1

MD Santos Corporation's 200A manufacturing costs were as follows:

Prime costs P560,000

Variable manufacturing overhead costs 80,000
Straight-line depreciation of factory building and equipment 60,000
Factory supervisor's salary (P8,000 per month) 96,000
Other fixed factory overhead 40,000

What amount should be considered product cost for external reporting purposes?

(1 Point)

Error! Filename not specified.

P836,000

P196,000

P640,000

P680,000

Aaron finishes the product, they will incur P75,000 of additional material costs and another
P15,000 in labor and overhead costs. When finished, Aaron will be able to sell the product for
P350,000.

Which of the following answers is correct?

(1 Point)

Error! Filename not specified.

Finish the product because profits will increase by P10,000

Finish the product because profits will increase by P25,000

Finish the product because profits will increase by P12,500

Sell now

During January 200A, Liquigan, Inc. produced 1,000 units of Product A with costs as follows:

Materials P6,000
Labor 3,300
Variable factory overhead 2,500
Fixed factory overhead 1,500
Total manufacturing costs P13,300

Selling and administrative costs incurred during the month were:

Variable selling and administrative P3,000
Fixed selling and administrative 2,000
P5,000

Selling price per unit P20.00

Liquigan, Inc. uses the JIT system. It does not keep inventories in stock.

Under absorption costing, income for January 200A was

(1 Point)

P5,200.

P8,200.

P6,700.

P1,700.

(1 Point)

Genevieve Co - 125,000 units ; Odessa Co. - 134,615.38 units

Genevieve Co - 20,000 units ; Odessa Co. - 36,400 units

Genevieve Co - P20,000 ; Odessa Co. - P36,400

Genevieve Co - P125,000 ; Odessa Co. - P134,615.38

A company prepares income statement's using both the absorption and variable costing methods.
During the year, the income amounts under the two methods are not equal. The difference in
Income figures could have been due to the following, except

(1 Point)

a change in the finished goods inventory

a change in the selling price of the products

an excess of production volume over sales volume.

an excess of sales volume over production volume

A calculation used in CVP analysis is the break-even point. At this point, total revenue equals total
costs. Beyond the break-even point, operating income will increase by the

(1 Point)

gross profit per unit for each additional unit.

selling price per unit for each additional unit.

contribution margin per unit for each additional unit.

variable cost per unit for each additional unit.

CVP analysis may be used by managers in planning and decision making, which may involve the
following, except

(1 Point)

choosing the pricing policy to follow

choosing the type of product to produce and sell

choosing the type of productive facilities to acquire.

choosing the analytical technique to use

During the month of May, Vinarao Corp. produced and sold 12,000 units of a product.
Manufacturing and selling costs incurred during May were:

Direct materials and direct labor P480,000

Variable factory overhead 108,000
Fixed factory overhead 24,000
Variable selling costs 12,000

The product's unit cost under absorption costing was

(1 Point)

P52

P49

P51
P50

The conventional break-even chart adopted by businessmen and accountants does not take for
granted that

(1 Point)

the sales mix ratio of the products being sold changes within the relevant range.

some costs are semi-variable.

there is a significant amount of change in inventories.

production is not equal to sales

10

Which of the following statements is correct?

(1 Point)

Gross margin and contribution margin are the same.

Unit variable costs change directly with the cost driver or activity level.

One inherent, simplifying assumption in CVP analysis is that production equals sales

Contribution margin is the excess of sales over variable costs, and this is the amount available for the
recovery of fixed assets and generation of profit.

11

Management may use CVP analysis to determine the relative profitability of a product by

(1 Point)

controlling the physical production of the products.

keeping all costs to an absolute minimum.

determining the unit contribution margin and the projected profits at various levels of production

assigning costs to a product in such a way that the contribution margin is maximized.

12

It involves a systematic examination of the relationships among costs, cost driver, and profit

(1 Point)

Profit planning

Cost-benefit analysis
Cost-volume-profit analysis

Financial statement analysis

13

Income under absorption costing may differ from income under variable costing. The difference in
income between the two costing methods is equal to the change in the quantity of all units

(1 Point)

in inventory multiplied by the fixed factory overhead cost per unit.

produced multiplied by the variable manufacturing cost per unit

sold multiplied by the selling price per unit.

sold multiplied by the fixed factory overhead cost per unit

14

Which of the following statements regarding absorption and variable costing is correct?

(1 Point)

Overhead costs are treated in the same manner under both variable and absorption costing
methods.

Variable manufacturing costs are lower under absorption costing.

Profits are always the same under the two costing methods.

Absorption costing results in higher income when finished goods inventory increases

15

Which of the following is not correct?

At break-even,

(1 Point)

profit equals zero.

sales equals total costs.

gross profit equals zero.

fixed costs equals contribution margin

16

MNL Company has an opportunity to acquire a new machine to replace one of its present
machines. The new machine would cost P90,000, have a 5-year life and no estimated salvage
value. Variable operating costs would be P100,000 per year. The present machine has a
book value of P50,000 and a remaining life of 5 years. Its disposal value now is P5,000, but it
would be zero after 5 years. Variable operating costs would be P125,000 per year. Ignore
income taxes. Considering the 5 years in total, what would be the difference in profit before
income taxes by acquiring the new machine as opposed to retaining the present one?

(1 Point)

P40,000 increase

P15,000 decrease

P35,000 increase

P10,000 decrease

17

The elements of CVP analysis include the following, except

(1 Point)

relevant costs

unit variable cost

total fixed costs

volume or number of units

18

In CVP analysis, it is assumed that

(1 Point)

cost and revenue relationships are predictable and linear over any range of activity

all costs are classifiable as either direct or indirect costs.

total fixed costs are constant over the relevant range, but fixed costs per unit vary directly with the
cost driver or volume.

selling prices per unit and market conditions remain unchanged.

19

It is the excess of sales price over the related variable cost, contributing to the recovery of fixed
expenses

(1 Point)

Gross profit
Gross margin

Margin of safety

Contribution margin

20

During January 200A, Liquigan, Inc. produced 1,000 units of Product A with costs as follows:

Materials P6,000
Labor 3,300
Variable factory overhead 2,500
Fixed factory overhead 1,500
Total manufacturing costs P13,300

Selling and administrative costs incurred during the month were:

Variable selling and administrative P3,000
Fixed selling and administrative 2,000
P5,000

Selling price per unit P20.00

Liquigan, Inc. uses the JIT system. It does not keep inventories in stock.

What amount should be considered product cost for external reporting purposes?

(1 Point)

P11.80

P13.30

P14.80

P18.30

21

Sensitivity analysis, when used in cost-volume-profit analysis,

(1 Point)

is done through various possible scenarios and determines the effect of the cost accounting systems
used in each scenario.

allows the decision-maker to introduce probabilities in the evaluation of decision alternatives

Is done through various possible scenarios and computes the impact on profit of various predictions
of future events
allows managers to study how total fixed costs vary with cost drivers.

22

Cost-volume-profit relationships that are curvilinear may be analyzed linearly by considering only

(1 Point)

the variable costs.

a relevant range of activity.

the relevant costs.

the fixed costs

23

The margin of safety is a key concept of CVP analysis. Which of the following is not a correct
description of margin of safety?

(1 Point)

Its presence means that the company earns profit.

It is the amount of sales which may be reduced without resulting into a loss.

It is the difference between budgeted sales and break-even sales.

It may be expressed in terms of units or in pesos.

24

The alternative that would increase the contribution margin per unit the most is a

(1 Point)

10% increase in selling price.

10% decrease in unit variable cost.

10% decrease in selling price.

10% decrease in fixed costs.

25

The inventory costing method that treats direct manufacturing costs and indirect manufacturing
costs, both variable and fixed, as Inventoriable costs is called

(1 Point)

variable costing.

perpetual inventory.
conversion costing.

absorption costing.

26

In a contribution income statement

(1 Point)

fixed and variable manufacturing costs are combined as one level item.

fixed costs are shown separately from variable costs.

costs are classified as to function

fixed manufacturing costs are shown separately from variable manufacturing costs, but fixed and
variable operating costs are combined as one line item.

27

Which of the following qualitative factors favors the buy choice in a make or buy decision for a
part?

(1 Point)

utilization of idle capacity

quality control is critical

part is critical to product

maintaining a long-term relationship with suppliers

28

What costs are treated as product cost under variable costing?

(1 Point)

Only variable production costs

All manufacturing costs

All variable costs

All direct costs only

29

On the variable costing income statement, the difference between the "contribution margin" and
"income before income tax" is equal to

(1 Point)
the total operating expenses

fixed selling and administrative expenses

the total variable costs

the total fixed costs

30

Which of the following statements is not correct?

(1 Point)

All other factors remaining constant, a 10% decrease in the selling price of a given product will have
the same effect on profit as a 10% increase in the unit variable cost of such product.

A change in the amount of fixed costs will not affect the ratio of variable costs to sales.

Other things as they are, a P10,000 decrease in fixed costs will increase operating profit by the same
amount.

A change in fixed costs has no effect on the contribution margin.

31

If production is less than sales (in units), then absorption costing net income will generally be

(1 Point)

greater than variable costing net income.

less than variable costing net income.

equal to variable costing net income.

less than expected

32

It is the level of output or sales at which total revenues equal total costs, that is, the point at which
operating income is zero.

(1 Point)

Order point

Indifference point

Sangley point

Break-even point

33
Which of the following statements is correct?

(1 Point)

In a variable costing income statement, sales revenue is typically higher than in absorption costing
income statement.

When production is not equal to sales, income under absorption costing differs from income under
variable costing due to the difference in treatment (product cost and period cost) of the fixed
overhead cost under the two costing methods.

In a variable costing system, fixed overhead cost is included as part of the cost of inventory.

In an absorption costing system, fixed overhead cost is treated as a period cost

34

Which of the following must be known about a production process to institute a variable costing
system?

(1 Point)

The variable and fixed components of manufacturing costs

The direct and indirect costs related to production

The capacity level or denominator level to be used in allocating fixed overhead costs

Standard quantities and prices for all production inputs

35

Almeda's Shop can make 1,000 units of a necessary component with the following costs:
Direct Materials P64,000
Direct Labor 16,000
Variable Overhead 8,000
Fixed Overhead ?

The company can purchase the 1,000 units externally for P104,000. None of Almeda
Company's fixed overhead costs can be reduced, but another product could be made that
would increase profit contribution by P16,000 if the components were acquired externally. If
cost minimization is the major consideration and the company would prefer to buy the
components, what is the maximum external price that Almeda Company would be willing to
accept to acquire the 1,000 units externally?

(1 Point)

P 86,000

P110,000.
P 96,000.

P104,000.

36

What would income be if variable costing were used?

(1 Point)

Equal to income under absorption costing because that should always be the case.

An amount greater than that under absorption costing because production is equal to sales.

Equal to income under absorption costing because the total fixed overhead costs expensed under
both methods are the same.

An amount less than that under absorption costing because there is no change in inventory.

37

During January 200A, Liquigan, Inc. produced 1,000 units of Product A with costs as follows:

Materials P6,000
Labor 3,300
Variable factory overhead 2,500
Fixed factory overhead 1,500
Total manufacturing costs P13,300

Selling and administrative costs incurred during the month were:

Variable selling and administrative P3,000
Fixed selling and administrative 2,000
P5,000

Selling price per unit P20.00

Liquigan, Inc. uses the JIT system. It does not keep inventories in stock.

What is the product cost per unit under variable costing?

(1 Point)

P11.80

P18.30

P14.80

P13.30
38

Net income computed using absorption costing can be reconciled to net income computed using
variable costing by computing the difference between

(1 Point)

the gross profit under absorption costing and contribution margin under variable costing

inventoried fixed factory overhead costs in the beginning and ending finished goods inventories.

the selling prices under the two costing methods.

the product costs per unit under the two costing methods.

39

The assumptions under which CVP analysis operates primarily hinge on certainty. However, when
uncertainty enters the situation, the results may not be so clear. In this case, the MAS consultant
should

(1 Point)

ascertain the probabilities of various outcomes and work with management on understanding those
probabilities in reference to the CVP decision.

use a sample from the entire population of data to generate a decision model and make the decision
for management.

refer the case to another consultant who is an expert in making accurate predictions.

do nothing. It is not the MAS consultant's responsibility to be concerned with the uncertainty of the
results and/or assumptions

40

Which of the following would most likely decrease the product per unit under variable costing?

(1 Point)

A decrease in the commission paid to salesmen for each unit sold

A decrease in the remaining useful life of a factory equipment depreciated using the straight line
method

An increase in the number of units sold

An increase in the remaining useful life of a factory equipment depreciated on the units-of-
production method

41

Which of the following is described as data that are pertinent to a decision?

(1 Point)

timely information

relevant information

qualitative characteristic

qualitative characteristic

42

Which of the following costs is relevant in deciding whether to sell joint products at split-off or
process them further

(1 Point)

The unavoidable costs of further processing.

The variable costs of operating the joint process.

The additional costs of further processing.

The cost of materials used to make the joint products.

43

Sylvan Processing Company is considering whether to make 2,000 units of product Whirl which
costs P16 a unit or buy it from outside for P15 a unit. A further analysis shows that if product
Whirl is outsourced, fixed costs of P8,000 attributable to this product will be reduced by 25 . If
Sylvan Processing Company purchased the product Whirl, the space could be rented out for
P6,000. If the product is outsourced, profit would

(1 Point)

increase, P4,000

decrease, P4,000

decrease, P2,000

decrease, P4,000

44

Haribon Company is faced with a make-or-buy decision. Haribon should agree to buy the part
from a supplier provided the price is less than Haribon’s

(1 Point)

total costs

total manufacturing costs

variable costs

variable production costs plus avoidable fixed production costs

45

Which of the following statements is true?

(1 Point)

Depreciation expense is always a period cost.

Income under absorption costing is always greater than income under variable costing.

Depreciation expense is always a product cost.

Selling and administrative costs, whether variable or fixed, is always treated as period costs under
both the absorption and variable costing systems.

46

What costs are treated as product cost under variable costing?

(1 Point)

All variable costs

Only variable production costs

All manufacturing costs

All direct costs only

47

Which of the following statements is incorrect?

(1 Point)

Using absorption costing, fixed manufacturing overhead costs are best described as indirect product
cost.

In a variable costing income statement, variable selling and administrative expenses are used both in
the computation of contribution margin and operating income.

When using a variable costing system, the contribution margin (CM) discloses the excess of revenues
over variable costs.

In an income statement prepared as an internal report using the variable costing method, fixed FOH
is used in the computation of operating income and contribution margin.

48
Which of the following statements is not correct?

All other things remaining the same,

(1 Point)

equal peso increases in both the selling price and variable cost per unit will cause the break-even
point in units to remain unchanged.

equal peso increases in both the selling price and variable cost per unit will cause the break-even
point in pesos to remain unchanged.

equal percentage increases in both the selling price and variable cost per unit will cause the break-
even point in sales pesos to remain unchanged.

equal percentage increases in both the selling price and variable cost per unit will cause the
contribution margin ratio to remain unchanged.

49

(1 Point)

P125,000.

P134,615.38

P166,666.67

P129,807.69

50

Which of the following changes in cost-volume-profit factors will reduce the break-even point?

(1 Point)

An increase in unit variable cost.

A decrease in selling price.

An increase in total fixed costs.

A decrease in total fixed costs

51

One of the major assumptions limiting the reliability of break-even analysis is that

(1 Point)

productive efficiency will increase as more units are produced.

changes in inventory are significant in amount.

unit variable costs and total fixed costs will vary directly with the change in units sold.

there is a relevant range in which the various relationships are true for a given period of time.

52

Question

(1 Point)

variable (direct) costing

absorption (full) costing

job-order costing.

process costing.

53

If a firm uses variable costing,

(1 Point)

its profits fluctuate with sales.

its product cost per unit changes because of number of units produced.

it calculates an idle facility variation.

its product costs include variable selling and administrative costs.

54

Cost-volume-profit analysis is most essential in the determination of the

(1 Point)

relationship between revenues and costs at various levels of operations.

volume of operation in order to break-even

production level that is equal to sales.

variable costs necessary to equal fixed costs.

55

A company prepares income statement: using both absorption and variable costing methods. At the
end of the period, a comparison of actual and budgeted results revealed that the actual net income
was substantially above the budgeted net income, although actual sales, gross margin, and
contribution margin approximated the budgeted figures. There were no beginning or ending
inventories during the period. The most likely explanation of the increase in net income is that,
compared to budget, actual

(1 Point)

variable costs was lower.

selling price was higher.

fixed factory overhead costs was lower.

fixed selling and administrative costs was lower.

56

If there is excess capacity, the minimum acceptable price for a special order must cover

(1 Point)

variable costs and incremental fixed costs associated with the special order plus the contribution
margin usually earned on regular units.

variable and incremental fixed costs associated with the special order.

variable costs associated with the special order.

variable and fixed manufacturing costs associated with the special order.

57

During the month of May, Vinarao Corp. produced and sold 12,000 units of a product.
Manufacturing and selling costs incurred during May were:

Direct materials and direct labor P480,000

Variable factory overhead 108,000
Fixed factory overhead 24,000
Variable selling costs 12,000

The product's unit cost under variable costing was

(1 Point)

P50

P52

P49

P51

58
During January 200A, Liquigan, Inc. produced 1,000 units of Product A with costs as follows:

Materials P6,000
Labor 3,300
Variable factory overhead 2,500
Fixed factory overhead 1,500
Total manufacturing costs P13,300

Selling and administrative costs incurred during the month were:

Variable selling and administrative P3,000
Fixed selling and administrative 2,000
P5,000

Selling price per unit P20.00

Liquigan, Inc. uses the JIT system. It does not keep inventories in stock.

What is the variable cost per unit for purposes of computing the contribution margin?

(1 Point)

P13.30

P18.30

P14.80

P11.80

59

Two or more manufactured products that have significant sales values and are not uniquely
identifiable as individual products until the split-off point are called

(1 Point)

joint products.

cooperative products.

co-mingled product

common products.

60

Under variable costing, all fixed costs are expensed during the current period because

(1 Point)
fixed costs are usually immaterial in amount.

allocation of fixed costs is usually done arbitrarily and could lead to erroneous decision by
management.

fixed costs are incurred whether or not there is production, so it is not proper to allocate these costs
to production and defer a current cost of doing business.

fixed costs are non-controllable costs.

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