NAME: SCORE:

SECTION: DATE:

FIN 073 Strategic Cost Management

P3 Quiz 2

Instructions: Shade the letter of your answer in the answer sheet.

1. Which of the following is most associated with financial accounting?

A. Can have both objective and subjective information. C. Prepared in accordance with GAAP.
B. Can be prepared periodically, or as needed. D. Can be prepared for the entity or segment.

2. Which of the following exhibits a staff position?

A. Chairman of the board of directors of San Miguel Corporation
B. Cashier of a branch of McDonalds’
C. Bagger of Puregold Retail Store
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III

3. The treasurer function is usually not concerned with

A. investor relations. C. short-term financing
B. financial reports. D. credit extension and collection of bad debts.

4. Under which ethical standard of conduct does the managerial accountant have the responsibility to disclose fully
all relevant information that could reasonably be expected to influence an intended user's understanding of the
reports,comments, and recommendations presented?
A. objectivity C. confidentiality
B. competence D. integrity

5. Which of the following would generally be considered a fixed factory overhead cost?
A. B. C. D.
Straight Line Depreciation No Yes Yes No
Factory Insurance No No Yes Yes
Units of Production Depreciation No Yes No No

6. Supply costs at RAIGOR CORP.’s chain of gyms are listed below:

Client Visits Supply Cost
March 12,855 P23,598
April 12,283 23,278
May 13,104 23,742
June 12,850 23,607
July 12,493 23,415
August 12,794 23,562
September 12,686 23,496
October 12,765 23,541
November 13,018 23,687
Management believes that supply cost is a mixed cost that depends on client-visits. Using the high-low method to
estimate the variable and fixed components of this cost, those estimates would be closest to:
A. P1.85 per client-visit; P23,547 per month c. P0.55 per client-visit; P16,579 per month
B. P1.77 per client-visit; P557 per month d. P0.57 per client-visit; P16,273 per month

7. Statement 1: High-low method, as a means of segregating mixed cost, is known to give a precise estimate of cost.
Statement 2: In applying high-low method, the two points needed to be known is the high and low of both the cost to be

1 | Page
 segregated and its cost driver, separately.
A. Only the first statement is true. C. Both statements are true
B. Only the second statement is true. D. Both statements are false.

8. Advocates of variable costing argue that fixed production costs should be

A. charged to the period in which they are incurred.
B. capitalized as an asset and amortized over future periods when benefits from such costs are expected to be
received.
C. added to inventory because such costs have future service potential and therefore are inventoriable as an
asset.
D. charged to the period in which they are incurred unless sales do not equal production in which case any
difference should be capitalized as an asset and amortized over future periods.

Use the following information in answering the next two item(s):

KABUGAO INC. produces a single product. Data concerning June's operations follow:
Units in beginning inventory 0
Units produced 6,000
Units sold 5,000
Variable costs per unit:
Manufacturing P7
Selling and administrative P3
Fixed costs in total:
Manufacturing P12,000
Selling and administrative P3,000

9. Under variable costing, ending inventory on the balance sheet would be valued at:
A. P10,000 C. P9,000
B. P7,000 D. P12,000

10. Under absorption costing, ending inventory on the balance sheet would be valued at:
A. P10,000 C. P9,000
B. P7,000 D. P12,000

11. Which one of the following statements is true regarding absorption costing and variable costing?
A. Gross margins are the same under both costing methods.
B. Variable manufacturing costs are lower under variable costing.
C. Overhead costs are treated in the same manner under both costing methods.
D. If finished goods inventory increases, absorption costing results in higher income.

Use the following information in answering the next two item(s):

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%.

12. 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 C. 50,000 units
B. 41,667 units D. 32,143 units

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

2 | Page
 A. P933,333 C. P480,000
B. P266,667 D. P720,000

14. All of the following statements related to the use of break-even analysis are true except: (E*)
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

15. If the sales mix shifts toward higher contribution margin products, the break-even point (M)
A. increases.
B. decreases.
C. remains constant.
D. It is impossible to tell without more information.

16. PORTUGAL CORP. manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts
sold for P7.50 each, and the variable cost to manufacture them was P2.25 per unit. The company needed to sell 20,000
shirts to break even. The net income tax last year was P5,040. PORTUGAL’s expectations for the coming year include
the following:
❖ The sales price of the T-shirts will be P9.00,
❖ Variable costs to manufacture will increase by one-third,
❖ Fixed costs will increase by 10%,
❖ The income tax rate of 40% will be unchanged.
Sales for the coming year are expected to exceed last year’s by 1,000 units. If this occurs, PORTUGAL’s sales volume
in the coming year will be
A. 22,600 units. C. 23,400 units.
B. 21,960 units. D. 21,000 units

17. The following information relates to MOROCCO CORP.

Sales at the break-even point P312,500
Total fixed expenses 250,000
Net operating income 150,000
What is MOROCCOs margin of safety?
A. P62,500 C. P187,500
B. P100,000 D. P212,500

18. Cost-volume-profit analysis is a technique available to management to understand better the interrelationships of several
factors that affect a firm's profit. As with many such techniques, the accountant oversimplifies the real world by making
assumptions. Which of the following is not a major assumption underlying CVP analysis?
A. All costs incurred by a firm can be separated into their fixed and variable components.
B. The product selling price per unit is constant at all volume levels.
C. Operating efficiency and employee productivity are constant at all volume levels.
D. For multi-product situations, the sales mix can vary at all volume levels.

19. Using standard costs

A. can make management planning more difficult.
B. promotes greater economy.
C. does not help in setting prices.
D. weakens management control.

20. Standard costs

3 | Page
 A. are estimates of costs attainable only under the most ideal conditions.
B. are difficult to use with a process costing system.
C. can, if properly used, help motivate employees.
D. require that significant unfavorable variances be investigated, but do not require that significant favorable
variances be investigated.

21. Which kinds of variances should be investigated?

A. Those that are large and unfavorable.
B. Those that are large and either favorable or unfavorable.
C. All variances, despite their size.
D. Only use variances.

22. Which of the following choices correctly notes a characteristic associated with perfection standards and one associated
with practical standards?
Perfection Standards Practical Standards
A. Attainable in an ideal environment Incorporate abnormal occurrences when setting quantity and efficiency
targets
B. Result in many unfavorable variances Are often attainable by workers
C. Tend to boost worker morale Generally preferred by behavioral scientists
D. Generally, are easily achieved by Result in both favorable and unfavorable variances
workers
E. Generally preferred by behavioral scientists Are easier to achieve than perfection standards

23. ALASKA CORP. uses a standard-costing system in relation to its manufacture of scarves. Each finished scarf contains
1.5 yards of direct materials. However, a 25% direct materials spoilage, which is calculated based on inputquantities,
occurs during the manufacturing process. The cost of the direct materials is P2.00 per yard. The standard direct
materials cost per unit of finished product is
A. P2.25 C. P3.75
B. P3.00 D. P4.00

24. WASHINGTON CORP. is a chemical manufacturer that supplies various products to industrial users. The company
plans to introduce a new chemical solution called Bysap, for which it needs to develop a standard product cost.
The following labor information is available on the production of Bysap.
• The product, which is bottled in 10-liter containers, is primarily a mixture of Byclyn, Salex, and Protet.
• The finished product is highly unstable, and one 10-liter batch out of six is rejected at the final inspection.
Rejected batches have no commercial value and are thrown out.
• It takes a worker 35 minutes to process one 10-liter batch of Bysap. Employees work on eight-hour a day,
including one hour per day for rest breaks and cleanup.
What is the standard labor time to produce one 10-liter batch of Bysap?
A. 35 minutes C. 45 minutes
B. 40 minutes D. 48 minutes

25. TINY INC. is famous for its rugby manufacturing. The main ingredient of its rugby is a chemical material known as
“RUGGIBEE”. This material is usually purchased on a 20-gallon container costing P240 per container. TINY’s supplier
usually offers a 5% for payments within 15-day discount period. TINY takes all available discounts. Transportation cost
and freight cost amounts to P100 for an average shipment of 50 20-gallon containers of RUGGIBEE.
According to TINY’s bill of materials, each bottle of its rugby contains 9.2 quarts of ruggibee (there are 4 quarts on each
gallon). When ruggibee is boiled, about 8% of the mixture is lost through evaporation and spillage. In addition,
inspection reports show the one out of six bottles rejected at final inspection due to instability of the solution. What is
the direct material standard cost per unit of TINY’s rugby products?
A. P32.40 C. P36.00
B. P31.70 D. P34.50

4 | Page
 26. VIRGINIA COMPANY has a standard cost system. In July the company purchased and used 22,500 pounds of direct
material at an actual cost of P53,000; the materials quantity variance was P1,875 Unfavorable; and the standard
quantity of materials allowed for July production was 21,750 pounds. The materials price variance for July was:
A. P2,725 F. C. P3,250 F.
B. P2,725 U. D. P3,250 U.

27. WISCONSIN CORP. has a standard costing system. The following data are available for June:Actual quantity of direct
materials purchased 35,000 pounds
Standard price of direct materials P4 per pound
Material price variance P7,000 unfavorable
Material quantity variance P4,200 favorable
The actual price per pound of direct materials purchased in June is:
A. P3.92. C. P4.08.
B. P4.32. D. P4.20.

28. MINNESOTA CORP. has a maintenance shop where repairs to its motor vehicles are done. During last month’s labor
strike, certain recorded were lost. The actual input of direct labor hours was 1,000, and the resulting direct labor budget
variance was a favorable P3,400. The standard direct labor rate was P28.00 per hour, but an unexpected labor shortage
necessitated the hiring of higher-paid workers for some jobs and had resulted in a rate variance of P800. The actual
direct labor rate was
A. P27.20 per hour C. P30.25 per hour
B. P28.80 per hour D. P31.40 per hour

29. A recent fire devastated the records of RIKIMARU INC. In relation to its direct labor for the current year, the following
data w ere gathered:
Actual production 4,000 units
Standard hours per unit 3
Rate variance 500 F
Efficiency variance 2,000 UF
Standard direct labor cost per unit P15

How many hours were used by the company for the current year in producing the 4,000
units?
A. 11,600 hrs. C. 12,800 hrs.
B. 12,400 hrs. D. Cannot be computed; limited data

Use the following to answer questions 39-41:

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

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

a. ₱2.40 b. ₱3.90 c. ₱ 6.60 d. ₱10.59

31. Using ABC, the cost per unit of hats is approximately:

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

5 | Page
 32. 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

Use the following information in answering the next item(s):

MARYLAND INC. evaluates manufacturing overhead in its factory by using variance analysis. The following
information applies to the month of July:
ACTUAL BUDGETED
Number of units produced 19,000 20,000
Variable overhead costs P 4,000 P 2 per direct labor hour
Fixed overhead costs P 22,000 P 20,000
Direct labor hours 2,100 0.1 hour per unit
33. The controllable variance amounts to
A. P 2,500 unfavorable C. P 2,200 unfavorable
B. P 1,000 unfavorable D. P 2,000 unfavorable

34. Using the three-way variance analysis, the spending variance amounts to
A. P 100 favorable C. P 2,000 unfavorable
B. P 1,800 unfavorable D. P 2,100 unfavorable

Use the following information in answering the next two item(s):

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.
35. How much is the total budget variance?
A. P165,000 F C. P5,000 UF
B. P165,000 UF D. P5,000 F

36. How much is the total spending variance?

A. P38,000 F C. P28,000 UF
B. P38,000 UF D. P 5,000 F

Use the following information in answering the next three item(s):

COLORADO CORP. has made the following information available for its production facility for June 2020. Fixed
overhead was estimated at 19,000 machine hours for the production cycle. Actual machine hours for the
period were 18,900, which generated 3,900 units.
Material purchased (80,000 P314,000

Material quantity variance P6,400 U

hours)
VOH spending variance P50 U
Actual fixed overhead P60,000
Actual labor cost P40,120
Actual labor hours 5,900
COLORADO’s standard costs are as follows:
Direct material 20 pieces @ P4 per piece
Direct labor 1.5 hours @ P6 per hour

6 | Page
 Variable overhead (applied on a machine hour basis) 4.8 hours @ P2.50 per hour
Fixed overhead (applied on a machine hour basis) 4.8 hours @ P3 per hour

37. The materials purchase price variance is:

A. P6,000 F C. P5,850 F
B. P5,970 F D. P6,400 U

38. The conversion cost efficiency variance is:

A. P300 U C. P 450 U
B. P750 U D. P3,750 U

39. The fixed overhead noncontrollable variance is:

A. P540 U C. P300 U
B. P150 U D. P840 U

40. A debit balance in the labor efficiency variance indicates that

A. Actual hours exceed standard hours. C. Standard hours exceed actual hours.
B. Actual rate exceeds standard rate. D. Standard rate exceeds actual rate

41. A company would most likely have an unfavorable labor rate variance and a favorable labor efficiency variance if
A. the mix of workers used in the production process was more experienced than the normal mix.
B. the mix of workers used in the production process was less experienced than the normal mix.
C. workers from another part of the plant were used due to an extra heavy production schedule.
D. the purchasing agent acquired very high quality material that resulted in less spoilage.

42.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 C. False, false
B. False, true D. True, true

43. LINA CORP. is planning to set predetermined overhead rates based on normal, expected annual, or theoretical
capacity. At the end of a period, which of the following variance will be the same regardless of the capacity level
selected?
A. Fixed overhead spending variance
B. Fixed overhead volume variance

C. I only
D. II only
E. Both I and II
F. Neither I nor II

44. 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.

45. The costs that follow appeared on Omaha's quality cost report:
Warranty costs ₱15,000
Raw-materials inspection 10,000

7 | Page
 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:

46. 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:

47. Ongoing efforts to reduce costs, increase product quality, and/or improve production process once manufacturing has
begun is know n as

48. Ohio C orporation 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.

49. When an organization involves its many employees in the budgeting process in a meaningful way, the organization is said
to be using:

50. The process that determines an allowable product cost while setting market price and allowing for an acceptable profit
margin is know n as

8 | Page