FIN 073: Strategic Cost Management

Student Activity Sheet #25

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

THIRD PERIODICAL EXAM Materials:

Pen and non-scientific
calculator

GENERAL DIRECTIONS
READ THIS PAGE BEFORE STARTING THE ASSESSMENT

This is a 10 paged test and is composed of 1 section and has a total score of 50 points. You have 60
Minutes to finish this examination. The breakdown of the exam is as follows:

(1) Multiple-choice questions - The questions in this LEARNING OBJECTIVE:

section is with four answer choices. The test is
composed of 50 questions and is rated as 1 point each. This assessment measures the
competence of the student in terms of
All things unnecessary for the test must be put in front of the his/her application of knowledge and skills
testing area. Use BLACK or BLUE ink ballpen only. Write all your in the following topics:
answers on the designated answer sheet. Further, erasures are 1. Objectives, role and scope of
strictly NOT allowed and will invalidate your answers. Managerial Accounting.
2. Cost terms and concepts
You may NOT use smart phones or reference materials during 3. Cost Behavior
the testing session. Only the allowed calculators should be used. 4. CVP Analysis
5. Absorption costing
Try to answer all questions. In general, if you have some 6. Activity-based costing and
knowledge about a question, it is better to try to answer it. You Management
will not be penalized for guessing. 7. Standard costing
8. Financial planning and budgets
9. Strategic cost management
Be sure to allocate your time carefully so you can complete the
entire test within the exam session. You may go back and review
your answers at any time during the exam session.

Those who are caught cheating or doing acts not allowed during the exam shall be instructed to
surrender their test papers and shall leave the testing room immediately. Subsequently, their papers
shall be rated as ZERO.

This concludes the instruction page.

You may now begin answering.

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 FIN 073: Strategic Cost Management
Student Activity Sheet #25

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

Shade the letter of your answer on the answer sheet.

1. Which of the following is true?

I. The Chief Financial Officer of an organization is responsible for ensuring that line operations
run smoothly.
II. The function of management that compares planned results to actual results is known as
directing.
a. I only b. II only c. I and II d. Neither I nor II

2. Which of the following is true?

I. The amount that a manufacturing company could earn by renting unused portions of its
warehouse is an example of an opportunity cost.
II. Depreciation on a personal computer used in the marketing department of a manufacturing
firm would be classified as a period cost that is variable with respect to the company's output.
a. I only b. II only c. I and II d. Neither I nor II

3. A cost incurred in the past that is not relevant to any current decision is classified as a(n):
a. period cost. b. opportunity cost. c. sunk cost. d. differential cost.

4. In describing the cost formula equation, Y = a + bX, which of the following is correct?
a. “Y” is the independent variable.
b. “a” is the variable cost per unit.
c. “a” and “b” are valid for all levels of activity.
d. in the high-low method, “b” equals the change in cost divided by the change in activity.

5. Birmingham Machine Works had the following data regarding monthly power costs:
Month Machine hours Power cost
Jun 300 ₱680
Jul 600 720
Aug 400 695
Sept. 200 640
Assume that management expects 500 machine hours in October. Using the high-low method,
calculate October’s power cost using machine hours as the basis for prediction.
a. ₱700 b. ₱705 c. ₱710 d. ₱1,320

6. The contribution approach income statement:

a. organizes costs on a functional basis.
b. provides owners with more cash flows.
c. is particularly helpful to the manager in planning and decision making.
d. provides a gross margin figure from which selling and administrative expenses are deducted.

7. Iaci Corporation is a wholesaler that sells a single product. Management has provided the
following cost data for two levels of monthly sales volume. The company sells the product for
₱133.60 per unit.

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 FIN 073: Strategic Cost Management
Student Activity Sheet #25

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

Sales volume (units) .............................................. 4,000 5,000

Cost of sales .......................................................... ₱383,600 ₱479,500
Selling, general, and administrative costs ............. ₱124,400 ₱136,000

The best estimate of the total contribution margin when 4,300 units are sold is:
a. ₱112,230 b. ₱162,110 c. ₱28,380 d. ₱45,150

8. The breakeven point decreases if:

a. the variable cost per unit increases c. the contribution margin per unit decreases
b. total fixed costs decrease d. the selling price per unit decreases

Use the following to answer questions 9-10:

Martha Manufacturing produces a single product that sells for ₱80. Variable costs per unit equal ₱32.
The company expects total fixed costs to be ₱72,000 for the next month at the projected sales level of
2,000 units. In an attempt to improve performance, management is considering a number of alternative
actions. Each situation is to be evaluated separately.

9. Suppose management believes that a ₱16,000 increase in the monthly advertising expense will
result in a considerable increase in sales. Sales must increase by how much to cover this
additional expenditure?
a. 200 units b. 334 units c. 500 units c. 700 units

10. Suppose that management believes that a 10% reduction in the selling price will result in a 10%
increase in sales. If this proposed reduction in selling price is implemented:
a. operating income will decrease by ₱8,000 c. operating income will decrease by ₱16,000
b. operating income will increase by ₱8,000 d. operating income will increase by ₱16,000

11. In CVP analysis, focusing on after tax income rather than operating income:
a. will increase the breakeven point c. will not change the breakeven point
b. will decrease the breakeven point d. does not allow calculation of breakeven point

12. Which of the following is true?

I. Variable costing includes all variable costs — both manufacturing and nonmanufacturing — in
inventory.
II. Under variable costing, fixed manufacturing costs are treated as an expense of the period.
a. I only b. II only c. I and II d. Neither I nor II

13. Absorption costing is required for all of the following, except:

a. generally accepted accounting principles c. external reporting to shareholders
b. determining a competitive selling price d. income tax reporting

Use the following to answer questions 14-16:

The following information has been extracted from the financial records of Clinton Corporation for its
first year of operations:
Units produced 10,000

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 FIN 073: Strategic Cost Management
Student Activity Sheet #25

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

Units sold 7,000

Variable costs per unit:
Direct material ₱8
Direct labor 9
Manufacturing overhead 3
Selling and administrative expense 4
Fixed costs:
Manufacturing overhead ₱70,000
Selling and administrative expense 30,000

14. Based on absorption costing, Clinton Corporation's income in its first year of operations will be
a. ₱21,000 higher than it would be under variable costing.
b. ₱70,000 higher than it would be under variable costing.
c. ₱30,000 higher than it would be under variable costing.
d. higher than it would be under variable costing, but the exact difference cannot be determined
from the information given.

15. Based on absorption costing, the Cost of Goods Manufactured for Clinton Corporation's first
year would be
a. ₱200,000. b. ₱270,000. c. ₱300,000. d. ₱210,000.

16. Based on absorption costing, what amount of period costs will Clinton Corporation deduct?
a. ₱70,000 b. ₱79,000 c. ₱58,000 d. ₱128,000

17. When a company is labor-intensive, the cost driver that is probably least significant would be
a. direct labor hours. c. machine hours.
b. direct labor dollars. d. cost of materials used.

Use the following to answer questions 18-19:

Hazel Company uses activity-based costing. The company produces two products: coats and hats.
The annual production and sales volume of coats is 8,000 units and of hats is 6,000 units. There are
three activity cost pools with the following expected activities and estimated total costs:

Activity Estimated Cost Expected Activity Expected Activity Total

Cost Pool Coats Hats
Activity 1 ₱20,000 100 400 500
Activity 2 ₱37,000 800 200 1,000
Activity 3 ₱91,200 800 3,000 3,800

18. Using ABC, the cost per unit of coats is approximately:

a. ₱2.40 b. ₱3.90 c. ₱ 6.60 d. ₱10.59

19. Using ABC, the cost per unit of coats is approximately:

a. ₱2.40 b. ₱3.90 c. ₱ 12.00 d. ₱15.90

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 FIN 073: Strategic Cost Management
Student Activity Sheet #25

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

20. Which of the following is considered a value-added activity?

Idle time Inspection time Transfer time
a. yes yes no
b. no no no
c. yes no yes
d. no yes yes

21. A primary purpose of using a standard cost system is

a. to make things easier for managers in the production facility.
b. to provide a distinct measure of cost control.
c. to minimize the cost per unit of production.
d. b and c are correct.

22. The standard predominantly used for motivational purposes is a(n) ______________ standard.
a. expected annual b. ideal c. practical d. theoretical

23. Alex Company recently completed 10,600 units of its single product, consuming 32,000 labor
hours that cost the firm ₱480,000. According to manufacturing specifications, each unit should
have required 3 hours of labor time at ₱15.40 per hour. On the basis of this information,
determine Alex’s labor rate variance and labor efficiency variance.
Rate Efficiency
a. ₱12,720F ₱3,000F
b. ₱12,720F ₱3,000U
c. ₱12,800F ₱3,080F
d. ₱12,800F ₱3,080U

24. Consider the following information:

Direct material purchased and used, 80,000 gallons
Standard quantity of direct material allowed for May production, 76,000 gallons
Actual cost of direct materials purchased and used, ₱176,000
Unfavorable direct-material quantity variance, ₱9,400

The direct-material price variance is:

a. ₱11,400F. b. ₱11,400U. c. ₱12,000F. d. ₱12,000U.

25. Hagman Company uses a two-way analysis of overhead variances. Selected data for the April
production activity are as follows:

Actual variable OH incurred ₱196,000 Standard MHs allowed 33,000

Variable OH rate per MH ₱6 Actual MHs 32,000

Assuming that budgeted fixed overhead costs are equal to actual fixed costs, the controllable
variance for April is

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 FIN 073: Strategic Cost Management
Student Activity Sheet #25

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

a. ₱2,000 F. b. ₱4,000 U. c. ₱4,000 F. d. ₱6,000 F.

26. A static budget is:

a. a budget for a single level of activity. c. used only for fixed costs.
b. a budget that ignores inflation. d. used when the mix of products does not change

27. Jenny’s Corporation manufactured 25,000 grooming kits for horses during March. The fixed-
overhead cost-allocation rate is ₱20.00 per machine-hour. The following fixed overhead data
pertain to March:

Actual Static Budget

Production 25,000 units 24,000 units
Machine-hours 6,100 hours 6,000 hours
Fixed overhead costs for March ₱123,000 ₱120,000

What is the flexible-budget amount of fixed overhead cost?

a. ₱120,000 b. ₱122,000 c. ₱123,000 d. ₱125,000

28. Chronologically, the first part of the master budget to be prepared would be the
a. sales budget. c. cash budget.
b. production budget. d. pro forma financial statements.

29. The material purchases budget tells a manager all of the following except the
a. quantity of material to be purchased each period.
b. quantity of material to be consumed each period.
c. cost of material to be purchased each period.
d. cash payment for material each period.

30. Both the budgeted quantity of material to be purchased and the budgeted quantity of material to
be consumed can be found in the
a. material purchases budget. c. pro forma income statement.
b. production budget. d. cash budget.

31. If a company has a policy of maintaining an inventory of finished goods at a specified

percentage of the next month's budgeted sales, budgeted production for January will exceed
budgeted sales for January when budgeted
a. February sales exceed budgeted January sales.
b. January sales exceed budgeted December sales.
c. January sales exceed budgeted February sales.
d. December sales exceed budgeted January sales.

32. Budget slack is a condition in which

a. demand is low at various times of the year.
b. excess machine capacity exists in some areas of the plant.
c. there is an intentional overestimate of expenses or an underestimate of revenues.

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 FIN 073: Strategic Cost Management
Student Activity Sheet #25

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

d. managers grant favored employees extra time off.

33. Budgeted sales for Knox Inc. for the first quarter the year are shown below:

JANUARY FEBRUARY MARCH

UNITS: 35,000 25,000 32,000

The company has a policy that requires the ending inventory in each period to be 10 percent of
the following period's sales. Assuming that the company follows this policy, what quantity of
production should be scheduled for February?
a. 24,300 units b. 24,700 units c. 25,000 units d. 25,700 units

34. Edwards Company has the following expected pattern of collections on credit sales: 70 percent
collected in the month of sale, 15 percent in the month after the month of sale, and 14 percent in
the second month after the month of sale. The remaining 1 percent is never collected.

At the end of May, Edwards Company has the following accounts receivable balances:
From April sales ₱21,000
From May sales 48,000

Edwards expected sales for June are ₱150,000. How much cash will Edwards Company expect
to collect in June?
a. ₱127,400 b. ₱129,000 c. ₱148,600 d. ₱152,520

35. Xanadu Company manufactures toy airplanes. Information on Xanadu Company's labor costs
follow:
Sales commissions ₱5 per plane
Administration ₱10,000 per month
Indirect factory labor ₱3 per plane
Direct factory labor ₱5 per plane

The following information applies to the upcoming month of July for Xanadu Company:
Budgeted production 1,200 units
Budget sales 1,000 units

What amount of budgeted labor cost would appear in the July selling, general, and
administrative expense budget?
a. ₱10,000 b. ₱16,000 c. ₱15,000 d. ₱23,000

36. Esterwood Hospital has provided you with the following budget information for April:
Cash collections ₱876,000
April 1 cash balance 23,000
Cash disbursements 978,600

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 FIN 073: Strategic Cost Management
Student Activity Sheet #25

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

Esterwood has a policy of maintaining a minimum cash balance of ₱20,000 and borrows only in
₱1,000 increments. How much will Esterwood borrow in April?
a. ₱59,600 b. ₱79,600 c. ₱99,600 d. ₱105,600

37. Which of the following is not true about an imposed budget?

a. It reduces the budgeting process time frame.
b. It uses the knowledge of top management as it relates to resource availability.
c. It enhances coordination.
d. It increases the feeling of teamwork.

38. When an organization involves its many employees in the budgeting process in a meaningful
way, the organization is said to be using:
a. budgetary slack. c. budget padding.
b. participative budgeting. d. imposed budgeting.

39. Which of the following statement(s) about just-in-time (JIT) inventory management is (are) true?
I. The emphasis of JIT is on "pull" manufacturing.
II. Raw materials are purchased just in time to be used in production.
III. JIT is an inventory technique that focuses on reduction of both inventory and related
inventory costs.

a. I only. b. II only. c. III only. d. I, II, and III.

40. The process that determines an allowable product cost while setting market price and allowing
for an acceptable profit margin is known as
a. target costing. c. life-cycle costing.
b. product life cycle costing. d. kaizen costing.

41. The approaches and activities of managers in short-run and long-run planning and control
decisions that increase value for customers and lower costs of products and services are known
as:
a. value chain management c. cost management
b. enterprise resource planning d. customer value management

42. Productivity increases if:

a. less output is produced with more input.
b. the same output is produced with more input.
c. the same output is produced with fewer inputs.
d. laborers put in more effort.

43. Ongoing efforts to reduce costs, increase product quality, and/or improve production process
once manufacturing has begun is known as
a. target costing. c. life-cycle costing.
b. product life cycle costing. d. kaizen costing.

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 FIN 073: Strategic Cost Management
Student Activity Sheet #25

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

44. During which stage of the product life cycle will a company witness the highest profit?
a. development b. maturity c. growth d. decline

45. Value engineering seeks to obtain increased

a. product life-cycle and reduced direct labor inputs.
b. planning team membership and reduced time-to-market.
c. product performance ratio and reduced substitute goods.
d. product functionality and reduced costs.

46. A danger in Process Reengineering is that:

a. non-value-9added activities may be eliminated. c. employee morale may suffer.
b. some resources may no longer be required. d. all of the above.

47. Ohio Corporation recently implemented a just-in-time (JIT) production system along with a
series of continuous improvement programs. If the firm is now considering adopting a total
quality management (TQM) program, it would likely find that TQM:
a. is consistent with both JIT and continuous improvement.
b. is consistent with JIT but inconsistent with continuous improvement.
c. is consistent with continuous improvement but inconsistent with JIT.
d. is inconsistent with both JIT and continuous improvement.

48. Backflushing, or backflush costing

a. requires significantly less recordkeeping than other methods.
b. can be used by any company.
c. ignores inventories.
d. does not distinguish between materials and conversion costs.

49. Internal failure costs include all of the following except:

a. the cost of the scrap c. rework
b. the cost of warranty repairs and replacements d. downtime due to machine failures

50. The costs that follow appeared on Omaha's quality cost report:

Warranty costs ₱15,000

Raw-materials inspection 10,000
Quality training 31,000
Customer complaints 5,500
Rework of defective units 12,800

The sum of Omaha's appraisal and internal failure costs is:

a. ₱10,000. b. ₱12,800. c. ₱22,800. d. ₱68,800.

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 FIN 073: Strategic Cost Management
Student Activity Sheet #25

Name:________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________ Date: ______________

- End -

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