MA1 Variable Costs

 Sales Commission
 Administrative expense (10% of sales)
Problem#1 (No answer is required on this item.  Cost of Goods Sold
This item presents only the problem on which to = 8,400 + 4,200 + 12,000
base your answers on the questions below.) = 24,600

Fixed Costs
 Advertising expense
 Administrative expense (P3,000 per month)
= 5,000 +3,000
=8,000

Gross Profit
= Sales - Cost of Goods Sold
= 42,000 - 12,000
= 30,000

Formula:

The expected gross profit next month is: Sales

Answer: 30,000 (Variable Cost)
Contribution Margin
The expected contribution margin next month is: Fixed Cost
Answer: 17,400 Net Operating Income

The expected total selling expense next month is: Sales 42,000
Answer: 13,400 (Variable Cost) (24,600)
Contribution Margin 17,400
The expected net operating income is: (Fixed Cost) (8,000)
Answer: 9,400 Net Operating Income 9,400

The expected total variable cost is:

Answer: 24,600
Problem#2 (No answer is required on this item.
SOLVINGS: This item presents only the problem on which to
base your answers on the questions below.)
Sales
= units x selling price per unit
= 600 x P70
= 42,000

Cost of Goods Sold

= units x cost per unit
= 600 x P20
= 12,000

Sales Commision What is Messo’s dependent variable? *

= 20% of sales
= 42,000 x 20% The month
= 8,400 The total maintenance cost
The machine hours
Selling Expense The relevant range
= Sales commission + advertising expense The machineries
= 8,400 + 5,000
= 13,400
What is Messo’s independent variable? *
Administrative Expense
= 3,000 + (10% of sales) The month
= 3,000 + 4,200 The machineries
=7,200 The machine hours
The relevant range
The total maintenance cost
Assuming Messo Company uses the high-low
method of analysis, the best estimate of the total
monthly fixed cost is: * *If 20,000 hours
Answer: 11950 y = a +bx
y = 11,950 + (0.67)(20,000)
y = 25,350 budgeted total maintenance cost
Assuming Messo Company uses the high-low
method of analysis, the best estimate of the *If 14,000 hours
variable cost per unit is: * Variable cost
Answer: 0.67 = vc/unit x hours
= 0.67 x 14,000
= 9,380
Assuming Messo Company uses the high-low
method of analysis, if machine hours are Which of the following statement is/are true? *
budgeted to be 20,000 hours then the budgeted
total maintenance cost would be expected to
be: * I. A professional examination exists to test the
Answer: 25350 competence of financial accountants, but not of
Assuming Messo Company uses the high-low managerial accountants.
method of analysis, the best estimate of the total II. Managerial accountants should, but have no
variable cost if machine hours are budgeted to be obligation to, maintain their professional skills.
14,000 hours is: * III. Published financial statements show costs
Answer: 9380 classified by behavior.

* Solvings Answer: None of these

Highest Activity: September Which is not a common accounting classification

Cost = 26,020 of costs? *
Level of activity = 21,000 machine hours
I. By the method of payment for the expenditure.
Lowest Activity: November
Cost = 22,000 II. By behavior.
Level of activity = 15,000 machine hours III. By the function incurring the expenditure.

Formula:
Answer: I only
HIGH-LOW METHOD
Classifying a cost as fixed or variable depends on
Variable cost per unit = how it behaves *

cost of highest activity - cost of lowest activity

highest activity - lowest activity a. Per unit, as the volume of activity changes.
b. In total, as the volume of activity changes.
= 26,020 - 22,000
21,000 - 15,000
= 4,020 Answer: Both a and b
6,000
= 0.67 vc/unit
Which of the following statement is/are
incorrect? *
Cost equation:
y = a +bx I. When graphed, a typical variable cost in total
y = total cost appears as a vertical line.
a = total fixed cost II. A cost that has both a fixed and variable
b = vc/unit component is termed as semi-variable cost.
x = level of activity
III. The relevant range is that range of activity
bx = total variable cost where a company achieves its maximum efficiency.
*use the highest activity

26,020 = a + (0.67)(21,000) Answer: I and III

26,020 = a + 14,070
26,020 - 14,070 = a
a = 11,950 fixed cost
Which of the following is/are example of a mixed Which of the following statement is/are not
cost? * true? *

I. A building that is used for both manufacturing I. Within the relevant range, unit variable costs are
and sales activities. constant per unit, regardless of units produced or
sold.
II. An employee's compensation, which consists of
a flat salary plus a commission. II. Within the relevant range, unit variable costs
vary inversely with the activity level.
III. Depreciation that relates to five different
machines. III. Within the relevant range, total variable costs
vary directly with the activity level.

Answer: II only
Answer: II only

Which of the following most likely represent a Which of the following statement is/are incorrect
variable cost? * regarding trends on management accounting? *

I. Surgical supplies used in a hospital's operating I. Companies nowadays shift from being a
room customer-centric to product-centric.
II. Utility charges that include a minimum-use fee, II. Management accountants should not only report
for a small business cost and profits but also do decision support and
III. Truck fuel consumed by a road construction planning.
company III. New trends include having two or more co-
existing management accounting methods.
Answer: I and III
Answer: I only
Which of the following statement is/are false? *
The salary or wage that you could be earning
while you are taking this test is *
I. Depreciation on office equipment would not be
included in the cost of goods manufactured.
II. Rent on a factory building used in the production Committed costs
process would be classified as a period cost and as incremental cost
a fixed cost.
sunk cost
III. Period costs are found only in manufacturing
companies, not in merchandising companies. Opportunity costs

Answer: II and III Answer: Opportunity costs

The components of manufacturing cost are * Which of the following statement is/are not
untrue? *

variable costs, fixed costs, and overhead costs

I. Fixed costs expressed on a per unit basis will
wages and salaries, maintenance and repairs, increase with increases in activity.
utilities, and depreciation
II. Fixed costs expressed on a per unit basis will
materials, direct labor, and overhead increase with decreases in activity.
purchases, wages, and manufacturing overhead III. Fixed costs expressed on a per unit basis are not
affected by activity.
Answer: materials, direct labor, and overhead
Answer: II only
Provisions in the Ethical Standards for Which activity is not normally performed by
management accountants cover avoidance of managerial accountants? *
conflict of interest, improprieties of accepting
gifts or favors, and other matters generally
associated with professional behavior. * I. Assisting managers to interpret data in managerial
accounting.
II. Designing systems to provide information for internal
Confidentiality
and external reports.
Objectivity
III. Deciding the best level of inventory to be maintained.
Integrity
Competence
Answer: III only

Answer: Integrity Which of the following describes management

accounting information? *

High-tech automation combined with a

downsizing of a company's hourly labor force I. It is prepared for shareholders
often results in: * II. It is reliable and verifiable
III. It provides reasonable and timely estimates
reduced fixed costs and reduced variable costs.
increased discretionary fixed costs and reduced Answer: III only
committed fixed costs.
increased fixed costs and reduced variable costs.
Which of the following statement is/are not
Increased fixed costs and increased variable costs. incorrect? *
reduced fixed costs and increased variable costs.

I. Although financial and managerial accounting differ in

Answer: increased fixed costs and reduced variable many ways , they are similar in that both rely on the
costs. same underlying financial data.
II. Managerial accounting places greater emphasis on
the future.
Committed fixed costs would include: *
III. Financial accounting is primarily concerned with the
past.
I. Advertising
II. Depreciation on buildings and equipment Answer: All of these
III. Contributions to charitable organizations

Which of the following is not a characteristic of a staff

Answer: II only authority? *

Which of the following statement is/are not true I. It gives support, advice and service to line managers.
regarding management accountants? * II. It exercised laterally and upward.
III. It has authority to command action or give orders to
I. They are found primarily at lower levels of the subordinates.
organizational heirarchy.
II. They often work on cross-functional teams Answer: III only
III. They are found through-out an organization.
I and II Which function is most directly related to
management by exception? *
Answer: I only
Planning
Controlling
Decision-making
Reporting

Answer: Controlling
Which of the following statement is/are not correct? * Compared to financial accounting, managerial
accounting places more emphasis on: *

I. Managerial accounting is as concerned with providing

information to stockholders as it is with providing I. flexibility of information
information to managers.
II. Precision of information
II. Managerial accounting is not required by any
III. Timeliness of information
external law or regulation.
III. Managerial accounting focuses more on the
segments of an organization rather than on the Answer: I and III
organization as a whole.

Which of the following employees at Philippine

Answer: I only Airlines would be considered as holding a line
position? *

Which of the following statements represents a

similarity between financial and managerial I. Pilot
accounting? * II. Chief Financial Officer (CFO)
III. Flight Attendant
I. Both are useful in providing information for external
users.
Answer: I and III
II. Both are governed by GAAP.
III. Both draw upon data from an organization's
accounting system. Which of the functions of the management involves
overseeing day-to-day activities? *

Answer: III only

Planning
Directing and motivating
Which of the following characteristics does not relate
to management accounting? * Controlling
Decision-making

I. Data maybe both historical and estimates.

II. Accounting reports may include non-monetary Answer: Directing and motivating
information.
III. It provides information needed by management in Which of the following statement is/are false? *
making decisions.
I and II
I. Managerial accounting is not needed in a non-profit
or governmental organization.
Answer: None of these II. The controller occupies a line position in an
organization.

Which of the following functions is best described as III. The form and content of reports can influence
choosing among available alternatives? * decisions made by managers.

Decision making Answer: I and II

Planning
Direccting Which of the following statement is/are not false
concerning line and staff functions? *
Controlling
Budgeting
I. Persons occupying staff functions have authority over
persons occupying line functions.
Answer: Decision making II. Both line and staff functions are depicted on the
organization chart.
III. Line functions are directly related to the basic
objectives of an organization.

Answer: II and III

Which of the following is an objective of management Financial and managerial accounting differ in a
accounting? * number of ways. In contrast to financial accounting,
managerial accounting *

I. Motivating managers toward the organization's goals

focuses on providing data for external users
II. Providing information for planning and decision-
making emphasizes relevance and flexibility rather than
precision
III. Maximization of profit and minimization of cost
is mandatory
is governed by Generally Accepted Accounting
Answer: I and II
Principles
Answer: emphasizes relevance and flexibility rather
Which of the following statement is/are incorrect than precision
regarding managerial accounting? *

I. It is unregulated.
II. It focuses on financial statements and other financial
reports.
III. It is based exclusively om historical plan.

Answer: II and III

Which of the following involves the coordination of

daily business functions within an organization? *

Planning
Directing
Controlling
Decision-making

Answer: Directing

Field of accounting that provides financial information

and non-financial information to an organization's
managers and other internal decision makers. *

Cost accounting
Bookkeeping
Managerial accounting
Financial accounting
Financial management

Answer: Managerial Accounting