MIDTERM EXAM – Management Services

General Directions: Read and analyze each item carefully. Answer sheet is provided at the last page. Shade the circle which
corresponds to your final answer. Erasures are not allowed in the answer sheet.

1. The cost raw materials is recorded as product cost when.

A. the raw materials are bought.
B. the raw materials are sold.
C. the finished goods are sold
D. the finished goods are available.

2. How will unit (average) cost of manufacturing (materials, labor and overhead) usually change if the production
level rises?
A. It will remain constant.
B. It will increase in direct proportion to the production increase.
C. It will decrease, but not in direct proportion to the production increase.
D. It will decrease inversely and in direct proportion to the production increases.

3. Which of the following aspects of a company would not be considered a critical success factor, for a company that
competes on differentiation?
A. Cutting edge research and development.
B. Excellent customer service.
C. Award-winning product quality.
D. A high level of production efficiency.

4. If a firm decided to reevaluate and reorganize the way it did business, in hopes of creating competitive advantage,
by changing or removing employee positions, the company would be using which of the following management
techniques?
A. The value chain.
B. Business analytics.
C. Business process improvement.
D. Product reevaluation.

5. Within the relevant range, if there is a change in the level of the cost driver, then:
A. total fixed costs and total variable costs will change
B. total fixed costs and total variable costs will remain the same
C. total fixed costs will remain the same and total variable costs will change
D. total fixed costs will change and total variable costs will remain the same

6. Which classification of costs is least relevant in responsibility accounting system?

A. Direct cost vs. indirect cost
B. Product cost vs period cost
C. Committed cost vs discretionary cost
D. Controllable cost vs non-controllable cost

7. Which classification of costs is least relevant in responsibility accounting system?

A. Direct cost vs. indirect cost
B. Product cost vs period cost
C. Committed cost vs discretionary cost
D. Controllable cost vs non-controllable cost

8. Which among the following statements is incorrect?

A. A successful responsibility accounting reporting system is dependent upon the proper delegation of
responsibility and authority.
B. Fixed costs can also be controllable, and some costs not controllable may need to be assigned to a
responsibility center.
C. Controllability is the only appropriate basis for delegation of responsibility.
D. The salary of the department manager is a direct cost of his department, but not controllable by such
manager

9. Since indirect cost cannot be conveniently or economically traced directly to a cost pool or cost object, the
management accountant will:
A. Assign them by means of cost allocation.
 B. Assign them where needed.
C. Assign them randomly to even out these costs.
D. Not assign them at all.

10. Which of the following statements is true?

A. If two products provide the same services and quality, the customer will choose the product with the
higher price.
B. The customer will choose the product with the higher price.
C. The customer will choose the product with the lower price.
D. if two products provide the same services and quality, the customer will choose the product with the
lower price.

11. Which of the following terms represents the residual income that remains after the cost of all capital, including
equity capital, has been deducted?
A. Free cash flow.
B. Market value-added.
C. Economic value-added.
D. Net operating capital.

12. Although there is no single format for the balanced scorecard, the report generally includes a variety of
measurements associated with objectives classified by critical success factors. Critical success factors often
include:
A. Sales, net income, cash flow, and return on investment performance.
B. Shareholder satisfaction, customer satisfaction, vendor satisfaction and employee satisfaction issues.
C. Financial, internal business process, customer and human resource considerations.
D. Throughput and lifecycle times.

13. Responsibility accounting defines an operating center that is responsible for revenue and costs as a(n):
A. Profit center.
B. Revenue center.
C. Operating unit.
D. Investment center.

14. Which of the following best describes the impact of increasing the sales price?
A. The increase in sales price increases contribution margin per unit, causing net income to decrease.
B. The increase in sales price increases contribution margin per unit causing the break-even point to
decrease.
C. The increase in sales price means more units are sold.
D. The increase in sales price means an increase in variable cost.

15. The process by which a company's products or services are measured relative to the best possible levels of
performance is known as:
A. efficiency
B. benchmarking
C. a standard costing system
D. variance analysis

16. The purchasing manager at Cara Company knows the amount of raw materials required for each unit of the single
product the company manufactures. Which of the following statements best describes the information the
purchasing manager will require to estimate the quantity of raw materials to purchase?
A. The amount of raw materials on hand at the beginning of the period and the minimum quantity of raw
materials management wishes to have in inventory at the end of the period
B. The amount of raw materials on hand at the beginning of the period, the minimum quantity of raw
materials management wishes to have in inventory at the end of the period, and the estimated quantity
of product the company expects to sell in the period
C. The amount of raw materials on hand at the beginning of the period, the minimum quantity of raw
materials management wishes to have in inventory at the end of the period, and the estimated
quantity of product the company expects to produce in the period
D. The amount of raw materials required to meet the estimated quantity of product the company expects
to produce in the period

17. In multiproduct situations, when sales mix shifts toward the product with the highest contribution margin then:
A. total revenues will decrease
 B. breakeven quantity will increase
C. total contribution margin will decrease
D. operating income will increase

18. ______ refers to avoiding competition in making a product distinct from that of competitors by adding value or
features for which consumers are willing to pay more.
A. Kaizen
B. Product differentiation
C. Confrontation
D. Cost differentiation

19. A company would be reducing its discretionary costs if it

A. fired a production supervisor.
B. closed its research and development department.
C. successfully negotiated a reduction in its factory rent.
D. reduced its direct labor costs by hiring temporary workers.

20. Which of the following factors would suggest a switch to activity-based costing?
A. Product lines similar in volume and manufacturing complexity.
B. Overhead costs constitute a significant portion of total costs.
C. The manufacturing process has been stable.
D. Production managers use data provided by the existing system.

21. A decrease in the price of a complementary good will

A. shift the demand curve of the joint commodity to the left
B. increase the price paid for a substitute good
C. shift the supply curve of the joint commodity to the right
D. shift the demand curve of the joint commodity to the right

22. The local video store’s business increased by 12% after the movie theater raised its prices from P65 to P70. Thus,
relative to movie theater admissions, videos are
A. substitute goods
B. superior goods
C. complementary goods
D. public goods

23. Budgets set at very high levels of performance (i.e., very low costs)
A. assist in planning the operations of the company.
B. stimulate people to perform better than they ordinarily would.
C. are helpful in evaluating the performance of managers.
D. can lead to low levels of performance.

24. Typically, managers have the LEAST control over the:

A. direct material price variance
B. direct materials efficiency variance
C. machine maintenance
D. scheduling of production

25. The coefficient of determination is

A. a measure of the variability of actual costs around the cost-estimating equation.
B. used to construct probability intervals for cost estimates.
C. a standardized measure of the degree to which two variables move together.
D. a measure of the percent variation in the dependent variable that is explained by an independent
variable.

26. Bidder’s budgeted sales for the coming year are P60,000,000, of which 80% are expected to be made on credit.
Bidder wants to change its credit terms from n/30 to 2/10 n/30 . If the new credit terms adopted, Bidder estimates
that cash discounts would be taken on 40% of the credit sales and the uncollectible amount would be unchanged.
The adoption of the new credit terms would result in expected discounts taken in the coming year of
A. P 1,200,000
B. P 384,000
C. P 960,000
D. P 480,000
27. Abra, Inc., is contemplating a project that costs P180,000. Expectations are that annual cash revenues will be
P70,000 and annual expenses (including depreciation) will total P30,000. The project has a six-year useful life and a
residual value of P30,000. Assume Seattle Inc. uses straight line method of depreciation. The accounting rate of
return based on average investment for the project is
A. 53.3%
B. 66.7%
C. 22.2 %
D. 38.1%

28. Sari-Sari Grocery is currently open only on Monday to Saturday. It is considering opening on Sundays. The annual
incremental costs of Sunday opening is estimated at P124,800. Its gross margin is 20%. It estimates that 60% of
Sunday sales to customers would be on other days if its stores were not open on Sundays. The Sunday sales that
would be necessary for Sari-sari to attain the same weekly operating income is
A. P19,500.
B. P29,250.
C. P30,000.
D. P20,000.

29. ABC, Inc. is operating at full capacity with a sales level of P14M and fixed assets of P7M. What is the required
addition to fixed assets if sales are to increase by 10 percent?
A. P350,000
B. P700,000
C. P140,000
D. P280,000

30. ABC Company breaks even at P300,000 sales and earns P30,000 at P350,000 sales. Which of the following is true?
A. Fixed costs are P20,000.
B. Profit at sales of P400,000 would be P80,000.
C. The selling price per unit is P3.
D. Contribution margin is 60% of sales.

31. Shepherd Enterprises has an ROE of 15 percent, a debt ratio of 40 percent, and a profit margin of 5 percent. The
company’s total assets equal P800 million. What are the company’s sales? (Assume that the company has no
preferred stock.)
A. P1,440,000,000
B. P2,400,000,000
C. P 960,000,000
D. P 360,000,000

32. The Chemical Corporation produces a variety of cleaning compounds and solutions for both industrial and household
use. While most of its products are processed independently, a few are related.

“Chem 357” is a coarse cleaning powder with many industrial uses. It costs P16 a pound to make and has a selling
price of P20 a pound.

A small portion of the annual production of this product is retained for further processing in the Mixing Department
where it is combined with several other ingredients to form a paste which is marketed as a silver polish selling for
P40 a jar. This further processing requires ¼ pound of Chem 357 per jar. Other ingredients, labor, and variable
overhead associated with this further processing cost P25 per jar. Variable selling costs amount to P3.00 per jar. If
the decision were made to cease production of the silver polish, P5,600 of fixed Mixing Department costs could be
avoided. Assume that the demand for Chem 357 is unlimited.

The minimum number of jars of silver polish that would have to be sold to justify further processing of Sprit 357 is
A. 560 jars
B. 467 jars
C. 700 jars
D. 800 jars

33. Last year, Brown Manufacturing had a contribution margin ratio of 40%. This year, fixed expenses are expected to
remain at P50,000 and sales are expected to increase by P90,000. What should the contribution margin ratio be this
year if the company wishes to increase before-tax income by P50,000?
A. 78.75%
 B. 40.00%
C. 35.00%
D. 55.56%

34. Regimen Corporation has developed the following flexible budget formula for linear monthly indirect labor costs:
Total Cost = P15,000 + P4.50 per machine hour.
Operating budgets for the current month are based upon 20,000 machine hours of planned machine time. Indirect
labor costs included in this monthly planning budget are:
A. P 90,000
B. P105,000
C. P180,000
D. P270,000

35. Davao began business at the start of the current year. The company planned to produce 25,000 units, and actual
production conformed to expectations. Sales totaled 22,000 units at P30 each. Costs incurred were:
Fixed factory overhead P150,000
Fixed selling & adm cost 100,000
Variable production cost 8
Variable selling & admin cost 2

If there were no variances, the company's variable-costing net income would be:
A. P190,000
B. P208,000
C. P202,000
D. P220,000

36. Canyon Company reported P106,000 of net income for the year by using variable costing. The company had beginning
inventory, planned and actual production of 50,000 units, and sales of 53,000 units. Standard variable manufacturing
costs were P15 per unit, and total budgeted fixed manufacturing overhead was P150,000.
If there were no variances, how much should be the net income under absorption costing?
A. P151,000
B. P115,000
C. P 97,000
D. P160,000

37. The proponents of throughput costing

A. maintain that variable costing undervalues inventories.
B. maintain that it provides more incentive to produce for inventory than do either variable or absorption
costing.
C. argue that only direct materials and direct labor are “truly variable” and all indirect manufacturing
costs be written off in the period in which they are incurred.
D. treat all costs except those related to variable direct materials as costs of the period in which they
are incurred.

38. Big Bill Company has a negative margin of safety. Which of the following statements is false?
A. A negative margin of safety implies that the contribution margin is negative.
B. The company is incurring an operating loss.
C. The company will improve its profit if sales volume increases.
D. The company must increase sales to achieve “break-even.”

39. OMG Corporation makes a single product. Manufacturing overhead is allocated on the basis of direct labor-hours.
Actual fixed overhead cost equaled the budgeted fixed overhead cost. The fixed overhead volume (denominator)
variance was unfavorable. Which of the following statements is correct?
A. Too many direct labor-hours were used for the output achieved.
B. Direct labor was efficiently used in the production of output.
C. Actual quantity of product produced was less than the amount of budgeted production.
D. Actual overhead costs were over budget.

40. XYZ Company desires a profit of P40,000 and expects to sell 20,000 units. Variable cost per unit is P8 and total fixed
costs are P100,000. The selling price must be
A. P20
B. P13
 C. P15
D. P10

41. Grant Company has fixed costs of P600,000 and variable costs are 40% of sales. What are the required sales if Grant
Company desires net income of P60,000?
A. P1,100,000
B. P1,000,000
C. P1,650,000
D. P1,500,000

42. When trying to separate fixed costs and variable costs, the accountant may use a crude technique known as
A. The least square method.
B. Computer simulation.
C. The high-low method.
D. Matrix algebra.

43. Doe Co. wants to sell a product at a gross margin of 20%. The cost of the product is P2.00. The selling price should
be
A. P1.60.
B. P2.40.
C. P2.10.
D. P2.50.

44. Thomas Company sells products X, Y, and Z. Thomas sells three units of X for each unit of Z, and two units of Y for
each unit of X. The contribution margins are P1.00 per unit of X, P1.50 per unit of Y, and P3.00 per unit of Z. Fixed costs
are P600,000. How many units of Z would Thomas sell at the breakeven point?
A. 40,000
B. 360,000
C. 120,000
D. 400,000

45. The indifference point is the level of volume at which a company

A. earns the same profit under different operating scheme
B. earns no profit
C. earns its target profit
D. any of the above

46. Net profit under absorption costing may differ from net profit determined under the direct costing. How is this
difference calculated?
A. Change in the quantity of all units in inventory times the relevant fixed costs per unit.
B. Change in the quantity of all units produced times the relevant fixed costs per unit
C. Change in the quantity of all units in inventory times the relevant variable cost per unit.
D. Change in the quantity of all units produced times the relevant variable cost per unit.

47. Which of the following is true of a company that uses absorption costing?
A. Net operating income fluctuates directly with changes in sales volume.
B. Fixed production and fixed selling costs are considered to be product costs.
C. Unit product costs can change as a result of changes in the number of units manufactured.
D. Variable selling expenses are included in product costs.

48. Which of the following is a difference between a static budget and a flexible budgets?
A. A flexible budget includes only variable costs; a static budget includes only fixed costs.
B. A flexible budget includes all costs, a static budget includes only fixed costs.
C. A flexible budget gives different allowances for different levels of activity, a static budget does not.
D. There is no difference between the two.

49. A technique that is useful in exploring what would happen if a key decision prediction or assumption proved wrong
is termed:
A. sensitivity analysis.
B. uncertainty analysis.
C. project analysis.
 D. linear programming.

50. The fixed overhead application rate is a function of a predetermined “normal” activity level. If standard hours allowed
for good output equal this 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

51. Dahl Co. uses a standard costing system in connection with the manufacture of a "one size fits all" article of clothing.
Each unit of finished product contains two yards of direct material. However a 20% direct material spoilage
calculated on input quantities occurs during the manufacturing process. The cost of the direct material is P3 per
yard. The standard direct material cost per unit of finished product is
A. P4.80
B. P6.00
C. P7.20
D. P7.50

52. The scatter graph method

A. is the most accurate method
B. has the advantage of objectivity
C. may reveal the presence of outliers
D. none of these are correct

53. Malaya Company currently sells 12,000 units of product ZEE for P8 each; variable cost is P5 each. Another customer
has offered P6.50 per unit for 2,500 units of product ZEE. The manager believes that if they accept the special order,
they will lose some sales at the regular price. Determine the maximum number of units in regular sales they could
lose before the order becomes unprofitable.
A. 1,250 units.
B. 1,750 units.
C. 2,000 units.
D. 3,000 units

54. Rope Company makes 2 products, both of which use a scarce resource — direct labor-hours. Both products have a
unit contribution margin of P20. However, the direct labor cost per unit of Product Y is higher than that for Product X.
The unit price of Product X is higher than the unit price of Product Y. Rope is interested in maximizing its profits.
Which of the following statements is correct?
A. Rope should produce both products, but moreY than X.
B. Rope should only produce Y.
C. Rope should produce both products, but more X than Y.
D. Rope should only produce X.

55. Bigger Company expects the following results for the next accounting period:
Sales P240,000
Variable costs P135,000
Fixed costs P 40,000
Expected production and sales in units 3,000

The sales manager believes sales could be increased by 400 units if advertising expenditures were increased by
P10,000. If advertising expenditures are increased and sales increase by 400 units, the effect on operating income
will be a(n)
A. decrease of P4,000
B. increase of P22,000
C. increase of P4,000
D. increase of P30,000

56. St. Claire Manufacturing expects to produce and sell 6,000 units of Bhe, its only product, for P20 each. Direct material
cost is P2 per unit, direct labor cost is P8 per unit, and variable manufacturing overhead is P3 per unit. Fixed
manufacturing overhead is P24,000 in total. Variable selling and administrative expenses are P1 per unit, and fixed
selling and administrative costs are P3,000 in total. According to generally accepted accounting principles,
inventoriable cost per unit of Bhe would be:
A. P13.00 per unit
 B. P14.00 per unit
C. P17.00 per unit
D. P18.50 per unit

Caballero Corporation produces high-quality leather saddles. The company has a standard cost system and has set the
following standards for materials and labor:
Leather (20 strips @ P15) P300
Direct labor (15 hours @ P15) 225
Total prime cost P525

During the year Caballero produced 150 saddles. Actual leather purchased was 3,100 strips, at P12 per strip. There were
no beginning or ending inventories of leather. Actual direct labor was 2,500 hours at P16 per hour.

57. Calculate the labor rate variance and the labor efficiency variance, respectively.
A. P2,500 U and P3,750 U
B. P2,500 F and P3,750 F
C. P2,250 U and P4,000 U
D. P2,250 F and P4,000 F

58. Compute the materials price variance and the materials usage variance, respectively.
A. P9,000 F and P1,200 U
B. P9,300 U and P1,500 F
C. P9,300 F and P1,500 U
D. P9,000 U and P1,200 F

59. An approach to improvement that involves completely redesigning business processes in order to eliminate
unnecessary steps, reduce errors, and reduce costs.
A. Total quality management
B. Process reengineering
C. Theory of constraints
D. Life-cycle costing

60. Reporting under the direct costing concept is accomplished by

A. Including only direct costs in the income statement.
B. Matching variable costs against revenues and treating fixed costs as period costs.
C. Treating all costs as period costs.
D. Eliminating the work in process inventory accounting

***end of exam***

Score:
MIDTERM EXAM – Management Services
Acc 418: Accountancy Refresher with Comprehensive Examination
Midterm, AY 2022 – 2023

General Directions: Read and analyze each item carefully. Answer sheet is provided at the last page. Write your answers
on the space provided. NEVER CHEAT. STRICTLY NO ERASURES.