1. Strategic cost management requires organizations to b. Absorption costing.

a. Ignore the competitive landscape. c. Both variable and absorption costing.

b. Continuously analyze and improve cost structures. d. Neither variable nor absorption costing.
c. Focus solely on short-term financial goals. 15. Which of the following is true about absorption costing.
d. Reduce costs without considering customer value. a. No fixed factory overhead is charged to production.
2. Life-cycle costing involves b. It is also known as direct costing.
a. Allocating costs to specific activities. c. The term used to designate the difference between sales and cost of
b. Calculating costs for the entire life cycle of a product. goods sold is the “manufacturing margin”.
c. Reducing costs throughout a product's life cycle. d. Over-applied factory overhead is reflected in the income statement as
d. Ignoring costs after a product is launched. a reduction to cost of goods sold.
3. Cost leadership strategy aims to 16. On budgeting, all of the following are not valid, except
a. Offer products at premium prices. a. Responsibility budget identifies revenue and costs with the individual
b. Differentiate products based on quality. responsibilities for their incurrence.
c. Produce products at the lowest cost in the industry. b. The best way to establish budget figures is to use last year’s actual
d. Focus on a narrow target market. cost and activity data as this year’s budget estimates.
4. Target costing is primarily concerned with c. A sales budget and a sales forecast are the same thing.
a. Determining the cost of products based on competitors' prices. d. The primary purpose of the cash budget is to show the expected cash
b. Setting prices based on desired profit margins. balance at the end of the budget period.
c. Reducing all costs to the lowest possible level. 17. Which one of the following organizational policies is most likely to result in
d. Designing products to meet a specific cost target. undesirable managerial behavior?
5. Value chain analysis is a tool used in strategic cost management to a. Joe Walk, the chief executive officer of Eagle Rock Brewey, wrote a
a. Identify non-value-added activities. memorandum to his executive stating, “Operating plans are contracts
b. Eliminate all activities with high costs. and they should be met without failure.”
c. Increase fixed costs across the value chain. b. The budgeting process at Madsen Manufactuing starts with operating
d. Reduce variable costs across the value chain. managers providing goals for their respective departments.
6. Which of the following statements is correct? c. Fullbright Lighting holds quarterly meeting of departmental managers
a. Gross margin and contribution margin are the same. to consider possible changes in the budgeted targets due to changing
b. Contribution margin is the excess of sales over variable costs, and this conditions.
is the amount available for the recovery of fixed assets and generation d. At Fargo Transportation, managers are expected to provide
of profit. explanations for variances from the budget in their departments.
c. Unit variable costs change directly with the cost driver or activity level. 18. All of the following are considered operating budgets, except the
d. One inherent, simplifying assumption in CVP analysis is that a. Cash budget.
production equals sales. b. Materials budget.
7. The alternative that would increase the contribution margin per unit the most is c. Production budget.
a. 10% decrease in unit variable cost. d. Cash budget.
b. 10% increase in selling price. 19. Which one of the following items is the last schedule to be prepared in the
c. 10% decrease in fixed costs. normal budget preparation process?
d. 10% decrease in selling price. a. Cash budget.
8. Which of the following statements is not correct assuming all other things b. Cost of goods sold budget.
remaining the same? c. Manufacturing overhead budget.
a. Equal percentage increases in both the selling price and variable cost d. Selling expense budget.
per unit will cause the breakeven point in sales pesos to remain 20. A difference between standard costs used for cost control and budgeted costs
unchanged. a. Can exist because standard costs must be determined after the
b. Equal percentage increases in both the selling price and variable cost budget is completed.
per unit will cause the contribution margin ratio to remain unchanged. b. Can exist because standard costs represent what costs should be,
c. Equal peso increases in both the selling price and variable cost per whereas budgeted costs represent expected actual costs.
unit will cause the break-even point in units to remain unchanged. c. Can exist because budgeted costs are historical costs, whereas
d. Equal peso increases in both the selling price and variable cost per standard costs are based on engineering studies.
unit will cause the break-even point in pesos to remain unchanged. d. Cannot exist because they should be the same amounts.
9. Which of the following is not a correct description of margin of safety?
a. It is the amount of sales which may be reduced without resulting into a Medilab, Inc. is a medical laboratory that performs tests for physicians. On the
loss. average, fee per test is P625, and the variable cost per test is P375. Medilab
b. It is the difference between budgeted sales and break-even sales. anticipates performing between 2,500 to 5,000 tests during the month of
c. It may be expressed in terms of units or in pesos. November. Fixed costs are estimated as follows:
d. Its presence means that the company earns profit. Low range of activity (0-2,499 tests performed) P400,000
10. In order for the break-even computation to be meaningful to management, High range of activity (2,500-5,000 tests performed) 675,000
sales mix should be computed using the The company’s accountant conducted a study involving a comparison of
a. Expected mix. Medilab’s selling price, costs, and break-even point with industry averages. The
b. Least desirable mix. study showed the following results:
c. Most desirable mix. Compared to industry
d. Traditional mix. Low Range of Activity High Range of Activity
averages, Medilab’s
11. Which of the following must be known about production process in order to Selling price The same Lower
institute a direct costing system? Variable costs The same
a. The variable and fixed components of all costs related to production.
Fixed costs The same The same
b. The controllable and non-controllable components of all costs related
to production. Break-even point Higher
c. Standard production rates and times for all elements of production. Required:
d. Contribution margin and break-even point for all goods in production. 21. How much revenue is required to break-even at the low range activity level?
12. Net profit under absorption costing may differ from net profit determined 22. What is the break-even point in number of tests at the high activity range?
under direct costing. How is this difference calculated? 23. How many tests must be performed to achieve profit of P250,000?
a. Change in the quantity of all units in inventory times the relevant fixed 24. Compared to industry averages, Medilab’s break-even point at the high range
costs per unit. of activity is (a. lower; b. higher; c. the same; d. not determinable).
b. Change in the quantity of all units produced times the relevant fixed 25. Compared to industry averages, Medilab’s variable cost per unit at the low
costs per unit. activity range must be (a. lower; b. higher; c. the same; d. incomparable).
c. Change in the quantity of all units in inventory times the relevant
variable costs per unit. Stabler Co’s projected March 31, 2024 balance sheet follows:
d. Change in the quantity of all units produced times the relevant variable Assets Liabilities and stockholders’ equity
costs per unit. Cash $24,000 Accounts payable $140,400
13. When absorption costing is used, all of the following costs are considered Accounts receivable
product costs, except (net of allowance
a. Direct labor. for uncollectibles
of $2,880)
b. Variable manufacturing overhead.
c. Variable selling and administrative costs. 69,120
Merchandise 104,800 Common stock $50,000
d. Fixed factory overhead. inventory
14. The level of production affects income under which of the following methods? Plant assets (net of
a. Variable costing. accumulated
 depreciation of
$120,000)

72,000 Retained earnings 79,520 129,520

Total liabilities and
Total assets $269,920 stockholders’ equity $269,920
Additional information about the company is as follows:
 Expected sales for April and May are $240,000 and $260,000, Total liabilities and
respectively. All sales are made on account. stockholders’ equity
Total assets $269,920 $269,920
 The monthly collection pattern from the month of sale forward is 50
Additional information about the company is as follows:
percent, 48 percent, and 2 percent uncollectible. Accounts receivable
and the allowance for uncollectibles reflect only accounts for March.  Expected sales for April and May are $240,000 and $260,000,
respectively. All sales are made on account.
 Cost of goods sold is 65 percent of sales.
 The monthly collection pattern from the month of sale forward is 50
 Purchases each month are 60 percent of the current month’s sales
percent, 48 percent, and 2 percent uncollectible. Accounts receivable
and 30 percent of the next month’s projected sales. All purchases are
and the allowance for uncollectibles reflect only accounts for March.
paid for in full in the month following purchase.
 Cost of goods sold is 65 percent of sales.
 Dividends of $20,000 will be declared and paid in April 2024.
 Purchases each month are 60 percent of the current month’s sales
 Selling and administrative expenses each month are $43,000, of
and 30 percent of the next month’s projected sales. All purchases are
which $8,000 is depreciation.
paid for in full in the month following purchase.
 Investments and borrowings must be made in $1,000 amounts.
 Dividends of $20,000 will be declared and paid in April 2024.
Required:
26. What were March 2024 budgeted sales?  Selling and administrative expenses each month are $43,000, of
27. What will be budgeted cash collections for April 2024? which $8,000 is depreciation.
28. What will be the merchandise inventory balance at April 30, 2024?  Investments and borrowings must be made in $1,000 amounts.
29. What will be the projected balance in the retained earnings at April 30, 2024? Required:
30. If the company wishes to maintain a minimum cash balance of $16,000, how 26. What were March 2024 budgeted sales?
much will be available for investment, or be borrowed at the end of April 2024? 27. What will be budgeted cash collections for April 2024?
28. What will be the merchandise inventory balance at April 30, 2024?
Tomm’s T’s is a New York-based company that produces and sells t-shirts. The 29. What will be the projected balance in the retained earnings at April 30, 2024?
firm uses variable costing for internal purposes and absorption costing for 30. If the company wishes to maintain a minimum cash balance of $16,000, how
external purposes. At year-end, financial information must be converted from much will be available for investment, or be borrowed at the end of April 2024?
variable costing to absorption costing to satisfy external requirements.
At the end of 2023, management anticipated that 2024 sales would be 20 percent Tomm’s T’s is a New York-based company that produces and sells t-shirts. The
above 2023 sales. Thus, production for 2024 was increased by 20 percent to firm uses variable costing for internal purposes and absorption costing for
meet the expected demand. However, economic conditions in 2024 kept sales at external purposes. At year-end, financial information must be converted from
the 2023 unit level of 40,000. The following data pertain to 2023 and 2024: variable costing to absorption costing to satisfy external requirements.
2023 2024 At the end of 2023, management anticipated that 2024 sales would be 20 percent
above 2023 sales. Thus, production for 2024 was increased by 20 percent to
Selling price per unit $22 $22 meet the expected demand. However, economic conditions in 2024 kept sales at
Sales (units) 40,000 40,000 the 2023 unit level of 40,000. The following data pertain to 2023 and 2024:
Beginning inventory 4,000 4,000 2023 2024
(units)
Selling price per unit $22 $22
Production (units) 40,000 48,000
Sales (units) 40,000 40,000
Ending inventory (units) 4,000 ?
Beginning inventory 4,000 4,000
Per-unit production costs (budgeted and actual) for 2023 and 2024 were:
(units)
Material $2.50
Production (units) 40,000 48,000
Labor 4.00
Ending inventory (units) 4,000 ?
Overhea 1.75
Per-unit production costs (budgeted and actual) for 2023 and 2024 were:
d
Material $2.50
Total $8.25
Labor 4.00
Annual fixed costs for 2023 and 2024 (budgeted and actual) were:
Overhea 1.75
Production $120,000
d
Selling and 130,000
Total $8.25
administrative
Annual fixed costs for 2023 and 2024 (budgeted and actual) were:
Total $250,000
Production $120,000
The predetermined OH rate under absorption costing is based on annual
capacity of 60,000 units. Any volume variance is assigned to Cost of Goods Sold. Selling and 130,000
administrative
Taxes are to be ignored.
Required: Total $250,000
31. What is the balance of 2024 ending inventory for external reporting The predetermined OH rate under absorption costing is based on annual
purposes? capacity of 60,000 units. Any volume variance is assigned to Cost of Goods Sold.
32. What is the income under variable costing? Taxes are to be ignored.
33. What is the income under absorption costing? Required:
34. Explain the difference between the income figures determined in the 31. What is the balance of 2024 ending inventory for external reporting
requirements above. purposes?
35. Assuming that there is no Work in Process Inventory, provide the entry 32. What is the income under variable costing?
necessary to adjust the book income amount to the financial statement income 33. What is the income under absorption costing?
amount if an adjustment is necessary. 34. Explain the difference between the income figures determined in the
requirements above.
35. Assuming that there is no Work in Process Inventory, provide the entry
necessary to adjust the book income amount to the financial statement income
amount if an adjustment is necessary.