ACCT 304 Final Exam 100% Correct Answers



  1. If a predetermined overhead rate is not employed and the volume of production is increased over the level planned, the cost per unit would be expected to

A.    Decrease for fixed costs and remain unchanged for variable costs.

B.    Remain unchanged for fixed costs and increase for variable costs.

C.    Decrease for fixed costs and increase for variable costs.

D.    Increase for fixed costs and increase for variable costs.

  1. If fixed costs decrease while variable cost per unit remains constant, the contribution margin will be

A.    Unchanged                                                       C.    Higher

B.    Lower                                                                 D.    Indeterminate

  1. The high-low method is criticized because it

A.    is not a graphical method.

B.    is a mathematical method.

C.    ignores much of the available data by concentrating on only the extreme points.

D.    does not provide reasonable estimates.

  1. [i].      The controller of Jema Company has requested a quick estimate of the manufacturing supplies that it needs for the month of July when the expected production are 470,000 units. Below are the actual data from the prior three months of operations.

Production in units

Manufacturing supplies










Using these data and the high-low method, what is the reasonable estimate of the cost of manufacturing supplies that would be needed for July? (Assume that this activity is within the relevant range.)

A.    P 805,284                                                         C.    P 755,196

B.    P1,188,756                                                       D.    P 752,060

  1. [ii].      Almond Company wishes to determine the fixed portion of its maintenance expense (a semi-variable expense), as measured against direct labor hours for the first Malayan three months of the year. The inspection costs are fixed; however, the adjustments necessitated by errors found during inspection account for the variable portion of the maintenance costs. Information for the first Malayan quarter is as follows:

Direct Labor  Hours

Maintenance  Costs











What is the fixed portion of Almond Company’s maintenance expense, rounded to the nearest pesos?

A.    P28,330                                                             C.    P37,200

B.    P32,677                                                             D.    P40,800

  1. [iii].     If there were 30,000 pounds of raw material on hand on January 1, 60,000 pounds are desired for inventory at December 31, and 180,000 pounds are required for annual production, how many pounds of raw material should be purchased during the year?

A.    150,000 pounds                                              C.    120,000 pounds

B.    240,000 pounds                                              D.    210,000 pounds

  1. [iv].     The Avelina Company has the following historical pattern on its credit sales.

70    percent collected in month of sale

15    percent collected in the first month after sale

10    percent collected in the second month after sale

4    percent collected in the third month after sale

2    percent uncollectible


The sales on open account have been budgeted for the last six months of 2007 are shown below:

July                                                                                                                                 P  60,000

August                                                                                                                                70,000

September                                                                                                                         80,000

October                                                                                                                              90,000

November                                                                                                                        100,000

December                                                                                                                          85,000



The estimated total cash collections during the fourth calendar quarter from sales made on open account during the fourth calendar quarter would be

A.    P172,500                                                          C.    P265,400

B.    P230,000                                                          D.    P251,400

  1. [v].      Harem Corporation consists of two divisions, Mining and Builders. The Mining makes black steel, a product that can be used in the product that the Builders division makes. Both divisions are considered profit centers. The following data are available concerning black steel and the two divisions:



Average units produced


Average units sold


Variable mfg cost per unit


Variable finishing cost per unit


Fixed divisional costs




The Mining Division can sell all of its output outside the company for P4 per unit. The Builders Division can buy the black steel from other firms for P4. The Builders Division sells its product for P12.


What is the optimal transfer price in this case?

A.    P2 per unit                                                          C.    P7 per unit

B.    P4 per unit                                                          D.    P9 per unit

  1. The sequence that reflects increasing breadth of responsibility is

A.    cost center, investment center, profit center

B.    cost center, profit center, investment center

C.    profit center, cost center, investment center

D.    investment center, cost center, profit center


  1. In responsibility accounting the most relevant classification of costs is

A.    fixed and variable                                            C.    discretionary and committed

B.    incremental and nonincremental                 D.    controllable and noncontrollable


  1. If a firm operates at capacity, the transfer price should be the:

A.    external market price.                                      C.    actual cost.

B.    differential cost.                                                 D.    standard cost.

  1. The basic methods used in transfer pricing are

A.    variable or full costs                                         C.    market price or negotiated price

B.    dual prices                                                         D.    all of the above

  1. Market-based transfer prices are best for the

A.    company when the selling division is operating below capacity.

B.    company when the selling division is operating at capacity.

C.    buying division if it is operating at capacity.

D.    buying division.

Assume that Steel Division has a product that can be sold either to outside customers on an intermediate market or to Fabrication Division of the same company for use in its production process. The managers of the division are evaluated based on their divisional profits.

Steel Division:

Capacity in units                                                                                                                                        200,000

Number of units being sold on the intermediate market                                                                    200,000

Selling price per unit on the intermediate market                                                                                     P90

Variables costs per unit (including P3 of avoidable selling expense if sold internally)                         70

Fixed costs per unit (based on capacity)                                                                                        13


Fabrication Division:

Number of units needed for production                                                                                          40,000

Purchase price per unit now being paid to an outside supplier                                                 P86

The appropriate transfer price should be:

A.    P90                                                                      C.    P70

B.    P87                                                                      D.    P86

Use the following data to answer questions 11 through 13.

N & R Company transfers a product from division N to division R. Variable cost of this product is anticipated to be P40 a unit and total fixed costs amount to P8,000. A total of 100 units are anticipated to be produced. Actual cost, however, amounts to P50 for variable costs. Fixed costs were same as budget. However, actual output was twice as many.


  1. [vi].     Actual cost per unit amounts to

A.    P90                                                                      C.    P115

B.    P92                                                                      D.    P120


  1. [vii].    The transfer price based on actual variable costs plus 130% markup amounts to

A.    P90                                                                      C.    P115

B.    P92                                                                      D.    P120


  1. [viii].    The transfer price based on budgeted full cost plus 30% markup amounts to

A.    P117                                                                    C.    P150

B.    P140                                                                    D.    P156


  1. Given the following notations, what is the breakeven sales level in units?

SP = selling price per unit

FC = total fixed cost

VC = variable cost per unit

A.    SP / (FC/VC)                                                     C.    VC/(SP – FC)

B.    FC/(VC/SP)                                                       D.    FC/(SP – VC)                                  Bobadilla

  1. If variable cost as a percentage of sales increases, the

A.    contribution margin percentage increases.

B.    selling price increases.

C.    break-even point in pesos increases.

D.    fixed costs decrease.                                                                                                         Bobadilla

  1. As volume increases, average cost per unit

A.    increases.

B.    decreases.

C.    remains constant.

D.    increases in proportion to the change in volume.                                                        Bobadilla

  1. [ix].The following is the Lux Corporation’s contribution format income statement for last month:

Sales                                                                                                                 P2,000,000

Less variable expenses                                                                                   1,400,000

Contribution margin                                                                                             600,000

Less fixed expenses                                                                                            360,000

Net income                                                                                                       P   240,000

The company has no beginning or ending inventories. A total of 40,000 units were produced and sold last month. What is the company’s degree of operating leverage?

A.    0.12                                                                    C.    2.50

B.    0.40                                                                    D.    3.30                                                   Bobadilla

  1. [x].      Galactica Company has fixed costs of P100,000 and breakeven sales of P800,000.  Based on this relationship, what is its projected profit at P1,200,000 sales?

A.    P  50,000                                                           C.    P150,000

B.    P200,000                                                          D.    P400,000                                         Bobadilla

  1. [xi].     The following information pertains to Hennin Corporation for the year ending December 31, 2006:

Budgeted sales                                                                                               P1,000,000

Breakeven sales                                                                                                   700,000

Budgeted contribution margin                                                                           600,000

Cashflow breakeven                                                                                            200,000

The margin of safety for the Hennin Corporation is:

A.    P300,000                                                          C.    P500,000

B.    P400,000                                                          D.    P800,000                                         Bobadilla

  1. Which of the following is an example of a committed fixed costs?

A.    direct materials                                              C.    supervisor’s salary

B.    depreciation on a factory building         D.    insurance on a building

  1. [xii].    ABC Company had a total overhead of P360,000 and selling and administrative expense of P140,000 for the year. 1,000 units of A and 3,000 units of B were produced. A requires 3 machine hours and B requires one machine hour per unit. What is overhead chargeable per unit of A

A.    P  60                                                                   C.    P120

B.    P  90                                                                   D.    P180


  1. [xiii].    If estimated annual factory overhead is P800,000, estimated annual direct labor hours are 400,000, actual June factory overhead is P82,000, and actual June direct labor hours are 38,000, then overhead is:

A.    P6,000overapplied                                         C.    P1,800 underapplied

B.    P1,800overapplied                                         D.    P6,000 underapplied

  1. [xiv].    Britney Company has unit costs of P10 for materials and P30 for conversion costs.  If there are 2,500 units in ending work in process, 40% complete as to conversion costs, and fully complete as to materials cost, the total cost assignable to the ending work in process inventory is

A.    P  45,000                                                           C.    P  75,000

B.    P  55,000                                                           D.    P100,000

  1. [xv].    The Amor Company’s accounting records reflected the following data for April 2003. The company accounts its production using First-in, First-out cost flow method:
Work in process, March 31,2003, 60% completed as to materials and conversion costs

? units

Work in process, April 30, 2003, 30% completed as to materials and conversion costs

24,000 units

Equivalent units of production for April 2003


Units started and completed in April


How many units were in the beginning work-in-process?

A.      6,800                                                                C.    17,000

B.    11,333                                                               D.    24,000


  1. [xvi].    Had the company used the weighted-average method of accounting for its production, the equivalent units should be

A.    74,200                                                               C.    81,000

B.    57,200                                                               D.    53,800


  1. Worker training is a(n)

A.    appraisal cost.                                                  C.    internal failure cost.

B.    external failure cost.                                        D.    prevention cost.

  1. The quality costs that are incurred to determine whether particular units of product meet quality standards are

A.    appraisal costs.                                                C.    internal failure costs.

B.    external failure costs.                                      D.    prevention costs.

  1. A company has a bottleneck operation that slows production.  Which of the following tools or approaches could the firm use to determine the most cost-effective ways to eliminate this problem?

A.   Linear programming.

B.   Theory of constraints.

C.   Decision-tree diagrams.

D.   Payoff matrices.

E.   Strategic path analysis (SPA).



  1. Job no. C12 was completed in November at a cost of $18,500, subdivided as follows: direct material, $3,500; direct labor, $6,000; and manufacturing overhead, $9,000.  The journal entry to record this information is:
A. Finished-Goods Inventory


Work-in-Process Inventory


B. Work-in-Process Inventory


Finished-Goods Inventory


C. Work-in-Process Inventory


Raw-Material Inventory


Wages Payable


Manufacturing Overhead


D. Cost of Goods Sold


Finished-Goods Inventory


E. Finished-Goods Inventory


Cost of Goods Sold





  1. Which of the following represents the cost-plus pricing formula?

A.   Price = cost + (markup percentage x cost).

B.   Price = cost + markup percentage.

C.   Price = markup percentage x cost.

D.   Price = cost ÷ markup percentage.

E.    Price = cost + (markup percentage + cost).



  1. A service department includes which of the following?


Payroll Production


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





  1. A service department provides specific functional tasks for other internal units. Which of the following activities would not be engaged in by a service department?
a. Purchasing
b. Warehousing
c. Distributing
d. Manufacturing





  1. Which of the following is not a method for allocating service department costs?
a. step method
b. indirect method
c. direct method
d. algebraic method




  1. Which service department cost allocation method assigns costs directly to revenue-producing areas with no other intermediate cost pools or allocations?
a. step method
b. indirect method
c. algebraic method
d. direct method




  1. Which of the following methods of assigning indirect service department costs recognizes on a partial basis the reciprocal relationships among the departments?
a. step method
b. direct method
c. indirect method
d. algebraic method




  1. The most accurate method for allocating service department costs is the
a. step method.
b. direct method.
c. algebraic method.
d. none of the above.




Diller Corporation has three production departments A, B, and C. Diller Corporation also has two service departments, Administration and Personnel. Administration costs are allocated based on value of assets employed, and Personnel costs are allocated based on number of employees. Assume that Administration provides more service to the other departments than does the Personnel Department.



Direct Costs


Asset Value























  1. Refer to Diller Corporation. Using the direct method, what amount of Administration costs is allocated to A (round to the nearest dollar)?
a. $216,000
b. $150,000
c. $288,000
d. $54,000





  1. Refer to Diller Corporation. Using the step method, what amount of Administration costs is allocated to Personnel (round to the nearest dollar)?
a. $72,973
b. $291,892
c. $145,946
d. $389,189








  1. Refer to Diller Corporation. Using the step method, what amount of Administration costs is allocated to C (round to the nearest dollar)?
a. $389,189
b. $145,946
c. $291,892
d. $72,973




Grant Corporation distributes its service department overhead costs directly to producing departments without allocation to the other service departments. Information for January is presented here.




Overhead costs incurred



Service provided to:
Maintenance Dept.


Utilities Dept.


Producing Dept. A



Producing Dept. B






  1. Refer to Grant Corporation. Assume that Grant Corporation distributes service department overhead costs based on the algebraic method. What would be the formula to determine the total maintenance costs?
a. M = $18,700 + .10U
b. M = $9,000 + .20U
c. M = $18,700 + .30U + .40A + .40B
d. M = $27,700 + .40A + .40B




  1. Which of the following has sales value?


By-products Waste


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




  1. A product may be processed beyond the split-off point if management believes that
a. its marketability will be enhanced.
b. the incremental cost of further processing will be less than the incremental revenue of further processing.
c. the joint cost assigned to it is not already greater than its prospective selling price.
d. both a and b.




  1. All costs that are incurred between the split-off point and the point of sale are known as
a. sunk costs.
b. incremental separate costs.
c. joint cost.
d. committed costs.




  1. For purposes of allocating joint costs to joint products using the relative sales value at split-off method, the costs beyond split-off
a. are allocated in the same manner as the joint costs.
b. are deducted from the relative sales value at split-off.
c. are deducted from the sales value at the point of sale.
d. do not affect the allocation of the joint costs.




Gordon Company produces three products: A, B, and C from the same process. Joint costs for this production run are $2,100.



Sales price

per lb. at



cost per

lb. at




per pound


sales price

per pound






$ 7.50














If the products are processed further, Gordon Company will incur the following disposal costs upon sale: A, $3.00; B, $2.00; and C, $1.00.


  1. Refer to Gordon Company. Using a physical measurement method, what amount of joint processing cost is allocated to Product A (round to the nearest dollar)?
a. $700
b. $679
c. $927
d. $494




  1. Refer to Gordon Company. Using a physical measurement method, what amount of joint processing cost is allocated to Product B (round to the nearest dollar)?
a. $494
b. $679
c. $927
d. $700





  1. Refer to Gordon Company. Using sales value at split-off, what amount of joint processing cost is allocated to Product B (round to the nearest dollar)?
a. $700
b. $416
c. $725
d. $959





  1. Refer to Gordon Company. Using net realizable value at split-off, what amount of joint processing cost is allocated to Product A (round to the nearest dollar)?
a. $706
b. $951
c. $700
d. $444




  1. If a cost is irrelevant to a decision, the cost could not be
a. a sunk cost.
b. a future cost.
c. a variable cost.
d. an incremental cost.



  1. The term incremental cost refers to
a. the profit foregone by selecting one choice instead of another.
b. the additional cost of producing or selling another product or service.
c. a cost that continues to be incurred in the absence of activity.
d. a cost common to all choices in question and not clearly or feasibly allocable to any of them.



  1. The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is
a. the total manufacturing cost of the component.
b. the total variable cost of the component.
c. the fixed manufacturing cost of the component.
d. zero.



  1. In a make or buy decision, the reliability of a potential supplier is
a. an irrelevant decision factor.
b. relevant information if it can be quantified.
c. an opportunity cost of continued production.
d. a qualitative decision factor.



Robertson Corporation sells a product for $18 per unit, and the standard cost card for the product shows the following costs:


Direct material

$ 1

Direct labor


Overhead (80% fixed)






  1. Refer to Robertson Corporation. Robertson received a special order for 1,000 units of the product. The only additional cost to Robertson would be foreign import taxes of $1 per unit. If Robertson is able to sell all of the current production domestically, what would be the minimum sales price that Robertson would consider for this special order?
a. $18.00
b. $11.00
c. $5.40
d. $19.00



  1. Refer to Robertson Corporation. Assume that Robertson has sufficient idle capacity to produce the 1,000 units. If Robertson wants to increase its operating profit by $5,600, what would it charge as a per-unit selling price?
a. $18.00
b. $10.00
c. $11.00
d. $16.60




The Chip Division of Computer Solutions, Inc. produces a high-quality computer chip. Unit production costs (based on capacity production of 100,000 units per year) follow:


Direct material


Direct labor


Overhead (20% variable)


Other information:
Sales price


SG&A costs (40% variable)




  1. Refer to Chip Division of Computer Solutions, Inc.  Assume, for this question only, that the Chip Division is producing and selling at capacity. What is the minimum selling price that the division would consider on a ‘special order’ of 1,000 chips on which no variable period costs would be incurred?
a. $100
b. $72
c. $81
d. $94





  1. Refer to Chip Division of Computer Solutions, Inc. Assume, for this question only, that the Chip Division is operating at a level of 70,000 chips per year. What is the minimum price that the division would consider on a ‘special order’ of 1,000 chips to be distributed through normal channels?
a. $78
b. $95
c. $100
d. $81



  1. Refer to Chip Division of Computer Solutions, Inc. Assume, for this question only, that the Chip Division is presently operating at a level of 80,000 chips per year. Accepting a ‘special order’ on 2,000 chips at $88 will
a. increase total corporate profits by $4,000.
b. increase total corporate profits by $20,000.
c. decrease total corporate profits by $14,000.
d. decrease total corporate profits by $24,000.




  1. The costs of reworking defective units to make them saleable are classified as

A.    appraisal costs                                                 C.    internal failure costs

B.    external failure costs                                       D.    prevention costs

  1. Sales returns and allowances due to a quality deficiency is an example of:

A.    external failure costs                                       C.    internal failure costs

B.   appraisal costs                                   D.   prevention cost

  1. Costs forgone when an individual or organization chooses one option over another are
a. budgeted costs.
b. sunk costs.
c. historical costs.
d. opportunity costs.



  1. Total quality management is inseparable from the concept of
a. ISO certification.
b. centralized organizational structure.
c. continuous improvement.
d. the product life cycle.



  1. The four categories of product quality costs are
a. external failure, internal failure, prevention, and carrying.
b. external failure, internal failure, prevention, and appraisal.
c. external failure, internal failure, training, and appraisal.
d. warranty, product liability, training, and appraisal.



  1. The budgeted amount of selling and administrative expense for a period can be found in the
a. sales budget.
b. cash budget.
c. pro forma income statement.
d. pro forma balance sheet.




  1. Which of the following items would not be found in the financing section of the cash budget?
a. cash payments for debt retirement
b. cash payments for interest
c. dividend payments
d. payment of accounts payable



  1. A master budget contains which of the following?




Pro forma statements


a. yes       yesyes
b. no        no              yes
c. no        nono
d. yes       no              yes



  1. Budgeted sales for the first six months the year for Gibson Corporation are listed below:
















Gibson Corporation has a policy of maintaining an inventory of finished goods equal to 40 percent of the next month’s budgeted sales. How many units has Gibson Corporation budgeted to produce in the first quarter of the year?

a. 21,400 units
b. 20,600 units
c. 19,000 units
d. 23,000 units





  1. Period costs include


distribution costs outside processing costs sales commissions


a. yes                    no                 yes
b. no                     yes                yes
c. no                     nono
d. yes                    yesyes




  1. Plastic used to manufacture dolls is a


prime cost product cost direct cost fixed cost


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



  1. The formula to compute cost of goods manufactured is
a. beginning Work in Process Inventory plus purchases of raw material minus ending Work in Process Inventory.
b. beginning Work in Process Inventory plus direct labor plus direct material used plus overhead incurred minus ending Work in Process Inventory.
c. direct material used plus direct labor plus overhead incurred.
d. direct material used plus direct labor plus overhead incurred plus beginning Work in Process Inventory.



  1. Since overhead costs are indirect costs,
a. they require some process of allocation.
b. they can be easily traced to production.
c. a predetermined overhead rate is not advantageous.
d. they cannot be allocated.




  1. Actual overhead exceeds applied overhead and the amount is immaterial. Which of the following will be true? Upon closing,


Overhead is Cost of Goods Sold will


a. underapplied            increase
b. overapplied              decrease
c. overapplied              increase
d. underapplied            decrease




  1. The source document that records the amount of raw material that has been requested by production is the
a. job order cost sheet.
b. bill of lading.
c. interoffice memo.
d. material requisition.



  1. In a job order costing system, the use of indirect material would usually be reflected in the general ledger as an increase in
a. stores control.
b. work in process control.
c. manufacturing overhead applied.
d. manufacturing overhead control.



  1. A credit to the Manufacturing Overhead control account represents the
a. actual cost of overhead incurred.
b. actual cost of overhead paid this period.
c. amount of overhead applied to production.
d. amount of indirect material and labor used during the period.



  1. In a job order costing system, the subsidiary ledger for Finished Goods Inventory is comprised of
a. all job order cost sheets.
b. job order cost sheets for all uncompleted jobs.
c. job order cost sheets for all completed jobs not yet sold.
d. job order cost sheets for all ordered, uncompleted, and completed jobs.



  1. Debits to Cost of Goods Sold typically represent the
a. transfer of completed items to Finished Goods Inventory.
b. costs of items sold.
c. selling price of items sold.
d. the cost of goods manufactured.



Camden Company has two departments (Processing and Packaging) and uses a job order costing system. Baker applies overhead in Processing based on machine hours and on direct labor cost in Packaging. The following information is available for July:




Machine hours



Direct labor cost



Applied overhead





  1. Refer to Camden Company. What is the overhead application rate per machine hour for Processing?
a. $  0.81
b. $  1.24
c. $17.80
d. $22.00



  1. Refer to Camden Co. What is the overhead application rate for Packaging?
a. $ 0.44
b. $ 2.25
c. $23.00
d. $51.75





  1. Strong Products has no Work in Process or Finished Goods inventories at the close of business on December 31, 20X4. The balances of Strong Products’ accounts as of December 31, 20X4, are as follows:


Cost of goods sold—unadjusted


Selling & administrative expenses




Manufacturing overhead control


Manufacturing overhead applied



Pretax income for 20X4 is:

a. $608,000.
b. $660,000.
c. $712,000.
d. undeterminable from the information given.



  1. The salary or wage that you could be earning while you are taking this test is

a. an opportunity cost.

b. a sunk cost.

c. an incremental cost.

d. a joint cost.

  1. The role of sunk costs in decision making can be summed up in which of the following sayings?

a. Nothing ventured, nothing gained.

b. Bygones are bygones.

c. A penny saved is a penny earned.

d. The love of money is the root of all evil.

  1. Which of the following is a short-term decision in which opportunity costs are not relevant?

a. Make-or-buy decision.

b. Special-order decision.

c. Drop-a-segment decision.

d. None of the above.

  1. An opportunity cost commonly associated with a special order is

a. the contribution margin on lost sales.

b. the variable costs of the order.

c. additional fixed costs related to the increased output.

d. any of the above.

  1. Buchanan Company currently sells 4,000 units of product Q for $1 each. Capacity is 5,000 units. Variable costs are $0.40 and avoidable fixed costs are $400. A chain store has offered $0.80 per unit for 400 units of Q. If Buchanan accepts the order, the change in income will be a

a. $60 decrease.

b. $80 decrease.

c. $160 increase.

d. $480 increase.

  1. Barrie, Inc., produces three products: A, B, and C.  Two machines are used to produce the products.  The contribution margins, sales demands, and time on each machine (in minutes) is as follows:

time      time

Demand    CM       on M1          on M2

A    100      $12         5        10

B      80        18        10         5

C    150        25         5        10


There are 2,400 minutes available on each machine during the week.  How many units should be produced and sold to maximize the weekly contribution?

 A  B C

a. 100  80  150

b.  50  80  150

c.  90   0  150

d. 100  80  100

  1. Bryce Company budgeted sales of 50,000 units for January, 60,000 for February. Bryce Company desires an ending inventory equal to one-half of the following month’s sales needs. Inventory on January 1 was as desired. Budgeted production for January is

a. 22,000 units.

b. 52,000 units.

c. 55,000 units.

d. 74,000 units.


  1. Chetek Company budgeted purchases of 19,000 units. The budgeted beginning inventory was 12,400 units and the budgeted ending inventory was 13,000 units. Budgeted sales were

a. 32,000 units.

b. 31,400 units.

c. 18,400 units.

d. 19,600 units.

  1. Avoidable costs are usually

a. committed.

b. common.

c. direct.

d. fixed.

  1. The cash flow statement does NOT include

a.      cash inflows from the collection of receivables.

b.      cash outflows paid toward raw material purchases.

c.      all sales revenues.

d.      interest paid and received.


  1. For make-or-buy decisions, a supplier’s ability to deliver the item on a timely basis is considered

a.      a qualitative factor.

b.      a relevant cost.

c.      a differential factor.

d.      an opportunity cost.


  1. For make-or-buy decisions, relevant costs include

a.      direct material costs plus direct labor costs.

b.      incremental costs plus opportunity costs.

c.      differential costs plus fixed costs.

d.      incremental costs plus differential costs.


  1. Surveys of employee satisfaction is an example of a balanced-scorecard measure of the

         a.      internal business process perspective.

         b.      customer perspective.

         c.      learning and growth perspective.

         d.      financial perspective.


  1. Riter Corporation manufactures water toys. It plans to grow by producing high-quality water toys at a low cost that are delivered in a timely manner. There are a number of other manufacturers who produce similar water toys. Riter believes that continuously improving its manufacturing processes and having satisfied employees are critical to implementing its strategy.

Riter’s strategy is

         a.      product differentiation.

         b.      downsizing.

         c.      reengineering.

         d.      cost leadership.


  1. Thacker Company has two regional offices. The data for each is as follows:

                                                                           Maryland             New York

                  Revenues                                        $  580,000             $  596,000

                  Operating assets                              4,800,000              9,000,000

                  Net operating income                      2,016,000              4,860,000

                  What is the return on investment for the New York Division?

         a.      0.42.

         b.      0.54

         c.      0.96

         d.      4.12


  1. Which equation describes residual income? (I = investment, N = income, and K = minimum required ROI)

a. N – (K x I)

b. (K x I) – N

c. N/I – K

d. (K x I) – (N/I)


  1. Monrovia Division has net income of $240,000 on sales of $3,200,000. If the investment is $1,600,000 what is asset turnover?

a. 15.0%

b. 7.5%

c. 10.0

d. 2.0

  1. The term standard hours allowed measures
a. budgeted output at actual hours.
b. budgeted output at standard hours.
c. actual output at standard hours.
d. actual output at actual hours.




  1. A large labor efficiency variance is prorated to which of the following at year-end?




Cost of Goods Sold




a.     no              nono
b.     no              yes        yes
c.     yes             no         no
d.     yes             yesyes




  1. When computing variances from standard costs, the difference between actual and standard price multiplied by actual quantity used yields a
a. combined price-quantity variance.
b. price variance.
c. quantity variance.
d. mix variance.



  1. A company wishing to isolate variances at the point closest to the point of responsibility will determine its material price variance when
a. material is purchased.
b. material is issued to production.
c. material is used in production.
d. production is completed.



  1. If actual direct labor hours (DLHs) are less than standard direct labor hours allowed and overhead is applied on a DLH basis, a(n)
a. favorable variable overhead spending variance exists.
b. favorable variable overhead efficiency variance exists.
c. favorable volume variance exists.
d. unfavorable volume variance exists.




  1. The variance most useful in evaluating plant utilization is the
a. variable overhead spending variance.
b. fixed overhead spending variance.
c. variable overhead efficiency variance.
d. fixed overhead volume variance.




  1. The fixed overhead application rate is a function of a predetermined activity level. If standard hours allowed for good output equal the predetermined activity level for a given period, the volume variance will be
a. zero.
b. favorable.
c. unfavorable.
d. either favorable or unfavorable, depending on the budgeted overhead.




McCoy Company has the following information available for October when 3,500 units were produced (round answers to the nearest dollar).


Material 3.5 pounds per unit @ $4.50 per pound
Labor 5.0 hours per unit @ $10.25 per hour
Material purchased 12,300 pounds @ $4.25
Material used 11,750 pounds
17,300 direct labor hours @ $10.20 per hour



  1. Refer to McCoy Company. What is the labor rate variance?
a. $875 F
b. $865 F
c. $865 U
d. $875 U




  1. Refer to McCoy Company. What is the labor efficiency variance?
a. $2,050 F
b. $2,050 U
c. $2,040 U
d. $2,040 F



  1. Refer to McCoy Company. What is the material price variance (based on quantity purchased)?
a. $3,075 U
b. $2,938 U
c. $2,938 F
d. $3,075 F




  1. Refer to McCoy Company. What is the material quantity variance?
a. $2,250 F
b. $2,250 U
c. $225 F
d. $2,475 U




  1. Refer to McCoy Company. Assume that the company computes the material price variance on the basis of material issued to production. What is the total material variance?
a. $2,850 U
b. $5,188 U
c. $5,188 F
d. $2,850 F



  1. A company’s return on investment is affected by a change in


Profit Margin

Asset Turnover

on Sales


a. Yes             Yes
b. Yes             No
c. No              No
d. No              Yes




  1. If a division generates a positive residual income then the division’s
a. asset turnover was very high.
b. profitability was greater than that of other divisions in the company.
c. performance was above expectations.
d. actual return on investment exceeds the division’s target return.




  1. The Cake Division of Bakery Corporation has the following segment information:


Assets available for use


Target rate of return


Residual income

$ 270,000


What was Cake Division’s return on investment?

a. 15%
b. 10%
c. 25%
d. 20%


  1. A factory that makes a part has significant idle capacity.  The factory’s opportunity cost of making this part is equal to:

A.   the variable manufacturing cost per unit.

B.   the fixed manufacturing cost per unit.

C.   the semivariable cost per unit.

D.   the total manufacturing cost per unit.

E.   zero.



  1. All of the following actions will increase ROI except:

A.   an increase in sales revenues.

B.   a decrease in operating expenses.

C.   a decrease in a company’s invested capital.

D.   a decrease in the number of units sold.

E.   an improvement in manufacturing efficiency.



  1. The following information relates to Houston, Inc.:
Total assets


After-tax operating income


Current liabilities


If the company has a 10% weighted-average cost of capital, its economic value added would be:

A.   $(200,000).

B.   $530,000.

C.   $680,000.

D.   $970,000.

E.   some other amount.



  1. Given that ROI measures performance over a period of time, invested capital would most appropriately be figured by using:

A.   beginning-of-year assets.

B.   average assets.

C.   end-of-year assets.

D.   total assets.

E.   only current assets.



  1. Common costs:

A.   arenot easily related to a segment’s activities.

B.   areeasily related to a segment’s activities.

C.   are charged to the operating segments of a company.

D.   are not charged to the operating segments of a company.

E.   are best described by characteristics ‘A’ and ‘D’ above.



  1. Which of the following is not a cost of quality?

A.   External failure cost.

B.   Internal failure cost.

C.   Production inefficiency cost.

D.   Prevention cost.

E.   Appraisal cost.





[i] .     Answer:  D

b = (853.560 – 723,060) ÷ (540,000 – 450,000)

130,500 ÷ 90,000                                                                                                    P 1.45


a = 853,560 – (540,000 x 1.45)                                                                      P  70,560


Y = 70,560 + 1.45b

= 70,560 + (470,000 x 1.45)                                                                            P752,060


[ii] .     Answer:  B

Variable Rate =

= 0.8333


Fixed : 61,000 – (34,000 x .8333)= 32,677


[iii].    Answer:  D

Required pounds by production                                                                                180,000

Ending raw materials required                                                                                     60,000

Beginning raw materials                                                                                            ( 30,000)

Budgeted purchases                                                                                                   210,000


[iv].    Answer:  B

October 90,000 x .95                                                                                                 P  85,500

November  100,000 x .85                                                                                              85,000

December   85,000 x .70                                                                                               59,500

Fourth quarter sales collected in fourth quarter                                                   P230,000


[v].     Answer:  B

The optimal transfer price is P4 per unit, which represents the value of using the black steel in the Builders Division because the black steel will cost P2 to manufacture and each unit used internally is a unit that cannot be sold to external buyers. If an intermediate market exists, the optimal transfer price is the market price.


[vi].    Answer:  A

The actual cost is the sum of unit variable cost plus fixed cost divided by actual units produced.

50 + (8000 ÷ 200) = P90


[vii].   Answer:  C

Variable cost                                                                                                                               P  50

Markup  (P50 x 1.3)                                                                                                                        65

Transfer price                                                                                                                             P115


[viii].  Answer:  D

Budgeted full cost                         P40 + (P8,000 ÷ 100)                                                      P120

Markup                                                            (P120 x 0.3)                                                           36

Transfer price                                                                                                                             P156


[ix] .    Answer:  C

The company’s degree of operating leverage is determined as follows:

Degree of operating leverage = Contribution margin ÷ Net income

Degree of operating leverage = P600,000 ÷ P240,000 = 2.50


[x] Answer:  A

CMR               = Fixed cost/Sales

= 100,000/800,000 = 12.50%


Profit               = (1,200,000 – 800,000)0.125          P50,000


The amount of sales that provides profit should be the sales revenues above the break even sales.


Alternative solution:

Total contribution margin 1,200,000 x 0.125                                               P150,000

Fixed costs                                                                                                            100,000

Profit                                                                                                                     P  50,000


[xi] .    Answer: A

Margin of safety in peso sales = Budgeted sales – Breakeven sales

Margin of safety = P1M – P.7M                                                                       P300,000


[xii].   Answer:  D

Total number of hours:  (1,000 x 3) + (3,000 x 1)                                                           6,000

Overhead cost per hour  (P360,000 ÷ 6,000)                                                                 P   60

Overhead charged per unit of product A:  3 hrs. x P60                                                  P180


[xiii].  Answer:  D

Applied overhead                                38,000 x P2                                                   P76,000

Actual overhead                                                                                                              82,000

Underapplied overhead                                                                                                P6,000


Overhead rate per direct labor hour        (P800,000 ÷ 400,000)                                     P2.00


[xiv].   Answer:  B

Materials cost (2,500 x P10)                                                              P25,000

Conversion cost  (2,500 x 0.4 x P30)                                                 30,000

Total costs of Work in Process                                                         P55,000


[xv].    Answer:  C

Equivalent units for April


Less: EU – started and completed during:


      Work-in-process,  end
                (24,000 x 3)



Equivalent units  – work-in-process end Mar 31


Number of units in process as of
        March 31         6,800 ¸ 40



[xvi].   Answer:  A

Equivalent units – FIFO                                                                                                 64,000

Add equivalent units in March 31 (17,000 x .6)                                                         10,200

Weighted Average EUP                                                                                                74,200