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GARCIA COLLEGE OF TECHNOLOGY

ACCTG 7
FINAL EXAMINATION

I. THEORY (2 points each) – NO ERASURES.

1. Cost-volume-profit analysis is a key factor in many decisions, including choice of product lines, pricing of
products, marketing strategy, and use of productive facilities. A calculation used in a CVP analysis is the
breakeven point. Once the breakeven point has been reached, operating income will increase by the
a. Gross margin per unit for each additional unit sold.
b. Contribution margin per unit for each additional unit sold.
c. Variable costs per unit for each additional unit sold.
d. Sales price per unit for each additional unit sold.
2. Which of the following statements is correct?
a. The direct cost of a particular department is always a controllable cost.
b. Responsibility accounting identifies costs, revenues, and even capital investments with individuals, e.g.,
managers, and thus provides for more control and evaluation of performance.
c. All managers within an organization have equal authority and responsibility.
d. Internal reports prepared under the responsibility accounting systems should be limited to variable
manufacturing costs.
3. Which method of inventory costing treats direct manufacturing costs and manufacturing costs, both variable
and fixed, as inventoriable costs?
a. direct costing c. absorption costing
b. variable costing d. conversion costing
4. Capital budgeting can be defined as the process of:
a. planning and evaluating proposals for investment in plant assets.
b. determining the amounts of capital that will be needed for plant operations.
c. preparing the cash budget for the year.
d. limiting monthly cash expenditures to the amount of monthly cash receipts.
5. If a company converted a short-term note payable into a long-term note payable, this transaction would
a. decrease only working capital
b. decrease both working capital and the current ratio
c. increase only working capital
d. increase both working capital and the current ratio
6. Which of the following is not an advantage of using a standard cost system:
a. Eliminate the need for analysis of variances.
b. Facilitates establishing an effective system of responsibility accounting.
c. Requires an analysis of all aspects of operations.
d. Helps management control costs.
7. Controllers are ordinarily concerned with
a. Investor relations c. Short-term financing
b. Credit extension and collection of bad debts d. Preparation of tax returns
8. As a capital budgeting technique, the payback period considers depreciation expense (DE) and time value of
money (TVM) as follows:
a. DE, relevant and TVM, relevant c. DE, irrelevant and TVM, relevant
b. DE, irrelevant and TVM, irrelevant d. DE, relevant and TVM, irrelevant
9. Standard costing is used to isolate the variances between standard costs and actual costs. It allows management
to measure performance and correct inefficiencies, thereby helping to
a. allocate costs accurately.
b. determine the break-even point.
c. control costs.
d. eliminate management’s need for subjective decisions.
10. The relationship of the total debt to the total equity of a corporation is a measure of
a. Liquidity c. creditor risk
b. Profitability d. solvency
11. The minimum transfer price equals
a. opportunity costs less the additional outlay costs
b. opportunity costs times 125% plus the additional outlay costs
c. opportunity costs divided by the additional outlay costs
d. incremental costs plus opportunity costs
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12. Which of the following is most likely to be a disadvantage of decentralization?

a. Lower-level employees will develop less rapidly than in a centralized organization.
b. Lower-level employees will complain of not having enough to do.
c. Top management will have less time available to devote to unique problems.
d. Lower-level managers may make conflicting decisions.
13. In financial statement analysis, the expression of all financial statement figures as a percentage of base-year
figures is called
a. horizontal analysis c. cross-sectional analysis
b. vertical analysis d. ratio analysis
14. What is product contribution margin?
a. Sales minus all variable costs. c. Sales minus all fixed costs.
b. Sales minus variable cost of goods sold. d. Sales minus fixed manufacturing overhead.
15. Which of the following is false?
a. Management accounting is as concerned with providing information to stockholders as it is with providing
information to managers.
b. Management accounting focuses more on the segments of an organization rather than on the organization
as a whole.
c. Management accounting need not follow the GAAP.
d. Management accounting is not mandatory, i.e., not required by any external law or regulation.
16. It is level of output or sales at which total revenues equal total costs, that is, the point at which operating
income is zero.
a. Indifference point c. Sangley point
b. Break-even point d. order point
17. Inventory is most critical in the budgeting of
a. sales c. purchases
b. cost of goods sold d. expenses
18. Which of the following statements regarding budgeting is incorrect?
a. Planning and control are the essential features of the budgeting process.
b. Capital expenditures budget shows the availability of idle cash for investment.
c. Budgeting provides a measuring device to which subsequent performances are compared and evaluated.
d. Budget preparation is not the sole responsibility of any one organizational segment and is prepared by
combining the efforts of many individuals.
19. Which of the following inventory cost flow assumptions will result in a higher inventory turnover ratio in an
inflationary economy?
a. FIFO c. Weighted average
b. LIFO d. Specific identification
20. What would income be if variable costing were used?
a. Equal to income under absorption costing because that should always be the case.
b. Equal to income under absorption costing because the total fixed overhead costs expensed under both
methods are the same.
c. An amount greater than that under absorption costing because production is equal to sales.
d. An amount less than that under absorption costing because there is no change in inventory.

II. Short Problems. Support your letter answers with computations. (3 points each)
1. Basic Illustration Corp. produces and sells a single product. The selling price is P25 and the variable
cost is P15 per unit. The corporation’s fixed costs is P100,000 per month. An average monthly sale is
11,000 units.
i. The corporation’s break-even point is
a. P10,000 c. 10,000 units or P250,000
b. 250,000 units d. 250,000 units and P10,000
ii. If the corporation desires to earn a before tax profit of P30,000, it must generate sales of
a. P325,000 c. P301,000
b. P13,000 d. P500,000
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2. Remember Co. has the opportunity to introduce a new product. Remember expects the project to sell
for P40 and to have per-unit variable costs of P25 and annual fixed costs of P2,5000,000. Expected
annual sales volume is 250,000 units. The equipment needed to bring out the new product costs
P3,500,000, has a four-year life and not salvage value, and would be depreciated on a straight line
basis. Remember’s cutoff rate is 12% and its income tax rate is 40%.
What is the increase in annual after-tax cash flows for this opportunity?
a. P900,000 c. P875,000
b. P1,100,000 d. P1,000,000
3. Each unit of Product A requires three direct labor hours. Employee benefit costs are treated as direct
labor costs. Data on direct labor are as follows:
Number of direct employees 25
Weekly productive hours per employee 35
Estimated weekly wages per employee P 245
Employee benefits (related to weekly wages) 25%
The standard direct labor cost per unit of Product A is
a. P21.00 c. P29.40
b. P26.25 d. P36.75
4. Guipa Co. produces and sells a decorative pillow for P75.00 per unit. In the first month of operations,
2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the amount
budgeted for the month. Other information for the month includes:
Variable manufacturing costs P 20.00 per unit
Variable marketing costs 3.00 per unit
Fixed manufacturing costs 7.00 per unit
Administrative expenses, all fixed 15.00 per unit
Ending inventories:
Direct materials 0
WIP 0
Finished goods 250 units
i. What is the cost of goods sold using variable costing?
a. P35,000 c. P47,250
b. P40,000 d. P54,000
ii. What is the operating income using variable costing?
a. P52,500 c. P65,750
b. P78,780 d. P47,000
5. The Jackson Company has invested in a machine that cost P70,000, has a useful life of seven years, and
has no salvage value at the end of its useful life. The machine is being depreciated by the straight-line
method, based on its useful life. It will have a payback period of four years. Given these data, the
simple rate of return on the machine will be
a. 7.1% c. 10.7%
b. 8.2% d. 39.3%
6. The QC Division of Luzon Company is treated as an investment center for performance measurement
purposes. Selected financial information for such division for last year is given below:
Net sales P 200,000
Cost of goods sold 176,250
General and administrative expenses 3,750
Average working capital 31,250
Average plant and equipment 68,750
Desired rate of return 15%
i. What was the QC Division’s return on investment for last year?
a. 29.09% c. 53.33%
b. 15.00% d. 20.00%
ii. What was QC Division’s residual income for last year?
a. P5,000.00 c. P8,750.00
b. P9,687.50 d. P14,375
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7. Given the following data from total sales:

2012 P 50,000
2013 55,000
2014 56,000
2015 53,000
Table showing trend percentages for 2012 – 2015, respectively, will show:
a. 100%, 110%, 102%, and 95% c. 100%, 110%, 112%, and 106%
b. 100%, 10%, 2%, and (5%) d. 94%, 1.04%, 1.06%, and 100%
8. Doc Corporation has a standard absorption and flexible budgeting system. Information about the
factory overhead costs for X Corporation’s February production activity follows:
Standard variable overhead rate per direct labor hour P 24
Standard fixed overhead rate per direct labor hour 12
Total factory overhead application rate P 36

Standard direct labor hours allowed for actual production 6,000 hours
Budgeted fixed factory overhead cost P 75,000
Actual total factory overhead cost incurred P220,000
The actual fixed overhead cost incurred was in agreement with the budget.
i. The controllable variance amounts to
a. P0 c. P1,000 unfavorable
b. P4,000 unfavorable d. P3,000 unfavorable
ii. The volume variance amounts to
a. P0 c. P1,000 unfavorable
b. P4,000 unfavorable d. P3,000 unfavorable
9. Sigma Retail Company consists of two stores, A and B. Store A had sales of P80,000 during March, a
contribution margin ratio of 30%, and a segment margin of P11,000. The company as a whole had
sales of P200,000, a contribution margin ratio of 36%, and segment margins for the two stores totalling
P30,000. If net income for the company was P15,000 for the month, the traceable fixed costs in Store
B must have been
a. P17,000 c. P32,000
b. P21,000 d. P29,000
10. Bravo Inc. is considering the acquisition of a merchandise picking system to improve customer service.
Annual cash returns on investment cost of P1,200,000 is P220,000. Useful life is estimated at 8 years.
The company’s cost of capital is 14% and income tax rate is 35%. Payback reciprocal is:
a. 20.5% c. 11.9%
b. 18.3% d. 22.2%
11. City Company prepared the following figures for its only product as a basis for its 2018 budget:
Budgeted sales 240,000 units
Selling price P5
Required materials per unit of product 2 pieces
Materials beginning inventory 20,000 pieces
Materials ending inventory 24,000 pieces
Purchase price per piece of material P3
Finished goods beginning inventory 15,000 units
Finished goods ending inventory 18,000 units
Direct labor hours, per 1,000 units of product 60 hours
Direct labor rate per hour P30
Variable factory overhead rate per hour P10
Fixed factor overhead P300,000
i. The budgeted peso amount of materials purchases is
a. P1,458,000 c. P1,470,000
b. P2,450,000 d. P741,000
ii. The total budgeted manufacturing cost for 2018 is
a. P2,341,200 c. P2,041,200
b. P884,658 d. P2,353,200
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12. Information concerning Ramilton’s ordinary shares is presented below for the calendar year ended
December 31, 2015:
Ordinary shares outstanding 750,000
Stated value per share P15
Market price per share 45
2015 dividends paid per share 7.50
Basic earnings per share 11.25
Price-earnings ratio?
a. 3.0 times c. 5.0 times
b. 4.0 times d. 6.0 times
13. A Division sells goods internally to B Division of the same company. The prevailing external price of A
Division’s product is P500 per unit plus transportation. It costs P100 per unit to transport the goods to
B.
A incurs the following costs per unit in producing the goods:
Materials P 250
Direct labor 75
Storage and handling 60
Total P 385
If market-based transfer pricing method is to be used, the transfer price must be set at
a. P500 c. P385
b. P600 d. P325
14. Lima Company produced 100,000 units of Product Zee during the month of June. Costs incurred during
June were as follows:

Direct materials used P 100,000 Fixed mfg. overhead P 50,000

Direct labor employed 80,000 Variable selling and general 12,000
Variable mfg. overhead 40,000 Fixed selling and general 45,000
i. What was Product Zee’s unit cost under absorption costing?
a. P3.27 c. P2.20
b. P2.70 d. P1.80
ii. What was Product Zee’s unit cost under variable costing?
a. P2.82 c. P2.32
b. P2.70 d. P2.20
15. Multi Products Company has the following revenue and cost budgets for the two products it sells, X
and Y.
X Y
Sales price P 10.00 P 15.00
Direct materials 2.00 3.00
Direct labor 3.00 5.00
Fixed overhead 3.00 2.75
Net income per unit P 2.00 P 4.25
Budgeted unit sales 100,000 300,000
The budgeted units sales equal the current unit demand, and total fixed overhead for the year is
budgeted at P975,000. Assume that the company plans to maintain the same proportional mix.
The total number of units Multi Products needs to produce and sell to breakeven is
a. 150,000 units c. 450,000 units
b. 153,947 units d. 300,000 units
16. Boy Company is considering the sale of banners at the university football championship game. Boy
could purchase these banners for P0.60 each. Unsold banners would be non-returnable and worthless
after the game. Boy would have to rent a booth at the stadium for P250. Boy estimates sales of 500
banners at P2.00 each. If Boy’s prediction proves to be incorrect and only 300 banners were sold, the
cost of this prediction error would be
a. P120 c. P370
b. P130 d. P280
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17. Crown Company manufactures three consumer products, Alpha, Beta, and Charlie. Sales and other
information related to the said products are as follows:
2015 Units Unit price Total sales Cost of sales
Alpha 15,000 P 10 P 150,000 P 120,000
Beta 20,000 8 160,000 140,000
Charlie 5,000 6 30,000 22,500

2016 Units Unit price Total sales Cost of sales

Alpha 20,000 P 12 P 240,000 P 180,000
Beta 20,000 9 180,000 150,000
Charlie 4,000 5 20,000 16,000
i. The sales price factor shows a variance of
a. P56,000 favorable c. P100,000 favorable
b. P100,000 unfavorable d. P56,000 unfavorable
ii. The cost price factor shows a variance of
a. P28,000 favorable c. P63,500 favorable
b. P28,000 unfavorable d. P63,400 unfavorable
18. Total assets of Det-Det Co. on December 31, 2016 were P2.3 million and on December 31, 2104 were
P2.5 million. Income after taxes for 2017 was P188,000. Dividends for 2017 totaled P75,000, interest
expenses totaled P70,000, and the tax rate was 30%. The return on total assets for 2017 is
a. 9.5% c. 9.9%
b. 6.8% d. 10.8%
19. Hershey Company has budgeted sales of 90,000 units in January; 120,000 units in February; and
180,000 units in March. The company has 20,000 units on hand on January 1. If Hershey Company
requires an ending inventory of finished goods equal to 20% of the following month’s sales, the
budgeted production during February should be
a. 96,000 c. 120,000
b. 108,000 d. 132,000
20. Aristoe Company produced 3,200 units of product. Each unit requires 2 standard hours. The standard
labor rate is P15 per hour. Actual direct labor for the period was P79,200 (6,600 hours x P12).
What is the direct labor time variance?
a. P19,800 favorable c. P6,400 unfavorable
b. P16,800 favorable d. P3,000 unfavorable
21. World Co. is considering to purchase a P30,000 machine which is expected to result in a decrease of
P12,000 per year in cash operating expenses. This machine, which has no residual value, has an
estimated useful life of five years and will be depreciated on a straight-line basis.
The payback period for the new machine would be
a. 1.67 years c. 4.17 years
b. 2.50 years d. 5 years
22. Last year, the contribution margin ratio of Table Company was 30%. This year, fixed costs are expected
to be P120,000, the same as last year, and revenues are forecasted at P550,000, a 10% increase over
last year. For the company to increase operating income by P15,000 in the coming year, the
contribution margin ratio must be
a. 20% c. 40%
b. 30% d. 70%
23. Anthony Company has projected cost of goods sold of P4,000,000, including fixed costs of P800,000.
Variable costs are expected to be 75% of net sales. What will be the projected net sales?
a. P 4,266,667 c. P 5,333,333
b. P 4,800,000 d. P 6,400,000
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24. In order to increase production capacity, Global Industries is considering replacing an existing
production machine with a new technologically improved machine effective January 1. The following
information is being considered by Global Industries:
 The new machine would be purchased for P160,000 in cash. Shipping, installation, and testing
would cost an additional P30,000.
 The new machine is expected to increase annual sales by 20,000 units at a sales price of P40 per
unit. Incremental operating costs include P30 per unit in variable costs and total fixed costs of
P40,000 per year.
 The investment in the machine will require an immediate increase in working capital of P35,000.
This cash outflow will be recovered at the end of year 5.
 Global uses straight-line depreciation for financial reporting and tax reporting purposes. The new
machine has an estimated useful life of 5 years and zero salvage value.
 Global is subject to 40% corporate income tax rate.
Global uses the net present value method to analyze investments and will employ the following factors
and rates:
Period PV of P1 at 10% PV of OA of P1
1 0.909 0.909
2 0.826 1.736
3 0.751 2.487
4 0.683 3.170
5 0.621 3.791
i. Global Industries’ total investment used in capital budgeting decision is
a. P190,000 c. P204,525
b. P195,000 d. P225,000
ii. The acquisition of the new production machine by Global Industries will contribute a discounted
net-of-tax contribution margin of
a. P242,624 c. P363,936
b. P303,280 d. P454,920
25.
Net accounts receivable at December 31, 2014 P 900,000
Net accounts receivable at December 31, 2015 P 1,000,000
Accounts receivable turnover 5 to 1
Inventories at December 31, 2014 P 1,100,000
Inventories at December 31, 2015 P 1,200,000
Inventory turnover 4 to 1
Assumed number of days in a business year 300 days
i. What was Nobody’s gross margin for 2015?
a. P150,000 c. P250,000
b. P200,000 d. P400,000
ii. What was the number of days’ sales in average receivables for 2015?
a. 30 c. 60
b. 31 d. 63
iii. What was the number of days’ sales in average inventories for 2015?
a. 30 c. 75
b. 60 d. 77
26. BN Company uses a standard costing system in the manufacture of its single product. The 35,000 units
of raw materials in inventory were purchased for P105,000 and two units of raw material are required
to produce one unit of final product. In November, the company produced 12,000 units of product.
The standard allowed for material was P60,000, and there was an unfavorable quantity variance of
P2,500.
The materials price variance for the units used in November was
a. P2,500 unfavorable c. P12,500 unfavorable
b. P11,000 unfavorable d. P3,500 unfavorable
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27. Dude Manufacturing incurred the following expenses during 2015:

Fixed manufacturing costs P 45,000
Fixed nonmanufacturing costs P 35,000
Unit selling price P 100
Total unit cost P 40
Variable manufacturing cost rate P 20
Units produced 1,340 units
What will be the breakeven point if variable costing is used?
a. 1,334 units c. 1,000 units
b. 1,125 units d. 2,000 units
28. Below are Mind Corporation’s standard costs to produce one concrete table:
Direct materials 2 kgs. at P375 per kg.
Direct labor 30 minutes @ P31.25 per hour
In March, Mind produced 250 concrete tables. Five hundred twenty (520) kgs. of raw materials were
used at a total costs of P193,440. A total of 128 direct labor hours were used at a cost P4,096. The
direct labor rate variance is:
a. P22.50 c. P64.75
b. P93.00 d. P96.00
29. The following purchases budget was prepared by Masagana Corp:
Month Budgeted Purchases
January P 460,000
February 380,000
March 400,000
April 440,000
May 420,000
Purchases are paid for in the following manner:
10% in the month of purchase
50% in the month after purchase
40% two months after purchase
Total disbursements for the period March to May amount to
a. P1,825,000 c. P1,285,000
b. P1,352,000 d. P1,232,000
30. The Sawyer Company has P80,000 to invest and is considering two different projects, X and Y. The
following data are available on the projects:
Project X Project Y
Cost of equipment needed now P 80,000
Working capital needed now P 80,000
Annual cash operating inflows 23,000 18,000
Salvage value of equipment in 5 years 6,000
Both projects will have useful life of 5 years; at the end of 5 years, the working capital investment will be
released for use elsewhere. Sawyer’s required rate of return is 12%.
Present value factors:
Present value of P1 Present value of an ordinary annuity of P1
0.893 0.893
0.797 1.690
0.712 2.402
0.636 3.038
0.567 3.605
The net present value of Project X is
a. P2,915 c. P5,283
b. (P11,708) d. P6,317

MERRY CHRISTMAS 