Quiz on Strategic Cost Management SET A Tracing No:_______

1. Which of the following statements is correct?

a. In variable costing income statement, sales revenue is typically higher than in absorption costing income
statement.
b. 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.
c. In a variable costing system, fixed overhead cost is included as part of the cost of inventory.
d. In an absorption costing system, fixed overhead cost is treated as a period cost.

2. Which of the following statement is true?

a. Depreciation expense is always a product cost.
b. Depreciation expense is always a period cost.
c. Selling and administrative costs, whether variable or fixed, is always treated as period costs under
both the absorption and variable costing systems.
d. Income under absorption costing is always greater than income under variable costing.

3. If production is less than sales (in units), then absorption costing net income will generally be
a. Greater than variable costing net income.
b. Less than variable costing net income.
c. Equal to variable costing net income.
d. Less than expected.

4. If a firm uses variable costing,

a. Its product costs include variable selling and administrative costs.
b. Its profits fluctuate with sales.
c. It calculates an idle facility variation.
d. Its product cost per unit changes because of changes in the number of units produced.

5. The inventory costing method that treats direct manufacturing costs and indirect manufacturing costs, both
variable and fixed, as inventoriable costs is called
a. Variable costing
b. Absorption costing
c. Conversion costing
d. Perpetual costing
6. It involves a systematic examination of the relationships among costs, cost driver and profit
a. Financial statement analysis
b. Cost-Value-Profit analysis
c. Cost-benefit analysis
d. Profit planning

7. CVP analysis may be used by managers in planning and decision-making, which may involve the following,
except
a. Choosing the type of product to produce and sell.
b. Choosing the pricing policy to follow.
c. Choosing the type of productive facilities to acquire.
d. Choosing the analytical technique to use.

8. The elements of CVP analysis include the following, except

a. Total fixed costs b. Unit variable cost c. Volume or number of units d. Relevant costs

9. Which of the following statements is correct?

a. Gross margin and contribution margin are the same.
b. Contribution margin is the excess of sales over variable cost, and this is the amount available for the recovery of
fixed assets and generation of profit.
c. One inherent, simplifying assumption in CVP analysis is that production equals sales.
d. Unit variable costs change directly with the cost driver or activity level.

10. In CVP analysis, it is assumed that

a. All costs are classifiable as either direct or indirect costs.
b. Cost and revenue relationships are predictable and linear over any range of activity.
c. Selling prices per unit and market conditions remain unchanged.
d. Total fixed costs are constant over the relevant range, but fixed costs per unit vary directly with the cost
driver or volume.
11. On the variable costing income statement, the difference between the “contribution margin” and “income
before income tax” is equal to
a. The total operating expenses
b. The total fixed costs
c. Fixed selling and administrative expenses
d. The total variable costs

12. Under variable costing, all fixed costs are expensed during the current period because
a. Fixed costs are usually immaterial in amount
b. Fixed costs are non-controllable costs.
c. 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
d. Allocation of fixed costs is usually done arbitrarily and could lead to erroneous decision by management.

13. Which of the following statements is incorrect?

a. In a variable costing income statement, variable selling and administrative expenses are used both in the
computation of contribution margin and operating income
b. When using a variable costing system, the contribution margin (CM) discloses the excess of revenues
over variable costs
c. 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
d. Using absorption costing, fixed manufacturing overhead costs are best described as indirect product
cost

14. 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 was no beginning or ending inventories during the period. The most likely explanation of the increase in net
income is that, compared to budget, actual
a. Selling price was higher
b. Variable costs were lower
c. Fixed selling and administrative costs were lower
d. Fixed factory overhead costs were lower
15. 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
a. Produced multiplied by the variable manufacturing cost per unit’
b. Sold multiplied by the fixed factory overhead cost per unit
c. In inventory multiplied by the fixed factory overhead cost per unit
d. Sold multiplied by the selling price per unit
ITEMS 16 TO 20 ARE BASED ON THE FOLLOWING INFORMATION:
During January 200A, Sanji, Inc. produced 1,000 units of Product A with costs as follows:
Materials P 6,000
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 P20,000

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

16. What amount should be considered product cost for external reporting purposes?
a. P13.30 b. P18.30 c. P11.80 d. P14.80
17. What is the product cost per unit under variable costing?
a. P13.30 b. P18.30 c. P11.80 d. P14.80
18. What is the variable cost per unit for purposes of computing the contribution margin?
a. P13.30 b. P18.30 c. P11.80 d. P14.80
19. Under absorption costing, income for January 200A was
a. P8,200 b. P5,200 c. P6,700 d. P1,700
20. What would 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

21.Chopper Company produces and sells a single product. The costs and selling prices on a per-unit basis are as follows:

Selling price P120

Materials 35
Labor 15
Variable overhead 10
Fixed overhead 10
Variable selling and administrative 20
Fixed selling and administrative 5

The above per-unit figures are computed based on the company’ s normal capacity of 20,000 units.

The company’s expected margin of safety is

a. 7,500 units c. 62.5%
b. P2,400,000 d.P12,500

22.A product has a selling price of P20 and unit variable cost of P14. The effect of a P2 per unit increase in variable cost
is to increase the break-even level capacity by
a. 33. 1/3% c. P2 per unit
b. 50% d. 66.67%
23. The American Institute of Management Accountants came up with the Standards of Ethical Conduct for
Management Accountants awhich have four sections namely
a. Competence, confidentiality, integrity and objectivity.
b. Competence, security, integrity and objectivity.
c. Competence, confidentiality, integrity and maturity.
d. Competition, confidentiality, integrity and objectivity.

24. Financial and managerial accounting differ in a number of ways. In contrast to financial accounting, managerial
accounting
a. Focuses on providing data for external users.
b. Emphasizes relevance and flexibility rather than precision.
c. Is mandatory
d. Is governed by Generally Accepted Accounting Principles.

25. Provisions in this section of Ethical Standards for Management Accountants require management accountants to
devel0p their knowledge and skills and to do their tasks in accordance with relevant laws, regulations, and standards.
a. Competence c. Integrity
b. Confidentiality d. Objectivity

26. Management may use CVP analysis to determine the relative profitability of a product by
a. Determining the unit contribution margin and the projected profits at various levels of production.
b. Controlling the physical production of the products.
c. Assigning costs to a product in such a way that the contribution margin is maximized.
d. Keeping all costs to an absolute minimum.

27. Cost-volume-profit relationships that are curvilinear may be analyzed linearly by considering only
a. A relevant range of activity
b. The variable costs
c. The fixed costs
d. The relevant costs

28. In a contribution income statement

a. Cost are classified as to function.
b. Fixed and variable manufacturing costs are combined as one level item.
c. Fixed costs are shown separately from variable costs.
d. Fixed manufacturing costs are shown separately from variable manufacturing costs, but fixed and variable
operating costs are combined as one-line item.

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

a. Is done through various possible scenarios and computes the impact on profit of various predictions of future
events.
b. Is done through various possible scenarios and determines the effect of the cost accounting systems used in
each scenario.
c. Allows the decision-maker to introduce probabilities in the evaluation of decision alternatives.
d. Allows managers to study how total fixed costs vary with cost drivers.

30. 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
a. Use a sample from the entire population of data to generate a decision model and make the decision for
management.
b. Do nothing. It is not the MAS consultant’s responsibility to be concerned with the uncertainty of the results
and/or assumptions.
31. 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.
a. Indifference point c. Sangley point
b. Break-even point d. Order point

32. 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
a. Variable cost per unit for each additional unit
b. Selling price per unit for each additional unit
c. Contribution margin per unit for each additional unit
d. Gross profit per unit for each additional unit

33. One of the major assumptions limiting the reliability of break-even analysis is that
a. Unit variable costs and total fixed costs will vary directly with the change in units sold.
b. There is a relevant range in which the various relationships are true for a given period of time.
c. Productive efficiency will increase as more units are produced.
d. Changes in inventory are significant in amount.

34. The type of costing system that will provide the best information for CVP and BE analysis if inventories are
expected to change is
a. Process costing c. Absorption (full) costing
b. Job-order costing d. Variable (direct) costing

35. Which of the following statements is not correct?

a. 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.
b. Other thins as they are, a P10,000 decrease in fixed cost will increase operating profit by the same amount.
c. A change in the amount of fixed costs will not affect the ratio of variable costs to sales.
d. A change in fixed costs has no effect on the contribution margin.

36. Which of the following statements regarding absorption and variable costing is correct?
a. Absorption costing results in higher income when finished goods inventory increases.
b. Variable manufacturing costs are lower under absorption costing.
c. Overhead costs are treated in the same manner under both variable and absorption costing methods.
d. Profits are always the same under the two costing methods.

37. Which of the following cost items is not correctly accounted for as a product cost under absorption and variable
costing?
PRODUCT COST UNDER
ABSORPTION VARIABLE
a. Shipping cost No No
b. Straight-line depreciation
of factory equipment Yes Yes
c. Factory supplies Yes Yes
d. Direct materials Yes Yes

38. Which of the following must be known about a production process to intitute a variable costing system?
a. The direct and indirect costs related to production
b. Standard quatities and prices for all production inputs
c. The variable and fixed components of manufacturing costs
d. The capacity level or denominator level to be used in allocating fixed overhead costs

39. What costs are treated as product cost under variable costing?
 a. All variable costs c. all manufacturing costs
b. All direct costs only d. only variable production costs
40. Which of the following would most likely decrease the product cost per unit under variable costing?
a. A decrease in the commission paid to salesman for each unit sold
b. An increase in the number of units sold
c. A decrease in the remaining useful life of a factory equipment depreciated using the straight line
method
d. An increase in the remaining useful life of a factory equipment depreciated on the units-of- production
method

41 If sales increase from P800,000 to P900,000, and if the degree of operating leverage is 5, one would expect
profit to increase by
a. 62.5% b. 12.5% c. 5.0% d. 2.5%

The CEO of Robin, Inc. has asked you to participate in a project study that will launch a new product called “Liha”. The
projected income statement for the following period, without the new product, appears as follows:

Projected Income Statement

(000s ommited)
Net sales P600,000
Variable cost of sales:
Materials P250,000
Labor 80,000
Factory overhead 30,000 360,000

Manufacturing margin 240,000

Fixed overhead 20,000
Gross profit P220,000
Operating expenses:
Distribution 60,000
Selling and delivery 70,000
Marketing 36,000
General and administrative 24,000 190,000
Profit before tax P 30,000
Provision for income tax 9,000
Profit after tax P 21,000

The following information were made available by a team composed of marketing, production, finance, legal, human
relations, and other key member of management.

a. Based on the market research conducted, the optimum introductory price for “Liha” is P60 per unit and about
50,000 units can be sold at this price in the coming period.
b. Liha’s non-fixed product cost will have the same rate of variability to net sales as the old products.
c. Production of Liha will require new equipment and additional manpower, hence, fixed manufacturing overhead
is expected to increase in 20%.
d. The same selling and delivery facilities will be used. Thus, this expenses will increase only by 4%.
e. Distribution costs will remain unchanged because the new product will not require new investments on fleet
and distribution centers.
f. Liha should enter the market with a big bang. This will require heave spending in marketing, although it will be
limited to 10% of the new sales from Liha.
g. The new product will require additional general and administrative costs of P1M.
h. Analysis of cash flows shows favorable results.
 42. Based on the given data,
a. Liha will yield incremental after tax profit of P1,200,000
b. If the Liha project is implemented, projected income of Skin Care, Inc. will increase to P816,000.
c. The project is expected to earn after tax profit of 2.8% of its own net sales.
d. Liha’s contribution margin will be P12,000,000.

43. If selling and delivery expenses do not vary with sales, the break-even sales for Liha (in 000’s) is
a. P26,000 c. P 19,500
b. P30,000 d. P544,500

44. If the company’s minimum acceptable rate of return on sales for new projects is 5%, the Liha project would be
implemented of the number of units to be sold is at least
a. 500,000 c. 800,000
b. 520,000 d. 600,000

45. If the maximum number of units in Liha’s relevant range is 800,000, this new product’s projected profit before
tax with sales of 600,000 units is
a. P 9,979,200 c. P36,000,000
b. P3,000,000 d.P10,800,000
46 . Nami 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?
a. P680,000 b. P196,000 c. P640,000 d. P836,000

ITEMS 47 TO 48 ARE BASED ON THE FOLLOWING INFORMATION:

During the month of May, Usopp Corp. produced and sold 12,000 units of a product. Manufacturing and selling
cost 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

47. The product’s unit cost under variable costing was

a. P51 b. P49 c. P52 d. P50
48. The product’s unit cost under absorption costing was
a. P51 b. P49 c. P52 d. P50
49. Brook Corporation produced 10,000 units of Product A during the month of November. Costs incurred during
the month were as follows:
Direct materials used P20,000
Direct labor 16,000
Variable manufacturing overhead 8,000
Fixed manufacturing overhead 10,000
Variable selling and administrative expenses 2,400
Fixed selling and administrative expenses 9,000
P65,400
 What were Product A’s product costs per unit under absorption and variable costing?
Absorption Costing Variable Costing
a. P6.54 P5.64
b. 4.40 5.40
c. 3.60 4.64
d. 5.40 4.40

50. Zoro Corporation’s 200A manufacturing costs were as follows:

Prime costs P400,000
Straight-line depreciation of factory equipment 60,000
Straight-line depreciation of factory building 40,000
Janitor’s salaries for cleaning factory premises 12,000
Salesmen’s commission based on sales 20,000
Straight-line depreciation for delivery van 15,000

How much of these costs should be inventoried for external reporting purposes?
a. P512,000 b. P400,000 c. P547,000 d. P412,000

"No matter how hard or impossible it is, never lose sight of your goal." – Monkey D. Luffy

Prepared by:

Camille G. Garcia, CPA

Instructor