MIDTERM EXAM_BSAIS 2A (STRATEGIC COST MANAGEMENT 2019-2020, CABRERA)

1. Under variable costing, fixed manufacturing overhead is:

a. Carried in a liability account
b. Carried in an asset account
c. Ignored
d. Immediately charged against sales as a period cost.
2. Which one of the following statements is true for a firm that uses variable costing?
a. The unit product cost changes because of changes in the number of units manufactured.
b. Profit fluctuates with sales.
c. Any underapplied overhead is calculated into the product cost
d. Product costs include variable administration costs.
3. A principal difference between variable costing and absorption costing centers on:
a. Whether variable manufacturing costs should be included as product costs.
b. Whether fixed manufacturing costs should be included as product costs.
c. Whether fixed manufacturing costs and fixed selling and administrative costs should be included
as product costs.
d. None of these

4. Under variable costing:

a. Net income will tend to move upward and downward in response to changes in levels of
production.
b. Inventory costs will always be lower than under absorption costing.
c. Net income will tend to vary inversely with production changes.
d. Net income will always be higher than under absorption costing.

5. When sales are constant, but the production level fluctuates, net income determined by the variable
costing method will:
a. Fluctuate in direct proportion to changes in production.
b. Remain constant
c. Fluctuate inversely with changes in production.
d. Be greater than net income under absorption costing.
6. Manga, Inc. manufactured 700 units last year. The ending inventory consisted of 100 units. There
was no beginning inventory. Variable manufacturing costs were P6.00 per unit and fixed
manufacturing costs were P2.00 per unit. What would be the change in the peso amount of ending
inventory if variable costing was used instead of absorption costing?
a. P800 decrease c. P0
b. P200 decrease d. P200 increase
7. Variable production costs are P12 per unit and variable selling and administrative expenses are P3
per unit. Fixed manufacturing overhead totals P36,000 and fixed selling and administration
expenses total P40,000. Assuming a beginning inventory of zero, production of 4,000 units and sales
of 3,600 units, the peso value of the ending inventory under variable costing would be:
a. P4,800 c. P6,000
b. P8,400 d. P3,600
8. The following data pertain to last year’s operations at HP Corp:
Units in beginning inventory 0
Units produced 20,000
Units sold 19,000

Selling price per unit P100

Variable costs per unit:

Direct materials P12
Direct labor 25
Variable manufacturing OH 3
Variable selling and admin 2
 Fixed costs per year:
Fixed manufacturing overhead P500,000
Fixed selling and administrative 600,000

What was the variable costing net income last year?

a. P12,000 c. P2,000
b. P57,000 d. P27,000

9. Last year, Mayumi Company had income of P40,000 using variable costing. Beginning and ending
inventories were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost
was P3.00 per unit, what was the income using absorption costing?
a. P15,000 c. P40,000
b. P25,000 d. P55,000

10. The following data pertain to last year’s operations at Lois, Incorporated:
Units in beginning inventory 0
Units produced 100,000
Units sold 98,000
Selling price per unit P10
Variable costs per unit:
Direct materials P1.50
Direct labor 2.50
Variable manufacturing overhead 1.00
Variable selling and administrative 2.00

Fixed costs per year:

Fixed manufacturing overhead P200,000
Fixed selling and administrative 50,000

What was the absorption costing net income last year?

a. P44,000 c. P50,000
b. P48,000 d. P49,000

CVP – CMA reviewer:

11. Product A accounts for 75% of a company’s total sales revenue and 60% of its variable costs. Product
B accounts for 25% of total sales revenue and 85% of variable costs. What is the breakeven point
given fixed costs of P150,000?
a. P375,000 c. P500,000
b. P444,444 d. P545,455
12. BE&H Manufacturing is considering dropping a product line. It currently produces a multipurpose
woodworking clamp in a simple manufacturing process that uses special equipment. Variable costs
amount to P6.00 per unit. Fixed overhead costs, exclusive of depreciation, have been allocated to
this product at a rate of P3.50 a unit and will continue whether or not production ceases.
Depreciation on the special equipment amounts to P20,000 a year. If production of the clamp is
stopped, the special equipment can be sold for P18,000; if production continues, however, the
equipment will be useless for further production at the end of 1 year and will have no salvage value.
The clamp has a selling price of P10 a unit. Ignoring tax effects, the minimum number of units that
would have to be sold in the current year to break even on a cash flow basis is
a. 4,500 units c. 20,000 units
b. 5,000 units d. 36,000 units
13. For Number 13 and 14. Dephi Company has developed a new project that will be marketed for the
first time during the next fiscal year. Although the Marketing Department estimates that 35,000
 units could be sold at P36 per unit, Dephi’s management has allocated only enough manufacturing
capacity to produce a maximum of 25,000 units of the new product annually. The fixed costs
associated with the new product are budgeted at P450,000 for the year, which includes P60,000 for
depreciation on new manufacturing equipment.
Data associated with each unit of product are presented below. Dephi is subject to a 40% income
tax rate.
Variable Costs
Direct materials P7.00
Direct labor 3.50
Manufacturing overhead 4.00
Total variable manufacturing cost P14.50
Selling expenses 1.50
Total Variable cost P16.00
The maximum after-tax profit that can be earned by Delphi Company from sales of the new
product during the next fiscal year is:
a. P30,000 c. P110,000
b. P50,000 d. P66,000
14. Using No. 13 information, Dephi Company’s management has stipulated that it will not approve the
continued manufacture of the new product after the next fiscal year unless the after-tax profit is at
least P75,000 the first year. The unit selling price to achieve this target profit must be at least
a. P37.00 c. P34.60
b. P36.60 d. P39.00
15. For Number 15, 16 & 17. Bruell Electronics Co. is developing a new product, surge protectors for
high-voltage electrical flows. The cost information in the opposite column relate to the product:
Unit Costs
Direct materials P3.25
Direct labor P4.00
Distribution .75
The company will also be absorbing P120,000 of additional fixed costs associated with this new
product. A corporate fixed charge of P20,000 currently absorbed by other products will be allocated to
this new product.
If the selling price is P14 per unit, the breakeven point in units (rounded to the nearest hundred) for
surge protectors is
a. 8,500 units c. 15,000 units
b. 10,000 units d. 20,000 units
16. Using information in No. 15, How many surge protectors (rounder to the nearest hundred) must
Bruell Electronics sell at a selling price of P14 per unit to gain P30,000 additional income before
taxes?
a. 10,700 units c. 20,000 units
b. 12,100 units d. 25,000 units
17. Using information in No. 15, How many surge protectors (rounder to the nearest hundred) must
Bruell Electronics sell at a selling price of P14 per unit to increase after-tax income by P30,000?
Bruell Electronics’ effective income tax rate is 40%.
a. 10,700 units c. 20,000 units
b. 12,100 units d. 28,300 units
18. This is for No. 18, 19 and 20. Siberian Ski Company recently expanded its manufacturing capacity,
which will allow it to produce up to 15,000 pairs of cross-country skis of the mountaineering model
or the touring model. The Sales Department assures management that it can sell between 9,000
pairs and 13,000 pairs of either product this year. Because the models are very similar, Siberian Ski
will produce only one of the two models.
The following information was complied by the Accounting Departmen:
Per Unit (Pair) Data
Mountaineering Touring
Selling price P88.00 P80.00
 Variable costs P52.80 P52.80
Fixed costs will total P369,600 if the mountaineering model is produced but will be only P316,800 if
the touring model is produced. Siberian Ski is subject to a 40% income tax rate.
The total sales revenue at which Siberian Ski Company would make the same profit or loss
regardless of the ski model it decide to produce is
a. P880,000 c. P924,000
b. P422,400 d. P686,400

19. Using Information in No. 18, If the Siberian Ski Company Sales Department could guarantee the
annual sale of 12,000 pairs of either model, Siberian Ski would
a. Produce 12,000 pairs of touring skis because the have a lower fixed cost.
b. Be indifferent as to which model is sold because each model has the same variable cost per
unit.
c. Produce 12,000 pairs of mountaineering skis because they have a lower break even point.
d. Produce 12,000 pairs of mountaineering skis because they are more profitable.

20. If Siberian Ski Company desires an after tax net income of P24,000, how many pairs of touring model
skis will the company have to sell?
a. 13,118 pairs c. 13,853 pairs
b. 12,529 pairs d. 4,460 pairs

Relevant costing (Strategic Cost Management 2019-2020, Cabrera)

21. Which of the following costs are always irrelevant in decision making?
a. Avoidable costs c. opportunity costs
b. Sunk costs d. fixed costs
22. The acceptance of a special order will improve overall net operating income so long as the revenue
from the special order exceeds:
a. The contribution margin on the order
b. The incremental costs associated with the order
c. The variable costs associated with the order
d. The sunk costs associated with order
23. In a make or buy decision
a. Only the variable costs are relevant
b. Only the fixed costs are relevant
c. Both the variable costs and the fixed costs which will continue regardless of the decision are
relevant
d. Both the variable costs and the fixed costs which are avoidable are relevant
24. Which of the following best describes an opportunity cost?
a. It is a relevant cost in decision making, but it is not part of the traditional accounting records.
b. It is not a relevant cost in decision making, but is part of the traditional accounting records.
c. It is a relevant cost in decision making, and is part of the traditional accounting records.
d. It is not a relevant cost in decision making, and is not part of the traditional accounting records.
25. In a sell or process further decision, consider the following costs:
I. A variable production cost incurred prior to split-off.
II. A variable production cost incurred after split off.
III. An avoidable fixed production cost incurred after split-off.
Which of the above costs is/are not relevant in a decision regarding whether the product should be
processed further?
a. Only I c. Only I and II
b. Only III d. Only I and III
26. Kala Company prepared the following tentative forecast concerning product A for 20X3.
Sales P500,000
Selling price per unit P5.00
Variable costs P300,000
Fixed costs P150,000

Study made by the sales manager disclosed that the unit selling price could be increased by 20%,
with an expected volume decrease of only 10%. Assuming that Kala incorporates these changes in its
20X3 forecast, what should be the operating income from product A?
a. P66,000 c. P120,000
b. P90,000 d. P145,000

27. Wiggle Company sells Product A at a selling price of P21 per unit. Wiggle’s cost per unit based on
the full capacity of 200,000 units is as follows:
Direct materials P4
Direct labor 5
Overhead (2/3 of which is fixed) 6
P15
A special order affecting to buy 20,000 units was received from a foreign distributor. The only
selling costs that would be incurred on this order would be P3 per unit for shipping. Wiggle has
sufficient existing capacity to manufacture the additional units. In negotiating a price for the special
order, Wiggle should consider that the minimum selling price per unit should be
a. P14 c. P16
b. P15 d. P18

28. Plainfield Company manufactures Part G for use in its production cycle. The costs per unit for
10,000 units for Part G are as follows:
Direct materials P3
Direct labor 15
Variable overhead 6
Fixed overhead 8
P32
Verona Company has offered to sell Plainfield 10,000 units of Part G for P30 per unit. If
Plainfield accepts Verona’s offer, the released facilities could be used to save P45,000 in relevant costs in
the manufacture of Part H. In addition P5 per unit of the fixed overhead applied to Part G would be
totally eliminated. What alternative is more desirable and by what amount is it more desirable?
Alternative Amount
a. Manufacture P10,000
b. Manufacture 15,000
c. Buy 35,000
d. Buy 65,000

29. Relic Corp. manufactures batons. Relic can manufacture 300,000 batons a year at a variable cost of
P750,000 and a fixed cost of P450,000. Based on Relic’s predictions, 240,000 batons will be sold at
the regular price of P5.00 each. In addition, a special order was placed for 60,000 batons to be sold
at a 40% discount off the regular price. By what amount would income before taxes be increased or
decreased as a result of the special order?
a. P60,000 decrease c. P36,000 increase
b. P30,000 increase d. P180,000 increase
30. Zach Company produces and sells 8,000 units of Product X each year. Each unit of Product X sells for
P10 and has a contribution margin of P6. It is estimated that if Product X is discontinued , P50,000
of the P60,000 in fixed costs charged to Product X could be eliminated. These data indicate that if
Product X is discontinued, overall company operating income should:
a. Increase by P2,000 per year.
b. Decrease by P2,000 per year.
c. Increase by P38,000 per year.
d. Decrease by P38,000 per year.