ReSA -The Review School of Accountancy Management Advisory Services

May 2023 Batch

MS Quiz 2
COVERAGE - Week 4 to Week 7 Lectures
 MS-05: Relevant Costing with Linear Programming
 MS-06: Budgeting with Probability Analysis
 MS-07: Standard Costing with Gross Profit Variance Analysis

1. A firm most often uses a standard cost system in conjunction with:

A a. Flexible budgets c. Target (hurdle) rate of return
b. Management by objectives d. Participative management programs
2. In decision making under conditions of uncertainty, expected value refers to the:
C a. Present value of alternative actions
b. Potential effect of an alternative action
c. Weighted average of probable outcomes of an action
d. Probability of a given outcome from a proposed action
3. Which of the following is true of budgets when they are administered thoughtfully?
C a. They eliminate subjectivity in performance evaluation
b. They can eliminate the uncertainty faced by a company
c. They promote coordination within the subunits of a company
d. They are a substitute of the planning and coordination functions of management
4. The variance that arises because the quantity actually sold differs from the quantity budgeted to be sold is
D a. Sales mix variance c. Master budget increment
b. Static budget variance d. Sales volume variance
5. The linear programming method is most useful in optimization problems involving
C a. Nonlinear constraints
b. A quadratic objective function
c. A linear objective and linear constraints
d. Investment decisions and other long-term decisions
6. Management by exception refers to a strategy that focuses on
D a. Unusual business opportunities c. Highly successful managers
b. Decentralized organizations d. Significant variances
7. In preparing a corporate master budget, which one of the following is most likely to be prepared last?
B a. Sales budget c. Production budget
b. Cash budget d. Cost of goods sold budget
8. The opportunity cost of pursuing a full-time MBA degree is the
B a. Cost of tuition, textbooks, and other fees
b. Job wages and promotions forgone during two years of study
c. Opportunity of receiving a higher salary after graduation
d. Estimated cost of professors’ salaries
9. The materials mix variance for a product is P 5,000 unfavorable while the materials yield variance is P 2,500
unfavorable. This means that
C a. The materials price variance is P 5,000 unfavorable
b. The total materials cost variance is P 2,500 unfavorable
c. The materials quantity variance is P 7,500 unfavorable
d. There is an unfavorable materials quantity variance whose amount cannot be determined
NOTE: Materials mix variance + Materials yield variance = Materials quantity variance
10. Mr. JYP makes bite-size Sushi. Which of the following could be a constraint of Mr. JYP?
D a. Sushi chiller
b. Workers who mix the Sushi ingredients
c. Workers who prepare Sushi for chilling
d. Any of these choices can be a constraint
11. The direct materials price variance is best measured and reported to appropriate management personnel at
the time
C a. Purchased quantities exceed standard order size.
b. Quarterly financial statements are prepared.
c. Shipments are received and recorded as purchases.
d. Direct materials are issued to production areas.

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ReSA - The Review School of Accountancy MS Quiz 2
Coverage: MS – 05 to 07 (ReSA Batch 45 – May 2023 Batch)

12. A company that is operating at full capacity should emphasize those products and services that have the
D a. highest operating income
b. lowest total per-unit costs
c. highest contribution margin per unit
d. highest contribution margin per unit of scarce resource
13. Twice Co. is considering whether to sell Itzy at the split-off point or subject it to further processing and
produce a more refined product known as Itzy-X. Consider the following items: (1) Selling price of Itzy-X,
(2) Joint processing cost of Itzy, and (3) Separable cost of producing Itzy-X. Which of the above items is
(are) relevant to Twice's decision to process Itzy into Itzy-X?
D a. (1) only c. (1) and (2)
b. (3) only d. (1) and (3)
14. For a given time period, a company had a favorable material quantity variance, a favorable direct labor
efficiency variance, and a favorable fixed overhead volume variance. Of the following, the one factor that
could not have caused all three variances is:
A a. The use of lower-skilled workers
b. An increase in production supervision
c. The purchase of higher quality materials
d. The purchase of more efficient machinery
15. Production of a special order will increase gross profit when the additional revenue from the special order
is greater than
B a. The indirect costs of producing the order.
b. The marginal cost of producing the order.
c. The direct materials and labor costs in producing the order.
d. The fixed costs incurred in producing the order.
16. All of the following are disadvantages of authoritative budgeting as opposed to participatory budgeting
except that it:
D a. may result in a budget that is not possible to achieve.
b. reduces the communication between employees and management.
c. may limit the acceptance of proposed goals and objectives.
d. reduces the time required for budgeting.
17. A company’s approach to an insourcing vs outsourcing decision
B a. Depends on whether the company is operating at or below normal volume.
b. Involves an analysis of avoidable costs.
c. Should use absorption (full) costing.
d. Should use activity-based costing
18. Momo Co. recently reviewed the profitability of each of its segments the company’s Japan unit projected a
loss for the coming period and was shut down. In which one of the following situations would the total
company profits of Momo Co. decrease after shutting down the Japan unit?
A a. Japan unit’s projected loss was less than the allocated home office cost.
b. Japan unit’s projected contribution margin was negative.
c. Japan unit’s inventory was transferred to other divisions.
d. Japan unit’s projected fixed costs were eliminated.
19. Which one of the following statements best describes budgetary slack?
C a. The practice of management assigning relaxed budgetary goals after the company achieves
the first several months of the annual budget.
b. The total amount that actual expenses are below budgeted expenses and actual revenues
exceed budgeted revenues.
c. The practice of understating budgeted revenues or overestimating budgeted costs to make
budgeted targets more achievable.
d. The margin of error assigned to each cost center to encourage the manager to budget
accurately and consistently.
20. When compared with ideal standards, practical standards
C a. Produce lower per-unit product costs.
b. Result in a less desirable basis for the development of budgets.
c. Serve as a better motivating target for manufacturing personnel.
d. Incorporate very generous allowance for spoilage and worker inefficiencies.

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ReSA - The Review School of Accountancy MS Quiz 2
Coverage: MS – 05 to 07 (ReSA Batch 45 – May 2023 Batch)

21. Tzuyu Company manufactures wood cabinets. The following information are available for 2023:
Beginning Ending
Raw Material Inventory P 6,800 P 7,500
Work in Process Inventory 17,300 11,700
Finished Goods Inventory 21,000 16,300
The direct labor is P 9.60 per hour and overhead cost is applied at 80% of the direct labor costs. What is the
total manufacturing costs (1,500 direct labor hours were done; P 21,000 raw material was purchased)?
A a. P 46,220 c. P 47,620
b. P 46,920 d. P 51,820
Solution: DM used: 6,800 + 21,000 – 7,500 = P 20,300
DL spent: 1,500 hours (9.6) = P 14,400
FOH incurred: 80% (14,440) = P 11,520
22. Nayeon Corporation operates a plant with a productive capacity to manufacture 20,000 units of its product a
year. The following information pertains to the production costs at capacity:
Variable costs P 160,000
Fixed costs 240,000
Total costs P 400,000
A supplier has offered to sell 4,000 units to Nayeon annually. Assuming that fixed costs would remain
constant, what is the price per unit that makes Nayeon indifferent between the “make” or buy” options?
C a. P 20 c. P 8
b. P 12 d. P 0
Solution: Indifference point: cost to make = cost to buy
Relevant unit cost to make: P 160,000 ÷ 20,000 units = P 8 per unit
23. If 200,000 machine-hours are budgeted for variable overhead at a standard rate of P 5 per machine-hour, but
220,000 machine-hours were actually used at an actual rate of P 6 per machine-hour, what is the variable
overhead spending variance?
C a. P 220,000 favorable
b. P 100,000 favorable
c. P 220,000 unfavorable
d. P 100,000 unfavorable
Solution: AFOH (V): 220,000 (6): 1,320,000 BAAH (V): 220,000 (5): 1,100,000

24. Sana Company has a policy of maintaining an inventory of finished goods equal to 30% of the following
month’s sales. For the forthcoming month of March, Sana has budgeted the beginning inventory at 30,000
units and the ending inventory at 33,000 units. This suggests that
B a. March sales are budgeted at 3,000 units less than April sales
b. March sales are budgeted at 10,000 units less than April sales
c. February sales are budgeted at 3,000 units less than March sales
d. February sales are budgeted at 10,000 units less than March sales
Solution: Based on March beginning inventory: March sales = 30,000  30% = 100,000
Based on March ending inventory: April sales: 33,000 units  30% = 110,000
25. Dahyun, Inc. is planning to open a massage parlor in downtown Seoul. A market study conducted by an
independent market researcher shows the following estimates of the number of clients (and their associated
frequencies) during a period:
Number of expected clients Frequency
0 – 20 30 days
21 – 40 120 days
41 – 60 90 days
61 – 80 60 days
The company works 300 days a year. What is the best estimate of the expected number of clients in the
parlor during the period?
C a. 30 c. 42
b. 32 d. 52
Solution: On the basis of the mid-point of the range: 10 (10%) + 30 (40%) + 50 (30%) + 70 (20%)

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ReSA - The Review School of Accountancy MS Quiz 2
Coverage: MS – 05 to 07 (ReSA Batch 45 – May 2023 Batch)

26. Mina Company uses a standard costing system and a flexible budget. At a normal level of activity of 15,000
units and 45,000 standard direct labor hours, the standard direct labor cost would be P 270,000. During June,
42,800 hours were worked to produce 14,000 units at an actual direct labor cost of P 352,000. The direct
labor efficiency variance in June was:
B a. P 12,800 Unfavorable c. P 4,800 Favorable
b. P 4,800 Unfavorable d. P 7,800 Unfavorable
Solution: Standard: 15,000 u <> 45,000 hrs or 1 unit <> 3 hrs @ P 6 per hour (270,000/45,000)
LEV: (AH – SH) SR = [42,800 – 14,000 (3)] 6 = P 4,800 unfavorable
27. Sana Company provides design services to residential and commercial clients. The residential services
produce a contribution margin of P 450,000 and have traceable fixed operating costs of P 480,000.
Management is studying whether to drop the residential operation. If closed, the fixed operating costs will
fall by P 370,000 and Sana's net income will:
B a. Increase by P 30,000 c. Increase by P 340,000
b. Decrease by P 80,000 d. Increase by P 80,000
Solution: CM – avoidable FC = 450,000 – 370,000 = P 80,000
28. Chaeyoung Company has a standard cost system in which manufacturing overhead is applied to units of
products on the basis of machine hours. The company has provided the following factory data:
Actual total overhead cost P 260,000
Budgeted fixed overhead cost P 180,000
Variable overhead rate P 2 per hour
Fixed overhead rate P 6 per hour
Standard hours allowed for the output 32,000 hours
What was the overhead volume variance for the year?
A a. P 12,000 favorable c. P 4,000 unfavorable
b. P 4,000 favorable d. P 16,000 unfavorable
Solution: Volume variance → BASH: 180,000 + 2 (32,000) = 244,000
SHSR: 32,000 (2+6) = 256,000
Alternative solution: Fixed volume variance → BASH (F): 180,000 SHSR (F): 32,000 (6) = 192,000
NOTE: Volume variance and fixed volume variance are one and the same
29. Jihyo Corp. is preparing a flexible budget for 2023 and the following maximum capacity estimates for Jihyo
Corp. are available:
Maximum Capacity
Direct labor hours 80,000
Variable factory overhead P 200,000
Fixed factory overhead P 250,000
Assume that the normal capacity is 75% of the maximum capacity. What would be the total factory overhead
rate, based on direct labor hours, in a flexible budget at normal capacity?
B a. P 7.50 c. P 5.62
b. P 6.67 d. P 5.00
Solution: Y = 250,000 + 2.50 X If X is 60,000 hours, then Y is P 400,000
FOH: P 400,000 ÷ 60,000 = P 6.67
30. Joengyeon Corporation currently manufactures a subassembly for its main product. The costs per unit are as
follows:
Direct materials P 2.00
Direct labor 20.00
Variable overhead 10.00
Fixed overhead 16.00
Total P 48.00
Jay Park has contacted Joengyeon with an offer to sell them 5,000 of the subassemblies for P 44.00 each.
Joengyeon will eliminate P 50,000 of fixed overhead if it accepts the proposal.
What are the relevant costs of Joengyeon?
C a. P 280,000 c. P 210,000
b. P 250,000 d. P 160,000

Solution: 5,000 units (2 + 20 + 10) + 50,000 NOTE: Avoidable fixed costs are relevant costs.
END
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