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CPAR
CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila

MANAGEMENT ADVISORY SERVICES FEBRUARY 09, 2022

First Pre-board Examination

Instructions: Choose the BEST answer for each of the following items.

1. Management accountants would not

a. assist in budget planning
b. prepare reports primarily for external users.
c. determine cost behavior.
d. be concerned with the impact of cost and volume on profits.

2. Evaluate whether the following statements are true or false:

I. Managerial accounting is primarily concerned with managers and external users.
II. Planning involves coordinating the diverse activities and human resources of a
company to produce a smooth running operation.
III. Controlling is the process of determining whether planned goals are being met.
A. B. C. D. E.
Statement I False True False True False
Statement II False True True False False
Statement III True False False True False

ITEMS 3 AND 4 ARE BASED ON THE FOLLOWING INFORMATION:

ILOCANDIA COMPANY has a traditional costing system in which it applies manufacturing
overhead to its products using a predetermined overhead rate based on direct labor-hours
(DLHs). The company has two products, P85G and C43S, about which it has provided the
following data:
P85G C43S
Direct materials per unit P36.50 P63.10
Direct labor per unit P20.80 P31.20
Direct labor-hours per unit 0.80 1.20
Annual production 35,000 10,000
The company’s estimated total manufacturing overhead for the year is P2,264,000 and the
company’s estimated total direct labor-hours for the year is 40,000.

The company is considering using a variation of activity-based costing to determine its unit
product costs for external reports. Data for this proposed activity-based costing system appear
below:
Activities and Activity Measures Estimated Overhead Cost
Supporting direct labor (DLHs) P1,160,000
Setting up machines (setups) 288,000
Parts administration (part types) 816,000
Total P2,264,000
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Expected Activity
P85G C43S Total
DLHs 28,000 12,000 40,000
Setups 1,480 920 2,400
Part types 1,880 840 2,720
3. The manufacturing overhead that would be applied to a unit of product P85G under the
company's traditional costing system is closest to:
a. P89.67
b. P45.28
c. P44.39
d. P23.20
4. The manufacturing overhead that would be applied to a unit of product C43S under the
activity-based costing system is closest to:
a. P71.04
b. P138.96
c. P67.92
d. P11.04

5. Foster, Inc., an appliance manufacturer, is developing a new line of ovens that uses
controlled-laser technology. The research and testing costs associated with the new
ovens is said to arise from a:
a. unit-level activity.
b. batch-level activity.
c. product-sustaining activity.
d. facility-level activity.
e. competitive-level activity.

6. Which of the following is incorrect regarding methods in segregating mixed costs?

a. High-low method calculations are relatively simple.
b. Least-square method calculations provide a precise cost estimation.
c. Scattergraph method is the BEST method to detect outliers.
d. The risk of choosing outlier is eliminated under least-square method since this
method includes all data in the computation.

7. The total production cost for 20,000 units was P21,000 and the total production cost for
making 50,000 units was P34,000. Once production exceeds 25,000 units, additional
fixed costs of P4,000 were incurred. The total production cost for making 30,000 units is:
a. P9,000
b. P31,900
c. P24,000
d. P28,000

8. ICARUS CORP. has a total of 2,000 rooms in its nationwide chain of hotels. On the
average, 70 percent of the rooms are occupied each day. The company’s operating cost
is P21 per occupied room per day at this occupancy level, assuming a 30-day month.
This P21 figure contains both variable and fixed cost elements. During October, the
occupancy dropped to only 45 percent. A total of P792,000 in operating costs were
incurred during the month.
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What would be the expected operating costs, assuming that the occupancy rate increases
to 60 percent during November?
a. P1,056,000
b. P 846,000
c. P 756,000
d. P 829,500

9. LUNA CORPORATION has provided the following production and average cost data for
two levels of monthly production volume. The company produces a single product.
Production volume 6,000 units 7,000 units
Direct materials P89.40 per unit P89.40 per unit
Direct labor 11.20 per unit 11.20 per unit
Manufacturing overhead 107.70 per unit 95.70 per unit
The best estimate of the total cost to manufacture 6,300 units is closest to:
a. P1,274,490
b. P1,287,090
c. P1,312,290
d. P1,236,690

10. For product costing purposes of a manufacturing entity, salary of the assembly
department’s manager is classified as
(1) An indirect cost when the cost object is the assembly department
(2) Part of prime cost
a. 1 only
b. 2 only
c. Both 1 and 2
d. Neither 1 nor 2

11. GOTEN INC. makes a variety of backpacks. The activity centers and budgeted information
for factory overhead for the year are
Activity Center Overhead Costs Cost Driver Activity Center Rate
Materials Handling P 3,000,000 Weight of materials P 3.00 per pound
Cutting 13,000,000 Number of shapes P30.00 per shape
Assembly 46,000,000 Direct labor hours P120.00per labor hour
Sewing 12,000,000 Machine hours P 80.00 per machine hour
Two styles of backpacks were produced in December, the GOKU and the CHICHI. The
quantities and other operating data for the month are
GOKU CHICHI
Direct materials costs P150,000 P200,000
Direct labor cost P300,000 P 50,000
Direct materials weight in pounds 50,000 15,000
Number of shapes 35,000 15,000
Assembly direct labor hours 7,500 1,200
Sewing machine hours 12,500 1,800
Units produced 5,000 1,000
Using ABC, calculate the cost per unit for each backpack.
a. GOKU. P620; CHICHI. P783 c. GOKU, P783; CHICHI, P620
b. GOKU, P1,232; CHICHI, P1,240 d. GOKU, P710; CHICHI, P1,033
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12. All of the following statements related to the use of break-even analysis are true except:
a. a change in fixed costs changes the break-even point but not the contribution
margin figure
b. a combined change in fixed and variable costs in the same direction causes a
sharp change in the break-even point
c. a change in fixed costs changes the contribution margin figure but not the break-
even point
d. a change in per-unit variable costs changes the contribution margin ratio
e. a change in sales price changes the break-even point

13. Which of the following is true regarding the contribution margin ratio of a single product
company?
a. The contribution margin ratio will decline as unit sales decline.
b. As fixed expenses decrease, the contribution margin ratio increases.
c. The contribution margin ratio equals the selling price per unit less the variable
expense ratio.
d. The contribution margin ratio multiplied by the selling price per unit equals the
contribution margin per unit.

ITEMS 14 AND 15 ARE BASED ON THE FOLLOWING INFORMATION:

MORPHLING CORP. is engaged in producing and selling 2 types of furniture, DELUXE and
SUPREME. The two products are sold in a ratio of 2 units of DELUXE to 3 units of
SUPREME. Data concerning these products are as follows:
DELUXE SUPREME
Selling Price P12 P28
Unit Variable Cost 3 16
MORPHLING CORP. has a total fixed cost of P600,000 per year and faces a tax rate of
30%.
14. Compute the volume of sales in units of DELUXE if the company plans to earn 10 percent
on sales revenue in before-tax income.
a. 27,778 units
b. 41,667 units
c. 50,000 units
d. 32,143 units

15. Compute the necessary peso sales of SUPREME to breakeven.

a. P933,333
b. P266,667
c. P480,000
d. P720,000

16. JEJEMON CORP. plans to increase its sales volume and make bigger profits. Last year,
the company sold 25,000 units of Product 101 at P10 per unit. The profits were modest
because of the small difference between the selling price and the variable cost per unit
and the relatively low sales volume. The fixed costs amount to P28,000 a year. Cost per
unit of product is P8. If the selling price is reduced to P9.60, the company feels that sales
can be increased to 30,000 units a year and thereby increase, too, its profits. What profit
before tax can be generated with the reduced selling price and the increased sales
volume?
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a. P20,000
b. P22,000
c. P28,000
d. P48,000

17. At 40,000 units of sales, JYNX CORP. had an operating loss of P3.00 per unit. When sales
were 70,000 units, the company had a profit of P1.20 per unit. The number of units to
breakeven is
a. 35,000
b. 45,000
c. 52,500
d. 57,647

18. Last month, NEVERMORE CORP. has an income of P0.75 per unit with sales of 60,000
units. During the current month when the unit sales are expected to be only 45,000,
there is a loss of P1.25 per unit. Both the variable cost per unit and total fixed costs
remain constant. The fixed costs amount to
a. P80,000
b. P360,000
c. P247,500
d. P210,000

19. Which of the following assumptions is inherent to CVP analysis?

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

20. The breakeven point in units increases when unit costs

a. decrease and sales price increases.
b. increase and sales price remains unchanged.
c. remain unchanged and sales price increases.
d. decrease and sales price remains unchanged.

21. JAM COMPANY has a 25% margin of safety. Its before-tax return on sales is 6%, and its
tax rate is 40%. If fixed costs amount to P320,000, how much sales did JAM make for
the year?
a. P1,066,667
b. P1,777,778
c. P1,684,211
d. P2,133,333

22. Which of the following pertains to integrity as a standard for ethical conduct for
management accountants?
a. Communicate information fairly and objectively.
b. Abstain from engaging in or supporting any activity that might discredit the
profession.
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c. Keep information confidential except when disclosure is authorized or legally

required.
d. Maintain an appropriate level of professional leadership and expertise by enhancing
knowledge and skills.

23. Which of the following variances are most similar with respect to the manner in which
they are calculated?
a. Labor rate variance and labor efficiency variance.
b. Materials price variance and materials quantity variance.
c. Materials price variance, materials quantity variance, and total materials variance.
d. Materials price variance and labor efficiency variance.
e. Materials quantity variance and labor efficiency variance.

24. AXIE CORP. manufactures a variety of products. Variable costing net operating income
last year was P86,000 and this year was P103,000. Last year, P32,000 in fixed
manufacturing overhead costs were released from inventory under absorption costing.
This year, P12,000 in fixed manufacturing overhead costs were deferred in inventory
under absorption costing. What was the absorption costing net operating income this
year?
a. P81,000
b. P83,000
c. P115,000
d. P123,000

25. Which of the following employees would be considered as holding a line position?
a. The controller of Amazon
b. The vice-president for government relations of Google.
c. The manager of food and beverage services at Enchanted Kingdom.
d. A secretary employed by Nestle Corporation
e. None of the above

26. A debit balance in direct labor efficiency variance may arise by utilizing more experienced
employees rather than inexperienced employees.

A credit balance in direct usage variance may arise from the taking advantage of
supplier’s discounts in purchasing materials.
a. True, false
b. False, true
c. False, false
d. True, true

27. Which of the following is a sign of poor cost control?

a. A high unfavorable budget variance.
b. A high unfavorable volume variance.
c. High under-applied overhead.
d. High over-applied overhead.
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28. The use of ideal standards

a. Motivates workers to perform well.
b. Results in mostly favorable variances.
c. Is preferred by most managers.
d. Can cause performance to suffer.

ITEMS 29 AND 30 ARE BASED ON THE FOLLOWING INFORMATION:

ENCHANTRESS CORP. is applying overhead with direct labor hours as its basis. Four direct
labor hours are needed to produce one unit of finished goods. Planned production for the
period was set at 15,000 units. Budgeted manufacturing overhead amounted to P150,000
for the period, of which 40% of this cost is fixed. The 18,000 direct labor hours during the
period resulted in producing 10,000 units. For the current month, the company incurred
variable manufacturing overhead amounting to P65,000 and fixed manufacturing
overhead cost was P50,000.

29. How much is the total budget variance?

a. P165,000 F c. P5,000 UF
b. P165,000 UF d. P5,000 F

30. How much is the total spending variance?

a. P38,000 F c. P28,000 UF
b. P38,000 UF d. P 5,000 F

ITEMS 31 AND 33 ARE BASED ON THE FOLLOWING INFORMATION:

DAZZLE INC. is a manufacturer of chocolates and uses two types of raw materials in the
production of its products. Materials X and Y have the following standards for a standard
yield of 5,000 units:
Material Standard Mix Standard Price
X 3,000 lbs. 2.00 per lbs.
Y 2,000 lbs. 1.00 per lbs.
During the current month, the following actual information was provided in relation to
actual production of 40,000 units:
Material Mix Price
X 25,000 lbs. 2.50 per lbs.
Y 20,000 lbs. 0.90 per lbs.

31. How much is the material price variance?

a. P14,500 UF c. P14,500 F
b. P10,500 UF d. P10,500 F

32. What is the materials mix variance?

a. P4,000 F c. P4,000 UF
b. P2,000 F d. P2,000 UF

33. What is the materials yield variance?

a. P8,000 UF c. P8,000 F
b. P6,000 UF d. P6,000 F
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34. TENNESSEE INC. uses a standard costing system in connection with the manufacture of a
lone size fit all product made of rubber. Each unit of finished product contains two feet 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 P 3 per foot.
The standard direct materials cost per unit of finished product is:
a. P 7.50
b. P 6.00
c. P 7.20
d. P 4.80

35. ABC Company uses the equation P300,000 + P1.75 per direct labor hour to budget
manufacturing overhead. ABC has budgeted 125,000 direct labor hours for the year.
Actual results were 110,000 direct labor hours, P297,000 fixed overhead, and P194,500
variable overhead. What is the fixed overhead volume variance for the year?
a. P35,000 unfavorable.
b. P36,000 unfavorable.
c. P2,000 favorable.
d. P3,000 favorable.

36. Management by exception pertains to management’s

a. Taking action on items selected at random.
b. Having no predetermined plan.
c. Considering only items which vary materially from plans.
d. Considering only rare events.

37. David Rogers, purchasing manager at Fairway Manufacturing Corporation, was able to
acquire a large quantity of raw material from a new supplier at a discounted price.
Marion Conner, inventory supervisor, is concerned because the warehouse has become
crowded and some things had to be rearranged. Brian Jones, vice president of
production, is concerned about the quality of the discounted material. However, the
Engineering Department tested the new raw material and indicated that it is of acceptable
quality. At the end of the month, Fairway experienced a favorable materials usage
variance, a favorable labor usage variance, and a favorable materials price variance. The
usage variances were solely the result of a higher yield from the new raw material. The
favorable materials price variance would be considered the responsibility of the
a. Purchasing manager.
b. Inventory supervisor.
c. Vice president of production.
d. Engineering manager.

38. SANAOL CORP. uses a standard cost system in which it applies manufacturing overhead
on the basis of direct labor-hours. Two direct labor-hours are required for each unit
produced. The denominator activity was set at 9,000 units. Manufacturing overhead was
budgeted at P135,000 for the period; 20 percent of this cost was fixed. The 17,200 hours
worked during the period resulted in production of 8,500 units. Variable manufacturing
overhead cost incurred was P108,500 and fixed manufacturing overhead cost was
P28,000. The variable overhead spending variance for the period was:
a. P1,200 unfavorable.
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b. P5,300 unfavorable.
c. P6,300 unfavorable.
d. P6,500 unfavorable.

39. Which of the following is among the least controllable variance?

a. Fixed overhead spending variance
b. Variable overhead efficiency variance
c. Fixed overhead volume variance
d. All of the choices

40. Variable costing cannot be used:

a. for reporting of product lines for internal purposes.
b. GAAP costing
c. for break-even point computation
d. by companies with high fixed costs in relation to other costs.

ITEMS 41 AND 42 ARE BASED ON THE FOLLOWING INFORMATION:

PUGNA CORP. is a company specializing in manufacturing and selling customized and
specialized neck pillows. The selling price of each pillow is P750 per unit. On its first
month of operations, 3,500 units were produced where 2,500 units were sold. Actual fixed
costs are the same as budgeted fixed costs. The company is using a denominator level of
activity of 4,000 units. Information on its costs was as follows:
Variable costs:
Direct materials 500,000
Direct labor 600,000
Manufacturing overhead 300,000
Selling costs 200,000
Administrative costs 90,000

Fixed costs:
Selling costs 50,000
Administrative costs 250,000
Manufacturing overhead 400,000

41. If the company is using variable costing, how much is cost of goods sold and volume
variance, respectively?
A. P1,000,000; 50,000 F C. P1,000,000; 50,000 UF
B. P1,000,000; None D. None; None

42. If the company is using absorption costing, how much is net income or (loss) for the first
month of operations?
A. P 85,000 C. P 35,000
B. (P10,000) D. (P15,000)

43. Which one of the following statements is true regarding absorption costing and variable
costing?
I. Variable manufacturing costs are lower under variable costing.
II. If finished goods inventory increases, absorption costing results in higher income
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A. I only C. Both I and II

B. II only D. Neither I nor II

44. If the company will use the costing required by generally accepted accounting principles:
A. Income fluctuates with sales.
B. Volume variance is not reported.
C. Cost of ending inventory is higher as well net income.
D. Costs are grouped according to either their function or nature.

45. LESHRAC CORP. has provided the following information for its first year of operations:
Units sold 25,000 units
Units produced 30,000 units
Costs Incurred:
Direct materials 60,000
Direct labor 90,000
Variable factory overhead 30,000
Fixed factory overhead 210,000
Variable selling expense 40,000
Fixed selling expense 50,000
Variable administrative expense 20,000
Fixed administrative expense 15,000
How much is the total expense presented in income statement under absorption costing?
a. P450,000 c. P485,000
b. P500,000 d. P515,000

46. BRISTLEBACK CORP. reported P70,000 of operating income for the year by using
absorption costing. The company had no beginning inventory, planned production is
10,000 units while actual production of 8,000 units, and sales of 5,500 units. Standard
variable manufacturing costs were P15 per unit, and total budgeted fixed manufacturing
overhead was P40,000. All actual costs are equal to their budgeted costs, net income
under variable costing would be
a. P60,000 c. P52,000
b. P57,500 d. P49,500

47. The most profitable use of a resource that has limited capacity and is needed in the
production of more than one product is a function of which of the following?
a. The contribution margin of each product.
b. The number of units of each product the company can sell.
c. The amount of resource-use required for each unit of each product.
d. All of the above.

48. A product line should be dropped if its:

A. net income is a loss
B. contribution margin is less than total fixed costs
C. contribution margin is less than direct fixed costs
D. contribution margin is less than common fixed costs

49. A product should be dropped if

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a. it has a negative incremental profit.

b. it has a negative contribution margin.
c. dropping it will increase the total profit of the company.
d. it is not essential to the company's product line.

50. Harrison Company determines that an opportunity cost of an alternate course of action is
relevant to a make-or-buy decision. Which statement is true of the opportunity cost?
a. Should be added to the “Buy” costs
b. Should be subtracted from the “Make” costs
c. Should be added to the “Make” costs
d. Should be ignored if it does not involve a cash outlay

ITEMS 51 AND 54 ARE BASED ON THE FOLLOWING INFORMATION:

Medical Supply Company produced hydraulic hoists that were used by hospitals to move
bedridden patients. The costs of manufacturing and marketing hydraulic hoists at the
company’s normal volume of 3,000 units per month are shown below:
Unit manufacturing costs:
Direct materials P550
Direct labor 825
Variable overhead 420
Fixed overhead 660 P2,455

Unit marketing costs:

Variable 275
Fixed 770 1,045
Total unit costs P3,500
Unless otherwise stated, assume there is no connection between the situations described
in the questions; each is to be treated independently. Unless otherwise stated, a regular
selling price of P4,350 per unit should be assumed. Ignore income taxes and other costs
that are not mentioned in the cost schedule or in a question itself.

51. What is the monthly breakeven units for Medical Supply Company?
a. 1,882 c. 1,950
b. 2,689 d. 2,614

52. Market research estimates that volume could be increased to 3,500 units, which is well
within hoist production capacity limitations, if the price were cut from P4,350 to P3,850
per unit. Assuming the cost behavior patterns implied by the data in the cost schedule is
correct, would you recommend this action be taken?
a. Yes, because the profit will increase by P1,500,000.
b. Yes, because the profit will increase by P 200,000.
c. No, because the profit will decrease by P610,000.
d. No, because the profit will decrease by P2,400,000.

53. On March 1, a contract offer is made to Medical Supply Company by the Veterans’
Hospital to supply 500 units for delivery by March 31. Because of an unusually large
number of rush orders from their regular customers. Medical Supply plans to produce
4,000 units during March, which will use all available capacity. If the Veterans’ Hospital’s
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order is accepted, 500 units normally sold to regular customers would be lost to a
competitor. The contract given by the hospital would reimburse the Veterans’ Hospital’s
share of March manufacturing costs, plus pay a fixed fee (profit) of P275,000. (There
would be no variable marketing costs incurred on the hospital’s unit.) What impact would
accepting the Veterans’ Hospital contract have on March income?
a. P(850,000) c. P(1,350,000)
b. P(617,500) d. P500,000

54. Medical Supply Company has an opportunity to enter a foreign market in which price
competition is keen. An attraction of the foreign market is that demand there is greatest
when demand in the domestic market is quite low; thus idle production facilities could be
used without affecting domestic business.
An order for 1,000 units is being sought at a below-normal price in order to enter this
market. Shipping costs for this order will amount to P410 per unit, while total costs of
obtaining the contract (marketing costs) will be P22,000. No other variable marketing
costs would be required on this order. Domestic business would be unaffected by this
order. What minimum unit price should Medical Supply Company consider for this order
of 1,000 units?
a. P3,750
b. P3,000
c. P2,227
d. P4,290

55. Pueblo Company sells a product for P60. Variable cost is P32. Pueblo could accept a
special order for 1,000 units at P46. If Pueblo accepted the order, how many units could it
lose at the regular price before the decision became unwise?
a. 0. c. 500.
b. 200. d. 1,000.

56. Bilibid's Manufacturing Company can make 100 units of a necessary component part with
the following costs:
Direct Materials P80,000
Direct Labor 13,000
Variable Overhead 40,000
Fixed Overhead 27,000
If Bilibid's Manufacturing Company can purchase the component externally for P145,000
and only P4,000 of the fixed costs can be avoided, what is the correct “make or buy”
decision?
a. Make and save P8,000 c. Make and save P20,000
b. Buy and save P8,000 d. Buy and save P20,000

57. Operating at or near full capacity, a firm that is considering a special order should
recognize the:
a. time value of money
b. value of full employment
c. need for good management
d. opportunity cost arising from lost sales
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58. Which of the following costs are relevant to a make or buy decision?
a. annual depreciation of the equipment
b. original cost of the production equipment
c. the amount that would be received if the production equipment were sold
d. the cost of direct materials purchased last month and used to manufacture the
component.

59. A firm that decides to emphasize those goods with the highest contribution margin per
unit may have made an incorrect decision when the company:
a. is highly automated.
b. has excess capacity.
c. has capacity constraints in the form of limited resources.
d. has a high fixed-cost structure.
e. has a high level of sunk costs.

60. An avoidable cost differs from an unavoidable cost in that

a. avoidable costs are past costs but unavoidable costs are yet to be incurred.
b. avoidable costs are decision relevant but unavoidable costs are irrelevant.
c. avoidable costs remain unchanged but unavoidable costs represent the benefit given
up in choosing one alternative over another.
d. avoidable costs are fixed costs but unavoidable costs can increase or decrease profit
levels.

61. Which one of the following statements is correct regarding absorption costing and
variable costing?
a. Overhead costs are treated in the same manner under both costing methods.
b. If finished goods inventory increases, absorption costing results in higher income.
c. Variable manufacturing costs are lower under variable costing.
d. Gross margins are the same under both costing methods.

62. Which of the following will cause the breakeven point to increase?
I. Decrease in variable cost per unit
II. Decrease in margin of safety
III. Increase in income tax rates.
a. I and II d. I, II and III
b. II and III e. Answer not given
c. I and III

63. A reason why absorption costing income statements are sometimes difficult for the
manager to interpret is that:
a. they omit variable expenses entirely in computing net operating income.
b. they shift portions of fixed manufacturing overhead from period to period according
to changing levels of inventories.
c. they include all fixed manufacturing overhead on the income statement each year as
a period cost.
d. they ignore inventory levels in computing income charges.
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64. JOSH CORP. manufactures a single product using standard costing. Variable production
costs are P12 and fixed production costs are P125,000. Camber uses a normal activity of
12,500 units to set its standard costs. JOSH began the year with 1,000 units in inventory,
produced 11,000 units, and sold 11,500 units. The standard costs of goods sold under
absorption costing would be
a. P115,000 c. P242,000
b. P132,000 D. P253,000

65. KENNETH CORP. had income of P65,000 using absorption costing for a given period.
Beginning and ending inventories for that period were 13,000 units and 18,000
respectively. Ignoring income taxes, if the fixed overhead application rate were P2.50 per
unit, what would the income have been using variable costing?
a. P 20,000 c. P 60,000
b. P 52,500 d. P 77,500

66. The following information has been extracted from P Co.'s financial records for its first year
of operations:
Units sold 7,000
Units produced 10,000
Costs Variable Fixed Cost
Cost
Direct materials P8
Direct labor 9
Manufacturing overhead 3 P70,000
Selling and administrative 4 30,000
expenses
Based on absorption costing, what amount of period costs will P Co. deduct?
A. P30,000 C. P70,000
B. P58,000 D. P79,000

67. S1: In developing a cost-prediction equation using regression analysis, you shall select the
one with the highest correlation.
S2: Within the relevant range, a change in activity results in a change in total variable
cost and the per unit fixed cost.
A. True, false C. False, false
B. False, true D. True, true

68. HAWK COMPANY used regression analysis to predict the annual cost of indirect materials.
The results were as follows:
Indirect Materials Cost Explained by Units Produced
Constant P 4,378
Standard error of Y estimate P 912
R - squared 0.81
No. of observations 12
Degrees of freedom 10
X coefficient (s) 2.35
Standard error of coefficient(s) 0.437525
What is the estimated cost of 1,000 units of activity?
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a. P 5,406
b. P 6,728
c. P 32,578
d. Cannot be determined from the given information

69. A relatively low margin of safety ratio for a product is usually an indication that the
product:
a. is losing money
b. has a high contribution margin
c. is riskier than higher margin of safety products
d. is less risky than higher margin of safety products

70. OGRE MAGI INC.’s sales for the current year is P250,000. Its’ degree of operating
leverage is 4. How much is break-even point in peso amounts?
A. P187,500 C. P62,500
B. P150,000 D. P60,000

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