PRICING AND COSTING

FINAL EXAMINATION
SY 2020 - 2021

1. The difference between actual cost and standard cost is called

a. Favorable variant
b. Unfavorable variant
c. Variance
d. Variable

2. Both standard costs and budgeted costs are used for controlling costs. However, the two terms
are not the same. Standard costs differ from budgeted costs in that standard costs

a. Are based on engineering studies while budgeted costs are historical costs.
b. Costs that were incurred for actual production, while budgeted costs are costs that should
have been incurred for such production.
c. Are costs that should have been incurred for actual production, while budgeted costs are
costs that should be incurred for budgeted or planned production.
d. Are the expressed in total amounts, while budgeted costs are always expressed in per-unit
amounts.

3. A variance shows a deviation of actual results from standard or budgeted results. In deciding
whether to investigate a variance or not, management may consider the following factors,
except

a. The amount of the variance and the cost of investigation.

b. Whether the variance is favorable or unfavorable.
c. The possibility that the investigation will eliminate future occurrences of the variance.
d. The trend of the variance over time.

4. Because of the impact of fixed costs in most businesses, standard costing system is usually not
effective unless the company also has a flexible budgeting system. In flexible budgeting,

a. A standard costs are used to prepare budgets for multiple activity levels.
b. Standard costs are never used.
c. Variable costs and fixed costs show the same behavior as budgets for different activity levels
prepared.
d. A budget for the expected activity level is prepared showing variable and fixed costs
separately.

5. The difference between the actual time used and the amount of time that should have been
used for actual production, multiplied by the standard labor rate per time is called

a. Efficiency variance
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FINAL EXAMINATION
SY 2020 - 2021

b. Price variance
c. Spending variance
d. Rate variance

6-8 PROBLEM SOLVING

A manufacturer of portable DVD players buys components from subcontractors for

assembly into complete DVD players. Each player requires ^ units of Part A, which has a
standard cost of P100 per unit. During May, the company’s records showed the following
with respect to part A:

Purchases 15,000 units

Purchase price P110 per unit
Units of players produced 2,000
Units of Part A used in production 12,400

6. For the month of May, the company’s material purchase price variance is

a. P40,000 unfavorable
b. P40,000 favorable
c. P150,000 unfavorable
d. P150,000 favorable

7. During May, the company incurred materials usage variance of

a. P40,000 unfavorable
b. P40,000 favorable
c. P150,000 unfavorable
d. P150,000 favorable

8. The amount that will be shown on a flexible budget for Part A usage during the month of May is

a. P1,200,000 unfavorable
b. P1,200,000
c. 1,320,000
d. 200,000

9. In a make-or-buy decision analysis, the cost to buys is compared with the

a. Total cost to make

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FINAL EXAMINATION
SY 2020 - 2021

b. Relevant cost to make

c. Variable manufacturing costs
d. Cost to purchase

10. Which of the following statements about make-or-buy decision analysis is not correct?

a. Available resources should be used as efficiently as possible before outsourcing.

b. The analysis should involve available costs only
c. If the total relevant cost of production is less than the cost to buy the item, it should be
produced in-house
d. The decision depends whether the company is operating at or below the normal capacity.

ITEMS 11 AND 12 ARE BASED ON THE FOLLOWING INFORMATION:

Songer Sewing Machines uses one unit of a component part, the Foot Pedal, for each unit of
its product. The cost to produce a unit of Foot Pedal is as follows:

Direct materials P 500

Materials handling 50
Direct labor 950
Factory overhead 1,900
Total cost per unit P 3,400

Materials handling cost is applied based on the cost of materials and purchased
components.

Factory overhead is applied based on direct labor cost. Sixty percent (60%) of the applied
factory overhead cost is fixed. Songer is considering to outsource for Foot Pedal. A supplier,
Padyak Corp.. a manufacturer of Foot Pedals, has offered to supply the part to Songer at a
price of P2,200. Songer’s average requirement for Foot Pedals per month is 500 units.
Accordingly, Padyak can meet this requirement should Songer decide the outsource the
component part?

11. Assume that should Songer outsource the Foot Pedal, the facilities used to produce this
component part would just remain idle. Which alternative (outsource or insource) is more
advantageous and how much is the net advantageous and by how much?
PRICING AND COSTING
FINAL EXAMINATION
SY 2020 - 2021

a. Outsource, P30,000
b. Insource, P80,000
c. Outsource P600,000
d. Insource P350,000

12. Assume that if the Foot Pedal is purchased, the facilities used to produce it could be rented to
another company for P100, 000. Which alternative (outsource or insource) is more
advantageous and how much is the net advantage?

a. Insource, P100, 000

b. Insource, P70,000
c. Outsource, P20,000
d. Outsource, P130,000

13. Iya Company plans to discontinue a department with the following average monthly operating
results:

Sales P 120, 000

Variable costs 70, 000
Contribution margin P 50, 000
Fixed costs 80,000
Operating loss P 30, 000

If the department is discontinued, P35, 000 of the fixed costs could be eliminated.
What would be the effect of the discontinuance of the department on Disco Company’s
pretax profit?

a. Decrease of P15, 000

b. Increase of P15, 000
c. Increase of P5, 000
d. Decrease of P5, 000

14. A company plans to discontinue a division with a P50, 000 contribution to overhead. Overhead
allocated to the division is P80,000 of which P35,000 cannot be eliminated. The effect of this
discontinuance on the company’s income before tax is a/an

a. Increase of P5,000
b. Decrease of P5,000
c. Increase of P30,000
d. Decrease of P30,000
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FINAL EXAMINATION
SY 2020 - 2021

15. It is the expected market price for a product or service, considering the consumers’ perception
of value and the competitors’ responses.

a. Transfer price
b. Target price
c. Cost-based price
d. Selling price

16. Most companies have traditionally set prices by starting with costs and adding a markup.
However, most companies are turning the equation around and developing costs based on
prices. One approach used involves a strategy in which companies first determine the target
price at which a new product or service can be sold. From this target price, the desired profit
margin is deducted and the result called

a. Markup
b. Variance
c. Target cost
d. Market price

17. Budgeting is

a. The process of creating a formal plan and translating goals into quantitative format
b. A technique for comparing actual costs with standard costs
c. A technique for determining the cost of manufactured products
d. A means of product costing that emphasizes activities as basic cost objects

18. The following are parts of the operating budget, except

a. Sales budget
b. Materials cost budget
c. Capital budget
d. Production budget

19. The starting point in preparing a comprehensive budget is

a. The cash budget

b. The budgeted income statement
c. The sales forecast
d. The production budget
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FINAL EXAMINATION
SY 2020 - 2021

20. Ernie Trading Co. budgeted merchandise purchases of 40,000 units next month. The expected
beginning inventory is 12,000 units and the desired inventory at the end of next month is 15,000
units. Budgeted sales in units for next month is

a. 37,000
b. 43,000
c. 55,000
d. 52,000

ITEMS 71-75 ARE BASED ON THE FOLLOWING INFORMATION:

The cost of goods sold section of Dale Corporation’s operating budget for 200B is presented
below:

Materials;
Inventory, January 1 (16,000 units) P 960,000
Purchases 9,120,000
Available for use P10,080,000
Inventory, December 31 (18,500 units) 1,184,000 P 8,896,000
Labor 784,000
Factory overhead: Variable P 2,009,600
Fixed 1,120,000 3,129,600
Cost of goods manufactured (140,000 units) P 12,809,600
Add finished goods inventory, January 1 (9,300 units) 744,000
Cost of goods available for sale 13,553,600
Less finished goods inventory, December 31 (3,300 units) 301,600
Budgeted cost of goods sold P 13,255,000

The actual results for the first quarter of 200B require the following changes in the budget
assumptions:

 The budgeted production of the year is expected to increase by 5,000 units. During the
first quarter, the company has already produced 25,000 units. The balance of
production will be scheduled in equal segments over the last 3 quarters of the budget
year.
 The expected finished goods inventory on January 1 dropped the only 9,000 units, but
its total value will not be revised anymore. The ending inventory value is computed
using the average manufacturing cost for the year.
 A new Labor Bill passed by Congress is expected to be signed into a law by the
President. The new law will take effect beginning the last quarter of the budget year,
including for a provision for an increase of 8% in wage rates.
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FINAL EXAMINATION
SY 2020 - 2021

 The company uses the FIFO method in valuing its materials inventory. During the first
quarter, the company purchased 27,500 units of direct materials for 1,760,000. The
remaining direct materials requirement will be purchased evenly for the last 9 months
of the budget year. Effective July 1, 200B, the beginning of the third quarter, direct
materials cost is expected to increase by 5%. The assumptions regarding the quantity of
the materials inventories at the beginning and end of the year will remain unchanged.
 The variable factory overhead of P2,009,600 includes indirect materials and factory
supplies amounting to P889,600. It is computed at 10% of the cost of materials used.
The balance of the variable factory overhead varies directly with production.
 There will be no changed in the budgeted fixed factory overhead cost.

Considering the given actual data for the first quarter, as well as the changes in assumptions and
estimates in the budget data for the year, the company’s accountant prepare a revised budgeted cost of
goods sold statement. This revised statement should show:

21. Budgeted materials purchases of

a. P9, 696, 000

b. P9, 120, 000
c. P9,280, 000
d. P9,440, 000
22. Budgeted cost of materials inventory at December 31, 2008 of

a. P1,024, 000
b. P1,243, 000
c. P1,184, 000
d. P1,216, 000

23. The budgeted direct labor cost of

a. P846,720
b. P784,000
c. P876,960
d. P829,920

24. The budgeted cost of goods manufactured of

a. P12,809,600
b. P13,464,000
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FINAL EXAMINATION
SY 2020 - 2021

c. P14,208,000
d. P12,344,000

25. The budgeted cost of goods sold of

a. P13,901,578
b. P13,252,000
c. P13,553,600
d. P14,208,000