MID-TERM EXAMINATIONS

MANAGEMENT ADVISORY SERVICES REVIEW

1.In comparing financial and management accounting, which of the following more accurately describes
management accounting information?
a. budgeted, informative, adaptable
b. comparable, verifiable, monetary
c. historical, precise, useful
d. required, estimated, internal

2.Cost and management accounting

a. require an entirely separate group of accounts than financial accounting uses.
b. focus solely on determining how much it costs to manufacture a product or
provide a service.
c. provide product/service cost information as well as information for internal
decision making.
d. are required for business recordkeeping as are financial and tax accounting.

3.Price is not:
a. the same as cost per unit plus the income per unit.
b. the same as cost.
c. greater than cost in order for the firm to earn income.
d. the revenue per unit.

4.An opportunity cost is:

a. the benefit given up or sacrificed when one alternative is chosen over
another.
b. the total product cost of goods completed during the current period and
transferred to finished goods inventory.
c. the cost to market, distribute, and service a product or service.
d. the difference between sales revenue and cost of goods sold.

5.Which of the following is an example of direct labor?

a. staff accountant c. assembly line worker for televisions
b. vice president of marketing d. supervisor at a manufacturing plant

6.Cost allocation is the assignment of ______ costs to one or more products using a reasonable basis.
direct indirect

a. no yes
b. yes no
c. no no
d. yes yes

7.Overapplied overhead will result if

a. overhead costs incurred were less than overhead costs charged to production.
b. overhead costs incurred were greater than estimated overhead costs.
c.the plant is operated at less than expected capacity.
d. overhead costs incurred were greater than overhead charged to production.

8.Under absorption costing, fixed manufacturing overhead could be found in all of the following except the
a. Cost of Goods Sold.
b. finished goods inventory account.
c. period costs.
d. work-in-process account.

9.The GAAP requires which of the following to be used in preparation of external financial statements?
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 a. activity-based costing
b. absorption costing
c. standard costing
d. variable costing

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

11.Consider the following three product costing alternatives: process costing, job order costing, and
standard costing. Which of these can be used in conjunction with variable costing?
a. process costing
b. standard costing
c. job order costing
d. all of them

12.If a firm uses variable costing, fixed manufacturing overhead will be included
a. only on the income statement.
b. on both the balance sheet and income statement.
c. only on the balance sheet.
d. on neither the balance sheet nor income statement.

13.Why is variable costing not in accordance with generally accepted accounting principles?
a. Variable costing ignores the concept of lower of cost or market when valuing
inventory.
b. Variable costing procedures are not well known in industry.
c. Fixed manufacturing costs are treated as period costs under variable
costing.
d. Net earnings are always overstated when using variable costing procedures.

14.Which one of the following statements is correct regarding absorption costing and variable costing?
a. overhead costs are treated in the same manner under both costing methods
b. variable manufacturing costs are lower under variable costing
c. if finished goods inventory increases, absorption costing results in higher
income
d. gross margin are the same under both costing methods

15.Discretionary fixed costs

a. often involve a long-term contract.
b. cannot be easily changed.
c. can be changed relatively easy at management discretion.
d. increase as output increases.

16.A committed fixed cost

a. often involves a long-term contract.
b. can easily be changed.
c. all of these are correct
d. changes when the level of output changes.

17.When the volume of activity increases within the relevant range, the fixed cost per unit:
a. remains the same. c. increases at first, then decreases.
b. increase. d. decreases.

18.The scatter-graph method

a. all of these are correct
b. may reveal the presence of outliers.
c. displays a constant level of cost for a range of output.
d. has the advantage of subjectivity.

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19.Which of the following equations is true?
a. Contribution margin = Fixed costs
b. Contribution margin ratio = 1 - Variable cost ratio
c. Contribution margin ratio = Contribution margin/Variable costs
d. Contribution margin = Sales revenue ´ Variable cost ratio

20.If fixed costs increase, the break-even point in units will

a. remain the same.
b. decrease.
c. increase.
d. remain the same; however, contribution per unit will decrease.

21.Which statement is true about cost-volume profit (CVP) analysis?

a. CVP analysis allows managers to do sensitivity analysis by examining the impact
of various prices or cost levels on profit.
b. All of these statements are true.
c. CVP analysis shows how revenues, expenses, and profits behave as volume
changes.
d. CVP analysis is a powerful tool for planning and decision making.

22.Sales mix is the relative combination of

a. outputs produced by a firm. c. distribution channels used by a firm.
b. inputs required to produce a product. d. products sold by a firm.

23.The units sold or expected to be sold or sales revenue earned or expected to be earned above the
break-even volume is called
a. degree of operating leverage. c. margin of safety.
b. variable cost ratio. d. break-even point.

24.Which of the following can be considered a measure of risk in cost-volume-profit analysis?

a. sales mix c. contribution margin
b. margin of safety d. break-even point

25.Variable costing is
a. not useful for companies with multiple segments.
b. a good way to value inventories for the balance sheet.
c. a useful tool for management decision making.
d. used for external reporting purposes.

26.The master budget is a

a. static budget.
b. flexible budget.
c. qualitative expression of a prior goal.
d. qualitative expression of a future goal.

27.The master budget usually includes

a. an operating budget.
b. pro forma financial statements.
c. a capital budget.
d. all of the above.

28.Which of the following is usually perceived as being the master budget's greatest advantage to
management?
a. increased communication
b. required planning
c. performance analysis
d. increased coordination

29.The budgeted amount of selling and administrative expense for a period can be found in the
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 a. cash budget.
b. pro forma income statement.
c. pro forma balance sheet.
d. sales budget.
30.Flexible budgets are powerful control tools because
a. All of these.
b. they allow managers to deal with uncertainty.
c. they allow the preparation of meaningful performance reports.
d. they allow the calculation of what cost should be for the actual level of activity.

Figure 3-7.
ABC Company produces hand-held calculators. The company controller wanted to calculate the
fixed and variable costs associated with the maintenance cost incurred by the factory. Data for the
past four months were collected.

Maintenance Machine
Month cost hours
June PHP4,180 328
July 3,956 310
August 4,686 386
September 4,240 352

Coefficients shown by a regression program are:

Intercept 1,150
X Variable 1 9.06

31.Refer to Figure 3-7. Using the results of regression, calculate the fixed cost of maintenance.
a. None of these are correct c. PHP9.06
b. PHP1,150.00 d. PHP978.37

32.Refer to Figure 3-7. Using the results of regression, calculate the variable rate of maintenance cost.
a. PHP12.74 per machine hour c. PHP12.14 per machine hour
b. PHP9.06 per machine hour d. PHP1,150 per machine hour

33.Refer to Figure 3-7. Using the results of regression, the cost formula for maintenance cost was:
a. PHP9.06 ´ machine hours c. (PHP4,686 - PHP3,956)/(386 - 310)
b. PHP1,150 + (PHP9.06 ´ machine hours) d. PHP1,150 ´ machine hours

34.Refer to Figure 3-7. Using the results of regression, what would be the budgeted cost for maintenance
next month assuming that 340 machine hours are budgeted?
a. PHP4,230 c. PHP1,150
b. PHP2,943 d. PHP3,928

Figure 4-4.
ABC Company makes jungle gyms and tree houses for children. For jungle gyms, the price is
PHP120 and variable expenses are PHP90 per unit. For tree houses, the price is PHP200 and
variable expenses are PHP100. Total fixed expenses are PHP253,750. Last year, ABC sold
12,000 gyms and 4,000 tree houses.

35.Refer to Figure 4-4. Using the lowest whole numbers, what is the sales mix of gyms and tree houses?
a. 4:1 b. 2:3 c. 3:1 d. 3:2

36.Refer to Figure 4-4. Now suppose that ABC expects tree house demand to increase from 4,000 to
8,000 units. What is the new contribution margin ratio (rounded to two decimal places)?
a. 60% b. 38% c. 40% d. 62%

37.Refer to Figure 4-4. Now suppose that ABC expects tree house demand to increase from 4,000 to
8,000 units. What is the number of jungle gyms sold at break-even?
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 a. 668 c. 1,750
b. 2,625 d. 1,002

38.Refer to Figure 4-4. Now suppose that ABC expects tree house demand to increase from 4,000 to
8,000 units. What is the number of tree houses sold at break-even?
a. 2,625 c. 1,002
b. 668 d. 1,750

39.Refer to Figure 4-4. Now suppose that ABC expects tree house demand to increase from 4,000 to
8,000 units. What is the sales revenue at break-even?
a. PHP411,250 c. PHP1,076,250
b. PHP253,700 d. PHP665,000

Figure 8-2.
ABC Company had the following data for the month:
Variable costs per unit:
Direct materials PHP4.00
Direct labor 3.20
Variable overhead 1.00
Variable selling expenses .40
Fixed overhead is PHP4,000 per month; it is applied to production based on normal activity of
2,000 units. During the month, 2,000 units were produced. ABC started the month with 300 units
in beginning inventory, with unit product cost equal to this month's unit product cost. A total of
2,100 units were sold during the month at price of PHP14. Selling and administrative expense for
the month, all fixed, totaled PHP3,600.

40.Refer to Figure 8-2. What is the unit product cost under absorption costing?
a. PHP10.60 b. PHP10.20 c. PHP8.60 d. PHP8.20

41.Refer to Figure 8-2. What is operating income under variable costing?

a. PHP3,540 c. PHP3,740
b. PHP7,980 d. PHP11,340

42.Refer to Figure 8-2. What is the unit product cost under variable costing?
a. PHP8.20 b. PHP8.60 c. PHP10.20 d. PHP10.60

43.Refer to Figure 8-2. What is operating income under absorption costing?

a. PHP7,980 c. PHP3,540
b. PHP11,340 d. PHP3,740

44.ABC, Inc. produces leather purses. ABC has developed a static budget for the first quarter, based on
20,000 direct labor hours. During the quarter, the actual activity was 22,000 direct labor hours. Data
for the first quarter are summarized as follows:
Static budget Actual costs
(20,000 hours) (22,000 hours)
Direct materials cost PHP 80,000 PHP 87,000
Direct labor cost 160,000 174,000
Building rental 48,000 50,000
Total PHP288,000 PHP311,000
What is the flexible budget amount for the first quarter?
a. PHP261,000 c. PHP312,000
b. PHP311,000 d. PHP288,000

45.ABC Company provided the following information for last month.

Production in units 3,000

Direct materials cost PHP7,000
Direct labor cost PHP10,000
Overhead cost PHP9,600
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 Sales commission per unit sold PHP 4
Price per unit sold PHP29
Fixed selling and administrative expense PHP7,000

There were no beginning and ending inventories.

What is ABC's cost of goods sold per unit?

a. PHP12.50 b. PHP12.60 c. PHP10.00 d. PHP8.87

END OF EXAMINATIONS

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