Assignment and Quiz for Finals (September to October 2016)

Ref Topics/Types Requirements Items Total

Even Odd
I CVP Analysis – Theories Answer odd or even numbers 20 20 40
I CVP Analysis – Problems Answer odd or even numbers 7 8 15
II Responsibility Accounting–Theories Answer odd or even numbers 5 5 10
III Budgeting – Theories Answer odd or even numbers 15 15 30
III Budgeting – Problems All 5 5 5
IV Standard Cost & OPM– Theories Answer odd or even numbers 20 20 40
IV Standard Cost & OPM – Problems Answer odd or even numbers 10 10 20
Total 82 83 160
For grade consideration 75 75
Extra points 7 8

I. Cost Volume Profit (CDP) Analysis

THEORIES ( Please answer Odd or Even numbers only)

1. To which function of management is CVP analysis most applicable?

a) Planning b) Organizing c) Directing d) Controlling

2) The systematic examination of the relationships among selling prices, volume sales and production,
costs, and profits is termed:
a) contribution margin (CM) analysis b) CVP analysis c) budgetary analysis d) gross profit analysis

3) The term CM is best defined as the:

a) difference between fixed costs and variables costs b) difference between revenue and fixed costs
c) amount available to cover fixed costs and profit d) amount available to cover variable costs

4) CVP analysis allows management to determine the relative profitability of a product by

a) highlighting potential bottlenecks in the production process
b) determining the CM per unit and projected profits at various levels of production
c) assigning costs to a product in a manner that maximizes the contribution margin
d) keeping fixed costs to an absolute minimum

5) Firms with a high degree of operating leverage

a) will have a more significant shift in income as sales volume changes
b) have lower fixed costs
c) have low CM ratios
d) are less dependent on volume to add profits

6) The most useful information derived from a break even chart is the
a) amount of sales revenue needed to cover enterprise variable costs
b) amount of sales revenue needed to cover enterprise fixed costs
c) relationship among revenues, variable costs, and fixed costs at various level of activity
d) volume or output level at which the enterprise breaks even

7) In multi-product situations, when sales mix shifts toward the product with the highest CM, then:
a) total revenue will decrease b) breakeven quantity will decrease c) total contribution margin will
decrease d) operating income will decrease

8) at the breakeven point, fixed cost is always

a) less than the CM b) equal to the CM c) more than the CM d) more that the variable costs

9) at the break even point:

a) net income will increase by the unit CM for each additional item sold above break even
b) the total CM changes from negative to positive
c) fixed costs are greater than CM
d) the CM ratio begins to increase

10) in CVP analysis, the greatest profit will be earned at

a) one hundred percent at normal productive capacity
b) the production point with the lowest marginal cost
c) the production point at which average total revenue exceeds average marginal cost
d) the point at which marginal cost and marginal revenue are equal

11) Which of the following is not an assumption underlying CVP analysis

a) The behavior of total revenue is linear
b) Unit variable expenses remain unchanged as activity varies
c) Inventory levels at the beginning and end of the period are the same
d) The number of units produced exceeds the number of units sold

12) Which of the following assumptions is inherent to CVP analysis?

a) In manufacturing firms, the beginning and ending inventory levels are the same
b) In a multi-product organization, the sales mix varies over time
c) The behavior of total revenue is curvilinear
d) The relevant range is not a consideration

13) Operating leverage is high in firms with

a) a small proportion of fixed costs, a high proportion of variable costs, and the resulting high
contribution margin per unit
b) a small proportion of fixed costs, a high proportion of variable costs, and the resulting low
contribution margin per unit
c) a high proportion of fixed costs, a small proportion of variable costs, and the resulting low
contribution margin per unit
d) a high proportion of fixed costs, a small proportion of variable costs, and the resulting high
contribution margin per unit

14) Advocates of CVP analysis argue that:

a) fixed costs are irrelevant for decision making
b) fixed costs are mandatory for CCP decision making
c) differentiation between the patterns of variable costs and fixed costs is critical
d) fixed costs are necessary to calculate inventory valuations

15) With respect to fixed costs, CVP analysis assumes that fixed cost:
a) per unit remains constant as volume changes
b) in total remains constant from one period to the next
c) in total varies directly with volume
d) in total remains constant across changes in volume

16) Which of the following is not a limiting factor of CVP analysis?

a) The process assumes a linear relationship among the variables
b) The process assumes variable costs per unit are variable
c) Efficiency is assumed to the be constant
d) Inventory levels are assumed to not change

17) As projected net income increases the:

a) degree of operating leverage declines
b) margin of safety stays constant
c) breakeven point goes down
d)contribution margin ratio goes up

18) Robotics Company has a higher degree of operating leverage than Menial Company. Which of the
following is true.
a) Robotics has higher variable expense
b) Robotics is more profitable that Menial Company’s
c) Robotics is more risky than Menial Company is
d) Robotics profits are less sensitive to percentage changes in sales

19) A Company’s breakeven point in sales pesos may be affected by equal percentage increase in both
selling price and variable cost per unit (assume all other factors are equal within the relevant range). The
equal percentage changes in selling price and variable cost per unit will cause the breakeven point in
sales pesos to:
a) decrease by less than the percentage in selling price
b) decrease by more than the percentage increase in selling price
c) remain the same
d) increase by more than the percentage increase in selling price

20) As the company sells more of higher contribution margin product in relation to other products, the
a) breakeven in units declines
b) margin of safety stays constant
c) breakeven point goes up
d) Weighted average contribution margin ration remains unchanged

21) A company increased the selling price for its product from P 1.00 to P 1.10 a unit when total fixed
costs increased from P 400K to P 480K and variable cost per unit remained unchanged. How would these
changes affect the breakeven point.
a) The breakeven point in units would be increased
b) The breakeven point in units would be decreased
c) The breakeven point in units would remain unchanged
d) The effect cannot be determined from the information given

22) The amount by which sales revenues could drop until a loss occurs is referred to as the:
a) sales volume variance b) margin of safety c) prodct contribution rate d) degree of operating leverage

23) On January 01, 2016, Incremental Company increased its direct labor wage rates. All other budgeted
costs and revenues were unchanged. How did this increase affect Incremental Company’s budgeted
break even point and budgeted margins of safety.

Choices Budgeted Break Even Point Expected Margin of Safety

a) Increase Increase
b) Increase Decrease
c) Decrease Decrease
d) Decrease Increase

24) As the variable cost increases but the selling price remains constant, the:
a) degree of operating leverage declines
b) margin of safety stays constant
c) breakeven point goes down
d) CM ratio goes up

25) A very high degree of operating leverage (DOL)indicates that a firm:

a) has high fixed costs b) has a high net income c) has high variable costs d) is operating at a level
close to its break- even point

26) With the aid of computer software, mangers can vary assumptions regarding selling prices, costs and
volume and can immediately see the effects of each change on the break even point and profit. Such an
analysis is called
a) “what if” or sensitive analysis b) vary the data analysis c) computed aided analysis d) data gathering

27) If a company raises its target peso profit, its

a) BEP rises b) fixed costs increase c) required total contribution margin increase d) Selling Price rises

28) On breakeven chart, the BEP is located at the point were the total
a) revenue line crosses the total fixed cos line
b) revenue line crosses the total contribution margin line
c) fixed cost line intersects the total variable cost line
c) revenue line crosses the total cost line

29) which of the following best describes the impact of selling more units
a) the increase in sale volume increases total variable cost
b) The increase in sales volume means an increase in total fixed cost
c) The increase in sales increases contribution margin, causing net income to decrease
d) The increase in sales increases contribution margin per unit causing the break even point to decrease

30) A fixed cost is the same percentage of sales in three different months. Which of the following is true.
a) The company had the same sales in each of those months
b) The cost is both fixed and variable
c) The company is operating at its break even point
d) The company is achieving its target level of profits

31) Assuming a company has net income, which of the following statements is true regarding the
contribution per unit
a) it will decrease as the number of units sold increases
b) it will decrease as the number of units sold increases
c) it indicates the amount that net income will increase with the sale of each additional unit
d) it indicates the amount that variable costs will decrease with the sale of each additional unit

32) a company with a high level of operating leverage will:

a) experience fewer fluctuations in income as sales fluctuates than a company with a low level of
operating leverage
b) experience wider fluctuations in income as sales fluctuate than a company with a low level of
operating leverage
c) earn higher profits than a company with a low level of operating leverage
d) earn lower profits than a company with a low level of operating leverage

33) In planning product mix for maximum profit, CVP analysis would stimulate sale of the product by
increasing the:
a) sales price b) variable cost per unit c) contribution margin d) emphasis on customer priority

34) A relatively low margin of safety ration for a product is usually an indication that the product:
a) is losing money b) has a high CM c) is riskier than higher margin of safety products d) is less risky
than higher margin of safety products

35) Which of the following would not affect the break even point
a) Number of units sold b) variable cost per unit c) Total Fixed Cost d) Sales price per unit

36) The margin of safety is a key concept of CVP analysis. The margin of safety is the:
a) CM rate b) difference between budgeted contribution margin and actual contribution margin
c) difference between budgeted contribution margin and breakeven contribution margin
d) difference between budgeted sales and breakeven sales

37) If a fixed costs attendant to a product increase while variable costs and sale price remains constant,
what will happen to contribution margin (CM) and breakeven point BEP)
Choices Contribution Margin Break even Point
a) Increase Decrease
b) Decrease Increase
c) Unchanged Increase
d) Unchanged Unchanged
38) If a company is operating at a loss:
a) fixed costs are greater than sales
b) selling price is lower than the variable cost per unit
c) selling price is less than the average total cost per unit
d) fixed cost per unit is greater than the variable cost per unit
39) Introducing income taxes into cost volume profit analysis
a) raises the BEP
b) lowers the BEP
c) Increases unit sales needed to earn a particular target profit
d) decreases the contribution margin percentage

40) A cost volume profit graph reflects relationships

a) that are expected to hold over the relevant range
b) of results over the past few years
c) that the company’s managers would like to have happen
d) likely to prevail of the industry

Problems (Please answer odd or even numbers only)

1) Green Corporation expects to sell 3,000 plants a month. Its operations manager estimated the
following monthly costs:
Variable costs P 7,500.00
Fixed costs 15,000.00
When sales price per plant does it need to begin making a profit if it sells the estimated number of
plants per month?

a) P 7.51 b) P 7.50 c)P 5.00 d) 2.50

2) El Nadal Manufacturing has the following product information available:

Sales price P 75/unit
Variable costs 25/unit
Before tax profit P 180,000.00

If El Nadal has calculated that it needs to sell 20,000 units in order to earn an after tax target profit of
P126,000.00 what were its fixed costs?
a) P 54,000.00 b) P 1,180,000.00 c) P 820,000.00 d) P 874,000.00

3) An organization’s break-even point is 4,000 units at a sales price of P 50 per unit, variable cost of P 30
per unit, and total fixed costs of P 80,000. If the company sells 500 additional units, by how much will its
profit increase?
a) P 25,000 b) P 15,000.00 c)P 10,000.00 d) P 12,000.00

4) Cielo’s Hotdog Stand sells hotdogs for P 25 each. The variable costs per hotdog are P 10. Cielo’s fixed
costs are currently P 8,000 per month. Cielo’s is considering expanding his business to three hotdog
stands which will increase fixed costs per month by P 12,000.00

If Cielo does expand his business to three stands, how many additional hotdogs will need to be sold per
year in order to break even?

a) 800 b) 600 c)9,600 d)7,200

5) The Red Lions Brotherhood is planning its annual Riverboat Extravaganza. The Extravaganza
committee has assembled the following expected costs for the event:
Dinner per person P 70.00
Programs and souvenir per person 30.00
Orchestra 15,000.00
Tickets and advertising 7,000.00
Riverboat rental 48,000.00
Floor show and strolling entertainment 10,000.00
The committee members would lie to charge P 300.00 per person for the evening’s activities.
Assume that only 250 persons are expected to attend the extravaganza, what ticket price must be
charged to breakeven?
a) P 420.00 b) P 350.00 c) P 320.00 d) P 390.00

6) Consider the following:

Fixed expenses P 78,000.00
Unit contribution margin 12
Target net profit 42,000.00
How many unit sales are required to earn the target net profit?
a) 15,000 units b)10,000 units c) 12,800 units d) 20,000 units

7) Based on the following, compute the amount of sales

Profit margin before tax based on sales 8 percent
Margin of safety ratio 20 percent
Fixed costs P 1,200,000.00
Variable costs of goods sold 25 percent
Variable selling and administrative expense?
a) 2,2026,667 b) P 3,750,000.00 c) P 6,080,000.00 d) P 4,750,000.00

8) Carribean Company produce a product that sells for P 60. The variable manufacturing costs are P
30.00 per unit. The fixed manufacturing cost is P 10.00 per unit based on the current level of activity and
fixed selling and administrative costs are P 8 per unit. A selling commission of 10% of the selling price is
paid on each unit sold.
The contribution margin per unit is:
a) P 24 b) P36 c) P 30 d) P 54

9) Seal Yard Ornaments sells lawn ornaments for P 15 each. Seal’s contribution margin ratio is 40%.
Fixed costs are P 32,000. Should fixed costs increase by 30%, how many additional units will Seal have to
produce and sell without affecting the current amount of profit
a) 1,600 b) 5,333 c) 6,933 d) 1,067

10) At a break even point of 5,000 units sold, variable expenses were P 10,000 and fixed expenses were
P 50,000.00 The profit from the 5,001 unit would be?
a) P 10 b) P 50 c)P 15 d) P 12

11) Galactica Company has fixed costs of P 100,000 and breakeven sales of P 800,000. Based on this
relationship, what is its projected profit at P 1,200,000 sales
a) P 50,000.00 b)P 200,000 c) P 150,000 d) P 400,000
12) The Hard Company sells widgets. The company breaks even at an annual sales volume of 80,000
units. At an annual sales volume of 100,000 units the company reports a profit of P 220,000. The annual
fixed costs for the Hard Company are:
a) P 880,000 b) P 1,100,000 c) 800,000 d) P 1,000,000

13-15) The following information are for two companies in the transportation industry:

Description Company A Company B

Amount Percent of Sales Amount Percent of Sales
Sales P 100,000.00 P 100,000.00
Variable Costs 60,000.00 30,000.00
Contribution Mar 40,000.00 70,000.00
Fixed Costs 30,000.00 60,000.00
Net Income P 10,000.00 P 10,000.00
13) Calculate the percentage of sales for each company
14) Calculate the operating leverage for each company
15) Assume sales rise 25% in the next year. Calculate the percentage increase in profit for each company

II. Responsibility Accounting System and Transfer Pricing

Theories (Please answer odd or even numbers only)
1) Responsibility Center is a specific unit of an organization assigned to a manager who is held
accountable for its operations and resources while Responsibility accounting is the system that
recognizes various decision centers throughout an organization and traces costs by areas of
responsibility. This system is also known as activity and profitability financing.
a) all statements are false b) all statements are true c) other statement is false d) all
statements are accurate

2) The following are responsibility centers except:

a) Cost b) Profit c) Investment d) Revenue e) Call Centers

3) The objective of an investment center or business unit are as follows except for:
a) Motivate managers to exert a high level of effort to achieve the goals of the firm
b) Provide the right incentive for managers to make decisions that are consistent with the
goals of top management
c) Determine fairly the rewards earned by the managers for their effort and skill
d) Managers are responsible for minimizing costs subject to some output constraints
e) None of the above

4) The following Return on Investment (ROI) Formula can be used by Investment centers in evaluating
performance except for:
a) ROI = Net operating income (OI)/average operating assets (OA)
b) ROI = (Net OI/sales) (Sales/Ave OA)
c) ROI =Operating Margin x Asset Turnover (Return on sales)
d) ROI= Net OI/average current assets
 e) None of the above

6) Operating assets include the following except:

a) Cash
b) Accounts receivable
c) Inventory
d) Plant and equipment
e) Land held for future use

7) Another approach to measure performance in an investment center is a concept known as Residual

Income (RI). The following are advantages of RI except for:
a) A unit pursues an investment opportunity costs as long as the return from the investment
exceeds the minimum rate of return set by the firm
b) The firm can adjust the required rates of return for differences in risk and types of assets
c) It is possible to calculate a different investment charge for different types of assets
d) It may be difficult to obtain a minimum rate of return
e) None of the above

8) The following statements are true except:

a) The main advantage of using Economic Value Added (EVA) is that it focuses manager’s
attention of creating value for shareholders by earning profit greater than the firm costs of
capital
b) Net Operating income sometimes referred to as Earnings before interest and taxes ( EBIT)
c) In investment centers, ROI can be improved by either increasing sales, by reducing expenses
or by reducing assets
d) Users of EVA do not follow conventional, conservative accounting policies
e) Using EVA, expenses that contribute to the long term value of the company are expensed

9)The following statements are true except:

a) Transfer price is the value assigned to goods and services transferred between segments within
the company
b) A negotiated price is an attempt to simulate an arm’s length transactions between supplying and
buying segment
c) The market price approach is designed for situations in which there is an outside market for the
transferred product or services
d) Variable cost transfer price is based only on variable or differential costs while Full cost includes
actual manufacturing costs (variable and fixed) plus portions of marketing and administrative
costs
e) When supply exceeds demand, market prices may drop well below their historical advantage. If
the drop in prices are expected to be permanent, these low market prices are sometimes called
distress prices

10) The following are the advantage or benefits that may be derived from Responsibility accounting
except:
a) It facilitates delegation of decision making
b) It helps management promote the concept of management by objective wherein managers agree
on a common set of goals and their performance evaluated on the basis of their attainment of goals
c) It aids in establishing standards of performance which are used in evaluating efficiency and
effectiveness of the different units in the organization
d) It permits effective use of management by exception which provides that the manager will
maximize his efficiency by concentrating on those operational factors which are deviations from plans
e) none of the above

III. Budgeting
Theories (Please answer odd or even numbers only)
1. Budgets are related to which of the following management function?
a) Planning b)Performance evaluation c)Control d) All of these

2) Which of the following is an advantage of the budgeting process?

a) It requires very little input from various departmental managers, leaving them more time to
devote to day-to day activities
b) It communicates to employees specific goals and objectives that may be used in evaluating
their job performance
c) It forces management to focus on the past and not be distracted by the day to day operations
of the business
d) It requires no communications between various managers in the organization

3) Which of the following statements is correct regarding budgeting?

a) It is primarily focused on past performance
b) It is primarily a bookkeeping task
c) It should be built from the ground up each year
d) It involves input from a broad range of managers

4)Which of the following best defines budgeting

a) Budgeting is planning
b) Budgeting is communicating objectives and controlling outcomes
c) Budgeting is communicating specific objectives which can be measures and refined based
upon feedback
d) Budgeting is communicating the planned objectives

5) The concept of “management by exception “refers to management consideration of:

a) only those items that vary materially from expectations b) only rare events
c) samples selected at random d) only significant unfavorable
deviations

6) A formal written statement of management’s plans for the future, packaged in financial terms is a:
a) responsibility report b) performance report c) cost of production report d) budget

7) Which of the following is least likely a reason why a company prepares its budget?
a) to provide a basis for comparison of actual performance
b) To communicate the company’s plans throughout the entire business organization
c) To control income and expenditure in a particular period
d) To make sure the company expands its operations

8) Which of the following is not an attribute of a budget?

a) The budget is an organization’s operating plan
b) The budget is a motivating device
c) The budget is a guarantee of actual results
d) The budget is a guideline for operations

9) Which is not true regarding the responsibilities of the budget committee?

a) The budget committee prepares and develops department budgets
b) The budget committee provides guidance from a “big picture” or central perspective
c) The budget committee provides feedback that may include rejection of department budgets that do
not reflect realistic amounts
d) The budget committee provides ongoing communication of the budget to the organization

10) The budgets that are based on a very high levels of performance like expected costs using ideal
standards
a) assist in planning the operations of the company
b) motivate 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

11) which of the following statement is incorrect

a) An imposed budget is the same as participative budget
b) The preparation of the budget would be the responsibility of each responsibility unit
c) Top management’s support is necessary to promote budget participation
d) The top management should review and approve each responsibility unit’s budget

12) A budgeting process in which information flows top down and bottom up is referred to as
a) continuous budgeting b) Participative budgeting c) Perpetual budgeting d) Joint budgeting

13) The process of developing budget estimates by requiring all levels of management to estimate sales,
production, and other operation data as though operations were being initiated for the first time is
referred to as:
a) Forecasting b) Zero -based budgeting c) Continuous budgeting d) Program budgeting

14) The ideal financial planning process would be: a) top down planning b) bottom up planning
c) a combination of top-down and bottom up planning d) none of the given choices

15) The most important budget in the master budget is likely the:
a) Cash Budget b) Capital budget c) Personnel budget d) Purchases budget

16) A variant of fiscal year budgeting whereby a twelve month projections into the future is maintained
at all times
a) Forecasting b) Zero based budgeting c) Continuous budgeting d) Calendar budgeting
17) Zero based budgeting:
a) involves the review of changes made to an organization’s original budget
b) does not provide a summary of annual projections
c) involves the review of each cost component from a cost/benefit per perspective
d) emphasizes the relationship of effort to projected annual revenues

18) A budget that presents the plan for a range of activity so that the plan can be adjusted for changes in
activity levels is referred to as:
a) Zero – based budgeting
b) Continuous budgeting
c) Flexible budgeting
d) Program planning and budgeting system

19) A flexible budget is:

a) one that can be changed whenever a manager so desires
b) adjusted to reflect expected costs at the actual level of activity
c) one that uses the formula total costs = cost per unit x units produced
d) the same as a continuous budget

20) which one of the following is a budgeting process that requires managers to prepare budgets from
ground zero? a) Flexible budgeting b) Volume based budgeting
c) activity based budgeting d) Zero – base budgeting

21) A system that classifies budget requests by activity and estimate the benefits arising from each
activity? a) Incremental budgeting system b) Static budgeting system c) Program planning and
budgeting system d) Participative system

22) A budgeting process in which information is constantly updated to provide a glance at a future
twelve month plans referred to as:
a) Continuous budgeting b) Participative budgeting c) On going budgeting d) Joint budgeting

23) A type of budget plan that is updated monthly or quarterly and where one month or quarter is
dropped, another is added is called:
a) Master budget b) Operating and financial budget c) Continuous budget d) Zero base budget

24) A systematized approach known as zero based budgeting

a) classifies the budget by the prior year’s activity and estimates the benefits arising from each activity
b) begins with either the current level of spending or projected whichever is lower
c) presents planned activities for a period of time but does not present a firm commitment
d) divides the activities of individual responsibility centers into a series of packages that are prioritized

25) Which of the following statements is TRUE?

a) Under zero based budgeting, a manger is required to start at zero budget level each period, as if the
programs involved were being initiated for the first time
b) The primary purpose of the cash budget is to show the expected cash balance at the end of the
budget period
c) budget data are generally prepared by top management and distributed downward in an organization
d) the budget committee is responsible for preparing detailed budget figures o for an organization

26) Which of the following statements about zero based budgeting is incorrect?
a) All activities in the company are organized into break up units called packages
b) all costs have to be justified every budgeting period
c) the process is not time consuming since justification of costs can be done as a routine matter
d) Zero based budgeting include variable costs only

27) A common starting point in the budgeting process is

a) expected future net income b) past performance c) the total market size d) a clean slate, with no
expectations

28) Which of the following statements is incorrect regarding sales forecasting:

a) it may involve the use of elaborate planning models and regression analysis
b) it may rely heavily on the intuition and opinions of mangers
c) other budgets are rarely affected by errors in sales forecasts
d) The usual starting point is last year’s level of sales

29) If a company wishes to establish a factory overhead budget system in which estimated costs can be
derived directly from estimates of activity levels, it should prepare a:
a) Flexible budget b) Program budget c) Discretionary budget d) manufacturing budget

30) An overly optimistic sales budget may result in:

a) increases in selling prices late in the year b) insufficient inventories
c)increased sales during the year d) excessive inventories

Problems (Please answer all numbers 1-5)

1) The management of Isner Company has prepared a graph showing the total costs of operating branch
warehouses throughout the country. The cost line crosses the vertical axis at P 400,000.00. The total
cost of operating one branch is P 650K . The total cost of operating ten branches is P 2.9 Million. For
purposes of preparing a flexible budget based on the number of branch warehouses in operation, what
formula would be used to determine budgeted costs at various levels of activity.
a) Y = P 400K + P 250K X b)Y=P400K + 290K X c)Y= P650K + P 400K X d)Y= 650K + P 250K X

2) Silvestre Company estimated its overhead to produce 80K units at P 1 Million (60 percent variable). If
the estimate changes, and Silvestre now expects to produce 100K units, what would be budgeted
overhead be if the cost behavior remains the same.
a) P1,050,000 b) P 1,150,000 c) P 1,250,000 d) P 1,450,000

3) If there were 30K pounds of raw material on hand on Jan 1, 60K pounds are desired for inventory at
December 31, and 180K pounds are required for annual production, how many pounds of raw material
should be purchased during the year.
a) 150K pounds b)240K pounds c) 120K pounds d) 210K pounds
4) If the required direct materials purchases are 8,000 pounds and the direct materials required for
production is three times the direct materials purchases, and the beginning direct materials are three
and half times the direct materials purchases, what are the desired ending direct material in pounds?
a) 20K b) 4K c) 12K d) 32K

5) Lopez Company has a collection schedule of 60% during the month of sales, 15% the following month,
and 15% subsequently. The total credit sales in the current month of September were P 80K and total
collection in September were P 57K. What were the credit sales in July?
a) P 90K b) 30K c) 45K d) 32K

IV. Standard Costs and Variance Analysis

Theories: (Please answer odd or even numbers only)
1) Which of the following statements is true regarding “management by exception”
a) It is rarely used in variance analysis
b) It forces managers to investigate all variances, regardless of size
c) It requires the use of flexible budgets
d) It requires managers to calculate standard costs but not actual costs

2) When managers use the process called “management by exception”

a) they take action when there is a significant variance between planned and accrual results
b) they take action when there is a variance of any size or amount between planned and actual results
c) they are allowed to use standard costs rather than actual costs on financial statements issued to
decision makers
d) they are not required to compute the standard cost of making a product

3) Managers who properly apply the concept called “management by exception” will:
a) investigate only unfavorable variances
b) investigate only favorable variances
c) always investigate unfavorable and favorable variances regardless of size
d) investigate only variances of a certain size or scope

4) The primary purpose of using a standard cost system is to:

a) make things easier for managers in the production facility
b) provide a distinct measure of cost control
c) minimize the cost per unit of production
d) assure continuous production of goods

5) Which one of the following statements is true concerning standard costs?

a) Standard costs are estimates costs attainable only under the most ideal conditions, by rarely
practicable
b) Standard costs are difficult to use with a process-costing system
c) If properly used, standard can help motivate employees
d) Unfavorable variances, material in amount, should be investigated but large favorable variances need
not be investigated

6) Which of the following is a purpose of standard costing?

a) Determine breakeven production level
b) Control costs
c) Eliminate the need for subjective decisions by management
d) Allocate cost with more accuracy

7) When evaluating the operating performance management sometimes uses the difference between
expected and actual performance. This refers to:
a) Management by Deviation
b) Management by Control
c) Management by Objective
d) Management by Exception

8) Which of the following contains the two levels that standards maybe set at:
a) Normal and ideal b) Ideal and less efficient c) Normal and fully efficient d) Fully efficient and fully
effective

9) In most company machines breakdown occasionally and employees are often less than perfect. Which
type of standard acknowledges these characteristics when determining the standard cost of a product

a) efficiency standard b) ideal standard c) Practical standard d) Budgeted standard

10) Which of the following should be least considered when deciding whether to investigate a variance?
a) Whether the variance is favorable or unfavorable
b) significance of variance
c) cost of investigating the variance
d) trend of the variances over time

11) When standard costs are used in a process costing system, how, if at all, are equivalent units
involved or used in the cost report at standard?
a) equivalent units are not used
b) equivalent units are computed using a special approach
c) The actual equivalent units are multiplied by the standard cost per unit
d) The standard equivalent units are multiplied by the actual cost per unit

12) When performing input/output variance analysis in standard costing, standard hours allowed is a
means of measuring
a) standard output at standard hours
b) standard output at actual hours
c) actual output at standard hours
d) actual output at actual hours

13) The absolute minimum cost possible under the best conceivable operation conditions is a
description of which type of standard
a) Currently attainable b) Normal c) Theoretical d) Practical

14) A company employing very tight (high) standards in a standard cost system should expect that:
a) no incentive bonus will be paid
b) most variances will be unfavorable
c) employees will be strongly motivated to attain the standard
d) costs will be controlled better than if lower standards were used

15) If the total materials variance (actual cost of material used compared with the standard cost of the
standard amount of materials required) for a given operation is favorable, why must this variance be
further evaluated as to price and usage?
a) There is a no need to further evaluate the total materials variance if it is favorable
b) Financial reporting standards require that all variances be analyzed in three stages
c) All variances must appear in the annual report to equity owners for proper disclosure
d) To allow management to evaluate the efficiency of the purchasing and production functions

16) Which department is customarily held responsible for an unfavorable materials usage variance?
a) quality control b) Engineering c) Purchasing d) Production

17) Standards that represent levels of operation that can be attained with reasonable effort are called:
a) Theoretical Standards b) Ideal Standards c Variable Standards d) Normal Standards

18) Which of the following is the most probable reason why a company would experience an
unfavorable labor rate variance and a favorable labor efficiency variance?
a) The mix of workers assigned to the particular job was heavily weighted toward the use of higher paid,
experienced individuals
b) The mix of workers assigned to the particular job was heavily weighted toward the use of new,
relatively low paid, unskilled workers
c) Because of the productive schedule, workers from other production areas were assigned to assist in
this particular process
d) Defective materials caused more labor to be used in order to produce standard unit

19) TJ Manufacturing has an unfavorable direct labor rated variance. Which of the following would be
the most likely reason for this variance?
a) The company used lower paid workers than they had expected
b) Employees took a longer amount of time to produce the product than expected
c) The company gave employees an unexpected raise due to union negotiations
d) Employees used more direct materials in the production process than expected

20) Brochure, Inc. has a favorable direct labor rate variance. Which of the following would be the most
likely reason for this variance?
a) The company used lower paid workers in the production process more than they had expected
b) Employees took a shorter amount of time to produce the product than expected
c) The compay used a standard direct labor rate than was too low
d) Employees used less direct materials in the production process than expected

21) The budget variance for fixed factory overhead for the normal volume practical capacity and
expected activity levels would be the same
a) except for normal volume
b) except for practical capacity
c) except for expected activity
d) for all three activity levels
22) 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

23) A company uses a two way analysis for overhead variances: budget (controllable) and volume. The
volume variance is based on the:
a) total overhead application rate
b) volume of total expenses at various activity levels
c) variable overhead application rate
d) fixed overhead application rate

24) The choice of production volume as a dominator for calculating its factory overhead rate has:
a) no effect on the fixed factory overhead rate for applying costs to production
b) an effect on the variable factory overhead rate for applying costs to production
c) no effect on the fixed factory overhead budget variance
d) no effect on the fixed factory overhead production volume variance

25) The overhead controllable variance is calculated as the difference between actual overhead costs
incurred and the budgeted:
a) Overhead costs for the standard hours allowed
b) Overhead costs applied to the product
c) Overhead costs at the normal level of activity
d) Fixed overhead costs

26) New Republic of PI has a favorable fixed overhead spending variable. Which of the following would
be the most likely reason for this variance?
a) More units were actually produced than predicted
b) Fewer units were actually produced than predicted
c) Actual fixed overhead was more than predicted
d) Actual fixed overhead was less than predicted

27) Dumber Corp uses direct labor hours as the cost driver for variable overhead. In order to calculated
the variable overhead spending variance, which of the following items does not need to be known?
a) actual overhead costs
b) actual direct labor hours
c) Standard variable overhead rate per direct labor hour
d) Standard direct labor hours allowed

28) Rigor Ltd. uses direct labor hours as the cost driver for variable overhead. In order to calculated the
variable overhead efficiency variance, which of the following items does not need to be known
a) actual overhead costs b) accrual direct labor hours c) standard variable overhead rate per direct
labor hour d) standard direct labor hours allowed

29) The variable overhead efficiency variance:

a) is interrelated in the same manner as the direct labor efficiency variance
b) measures the efficient use of a factory utilities, factory maintenance and factory supplies
c) measures the efficient use of the cost driver in the flexible budget
d) measures the efficient use of direct materials

30) The fixed overhead volume variance is calculated by taking the difference between:
a) actual fixed overhead and budgeted fixed overhead
b) budgeted fixed overhead and budgeted variable overhead
c) budgeted fixed overhead and applied fixed overhead
d) budgeted fixed overhead per the flexible budget and budgeted fixed overhead per the static budget

31) Favorable fixed overhead volume variance occurs if:

a) there is a favorable labor efficiency variance
b) there is a favorable labor rate variance
c) production is less than planned
d) production is greater than planned

32) The unfavorable volume variance may be due to all but which of the following factors
a) failure to maintain an even flow of work
b) Machine breakdown
c) unexpected increases in the cost of utilities
d) failure to obtain enough sales orders

33) The variance least significant for purposes of controlling costs is the:
a) material usage variance
b) variable overhead efficiency variance
c) fixed overhead spending variance
d) fixed overhead volume variance

34) The variance most useful in evaluating plant utilization is the:

a) variable overhead spending variance
b) fixed overhead spending variance
c) variable overhead efficiency variance
d) fixed overhead volume variance

35) In analyzing manufacturing overhead variances, the volume variance is the difference between the:
a) amount shown in the flexible budget and the amount shown in the debit side of the overhead control
account
b) predetermined overhead application rate and the flexible budge application rate times actual hours
worked
c) budget allowance based on standard hours allowed for actual production for the period and the
amount budgeted to be applied during the period
d) actual amount spent for overhead items during the period and the overhead amount applied to
production during the period

36) How will a favorable volume variance affect net income under each of the following methods?
Absorption Variable
a) Decrease No effect
b)Decrease Increase
c) Increase No effect
d) Increase Decrease

37) Favorable volume variances may be harmful when:

a) machine repairs cause work stoppages

b) supervisors fail to maintain an even flow of work
c) production in excess of normal capacity cannot be sold
d) there are insufficient sales orders to keep the factory operating at normal capacity

38) To measure controllable production inefficiencies, which of the following is the best basis for a
company to use in establishing the standard hours allowed for the output of one unit of product
a) average historical performance for the last several years
b) Engineering estimates based on ideal performance
c) Engineering estimates based on attainable performance
d) The hours per unit that would be required for the person workforce to satisfy expected demand over
the long run

39) A difference between standard costs used for cost control and the budgeted costs representing the
same manufacturing effort can exist because
a) standard costs must be determined after the budget is completed
b) standard costs represent what costs should be while budgeted costs represent expected actual costs
c) budgeted costs are historical costs while standard costs are based on engineering studies
d) budgeted costs include some “slack” or padding while standard costs do not

40) During 2015, a department’s three variance overhead standard costing system reported unfavorable
spending ad volume variances. The activity level selected for allocating overhead to the product was
based on 80% of practical capacity. If 100% of practical capacity had been selected instead how would
the reported unfavorable spending and volume variances be affected?

Spending Variance Volume Variance

a) Increased Unchanged
b ) Increased Increased
c) Unchanged Increased
d) Unchanged Unchanged

Problems (Please answer odd or even numbers only)

1) The standard hourly rate was P 4.10. Standard hours for the level of production are 4,000. The actual
rate was P 4.37. The labor rate variance was P 654.50 unfavorable. What were the actual labor hours
worked?
a) 3,700 b) 4,150 c)3,850 d) 4,000

2) Clean Living Corp. uses two difference types of labor to manufacturer its product. The types of labor,
Mixing and Finishing, have the following standards:

Labor Type Standard Mix Standard Hourly Standard Cost

Mixing 500 hours P 10 P 5,000
 Finishing 250 hours P5 P 1,250
Yield: 4,000 units

During January, the following actual production information was provided:

Labor Type Actual Mix
Mixing 4,500 hours
Finishing 3,000 hours
Yield 36,000 units

What is the labor mix variance

a) P 2,500 F b) P 5,000 F c) P 2,500 U d) P 5,000 F

3) How much labor yield variances should be reported?

a) 6,250 U b) P 6,250 F c) P 5,250 F d) P5,000 U

4) Amihan had a P 750 unfavorable direct labor rate variance and an P 800 favorable efficiency variance.
Amihan paid P 7,150 for 800 hours of labor. What was standard labor wage rate?
a) P 8.94 b) P 7.94 c) P8.00 d) P 7.80

5) Powerless Company’s operations for April disclosed the following data relating to direct labor:
Actual Cost P 10,000.00
Rate Variance 1,000.00 F
Efficiency Variance 1,500.00 UF
Standard Cost P 9,500.00
Actual direct labor hours for April amounted to 2,000. Powerless standard labor rate per hour in April
was:
a) P 5.50 b) P 4.75 c) P 5.00 d) P 4.50

6) Lion company’s direct labor costs for the month of January were as follows:
Actual direct labor hours 20,000.00
Standard direct labor hours 21,000.00
Direct labor rate variance Unfavorable P 3,000.00
Total Payroll P 126,000.00
What was Lion’s direct labor efficiency variance?
a) P 6,000 favorable b) P 6,300.00 favorable c) P 6,150 favorable d) P 6,450 favorable

7) Using the information given below, determine the labor efficiency variance:
Labor price per hour P 20.00
Standard labor price per gallon of output at 20 gal/hour P 1.00
Standard labor cost of 8,440.00 P 8,440.00
Total actual inputs (410 hours at P 21/hour) P 8,610.00
a)P 410 unfavorable b) P 170 unfavorable c) P 240 favorable d)P 410 favorable

8 to 9) Questions 8 to 9 are based on Habagat Company’s direct labor costs which are presented below:
Standard direct labor hours 30,000
Actual direct labor hours 29,000
Direct labor efficiency variance 4,000
 Direct labor rate variance 5,800
Total payroll P 110,200
8) What was Habagat standard direct labor rate?
a) P 3.54 b) P 4.00 c) P 3.80 d) P 5.80
9) What was Habagat actual direct labor rate?
a) P 3.60 b) P 4.00 c) P 3.80 d) P 5.80

10) The Marikina Corporation makes a variety of leather goods. It uses standards costs and flexible
budget to aid planning and control. Budgeted variable overhead at a P 45, direct labor hour level is P
27,000.00. Material purchases were P 241,900 during April. Actual direct labor costs incurred were P
140,700. The direct labor usage variance was P 5,100 unfavorable. The actual average wage rate was P
0.20 lower than the average standard wage rate.

The company uses a variable overhead rate of 20% of standard direct labor cost for flexible budgeting
purposes. Actual variable overhead for the month was P 30,750.00

What were the standard hours allowed during the month of April?
a) 50,250.00 b) P 48,550.00 c) P 58,625.00 d) P 37,520.00

11) Using the information in preceding question (#10), what was the variable overhead spending
variance
a) P 600Fav b) P 600 Unfav c) P 1,020 Unf d)P 1,020 Fav

12-13) Patatas Inc. incurred actual variable overhead expenses of P 62,000 in the current year for the
production of P 10,000 units. Variable overhead was applied at a rate of P 2.00 per direct labor hour and
3 direct labor hours were budgeted for each unit. The company used 29,000 direct labor hours for
production.
12) What was Patatas variable overhead spending variance
a) P 4,000 U b) P 4,000 F c) P 2,000 U d) P 2,000F

13) What was Patatas variable overhead efficiency variance

a) P 4,000 U b) P 4,000 F c) P 2,000 U d) P 2,000F

14) Sibuyas Company uses a standard cost system. The following information pertains to direct labor
costs for the month of June:
Standard direct labor rate per hour P 10.00
Actual direct labor rate per hour 9.00
Labor rate variance (favorable) P12,000.00
Actual output (units) 2,000
Standard hours allowed for actual production 10,000 hrs
How many actual labor hours were worked during the month for Sibuyas Company?
a) 10,000 b) 12,000 c) 8,000 d) 10,500

15) Information of Hanep’s direct labor costs for the month of May is as follows:
Actual direct labor rate P 7.50
Standard direct labor hours allowed 11,000
Actual direct labor hours 10,000
 Direct labor rate variance P 5,500

What was the standard direct labor rate in effect for the month of May?
a) P 6.95 b) P 7.00 c) P 8.00 d) P 8.05
16) The overhead variance for Hugut Company were:
Variable overhead spending variance P 3,600 F
Variable overhead efficiency variance P 6,000UF
Fixed overhead spending variance P 10,000F
Fixed overhead volume variance 24,000F

What was the overhead controllable variance?

a) P 31,600F b) P 13,600F c) P 24,000F d) P 7,600F

17) Pagibig Company sets the following standards for 2015:

Direct labor cost (2DLH @ P 4.50) P 9.00
Manufacturing overhead (2DLH @ P 7.50) 15.00
Pagibig Company plans to produce its only product equally
each month. The annual budget for overhead costs are:

Fixed overhead P 150,000

Variable overhead 300,000
Normal activity in direct labor hours 60,000
In February, Pagibig Company produced 2,450 units with actual direct labor hours used of 5,050. Actual
overhead costs for the month amounted to P 37,245 (Fixed overhead is as budgeted)

The amount of overhead volume variance for Pagibig Company?

a) P 250 UF b) P 750UF c) P 500UF d) P 375UF

18)Kalma Company uses a standard cost system. The following budget, at normal capacity, and the
actual results are summarized for the month of December:
Direct labor hours 24,000
Variable factory OH P 48,000
Fixed factory OH P 108,000
Total OH per DLH P 6.50
Actual data for December were as follows:
Direct labor hours worked 22,000
Total factory OH P 147,000
Standard DLHs allowed for capacity attained 21,000

Using the two - way analysis of overhead variance, what is the controllable variance for December?
a) P 3,000 Fav b) P 9,000 Fav c) P 5,000 Fav d) P 10,500 Unfav

19) Wala Company applies overhead on a direct labor hour basis. Each unit of product requires 5 direct
labor hours. Overhead is applied on a 30 percent variable and 70 percent fixed basis; the overhead
application rate is P 16 per hour. Standards are based on a normal monthly capacity of 5,000 direct labor
hours.
During September 2015, Wala produced 1,010 unit s of product and incurred 4,900 direct labor hours.
Actual overhead cost for the month was P 80,000.00.

What is the annual budgeted fixed overhead cost?

a) P 56,000 b) P 56,560 c) P 672,000 d) 678,720

20) Fixed manufacturing overhead was budgeted at P 500,000 and 25,000 direct labor hours were
budgeted. If the fixed overhead volume variance was P 12,0000 favorable and the fixed overhead
spending variance was P 16,000 unfavorable fixed manufacturing overhead applied must be:

a) P 516,000 b) P488,000 c) P512,000 d) P 496,000