LYCEUM OF ALABANG

College of Business Management Education

Bachelor of Science in Accountancy

Prof. Joshua S. Umali, CPA

Midterm Examination

1. Joshua Company is contemplating of marketing a new product .Fixed costs will be P800,000 for product of
75,000 and P1,200,000 if production exceeds 75,000 units. The variable cost ratio is 60% for the first 75,000.
Contribution margin percentage will increase to 50% for units in excess of 75,000. If the product is expected to sell
for P25 per unit .how many units must Joshua sell to breakeven?

a) 120,000 c) 96,000
b) 111,000 d) 80,000

2. Joshua has fixed costs of P120,000. At a sales volume of P400,000, return on sales is 10%. At a P600,000
volume, return on sales is 20%. What is the break-even volume?

a) 160,000 c) 300,000
b) 210,000 d) 420,000

3. Joshua sells product O to retailers for P200. The unit variable cost is P40 with a selling commission of 10%.
Fixed manufacturing costs total P1,000,000 per month while fixed selling and administrative cost total P420,000.
The income tax rate is 30%. The target sales if after tax income is P123,200 would be?

a) 10,950 units c) 13,750 units

b) 15,640 units d) 11,400 units
c)

4. The following statements about the adoption of variable costing are true, except;

a) All fixed manufacturing costs are recognized as period costs.

b) A direct costs may not become a product cost.
c) It is an acceptable method for general reporting purposes.
d) An indirect cost may be assigned as part of product cost.

5. Variable costing and absorption costing will show the same incomes when there are no

a) Beginning inventories c) Variable costs

b) Ending Inventories d) Beginning and Ending inventories

6. Net income is lower under variable costing than under absorption costing when

a) Production increases from the previous period.

b) Production exceeds sales.
c) Production equals sales.
d) Production is less than sales.

7. If inventory quantities increase during a period,

a) Variable costing profits will exceed absorption costing profits.

b) Absorption costing profits will exceed variable costing profits.
c) Variable costing profits will equal absorption costing profits.
d) Variable costing will show a higher inventory value than absorption costing.

8. Joshua planned and actually manufactured 200,000 units of its single product in 2000, its first year of operations.
Variable manufacturing costs were P30 per unit of product. Planned and actual fixed manufacturing costs were
 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali, CPA

P600,000 and marketing and administrative costs totaled P400,000 in 2000. Joshua sold 120,000 units of product in
2000 at a selling price of P40 per unit. What is the cost of the ending inventory assuming variable costing is used?

a) 2,400,000 c) 2,250,000
b) 2,750,000 d) 2,640,000

9. Joshua Company had P100,000 income using absorption costing. Joshua Company has no variable manufacturing
costs. Beginning inventory was P5,000 and ending inventory was P12,000. What is the income under variable
costing?

a) 100,000 c) 88,000
b) 107,000 d) 93,000

10. A company manufactures 50,000 units of a product and sells 40,000 units. Total manufacturing cost per unit is
P50 (variable manufacturing cost. P10; fixed manufacturing cost, P40) Assuming no beginning inventory, the effect
on net income if absorption costing is used instead of variable costing is that:

a) Net income is P400,000 lower c) Net income is the same

b) Net income is P400,000 higher d) Net income is P200,000 higher

11. Which of the following objectives is not a primary purpose of preparing a budget?

a) To provide a basis for comparison of actual performance.

b) To communicate the company’s plans throughout the entire business organization.
c) To control income and expenditure in a given period.
d) To make sure that the company expands its operations.

12. Budgeting expenditures by purpose is called

a) Program budgeting. c) Line budgeting

b) Zero-based budgeting. d) Flexible budgeting

13. If cash receipts from customers are greater than sales. Which of the following is most likely to be true?

a) Accounts receivable will decrease c) Cash balance will increase

b) Outstanding debt will decrease d) The Company will show a profit.

14. Abbie is budgeting sales of 53,000 units of product Wakim for October 2000. The manufacture of one unit of
Wakim requires 4 kilos of chemical Andrei. During October 1998, Abbie plans to reduce the inventory of Andrei by
50,000 kilos and increase the finished goods inventory of Wakim by 6,000 units. There is no Wakim work in
process inventory. How many kilos of Andrei is Abbie budgeting to purchase in October 2000?

a) 138,000 c) 186,000
b) 162,000 d) 238,000

15. Joshua’s total cost of operating five sales offices last year were P500,000, of which P70,000 represented fixed
cost. Joshua has determined that total costs are significantly influenced by the number of sales offices operated. Last
year’s costs and number of sales offices can be used as the bases for predicting annual costs. What would be the
budgeted cost for the coming year if Joshua were to operate seven sales offices?

a) 700,000 c) 602,000
b) 672,000 d) 602,000
 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali, CPA

16. Joshua plans to sell in December 15,000 units of its product at a unit price of P20. The estimated gross profit is
25% of sales. The inventory will be increased in December in anticipation of higher sales volume for Christmas. The
increase will be about P100,000. Amounts payable to trade creditors will also increase by P25,000. Estimate of
payment to be made during the month of December for merchandise is

a) 300,000 c) 5,998,000
b) 5,950,000 d) 5,298,000

17. Joshua has a P35,000 balance of account receivable at the beginning of its budget period. It has budgeted
P160,000 credit sales and expects to collect 70% of these during the budget period. What is the ending balance of
accounts receivable assuming that all but 10% of the beginning balance is collected during the budget period.

a) P3,560 c) P71,500
b) P51,500 d) P143,500

18. The January 1983 budget of Joshua is being prepared by the budget officer of the company. In the preparation of
the cash budget the estimates for the month of January, 1983 include the following:

Sales P937,500
Gross profit (based on sales) 25%
Increase in inventories P75,000
Decrease in trade accounts payable P30,000
The estimated cash disbursements for inventories in January, 1983 is

a) P598,125 c) P748,125
b) P733,125 d) P808,125

19. Joshua has the following budget estimates for its second year of operations:

Projected sales – P3,500,000

Projected net income before tax – 12% of sales
Estimated selling and administrative expenses – 25% of sales
Direct labor and factory overhead are budgeted at 70% of the total manufacturing cost.

Inventories are estimated as follows:

Raw materials Goods in process Finished goods
Beginning P220,000 P250,000 P350,000
Ending 270,000 300,000 420,000
The estimated purchases of raw materials would be

a) P967,500 c) P697,000
b) P732,500 d) P747,500

20. A term descriptive of managerial accounting rather than financial accounting.

a) Generally Accepted Accounting Principles.

b) Note to the Financial Statements.
c) Historical
d) Optional

21. Under variable costing, the variable factory overhead costs are described as

a) Direct period costs c) Direct product costs

 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali, CPA

b) Indirect period costs d) Indirect product costs

22. If absorption costing income shows the same amount as variable costing income, then

a) Inventory level must have increased.

b) Production fee short of sales demand for the period.
c) Just-in-time system might be in use.
d) No conclusion can be made.

23. The break-even point in CVP analysis is defined as

a) The point where output units equal input units

b) The point where unit contribution margin equals fixed costs divided by number of break-even units.
c) Where revenues less variable costs equal operating income.
d) Where the unit contribution margin equals the selling price less the unit variable cost.

24. An increase in inventory level during the year means that absorption costing profit is

a) Lower than expected.

b) Lower than variable costing profit.
c) Higher than variable costing profit.
d) Higher than expected but lower than variable costing profit.

25. The following information is for St. Pio Company:

Product A: Revenue P 4.00

Variable Cost P 1.00

Product B: Revenue P 6.00

Variable Cost P 2.00

Total fixed costs are P40,000. What is the break-even point, assuming the sales mix consists of two units of product
A and one unit of product B?

a) 2,000 units of B and 4,000 units of A.

b) 2,050 units of B and 4,050 units of A.
c) 4,000 units of B and 8,000 units of A.
d) 4,050 units of B and 8,050 units of A.

26. Joshua Company manufactures cedar chests. The estimated number of chests for the first three months of 2017 is
as follows: January, 10,000 units; February, 14,000 units; March, 13,000 units. Finished goods inventory at the end
of December is 3,000 units. Ending finished goods are equal to 30 percent of next month’s sales. April 2017 sales
are expected to total 16,000 units. How many chests will be produced in the first quarter of 2017?

a) 37,000 chests c) 41,800 chests

b) 38,800 chests d) 44,800 chests

27. The distinction between absorption costing and variable costing is most important for which type of industry?

a) Manufacturing c) Retail
b) Marketing d) Service

28. Joshua Company presented the following information regarding its manufacturing operations:
 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali, CPA

Prime cost P620,000
Variable factory overhead 45,000
Straight-line depreciation:
Production machinery 20,000
Factory building 15,000
Office building 10,000
Decrease in work-in-process inventory 70,000
Increase in finished goods inventory 150,000

Assuming that prices of raw materials remain (relatively stable and Joshua Company has been using the direct
costing method), how much is to be reported as cost of goods sold?

a) P585,000 c) P620,000
b) P630,000 d) P745,000

29. Below is an income statement for Joshua Co. for 2017:

Sales P400,000
Variable costs (125,000)
Contribution margin P275,000
Fixed costs (200,000)
Profit before taxes P75,000
Which of the following statements is correct?

a) Joshua’s degree of operating leverage is 5.33

b) Based on the cost and revenue structure on the income statement, Joshua’s break-even point ofr 2017 in
pesos is P200,000.
c) Joshua’s margin of safety for 2017 is 109,091 units.
d) Joshua’s 2017 income under variable costing is P75,000.

30. Product costs or inventoriable costs

a) Are charged to expense when products become part of the finished goods inventory.
b) Include only the prime costs of producing a product.
c) Are treated as assets before the products are sold.
d) Include only the conversion costs of product the products

31. To compute for the break-even point in unit, which of the following formulas is used?

a) FC/CM per unit c) (FC + VC)/CM ratio

b) FC/CM ratio d) None of the above

Items 32-35:

Joshua store seeks your assistance to develop cash and other budget information for May, June and July 2017. At
April 30, 2017, the company had cash of P5,500, accounts receivable of P437,000, inventories worth of P309,400
and accounts payable fo P133,055.

The budget is based on the following assumptions:

A. Sales
 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali, CPA

 Each month’s sales are billed on the last day of the month.
 Customers are allowed 3% discount if payment is made within 10 days after the billing date. Accounts
receivable are booked gross.
 60% of the billings are collected within the discount period, 25% are collected by the end of the month 9%
are collected by the end of the second month and 6% prove to be uncollectible.

B. Purchase

 54% of all purchases of materials and selling, general and administrative expenses are paid in the month
purchased/incurred and the remainder in the following month.
 Each month’s units of ending inventory are equal to 130% of the next month’s unit of sales.
 The cost of each unit of inventory is P20.
 Selling, general and administrative expenses, of which P2,000 is depreciation, are equal to 15% of the
current month’s sales.

Actual and projected sales are as follows:

2017 Pesos Units

March P354,000 11,800

April 363,000 12,100
May 357,000 11,900
June 342,000 11,400
July 360,000 12,000
August 366,000 12,200
32. Determine the cash receipts in June from accounts receivable.

a) P333,786 c) P316,674
b) P329,694 d) P311,582

33. Determine the purchases of inventory in the month of July.

a) P225,000 c) P245,200
b) P243,600 d) P248,300

34. Determine the cash disbursements in May on accounts payable for inventory purchase.

a) P230,428 c) P244,464
b) P235,044 d) P245,568

35. Determine the cash disbursements in June for selling, general and administrative expenses.

a) P50,335 c) P56,984
b) P51,550 d) P101,299

Items 36 and 37 are based on the following information:

Joshua Company produces three products with the following production and cost information:

Product A Product B Product C

Units produced 2,000 units 8,000 units 15,000 units
Direct labor hours (total) 6,000 hours 3,000 hours 11,000 hours
Number of setups 120 210 270
 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali, CPA

Number of shipments 200 350 450
Engineering change orders 25 15 10

Overhead costs include set-ups of Php 150,000; shipping costs of Php 200,000; and engineering costs of Php
250,000.

36. What would be the per unit overhead cost of Product C if direct labor hours were the allocation basis?

a) Php 11.25 b. Php 22.00 c. Php 30.00 d. Php 90.00

37. What would be the per unit overhead cost for Product A if ABC were used?

a) Php 20.00 b. Php 24.69 c. Php 62.50 d. Php 97.50

38. Purchase order processing is an example of a

a) Unit – level activity c) Product – level activity

b) Batch – level activity d) Facility – level activity

Items 39 to 43 are based on the following information:

Yamyam Company uses standard costing, makes and sells a single product called “Fumiya”. The following data are
for the month of September:

 Actual cost of direct material purchased and used: P65,560.

 Material price variance: P5,960 unfavorable
 Total material price variance: P22,360 unfavorable
 Standard cost per pound of materials: P4
 Standard cost per direct labor: P5
 Actual direct labor hours: 6,500 hours
 Labor efficiency variance: P3,500 Favorable
 Standard number of direct labor hours per unit of luck: 2 hours
 Total labor variance: P400 unfavorable

39. What was the total number of units of fumiya produced during September?

a. 14,400 b. 10,800 c. 6,500 d. 3,600

40. What was the standard material allowed to produce one unit of fumiya?

a. 1 pound b. 2 pounds c. 3 pounds d. 4 pounds

41. What was the actual material cost per pound?

a. P4.40 b. P4.00 c. P3.67 d. P3.30

42. What was the actual direct labor rate per hour?

a. P10.00 b. P5.60 c. P5.00 d. P4.40

43. What was the labor rate variance?

a. P3,900 F b. 3,900 UF c. 3,100 F d. 3,100 UF

 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali, CPA

Items 44 up to 46 are based on the following information:

Apey Company uses a standard cost system and prepared the following budget for May when 24,000 machine hours
of activity were anticipated: variable overhead, P48,000; fixed overhead, P240,000. Actual data for May were:

 Standard machine hours allowed for output attained: 25,000

 Actual machine hours worked: 24,000
 Variable overhead incurred: P50,000
 Fixed overhead incurred: P250,000

44. What was the standard variable overhead rate for May?

a. P2.00 b. P2.08 c. P5.00 d. 5.21

45. What were the variable-overhead (A) spending and (B) efficiency variances, respectively?
a. P0, P0 b. P0, P2,000 U c. P2,000 U, P 0 d. P2,000 U, P2,000 F

46. What were the fixed overhead (A) budget and (B) volume variances, respectively?

a. P0, P10,000 F b. P10,000 F, P0 c. P10,000 F, P10,000 U d. P10,000 U, P10,000 F

47. The production department should generally be responsible for material price variances that resulted from:

a. Purchases made in uneconomical lot sizes c. Purchase of the wrong grade of materials
b. Rush orders arising from poor scheduling d. Changes in the market prices of raw mats.

48. A variance measuring the under-utilization or over-utilization of the plant is called:

a. Mix variance c. Volume variance

b. Efficiency variance d. Yield variance

49. The term cost driver refers to

a. Any activity that can be used to predict cost changes

b. The attempt to control expenditures at a reasonable state
c. The person who gathers and transfer cost data to the management accountant
d. Any activity that causes the cost to be incurred.

50. Standard cost are

a. The same as future costs.

b. Computed after production begins.
c. Used by all manufacturing company.
d. The “should be” costs of manufacturing.

Items 51 and 52 are based on the following information:

Operational budgets are used by a retail company for planning and controlling its business activities. Data regarding
the Company’s monthly sales for the last 6 months of the year and its projected collection patterns are shown below:

The cost of merchandise averages 40% of its selling price. The Company’s policy is to maintain an inventory equal
to 25% of the next month’s forecasted sales. The inventory balance at cost is P80,000 as of June 30.

Forecasted Sales:
 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali, CPA

July 775,000 October 800,000
August 750,000 November 850,000
September 825,000 December 900,000
Types of Sales:

Cash sales 20%

Credit sales 80%
Collection pattern for credit sales:

In the month of sale 40%

In the first month following the sale57%
Uncollectible 3%

51. The company’s total cash receipts from sales and collections on account that would be budgeted for the month of
September would be:

a. 757,500 b. 793,800 c. 771,000 d. 856,500

52. The budgeted cost of the Company’s purchases for the month of August would be:

a. 307,500 b. 302,500 c. 305,000 d. 318,750

53. Net income is lower under variable costing than under absorption costing when

a. Production increases from the previous period.

b. Production equals sales.
c. Production exceeds sales.
d. Production is less than sales.

54. Absorption costing and variable costing differ in that

a. Standards can be used with absorption costing, but not with variable costing.
b. Absorption costing inventories are more correctly valued.
c. Production influences income under absorption costing, but not under variable costing.
d. Companies using absorption costing have lower fixed costs.

55 up to 56 are based on the following information:

A company manufactures a single product and has the following cost structure:

Variable cost per unit:

Direct materials P3
Direct labor 4
Variable manufacturing overhead 1
Variable selling and administrative expense 2
Fixed cost per month:
Fixed manufacturing overhead P100,000
Fixed selling and administrative expenses 60,000
The company produces 20,000 units each month.

55. What is the unit product cost under absorption costing?

a. P13 c. P12
 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali, CPA

b. P10 d. P15

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

a. P10 c. P11
b. P8 d. P13

57. When sales are constant but production fluctuates,

a. Net income will be erratic under variable costing

b. Absorption costing will always show a net loss
c. Variable costing will always show a positive net income
d. Net income will be erratic under absorption costing

58. When production exceeds sales, fixed manufacturing overhead costs

a. Are released from inventory under absorption costing

b. Are deferred in inventory under absorption costing
c. Are released from inventory under variable costing
d. Are deferred in inventory under variable costing

59. What best accounts for profit difference between absorption costing and variable costing method?

a. Difference in fixed costs incurred. c. Difference in sales revenue

b. Difference in variable costs incurred. d. Difference in inventory valuation

60. Joshua Company analyzed three months of its cost of operation:

Sum of the units: 60 units

Sum of the costs: P420
Sum of the units x costs: 8,800
Sum of the hours squared: 1,400

Using the least-squares technique, how much is the estimated variable cost of producing 10 units?

a. P12 c. P100
b. P20 d. P120

61. Multiple regression analysis is used when

a. There is more than one cost category to analyze

b. All of the points on a scatter graph fall exactly on a regression line
c. The high-low method cannot be used because there is only one observation
d. There is more than one activity that drives the variable component of a mixed cost

62. After constructing a scatter chart, the internal auditor of Madagascar Company provided you with the following
information:

Independent variable: 1,000,000

Slope of the line: 0.25
 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali, CPA

Y-axis intercept: 7,500

Based on the above data, what is the estimated cost?

e. 250,500 b. 257,500 c. 1,000,000 d. 1,007,500

63. Which of the following topics is the focus of managerial accounting?

a. Financial statements and other financial reports

b. Historical cost principles
c. The needs of creditors
d. The needs of the organization’s internal parties

64. During the recessionary phase of a business cycle

a. The purchasing power of money is likely to decline rapidly

b. The natural rate of unemployment will increase dramatically.
c. Potential national income will exceed actual national income.
d. Actual national income will exceed potential national income.

65. Formulas for Regression Analysis

66. Enumerate 1 way - 4 way method of FOH variance analysis (Please be detailed)

67. What is the main difference between Variable costing and Absorption costing? Explain briefly.

68. What are the functions of a controller?

69. Enumerate and explain briefly the IMA’s four ethical standards.

70. What is the main advantage of using ABC costing rather than the traditional costing? Explain briefly.

“Challenges are what makes life interesting. Overcoming them is what makes them meaningful.”