1.

Tierra Company prepared the following preliminary forecast concerning Product X for 20B
assuming no expenditure for advertising:
Selling price per unit P10
Unit sales 100,000
Variable costs P600,000
Fixed costs P300,000
Based on a market study in December 20A, Tierra estimated that it could increase the unit selling
price by 15% and increase the unit sales volume by 10% if P100,000 was spent in advertising.
Assuming that Tierra incorporated these changes in its 20B forecast, what should be the
operating income from Product X?
a. P175,000 b. P190,000 c. P205,000 d. P365,000

2. Darigold, Inc., sells Product M for P5 per unit. The fixed cost is P210,000 and the variable
cost is 60% of the selling price. What would be the amount of sales if Darigold is to realize
a profit of 10% of sales?
a. P700,000 b. P525,000 c. P472,500 d. P420,000
3. Dukha Company is considering a proposal to replace existing machinery used for the
manufacture of Product E. The new machines are expected to cause increased annual
fixed cost of P120,000; however, variable cost should decrease by 20% due to a reduction
in direct-labor hours and more efficient usage of direct materials. Before this change was
under consideration, Dukha had budgeted Product E sales and costs for 20B as follows:
Sales P2,000,000
Variable cost 70% of sales
Fixed cost P400,000
Assuming that Dukha implemented the above proposal by January 1, 20B, what would be
the increase in budgeted operating profit for Product E for 20B?
a. P160,000 b. P280,000 c. P360,000 d. P380,000

4. Remar, Inc. reported the following results from sales of 5,000 units of Product C for the
month of June 20A:
Sales P200,000
Variable cost 120,000
 Fixed cost 60,000
Operating income 20,000
Assume that Remar, Inc. increases the selling price of Product C by 10% on July 1, 20A. How
many units of Product C would have to be sold in July 20A in order to generate an operating
income of P20,000?
a. 4,000 b. 4,300 c. 4,500 d. 5,000

5. Merissa Company is planning to sell 100,000 units of Product Y for P12 a unit. The fixed
cost is P280,000. In order to realize a profit of P200,000, what would the variable cost be?
a. P480,000 b. P720,000 c. P300,000 d. P220,000
6. Bibot Company has projected cost of goods sold of P4,000,000, including fixed cost of
P800,000. Variable cost is expected to be 75% of net sales. What will be the projected net
sales?
a. P4,266,667 b. P4,800,000 c. P3,333,333 d. P4,400,000

7. The Little Star Company is planning to sell 200,000 units of Product M. The fixed cost is
P400,000 and the variable cost is 60% of the selling price. In order to realize a profit of
P100,000, the selling price per unit would have to be
a. P3.75 b. P4.17 c. P6.00 d. P6.25
8. MACE Company is a medium-sized producer of lamps. During the year a new line called
“Torolin” was made available to MACE’s customers. The break-even point for sales of
Torolin is P200,000 with a contribution margin of 40%. Assuming that the profit for the
Torolin line during the year amounted to P100,000, total sales during the year would have
amounted to
a. P300,000 b. P450,000 c. P475,000 d. P485,000

9. The following data refer to cost-volume-profit relationship of K Co.

Break-even point in units 1,000
Variable cost per unit P250
Total fixed cost P75,000
How much will be contributed to operating income by the 1,001st unit sold?
a. P250 b. P325 c. P75 d. zero

10.The term that means all manufacturing costs (direct and indirect, fixed and variable) which
can contribute to the production of the product, are traced to output and inventories is:
a. job order costing b. process costing c. absorption costing d. direct costing
The term that means all manufacturing costs (direct and indirect, fixed and
variable) which can contribute to the production of the product, are traced to
output and inventories is:
This refers to absorbing all manufacturing costs into the cost of the product, including
both fixed and variable costs.
Answer: c. absorption costing
11.The term that is most descriptive of the type of cost accounting often called direct costing
is:
a. out-of-pocket costing b. variable costing c. relevant costing d. prime
costing
The term that is most descriptive of the type of cost accounting often called direct
costing is:
Direct costing is also known as variable costing, where only variable costs are treated as
product costs, while fixed costs are considered period costs.
Answer: b. variable costing
12.Costs treated as product costs under direct costing are:
a. prime costs only c. all variable costs
b. variable production cost only d. all variable and fixed manufacturing costs
Costs treated as product costs under direct costing are:
Under direct costing (variable costing), only variable production costs (such as direct
materials, direct labor, and variable manufacturing overhead) are treated as product costs.
Answer: b. variable production cost only
13.The basic assumption made in direct costing with respect to fixed costs is that fixed cost
is:
a. a controllable cost c. an irrelevant cost
b. a product cost d. a period cost
The basic assumption made in direct costing with respect to fixed costs is that
fixed cost is:
Under direct costing, fixed costs are treated as period costs and are not included in the
product cost.
Answer: d. a period cost
14.Operating income computed using the direct costing would generally exceed operating
income computed using the absorption costing if:
a. units sold exceed units produced
b. units sold are less than units produced
c. units sold equal units produced
d. the unit fixed cost is zero
15.Operating income using direct costing as compared to absorption costing would be higher
a. when the quantity of beginning inventory equals the quantity of ending inventory.
b. when the quantity of beginning inventory is more than the quantity of ending inventory.
c. when the quantity of beginning inventory is less than the quantity of ending inventory.
d. under no circumstances.
Operating income using direct costing as compared to absorption costing would be
higher:
The key difference between direct costing and absorption costing is how fixed manufacturing
costs are treated. Absorption costing allocates fixed costs to both units sold and units in
ending inventory, while direct costing treats all fixed costs as period costs.
16.When using full absorption costing, what costs attendant to an element of production
(material, labor, and overhead) are used in order to compute variances from standard
amount?
a. Controllable costs b. Total costs c. Variable costs d. Fixed costs
When using full absorption costing, what costs attendant to an element of
production (material, labor, and overhead) are used in order to compute variances
from standard amount?
In full absorption costing, we look at total costs, which include both variable and fixed
costs when calculating variances from standard amounts.
Answer: b. Total costs
17.What factor, related to manufacturing costs, causes the difference in net earnings
computed using absorption costing and net earnings computed using direct costing?
a. Absorption costing considers all costs in the determination of net earnings, whereas direct
costing considers only direct costs.
b. Absorption costing allocates fixed costs between cost of goods sold and inventories, while
direct costing considers all fixed costs to be period costs.
c. Absorption costing “inventories” all direct costs, but direct costing considers direct costs to
be period costs.
d. Absorption costing “inventories” all fixed costs for the period in ending finished goods
inventory, but direct costing expenses all fixed costs.
The main difference between absorption costing and direct costing lies in the treatment
of fixed manufacturing costs. Under absorption costing, these costs are allocated to
inventories and can affect the net income. In contrast, under direct costing, fixed costs
are treated as period costs, and all of them are expensed in the period incurred.
Answer: b. Absorption costing allocates fixed costs between cost of goods sold and
inventories, while direct costing considers all fixed costs to be period costs.
18.A basic tenet of direct costing is that period costs should be currently expensed. What is
the basic rationale behind this procedure?
a. Period costs are uncontrollable and should not be charged to a specific product.
b. Period costs are generally immaterial in amount and the cost of assigning the amount to
specific products would outweigh the benefits.
c. Allocation of period costs is arbitrary at best and could to erroneous decisions by
management.
d. Period costs will occur whether or not production occurs and so it is improper to allocate
these costs to production and defer a current cost of doing business.
The basic rationale is that period costs (such as fixed costs) are incurred regardless of the
production level and should not be allocated to inventory. They are more appropriately
expensed in the period incurred because they are not directly tied to production.
Answer: d. Period costs will occur whether or not production occurs and so it is
improper to allocate these costs to production and defer a current cost of doing
business.
19.The contribution margin increases when sales volume remains the same and
a. variable cost per unit decreases. c. fixed costs decrease.
b. variable cost per unit increases. d. fixed costs increase.
The contribution margin increases when sales volume remains the same and:
The contribution margin is the difference between sales revenue and variable costs. If
variable costs decrease (e.g., through cost-saving measures or efficiency improvements),
the contribution margin per unit will increase, even if the sales volume remains unchanged.
Answer: a. variable cost per unit decreases.
20.A distinction between forecasting and planning
a. Is not valid because they are synonyms.
b. Arise because forecasting covers the short term and planning does not.
c. Is that forecasts are used in planning.
d. Is that forecasting is a management activity, whereas planning is a technical activity.
A distinction between forecasting and planning:
Forecasting involves predicting future events based on historical data, while planning is
about setting goals and determining how to achieve them. Forecasting is an input to the
planning process.
Answer: C. Is that forecasts are used in planning.
21.The use of budgetary slack does not allow the preparer to
a. Be flexible under unexpected circumstances.
b. Project actual expenses.
c. Increase the probability of achieving budgeted performance.
d. Use the budget to control subordinate performance.
Budgetary slack is the practice of intentionally underestimating revenues or overestimating
expenses to make it easier to achieve the budget goals. While it provides some flexibility, it
can also undermine the accuracy of budgeting and control over actual performance.
Answer: B. Project actual expenses.
22.For better management acceptance, the flow of data to be used for budgeting should
begin with
a. Accounting department c. Lower levels of management
b. Top management d. Budget committee
For better management acceptance and involvement, bottom-up budgeting (starting with
lower levels of management) encourages participation and ownership of the budget, making
it more likely that the budget will be realistic and accepted.
Answer: C. Lower levels of management
23.The budgeting technique that is most likely to motivate managers is
a. Top-down budgeting. c. Program budgeting and review technique.
b. Zero-base budgeting. d. Bottom-up budgeting.
Bottom-up budgeting involves managers at all levels in the budgeting process, leading to
more accurate and motivated participation since they are directly involved in setting the
budget.
Answer: D. Bottom-up budgeting.
24.The budget that describes the long-term position, goals, and objectives of an entity within
its environment is the
a. Capital budget. c. Cash management budget.
b. Operating budget. d. Strategic budget.
The strategic budget outlines the long-term goals, objectives, and strategies of the
organization. It helps in defining the direction of the company within its external environment.
Answer: D. Strategic budget.

QUESTIONS 25 AND 26 ARE BASED ON THE FOLLOWING INFORMATION.

Berol Company, which plans to sell 200,000 units of finished product in July and anticipates a
growth rate in sales of 5% per month. The desired monthly ending inventory in units of
finished product is 80% of the next month's estimated sales. There are 150,000 finished units
in inventory on June 30.
Each unit of finished product requires 4 pounds of direct materials at a cost of P1.20 per
pound. There are 800,000 pounds of direct materials in inventory on June 30.
25.Berol Company's production requirement in units of finished product for the 3-month
period ending September 30 is
a. 712,025 units. b. 630,500 units. c. 638,000 units. d. 665,720
units.

26.Assume Berol Company plans to produce 600,000 units of finished product in the 3-month
period ending September 30, and to have direct materials inventory on hand at the end of
the 3-month period equal to 25% of the use in that period. The estimated cost of direct
materials purchases for the 3-month period ending September 30 is
a. P2,200,000. b. P2,400,000. c. P2,640,000. d. P2,880,000.
 27.Cook Co.’s total costs of operating five sales offices last year were P500,000, of which
P70,000 represented fixed costs. Cook has determined that total costs are significantly
influenced by the number of sales offices operated. Last year’s costs and number of sales
offices can be used as the bases for predicting annual costs. What would be the budgeted
cost for the coming year if Cook were to operate seven sales offices?
a. P700,000 b. P672,000 c. P602,000 d. P586,000

28.It is budgeting time for Del Co. The following assumptions were agreed upon for the next
year after a strategic planning session which covered a five-year horizon
1. Sales is estimated to be at 70,000 units at its national selling price of P126.00. 75%
of total sales are on credit. 1.5% of net sales is provided for doubtful accounts.
2. Sales discounts are given to various customers at different rates and net to gross
ratio is at 93%
3. Mark-up on merchandise is at 45% of invoice cost. Beginning inventory is P80,900
and is expected to be reduced by P15,000 at the end of the period.
4. Selling and administrative expenses is expected to be 15% of gross sales.
5. Depreciation is computed at P500,000.
The projected operating income for the year is
a. P252,741 b. P296,841 c. P252,341 d. P173,802
29.Juice Company budgeted P148,000 sales on account for June, P120,000 for July, P211,000
for August, P198,000 for September, and P164,000 for October. Collection experience
indicates that 60% of the budgeted sales will be collected the month after the sale, 36%
will be collected the second month, and 4% will be uncollectible. Which month should have
the largest amount of cash receipts from accounts receivable budgeted?
a. August. b. September. c. October. d. November.

30.The plan of Soriano Plastic Co. is to sell during the month of July 5,000 plastic bags at a
unit price of P35.00. The gross profit is estimated at 30% of sales income. It is also
estimated that the inventory will be increased by roughly P32,500 in anticipation of higher
sales volume for the school season. The amount payable to trade creditors will also
increase by P55,000. What is the estimated payments to be made during the month of July
for the merchandise?
a. P100,000 b. P122,500 c. P140,000 d. P145,000
31.Buenaflor Products Company will sell during June 8,000 pieces of its merchandise at a unit
price of P30.00. It is estimated that the gross profit is 25% of sales revenue. The inventory
will be increased during the month by roughly P50,000 in expectation of higher sales
volume for the opening of the school year. The amounts due to trade creditors will also
increase by P30,000.
The estimate of payments to be made during the month of June for merchandise is
a. P80,000 b. P180,000 c. P200,000 d. P240,000

32.JLT Corporation expects to sell 150,000 units during the first quarter of 2024, with an
ending inventory for the quarter of 20,000 units. Variable manufacturing costs are
budgeted at P50 per unit, with 70% of total variable manufacturing costs requiring cash
payments during the quarter. Fixed manufacturing costs are budgeted at P120,000 per
quarter, 40% of which are expected to require cash payment during the quarter.
In the cash budget, payments for manufacturing costs during the quarter will total
a. P8,500,000 b. P5,950,000 c. P5,998,000 d. P5,298,000
QUESTIONS 33 THROUGH 42 ARE BASED ON THE FOLLOWING INFORMATION.
The following information has been gathered by the Budget Director of the Kareton Company,
another outfit managed by the Masugid Company. The firm manufactures and sells only one
product. The selling price during the coming month is expected to be the prevailing price of
P5 per unit. Expected sales during the month is a total of 75,000 units of finished goods.
Finished goods expected to be on hand at the end of the month total 50,000 units. Finished
goods expected to be on hand at the beginning of the month total 42,000 units.

Direct labor cost is P3.00 per hour. One-fourth an hour of direct labor is required to
manufacture each unit of finished product. Factory overhead is applied to work-in-process on
the basis of direct labor hours. Variable factory expenses at the planned level of operations is
expected to amount to P33,200; fixed overhead is expected to amount to P99,600.

The raw materials expected to be on hand at the beginning of the month total 5,000 gallons.
Only one kind of raw material is used to produce the finished goods. One and one-half gallons
of raw material are needed to manufacture each unit of finished product. Raw materials are
expected to cost P0.18 per gallon during the coming month, its prevailing cost. Raw materials
expected to be on hand at the end of the month total 8,000 gallons. Variable administrative
and selling expenses is P1.00 per unit.

In assisting the company to formulate the budget, you determined the following budget
parameters.
33.The total expected peso sales is
a.P75,000 b.P83,000 c.P375,000 d.P250,000

34.Finished goods in units to be produced during the month is

a. 75,000 units. b. 33,000 units. c. 50,000 units. d. 83,000 units.
35.Budgeted cost of raw materials to be used in production is
a. P124,500 b. P124,500 c. P14,940 d. P22,410

36.Budgeted raw materials purchases cost is

a. P22,950 b. P22,410 c. P23,760 d. P124,500

37.Budgeted direct labor is

a. P20,750 b. P83,000 c. P62,250 d. P33,200

38.Variable overhead cost per direct labor hour is

a. P1.60 b. P4.80 c. P1.80 d. P6.40
39.Fixed overhead cost per direct labor hour is
a. P1.60 b. P4.80 c. P1.80 d. P6.40

40.Budgeted contribution margin is

a. P5.00 b. P0.706 c. P1.80 d. P2.58

41.Budgeted cost of goods sold (full cost) is

a. P76,500 b. P96,500 c. P196,500 d. P304,000
 42.Net profit before tax is
a.P178,500 b.P103,500 c.P53,000 d.P249,500

Summary of Answers:
 35. Total expected sales: c. P375,000
 36. Units to be produced: d. 83,000 units
 37. Budgeted cost of raw materials to be used: d. P22,410
 38. Budgeted raw materials purchases cost: a. P22,950
 39. Budgeted direct labor: c. P62,250
 40. Variable overhead cost per direct labor hour: a. P1.60
 41. Fixed overhead cost per direct labor hour: b. P4.80
 42. Budgeted contribution margin: d. P2.58
 43. Budgeted cost of goods sold (full cost): c. P196,500
 44. Net profit before tax: b. P103,500

ITEMS 43 to 46 ARE BASED ON THE FOLLOWING INFORMATION:

The management of a hotel is interested in the relationship between room cleaning costs and
guest-days in its hotel. Using regression analysis on room cleaning costs and guest-days
collected over 12 months, the relationship was shown graphically as follows:

43.The estimated monthly fixed room cleaning cost is

a.P25,000. b. P30,000 c. P10,000. d. PO.
44.The estimated increase in the room cleaning cost for each additional guest-day is
 a.P26.67. b. P10.00. c. P60,000. d. P25,000.

45.The cost formula for the room cleaning costs may be expressed as
a. Cost = P25,000 + guest-days.
b. Cost = P25,000.
c. Cost = P25,000 + P10.
d. Cost = P25,000 + P10(guest-days).
46.If the relevant range is from 0 to 2,000 guest-days, how much is the total room cleaning
cost for 2,200 guest-days?
a. P47,000 b. P22,000 c. P25,000 d. Cannot be determined from the given
information.

47.Consulting services differ fundamentally from the CPA's function of attesting to the
assertions of other parties. In a consulting service,
a. the practitioner expresses a conclusion about the reliability of a written assertion that is
the responsibility of another party, the assertor.
b. the work is generally performed only for the use and benefit of the client.
c. the client develops the findings, conclusions, conclusions, and recommendations.
d. the nature and scope of work is determined solely by the consulting services
practitioner.

Choice A refers to an attest service. In a consulting service: • the practitioner develops the
findings, conclusions, and recommendations presented; • the nature and scope of work is
determined solely by the agreement between the practitioner and the client; • generally,
the work is performed only for the use and benefit of the client.

48.Management consulting (or management consultancy)

a. is limited to CPAs.
 b. is not limited to CPAs.
c. may be practiced by anybody since it is not limited to CPAs.
d. is regulated by law, such that an individual must pass a government licensure examination
first before he could practice the same.
B Management consulting is not limited to CPAs. As of now, there is no government licensure
examination yet, particularly for management consultants. Hence, it is not regulated by law
(Choice D)

49.Which of the following is a characteristic of management advisory services?

a. Services rendered are for third parties.
b. Engagements are usually recurring.
c. Human relations do not play a vital role in each engagement.
d. It involves problem solving.
50.Which of the following statement(s) is(are) true?
1. MAS relates to the future.
2. MAS covers a wider area than the usual audit and tax work.
3. Because of the broad scope covered by MAS, a wider variety of assignments are
usually encountered.
4. MAS engagements require highly qualified staff.
a. All the statements are true.
b. Only three statements are true.
c. Only two statements are true.
d. Only one statement is true.

Reference:
9402;9404;9405
43-50: Agamata book