INTERNATIONAL SCHOOL OF ASIA AND THE PACIFIC

Alimannao Hills, Peñablanca, Cagayan 3502

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

DRILL No. 1
INSTITUTIONAL REVIEW BATCH 4
MANAGEMENT ADVISORY SERVICES
Topics 1-10

INSTRUCTIONS: Select the best answer for each of the following questions. Write only one answer
for each item on the answer sheet provided. Strictly NO ERASURES ALLOWED. Erasures will
render your examination answer sheet INVALID. Use PENCIL NO. 2 only. GOODLUCK!

1 11 21 31 41 51 61
2 12 22 32 42 52 62
3 13 23 33 43 53 63
4 14 24 34 44 54 64
5 15 25 35 45 55 65
6 16 26 36 46 56 66
7 17 27 37 47 57 67
8 18 28 38 48 58 68
9 19 29 39 49 59 69
10 20 30 40 50 60 70

1. If a company uses a predetermined rate for absorption of manufacturing overhead, the volume variance is
A. The under- or over-applied fixed cost element of overhead.
B. The under- or over-applied variable cost element of overhead.
C. The difference between budgeted cost and actual cost of fixed overhead items.
D. The difference between budgeted cost and actual cost of variable overhead items.

2. The production volume variance occurs when using the

A. Absorption costing approach because of production exceeding the sales.
B. Absorption costing approach because production differs from that used in setting the fixed overhead rate used in
applying fixed overhead to production.
C. Variable costing approach because of sales exceeding the production for the period.
D. Variable costing approach because of production exceeding the sales for the period.

3. Henley Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis
of direct labor hours. For the month of January, the fixed manufacturing overhead volume variance was P2,220 favorable.
The company uses a fixed manufacturing overhead rate of P1.85 per direct labor hour. During January, the standard direct
labor hours allowed for the month's output:
A. exceeded denominator hours by 1,000. C. exceeded denominator hours by 1,200.
B. fell short of denominator hours by 1,000. D. fell short of denominator hour by 1,200.

4. A spending variance for variable factory O/H based on direct labor hours is the difference between actual variable factory
O/H and the variable factory O/H that should have been incurred for the actual hours worked. This variance results from
A. Price and quantity differences for overhead costs.
B. Price differences for overhead costs
C. Quantity differences for overhead costs
D. Differences caused by production volume variation

5. Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a
favorable efficiency variance?
A. The mix of workers assigned to the particular job was heavily weighted toward the use of higher-paid, experienced
individuals.
B. The mix of workers assigned to the particular job was heavily weighted toward the use of new, relatively low-paid
unskilled workers.
C. Because of the production schedule, workers from other production areas were assigned to assist in this particular
process.
D. Defective materials caused more labor to be used to product a standard unit.

6. Web Company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of
machine hours. During February, the company used a denominator activity of 80,000 machine hours in computing its
predetermined overhead rate. However, only 75,000 standard machine hours were allowed for the month's actual

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 production. If the fixed overhead volume variance for February was P6,400 unfavorable, then the total budgeted fixed
overhead cost for the month was:
A. P96,000. B. P102,400. C. P100,000. D. P98,600.

7. The following information is available from the Tyro Company:

Actual factory O/H P15,000
Fixed O/H expenses, actual P7,200
Fixed O/H expenses, budgeted P7,000
Actual hours 3,500
Standard hours 3,800
Variable O/H rate per DLH P2.50
Assuming that Tyro uses a three-way analysis of O/H variances, what is the spending variance?
A. P750 F. B. P750 U. C. P950 F D. P200 U

8. At Overland Company, maintenance cost is exclusively a variable cost that varies directly with machine-hours. The
performance report for July showed that actual maintenance costs totaled P9,800 and that the associated spending
variance was P200 unfavorable. If 8,000 machine-hours were actually worked during July, the budgeted maintenance cost
per machine-hour was:
A. P1.20. B. P1.25. C. P1.275. D. P1.225.

9. Pane Company's direct labor costs for April are as follows:

Standard direct labor hours 42,000
Actual direct labor hours 41,200
Total direct labor payroll P247,200
Direct labor efficiency variance – favorable P3,840
What is Pane's direct labor rate variance?
A. P44,496 U B. P49,440 U C. P49,440 F D. P50,400 F

10. TAMARAW, Inc. has a maintenance shop where repairs to its motor vehicles are done. During last month’s labor strike,
certain recorded were lost. The actual input of direct labor hours was 1,000, and the resulting direct labor budget variance
was a favorable P3,400. The standard direct labor rate was P28.00 per hour, but an unexpected labor shortage
necessitated the hiring of higher-paid workers for some jobs and had resulted in a rate variance of P800. The actual direct
labor rate was
A. P27.20 per hour B. P28.80 per hour C. P30.25 per hour D. P31.40 per hour

11. For Raw Material B, a company maintains a safety stock of 5,000 pounds. Its average inventory (taking into account the
safety stock) is 8,000 pounds. What is the apparent order quantity?
a. 16,000 lbs. b. 6,000 lbs. c. 10,000 lbs. d. 21,000 lbs

12. An organization has an inventory order quantity of 10,000 units and a safety stock of 2,000 units. The cost per unit of
inventory is P5, and the carrying cost is 10% of the average value of inventory. The annual inventory carrying cost for
the organization is
A. P3,000 B. P3,500 C. P5,000 D. P6,000

13. R Corp.'s order quantity for Material T is 5,000 lbs. If the company maintains a safety stock of T at 500 lbs., and its order
point is 1,500 lbs., what would be the total annual carrying costs assuming the carrying cost per unit is P0.20?
a. P1,000 b. P600 c. P100 d. P1,100

14. A characteristic of the basic economic order quantity (EOQ) model is that it
a. Is relatively insensitive to error.
b. Should not be used when carrying costs are large in relation to procurement costs.
c. Is used when product demand, lead-time, and ordering costs are uncertain.
d. Should not be used in conjunction with computerized perpetual inventory systems.

15. In the Economic Order Quantity (EOQ) model, some of the underlying assumptions are
a. Unlimited production capacity, declining demand, decreasing ordering cost, decreasing carrying cost, and unlimited
inventory capacity.
b. Constant demand, constant ordering cost, constant carrying cost, unlimited production and inventory capacity.
c. Limited production capacity, declining demand, constant ordering cost, constant carrying cost, and unlimited inventory
capacity.
d. Increasing demand, limited production capacity, increasing ordering cost, increasing carrying cost, and limited
inventory capacity.
16. A type of managerial accounting which refers to the determination of the operating cost regardless of cost behavior is
a. Differential accounting c. Responsibility accounting
b. Full cost accounting d. Profitability accounting

17. Which of the following characteristics does not relate to management accounting?
a. Accounting reports may include non-monetary information

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 b. It is subject to restrictions imposed by GAAP.
c. Reports are often based on estimates and are seldom useful for anything other than the purpose for which they are
prepared.
d. It provides data for internal users within the business organization.

18. Management accounting is an integral part of the management process. As such, it provides essential information for the
following objectives except
a. Maintaining the current level of resource utilization as well as internal and external communication.
b. Measuring and evaluating performance.
c. Planning strategies and controlling current activities of the organization.
d. Enhancing objectivity in decision-making.

19. Statement 1: Managerial control and engineering control are synonymous.

Statement 2: Control from the viewpoint of management accounting is defined as the process of setting maximum limits
on financial expenditures.
a. b. c. d.
Statement 1 True False True False
Statement 2 True False False True

20. Which type of authority do management accountants generally exercise?

a. Functional b. Company c. Line d. Staff

21. 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

20. In financial accounting, certain rules and regulations must be followed on how financial statements must be presented to
the reader. In managerial accounting, no such restrictions generally apply because it is:
a. An entirely different field that need not observe the broad guidelines in financial accounting.
b. Designed to provide management with non-financial information for decision-making.
c. Designed to provide accounting and other financial data to assist management in making business
decisions.
d. A discipline that does not require preparation of other financial statements.
e. All of the above.

21. Which of the following characteristics relate to Financial Accounting?

a. Reports are promptly prepared and submitted to preserve its usefulness.
b. Data may be both historical and estimates.
c. It must adhere to the generally accepted accounting principles.
d. It provides information needed by management in making decisions.

22. The following characteristics refer to Financial Accounting except

a. Provides information to external users
b. Emphasizes on objective data
c. Has no externally imposed standards
d. Generates general purpose financial statements

23. To distinguish between management accounting and financial accounting, the following statements are correct, except
a. Management accounting, in view of its various integrated recipients should have a separate data recording
and retrieval system from financial accounting.
b. Financial accounting is bound by GAAP, and management accounting need not be in conformity with GAAP.
c. Financial accounting can be regarded as the process while management accounting can be regarded as the product
of the process.
d. Management accounting output must be released on time so as not to erode its usefulness; Financial accounting
output can still be useful even when delayed.

24. Which of the following is a Controller’s responsibility?

a. Tax planning and accounting c. In charge of credit and collection
b. Custodian of funds d. Arranging short-term financing

25. You were newly appointed as controller of CZX Corporation. Among the jobs your department would do include the
following:
a. Cash receipts, cash disbursements, general accounting, taxation, financial accounting analysis, and internal auditing.
b. Financial reporting, strategic planning, managerial accounting, taxation, financial statement analysis, and internal
accounting.
c. Financial accounting, managerial accounting, cost accounting, inventory accounting, payroll accounting, tax

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 accounting and sales forecasting.
d. Tax accounting, managerial accounting, internal auditing, general accounting.

26. These statements are proper to the budgeting process except:

a. It is a part of management’s responsibility to plan the use of its resources.
b. It is a tool to orchestrate the various functions of operations in a business.
c. The involvement of the various levels of individuals in the company is necessary to gain its acceptance and attain its
goals.
d. Actual results need not be compared with plan, since the process ends after budget is approved.

27. In budgeting, which of the following statements is false?

a. Budgeting provides a measuring device to which subsequent performances are compared and evaluated.
b. Planning and control are the essential features of the budgeting process
c. Budget preparation is not the sole responsibility of any one department and is prepared by combining the efforts of
many individuals
d. Capital expenditures budget shows the availability of idle cash for investment

28. Activity-based budgeting includes all the following steps EXCEPT

a. determining demands for activities from sales and production targets.
b. computing the cost of performing activities.
c. determining a separate cost-driver rate for each department.
d. describing the budget as costs of activities rather than costs of functions.

29. Just-in-time manufacturers are more likely than conventional manufacturers to

a. Prepare production budgets without a sales forecast.
b. Budget materials purchases equal to the current month’s needs for production.
c. Budget unit production for the month at greater than budgeted unit sales for the month.
d. Experience cash shortages.

30. In preparing its cash budget for July, 20x7, Art Company made the following projections
Sales P1,500,000
Gross Profit 25%
Decrease in inventories P 70,000
Decrease in accounts payable for inventories 120,000
For July, 20X7, what were the estimated cash disbursement for inventories?
a. P1,050,000. b. P1,055,000. c. P1,175,000. d. P 935,000.

31. Cook Co.’s total costs of operating five sales offices last year were P500,000, of which P70,000 represented fixed costs.
Cook 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 Cook were to operate seven sales offices?
a. P700,000 b. P672,000 c. P602,000 d. P586,000

32. Which of the following is an example of a cost that varies in total as the number of units produced changes?
a.Salary of a production supervisor c.Property taxes on factory buildings
b.Direct materials cost d.Straight-line depreciation on factory equipment

33. Which of the following is NOT an example of a cost that varies in total as the number of units produced changes?
a.Electricity per KWH to operate factory equipment c.Straight-line depreciation on factory equipment
b.Direct materials cost d.Wages of assembly worker

34. Which of the following is NOT an example of a cost that varies in total as the number of units produced changes?
a.Electricity per KWH to operate factory equipment c.Insurance premiums on factory building
b.Direct materials cost d.Wages of assembly worker

35. Manley Co. manufactures office furniture. During the most productive month of the year, 4,500 desks were manufactured at
a total cost of P86,625. In its slowest month, the company made 1,800 desks at a cost of P49,500. Using the high-low
method of cost estimation, total fixed costs are:
a.P61,875 c. P24,750
b.P33,875 d. cannot be determined from the data given

36. Which of the following statements is true regarding fixed and variable costs?
a. Both costs are constant when considered on a per unit basis.
b. Both costs are constant when considered on a total basis.
c. Fixed costs are constant in total, and variable costs are constant per unit.
d. Variable costs are constant in total, and fixed costs vary in total.

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37. As production increases, what would you expect to happen to fixed cost per unit?
a. Increase
b. Decrease
c. Remain the same
d. Either increase or decrease, depending on the variable costs

38. Knowing how costs behave is useful to management for all the following reasons except for
a. predicting customer demand.
b. predicting profits as sales and production volumes change.
c. estimating costs.
d. changing an existing product production.

39. The manufacturing cost of Prancer Industries for three months of the year are provided below:

Total Cost Production

April P 60,700 1,200 Units
May 80,920 1,800
June 100,300 2,400
Using the high-low method, the variable cost per unit, and the total fixed costs are:
a. P32.30 per unit and P77,520 respectively.
b. P33 per unit and P21,100 respectively.
c. P32 per unit and P76,800 respectively.
d. P32.30 per unit and P22,780 respectively.

40. Which of the following statements is correct concerning variable and fixed costs?
a. Both costs are constant when considered on a per unit basis.
b. Variable costs vary in total and fixed costs are constant on a per unit basis.
c. Fixed costs are constant in total and variable costs are constant on a per unit basis.
d. Variable costs are constant in total and fixed costs are constant on a per unit basis.

41. Contribution margin is:

a. the excess of sales revenue over variable cost
b. another term for volume in the "cost-volume-profit" analysis
c. profit
d. the same as sales revenue

42. The contribution margin ratio is:

a. the same as the variable cost ratio
b. the same as profit
c. the portion of equity contributed by the stockholders
d. the same as the profit-volume ratio

43. If sales are P820,000, variable costs are 58% of sales, and operating income is P260,000, what is the contribution
margin ratio?
a. 53.1%
b. 42%
c. 62%
d. 32%

44. What ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit?
a. Margin of safety ratio
b. Contribution margin ratio
c. Costs and expenses ratio
d. Profit ratio

45. A firm operated at 80% of capacity for the past year, during which fixed costs were P210,000, variable costs were 70%
of sales, and sales were P1,000,000. Operating profit was:
a. P90,000
b. P210,000
c. P590,000
d. P490,000

46. Bear Corporation sells product G for P150 per unit, the variable cost per unit is P105, the fixed costs are P720,000, and
Bear is in the 25% corporate tax bracket. What are the sales (dollars) required to earn a net income (after tax) of P40,000?
a. P2,533,350
b. P2,577,777
c. P2,933,400
d. P2,400,000

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47. If fixed costs are P200,000 and the unit contribution margin is P20, what amount of units must be sold in order to have
a zero profit?
a. 25,000
b. 20,000
c. 200,000
d. 10,000

48. If fixed costs are P700,000 and the unit contribution margin is P14, what amount of units must be sold in order to realize
an operating income of P100,000?
a. 5,000
b. 41,667
c. 57,143
d. 58,333

49. If fixed costs are P500,000 and the unit contribution margin is P20, what is the break-even point in units if fixed costs are
reduced by P80,000?
a. 25,000
b. 29,000
c. 4,000
d. 21,000

50. If fixed costs are P600,000 and the unit contribution margin is P40, what is the break-even point if fixed costs are increased
by P90,000?
a. 17,250
b. 15,000
c. 8,333
d. 9,667

51. If fixed costs are P561,000 and the unit contribution margin is P8.00, what is the break-even point in units if variable costs
are decreased by P.50 a unit?
a. 66,000
b. 70,125
c. 74,800
d. 60,000

52. Chicago began business at the start of the current year. The company planned to produce 25,000 units, and actual
production conformed to expectations. Sales totaled 22,000 units at P30 each. Costs incurred were:

Fixed manufacturing overhead P150,000

Fixed selling and administrative cost 100,000
Variable manufacturing cost per unit 8
Variable selling and administrative cost per unit 2

If there were no variances, the company's absorption-costing net income would be:
A. P190,000. C. P208,000.
B. P202,000. D. P220,000.

53. Norton, which began business at the start of the current year, had the following data:
Planned and actual production: 40,000 units
Sales: 37,000 units at P15 per unit
Production costs:
Variable: P4 per unit
Fixed: P260,000
Selling and administrative costs:
Variable: P1 per unit
Fixed: P32,000
The contribution margin that the company would disclose on a variable-costing income statement is:
A. P9,500. C. P166,500.
B. P147,000. D. P370,000.

54. Madison began business at the start of the current year. The company planned to produce 30,000 units, and actual
production conformed to expectations. Sales totaled 28,000 units at P32 each. Costs incurred were:

Fixed manufacturing overhead P150,000

Fixed selling and administrative cost 90,000
Variable manufacturing cost per unit 11
Variable selling and administrative cost per unit 2

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 If there were no variances, the company's variable-costing net income would be:
A. P270,000. C. P308,000.
B. P292,000. D. P532,000.

55. The following data relate to Lobo Corporation for the year just ended:
Sales revenue P750,000
Cost of goods sold:
Variable portion 370,000
Fixed portion 110,000
Variable selling and administrative cost 50,000
Fixed selling and administrative cost 75,000

Which of the following statements is correct?

A. Lobo’s variable-costing income statement would reveal a gross margin of P270,000.
B. Lobo’s variable costing income statement would reveal a contribution margin of P330,000.
C. Lobo’s absorption-costing income statement would reveal a contribution margin of P330,000.
D. Lobo’s absorption costing income statement would reveal a gross margin of P330,000.
E. Lobo’s absorption-costing income statement would reveal a gross margin of P145,000.

56. A tool that compares how tasks are performed internally with the best practices of industry leaders is
a. process value analysis c. caveat analysis
b. re-engineering d. benchmarking

57. An approach to developing new ways to perform existing activities is called

a. process value analysis c. caveat analysis
b. re-engineering d. benchmarking

58. Which of the following statements is true?

a. The traditional approach to costing uses many different cost drivers.
b. Costs that are indirect to products are by definition traceable to directly to products.
c. Costs that are indirect to products are traceable to some activity.
d. All of the above statements are true.

59. Which of the following is NOT a sign of poor cost data?

a. Competitors' prices for high-volume products appear much too high.
b. The company seems to have a highly profitable niche all to itself.
c. Customers don't balk at price increases for low-volume products.
d. Competitors' prices for low-volume products appear much too high.

60. Which of the following is a sign of poor cost data?

a. Competitors' prices for high-volume products appear much too high.
b. The company seems to have a highly profitable niche all to itself.
c. Customers don't balk at price increases for low-volume products.
d. All of the statements are true.

61. Cadott Manufacturing produces three products. Production and cost information show the following:

Model X Model Y Model Z

Units produced 1,000 3,000 6,000
Direct labor hours 2,000 1,000 2,000
Number of inspections 20 30 50

Inspection costs totaled P100,000. Using direct labor hours as the allocation base, inspections costs allocated to each unit
of Model Z would be
a. P6.67 c. P10.00
b. P8.33 d. Some other number

62. Superior Inc. produces three products. Production and cost information is as follows:

Model Q Model R Model S

Units produced 2,000 6,000 12,000
Direct labor hours 4,000 2,000 4,000
Number of setups 100 150 250

The consumption ratios for number of setups would be:

Q R S Q R S
a. 40%-20%-40% c. 10%-30%-60%
b. 20%-30%-50% d. Some other numbers

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63. Waupaca Company produces three products with the following production and cost information:

Model A Model B Model C

Units produced 2,000 6,000 12,000
Direct labor hours (total) 4,000 2,000 4,000
Number of setups 100 150 250
Number of shipments 200 225 275
Engineering change orders 15 10 5

Overhead costs include setups P90,000; shipping costs P140,000; and engineering costs P180,000. What would be the per
unit overhead cost for Model A if direct labor hours were the allocation base?
a. P20.50 c. P82.00
b. P41.00 d. Some other number

64. The cost of downtime on machines while rework is being performed is a(n)
a. appraisal cost. c. internal failure cost.
b. external failure cost. d. prevention cost.

65. The cost of processing customer complaints is a(n)

a. appraisal cost. c. internal failure cost.
b. external failure cost. d. prevention cost.

66. Worker training is a(n)

a. appraisal cost. c. internal failure cost.
b. external failure cost. d. prevention cost.

67. Which focuses on process improvement, process innovation, or business reengineering?

A.. functional-based responsibility accounting
B. activity-based responsibility accounting
C. strategic-based responsibility accounting
D. none of the above

68. The optimal level in the optimal cost management system is when
A. measurement costs are greater than error costs
B. measurement costs are less than error costs
C. the total of measurement costs and error costs are minimized
D. both b and c

69. A repetitive action fulfilling a business function and increasing the worth of the product and the price that the customer
is willing to pay for the product is referred to as a:
A. non-value added activity
B. value-added activity
C. business value-added activity
D. activity analysis

70. Big Computers has the following personnel:

Seven assemblers: manufacture the mother boards
One owner: writes the paychecks
Two inspectors: inspect the final computers
Three fabricators: make the computer cases
One computer programmer: runs all of the bookkeeping for the accounting records
Two shipping clerks; ship computers to the warehouse
What would be the value-added labor ratio for this company?
A. 4/8 or 37.5 percent C. 5/8 or 62.5 percent
B. ½ or 50 percent D. ¾ or 75 percent

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1 A 11 B 21 C 31 B 41 A 51 A 61 A
2 B 12 B 22 C 32 B 42 D 52 C 62 B
3 C 13 B 23 A 33 C 43 B 53 D 63 C
4 A 14 A 24 A 34 C 44 B 54 B 64 C
5 A 15 B 25 D 35 C 45 A 55 B 65 B
6 B 16 B 26 D 36 C 46 B 56 D 66 D
7 A 17 B 27 D 37 B 47 D 57 B 67 B
8 A 18 A 28 C 38 A 48 C 58 C 68 D
9 B 19 B 29 B 39 B 49 D 59 A 69 B
10 B 20 D 30 C 40 C 50 A 60 D 70 C

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