GUAGUA NATIONAL COLLEGES

Guagua, Pampanga

Name: _______________________________ Date: ______________

Year & Section: ________________________

Instructions: Read each question carefully and put your answer on the space provided before each number.

1. The best characteristic of a standard cost system is that

A. Standard can pinpoint responsibility and help motivation
B. All variances from standard should be reviewed
C. All significant unfavorable variances should be reviewed
D. Standard cost involves cost control which is cost reduction

2. Standard costs are used for all of the following except:

A. Income determination C. Measuring efficiencies
B. Controlling costs D. Forming a basis for price setting

3. Standard costs are least useful for

A. Measuring production efficiency C. Job order production systems
B. Simplifying costing procedures D. Determining minimum inventory levels

4. To which of the following is a standard cost nearly like?

A. Estimated cost B. Budgeted cost C. Product cost D. Period cost

5. Which department is typically responsible for a materials price variance?

A. Engineering B. Production C. Purchasing D. Sales

6. Which variance is least likely to be affected by hiring workers with less skills than those already working?
A. Material use variance C. Material price variance
B. Labor rate variance D. Variable overhead efficiency variance

7. The total overhead variance is

A. The difference between actual overhead costs and budgeted overhead
B. Based on actual hours worked for the units produced
C. The difference between actual overhead costs and standard overhead
D. The difference between budgeted overhead and standard overhead

8. Management scrutinizes variances because

A. Management desires to detect such variances to be able to plan for promotions.
B. Management needs to determine the benefits foregone by such variances.
C. It is desirable under conventional knowledge on good management.
D. Management recognizes the need to know why variances happen to be able to make corrective actions
and fairly reward good performers.

9. ABC Company uses a standard cost system. Information for raw materials for Product G for the month of
November is as follows:
Standard unit price P1.60
Actual purchase price per unit P1.55
Actual quantity purchased 2,000 units
Standard quantity allowed for actual production 1,800 units

What is the materials price variance?

A. P90 favorable C. P100 favorable
B. P90 unfavorable D. P100 favorable

10. DEF Company uses a standard cost system. Direct labor information for Product E for the month of
October is as follows:
Standard unit price P6.10 per hour
Actual rate paid P6.00 per hour
Standard quantity allowed for actual production 1,500 hours
Labor efficiency variance P600 unfavorable
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 What is the actual hours worked?
A. 1,400 C. 1,598
B. 1,402 D. 1,600

11. Which of the following is true concerning standard costs?

A. Standard costs are estimates of costs attainable only under the most ideal conditions, but rarely
practicable.
B. Standard costs are difficult to use with a process-costing system.
C. If properly used, standards can help motivate employees.
D. Unfavorable variances, when material in amount, should be investigated, but large variance need not
be investigated.

12. The purchase of higher than standard quality materials would likely result in:
A. an unfavorable material price variance and a favorable material usage variance
B. a favorable material price variance but an unfavorable material efficiency variance
C. an unfavorable material price variance and an unfavorable material usage variance
D. a favorable material price variance and a favorable material usage variance

13. GHI Company manufactures tables with glass tops. The standard material cost for the glass used per Type-
R table is P7.80 based on six square-feet of vinyl at a cost of P1.30 per square-foot. A production run of
1,000 tables in January resulted to usage of 6,400 square-feet of vinyl at a cost of P1.20 per square-foot,
a total of P7,680. The usage variance resulting from the above production run was:
A. 120 favorable C. 520 unfavorable
B. 480 unfavorable D. 640 favorable

Items 14 to 18 are based on the following:

A company evaluates manufacturing overhead in its factory by using variance analysis. The following
information applies to the month of July:
ACTUAL BUDGETED
Number of units produced 19,000 20,000
Variable overhead costs P4,100 P2 per direct labor hour
Fixed overhead costs P22,000 P20,000
Direct labor hours 2,100 0.1 hour per unit

14. The controllable variance amounts to

A. P2,500 unfavorable C. P2,300 unfavorable
B. P1,000 unfavorable D. P2,000 unfavorable

15. Using the three-way variance analysis, the spending variance amounts to
A. P100 favorable C. P2,000 unfavorable
B. P1,900 unfavorable D. P2,100 unfavorable

16. The efficiency variance amounts to

A. P400 unfavorable C. P400 favorable
B. P1,900 unfavorable D. P1,000 unfavorable

17. The non-controllable variance is

A. P2,300 unfavorable C. P2,000 unfavorable
B. P400 unfavorable D. P1,000 unfavorable

18. The fixed overhead efficiency variance is:

A. P400 unfavorable C. P400 favorable
B. P2,000 unfavorable D. 0

Items 19 to 20 are based on the following:

A company manufactures backup generators and uses a standard cost system. The following information
is available for the month of September:
Budgeted direct labor hours 80,000 hours
Actual direct labor hours worked 84,000 hours
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 Actual direct labor cost incurred P840,000
Standard direct labor rate per hour P9
Standard direct labor per unit 4 hours

19. The direct labor price variance for September was:

A. P84,000 favorable C. P79,000 unfavorable
B. P84,000 unfavorable D. P79,000 favorable

20. The company planned on producing 25,000 generators, but only 20,000 units were actually produced.
What was the direct labor efficiency variance for September?
A. P36,000 unfavorable C. P40,000 unfavorable
B. P36,000 favorable D. P40,000 favorable

21. A manager prepared the following table by which to analyze labor costs for the month:
Actual Hours at Actual Rate Actual Hours at Standard Standard Hours at Standard
Rate Rate
P10,000 P9,800 P8,820

What variance was P980?

A. Labor efficiency variance C. Volume variance
B. Labor rate variance D. Labor spending variance

22. JKL, Inc. uses an accounting system that charges costs to the manager who has been delegated the
authority to make decisions incurring the costs. For example, if the sales manager accepts a rush order
that will result in higher-than-normal manufacturing costs, these additional costs are charged to the sales
manager because the authority to accept or decline the rush order was given to the sales manager. This
type of accounting system is knowns as
A. Responsibility accounting C. Reciprocal allocation
B. Functional accounting D. Transfer price accounting

23. In responsibility accounting, a center’s performance is measured by controllable costs. Controllable costs
are best described as including
A. Direct material and direct labor only
B. Only those costs that the manager can influence in the current time period
C. Only discretionary costs
D. Those costs about which the manager is knowledgeable and informed

24. The basic purpose of a responsibility accounting system is

A. Budgeting C. Authority
B. Motivation D. Variance analysis

25. MNO Service Co. is a service center. For the month of June, MNO had the following operating statistics:
Sales P750,000
Operating income 25,000
Net profit after taxes 8,000
Total assets available 500,000
Shareholder’s equity 200,000
Rate of return 6%

MNO has a
A. Return on investment of 3.33% C. Return on investment of 6%
B. Residual income of P(5,000) D. Residual income of P(20,000)

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26. Listed below is selected financial information for the N Division of Haniel Company for last year:
Account Amount
Average working capital P625,000
General and administrative expenses 75,000
Net sales 4,000,000
Average plant and equipment 1,775,000
Cost of goods sold 3,525,000

If Haniel treats the N Division as an Investment Center for performance measurement purposes, what is
the before-tax return on investment (ROI) for last year? (Hint: AOA = ave. WC + ave. PPE)
A. 34.78% C. 19.79%
B. 22.54% D. 16.67%

27. How does responsibility accounting define and describe an investment center?
I. An investment center is responsible for revenues, expenses, and invested capital.
II. An investment center is similar to an independent business.

A. I only C. Both I and II

B. II only D. Neither I nor II

28. Chandler is the general manager of the Industrial Product Division, and his performance is measured using
the residual income method. Chandler is reviewing the following forecasted information for his division
for next year:
Category Amount
Working capital P1,800,000
Revenue 30,000,000
Plant and equipment 17,200,000

If the imputed interest charge is 15% and Chandler wants to achieve a residual income target of
P2,000,000, what will costs have to be in order to achieve the target?
A. P9,000,000 C. P25,150,000
B. P10,800,000 D. P25,690,000

Items 29 to 30 are based on the following:

A company’s industrial photo-finishing division, PFDIV, incurred the following costs and expenses in
2023:
Variable Fixed
Direct materials P200,000
Direct labor 150,000
Factory overhead 70,000 P42,000
Selling and administrative expenses 30,000 48,000
Total P450,000 P90,000

During 2023, PFDIV produced 300,000 units of industrial photo-prints, which were sold for P2 each. The
company’s investment in PFDIV was P500,000 and P700,000 at January 1, 2023 and December 31, 2023,
respectively. The company normally imputes interest on investments at 15% of average invested capital.

29. For the year ended December 31, 2023, PFDIV’s return on average investment was:
A. 15.0% C. 8.6%
B. 10.0% D. (5.0%)

30. For the year ended December 31, 2023, PFDIV’s residual income (loss) is:
A. P150,000 C. P(45,000)
B. P60,000 D. P(30,000)

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31. The following information is available for the Wholesale Products Division of A Corporation:
Operating profit before interest and taxes P30,000,000
Depreciation expense 10,000,000
Change in working capital 5,000,000
Capital expenditures 4,000,000
Invested capital (total assets – current liabilities) 50,000,000
Weighted average cost of capital 10%
Tax rate 40%

What is the amount of economic-value added (EVA) for the division?

A. P30,000,000 C. P25,000,000
B. P13,000,000 D. P5,000,000

32. The price that one division of a company charges to another division for goods and services provided is
called the
A. Market price C. Outlay price
B. Transfer price D. Distress price

33. The most fundamental responsibility center affected by market-based transfer price is a(n)
A. Production center C. Cost center
B. Investment center D. Profit center

34. Transfer price should encourage goal congruence and managerial effort. In a decentralized operation, it
should also encourage autonomous decision-making. Managerial effort is
A. the desire and the commitment to achieve a specific goal
B. the sharing of goals by supervisors and subordinates
C. the extent to which individuals have the authority to make decisions
D. the extent of the attempt to accomplish a specific goal

35. Goal congruence is

A. the desire and the commitment to achieve a specific goal
B. the sharing of goals by supervisors and subordinates
C. the extent to which individuals have the authority to make decisions
D. the extent of the attempt to accomplish a specific goal

36. Motivation is
A. the desire and the commitment to achieve a specific goal
B. the sharing of goals by supervisors and subordinates
C. the extent to which individuals have the authority to make decisions
D. the extent of the attempt to accomplish a specific goal

37. An appropriate transfer price between two divisions of Stitch Company can be determined from the
following data:
Fabricating Division
Marketing price of sub-assembly P50
Variable cost of sub-assembly P20
Excess capacity (in units) 1,000

Assembling Division
Number of units needed 900

What is the natural bargaining range for the two divisions?

A. Between P20 and P50 C. Any amount less than P50
B. Between P50 and P70 D. P50 is the only acceptable price

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 Items 38 to 40 are based on the following:

Mad Max, Inc. has several divisions that operate as decentralized profit centers. Mad Max’s Entertainment
Division manufactures video arcade equipment using the products of two of Mad Max’s other divisions.
The Plastics Division manufactures plastic components, one type that is made exclusively for the
Entertainment Division, while other less complex components are sold to outside markets. The products
of the Video Cards Division are sold in a competitive market; however, one video card model is also used
by the Entertainment Division.

The actual costs per unit used by the Entertainment Division are presented below:
Plastic Components Video Cards
Direct materials P1.25 P2.40
Direct labor 2.35 3.00
Variable overhead 1.00 1.50
Fixed overhead 0.40 2.25
Total cost P5.00 P9.15

The Plastics Division sells its commercial products at full cost plus a 25% markup and believes that the
proprietary plastic component made for the Entertainment Division would sell for P6.25 per unit on the
open market. The market price of the video card used by the Entertainment Division is P10.98 per unit.

38. A per-unit transfer price from the Video Cards Division to the Entertainment Division at full cost of P9.15,
would
A. allow evaluation of both divisions on a competitive basis.
B. satisfy the Video Cards Division’s profit desire by allowing recovery of opportunity costs.
C. provide no profit incentive for the Video Cards Division to control or reduce costs.
D. Encourage the Entertainment Division to purchase video cards from an outside source.

39. Assume that the Entertainment Division is able to purchase a large quantity of video cards from an outside
source at P8.70 per unit. The Video Cards Division, having excess capacity, agrees to lower its transfer
price to P8.70 per unit. This action would
A. optimize the profit goals of the Entertainment Division while subverting the profit goals of Mad Max,
Inc.
B. allow evaluation of both divisions on the same basis.
C. subvert the profit goals of the Video Cards Division while optimizing the profit goals of the
Entertainment Division.
D. optimize the overall profit goals of Mad Max, Inc.

40. Assume that the Plastics Division has excess capacity and it has negotiated a transfer price of P5.60 per
plastic component with the Entertainment Division. This price will
A. cause the Plastics Division to reduce the number of commercial plastic components it manufactures.
B. motivate both divisions as estimated profits are shared.
C. encourage the Entertainment Division to seek an outside source for plastic components.
D. demotivate the Plastics Division causing mediocre performance.

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