly Machineries Corporation
2000-2001 Comparative Income Statements
2000 2001
-------- ----------
Sales $840,000 $1,015,000
-------- ----------
Cost of goods sold
Finished goods, 1/1 $ 25,000 $ 18,000
Cost of goods manufactured 548,000 657,600
-------- ----------
Total available $573,000 $ 675,600
Finished goods, 12/31 18,000 14,000
-------- ----------
Cost of goods sold before
Overhead adjustment $555,000 $ 661,600
Underapplied factory overhead 36,000 14,400
-------- ----------
Cost of goods sold $591,000 $ 676,000
-------- ----------
Prepared by: Jilly Boy G. Bruno Jr. and Jerome Marquez (Set A) | 5
 Document No.: FM-OAD-022
COLLEGE DEPARTMENT
Revision No.: 00
TEST QUESTION TEMPLATE Effectivity Date: May 11, 2022

Gross profit $249,000 $ 339,000

-------- ----------
Selling expenses $ 82,000 $ 95,000
Administrative expenses 70,000 75,000
-------- ----------
Total operating expenses $152,000 $ 170,000
-------- ----------
Operating income $ 97,000 $ 169,000
======== ==========
Jilly Machineries Corporation
Inventory Balances
1/1/00 12/31/00 12/31/01
------- -------- --------
Raw material $22,000 $30,000 $10,000
Work-in-process
Costs $40,000 $48,000 $64,000
Direct labor hours 1,335 1,600 2,100
Finished goods
Costs $25,000 $18,000 $14,000
Direct labor hours 1,450 1,050 820

Jilly used the same predetermined overhead rate in applying overhead to production orders in both
2000 and 2001. The rate was based on the following estimates.
Fixed factory overhead $ 25,000
Variable factory overhead $155,000
Direct labor hours 25,000
Direct labor costs $150,000

In 2000 and 2001, actual direct labor hours expended were 20,000 and 23,000, respectively. Raw
materials put into production were $292,000 in 2000 and $370,000 in 2001. Actual fixed overhead was
$37,400 for 2001 and $42,300 for 2000, and the planned direct labor rate was the direct labor rate
achieved. For both years, all of the reported administrative costs were fixed, while the variable portion
of the reported selling expenses resulted from a commission of 5% of sales revenue.

Assume the Jilly Machineries Corp. switches to the variable costing method.

What is the cost of the goods available for sale for the year ended December 31, 2001?
a. $667,550 c. $716,600
b. $713,950 d. $675,600

32. Refer to Jilly Machineries Corp. What is the variable manufacturing cost of goods sold for 2001?
a. $635,950 c. $652,050
b. $638,870 d. $700,770

33. Refer to Jilly Machineries Corp. What is Jilly Machineries Corp’s contribution margin for 2001?
a. $281,130 c. $331,880
b. $325,380 d. $363,130

34. Refer to Jilly Machineries Corp. What is Jilly Machineries Corp’s variable operating income for 2001?
a. $168,730 c. $212,980
b. $206,130 d. $243,730

35. A manufacturer contemplates a change in technology that would reduce fixed costs from $800,000 to
$700,000. However, the ratio of variable costs to sales will increase from 68% to 80%. What will happen to
break-even level of revenues?
a. Decrease by $301,470.50 c. Decrease by $1,812,500
b. Decrease by $500,000 d. Increase by $1,000,000
Prepared by: Jilly Boy G. Bruno Jr. and Jerome Marquez (Set A) | 6
 Document No.: FM-OAD-022
COLLEGE DEPARTMENT
Revision No.: 00
TEST QUESTION TEMPLATE Effectivity Date: May 11, 2022

Test II. Problem Solving. Place your solution in a separate sheet of yellow papers. ENCIRCLE YOUR FINAL
ANSWERS. (25 POINTS)

Problem 1 (10 points)

On December 31, 2022, JEMA Enterprises provided the following data on its costs structure:

Sales price per unit P 5,000

Variable cost per unit P 4,200
Fixed expenses P 12,800,000
Tax rate 40%
Requirements: Answer the following independent situations.
a. Prepare the projected income statement under variable costing model for the next annual operation
assuming JEMA Enterprises wants to earn P12,960,000 after tax profit next year. (4 pts.)
b. JEMA enterprises sold 40,000 units for the current year. Assuming a 12% increase in unit sales price will
decrease the quantity sold to 52.50%. What would be the change on after-tax profit? Indicate whether
increase or decrease. (3 pts.)
c. JEMA enterprises sold 40,000 units for the current year. Assuming a 4% decrease in unit variable cost will
increase the fixed costs by P3,500,000. What would be the needed unit sales price to maintain the original
after-tax profit? (3 pts.)

Problem 2 (2 points)
A company sells two products, X and Y. The sales mix consists of a composite unit of two units of X for every five
units of Y (2:5). Fixed costs are $49,500. The unit contribution margins for X and Y are $2.50 and $1.20,
respectively. If the company had a profit of $22,000, how many units of product X and Y must be sold? (2 pts.)

Problem 3 (3 points)
Wheels Corp. employs 45 sales personnel to market its sedan cars. The average car sells for P690,000 and a 6%
commission is paid to the sales person. It is considering changing the scheme to a commission arrangement that
would pay each person a package of P30,000 plus a commission of 2% of the sales made by the person. The
amount of total monthly car sales at which Wheels Corp. would be indifferent (answer may be rounded off) as to
which plan to select is ________. (2 pts.)

Problem 4 (10 points)

Twice Company makes a single product that sells for P 2,000 each. Data for 2022’s operations follow:
Units: Variable Costs:
Beginning Inventory 5 Direct Materials P 30,000
Production 50 Direct Labor 15,000
Ending Inventory 15 Factory Overhead 5,000
Selling and Administrative 6,000
Fixed Costs:
Factory Overhead P 20,000
Selling and Administrative 3,000

REQUIRED:
1. Determine the inventory cost per unit under: (2 pts.)
1A) Absorption costing 1B) Variable costing
2. Determine the total cost of ending inventory under: (2 pts.)
2A) Absorption costing 2B) Variable costing
3. Prepare the income statement under: (4 pts.)
3A) absorption costing 3B) variable costing.
4. Without knowing the exact amounts of profit under absorption costing & variable costing: ( 2 Pts.)
4A) How much is the difference in profit?
4B) Which costing method has the higher profit?

END
Prepared by: Jilly Boy G. Bruno Jr. and Jerome Marquez (Set A) | 7
 Document No.: FM-OAD-022
COLLEGE DEPARTMENT
Revision No.: 00
TEST QUESTION TEMPLATE Effectivity Date: May 11, 2022

SCHOOL OF ACCOUNTANCY, BUSINESS AND HOSPITALITY

Accountancy Department

MIDTERM EXAM in STRATEGIC COST MANAGEMENT (MGMT 1033)

Short Term, S.Y. 2021-2022

NAME:
CODE:
INSTRUCTOR:
PROCTOR:

No. A B C D E

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Prepared by: Jilly Boy G. Bruno Jr. and Jerome Marquez (Set A) | 8