UNIVERSITY OF LUZON

College of Accountancy
REFRESHER COURSE IN ACCOUNTANCY

ASSESSMENT 1 IN MAS
INSTRUCTION: USE THE GOOGLE FORM ANSWER SHEET.

1. In relation to the peso amount of sales, which of the following classifications is appropriate for
sales salaries and direct labor costs?
Sales Salaries Direct Labor
a. Mixed cost Fixed Cost
b. Fixed Cost Variable cost
c. Variable cost Variable Cost
d. Mixed Cost Variable Cost

Next two questions are based on the following.

For budget and control purposes, the controller of Mabun Manufacturing Co. is in the process of
estimating the variable cost per hour and the fixed cost per month of operating automated
equipment. Data for the past 12 months of operations have been gathered as follows:

No. of observation 12
Sum of the hours 840
Sum of the costs 9,000
Sum of the hours multiplied by the costs 655,000
Sum of the hours squared 63,800
Using the least squares method in cost segregation,

2. What was the variable cost per hour to operate the machine?
a. P5.25 b. P10.25 c. P5.00 d. P12.00

3. What was the fixed cost per month?

a. P360.00 b. P400.00 c. P900.00 d. P750.00

4. Adelphi Company has a higher degree of operating leverage than Baker Company. Which of the
following is true?
a. Adelphi has higher variable expense
b. Adelphi is more profitable
c. Adelphi is more risky
d. Adelphi’s profits are less sensitive to percentage changes in sales

5. An unexplained sum of the squares in a simple linear regression is 400 and the total sum of the
squares is 1,000. What is r2?
a. 40% b. 50% c. 60% d. 16%

6. In order to be useful to managers, management accounting reports should possess all of the
following characteristics except:
a. provide objective measures of past operations and subjective estimates about future
decisions.
b. be prepared in accordance with generally accepted accounting principles.
c. be provided at any time management needs information.
d. be prepared to report information for any unit of the business to support decision making.

7. Driver Company manufactures two product. Data concerning these products are shown below:
Product A Product B
Total monthly demand (in units) 1,000 200
Sales price per unit P400 P500
Contribution margin ratio 30% 40%
Relative sales mix 80% 20%
1
 If fixed costs are equal to P320,000, what amount of total sales revenue is needed to break even?
a. P914,286 b. P457,143 c. P320,000 d. P1,000,000

8. 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 employees productivity are constant at all volume levels.
d. For multiproduct situations, the sales mix can vary at all volume levels.

9. A basic tenet of variable costing is that fixed overhead costs should be currently expensed. What
is the basic rationale behind this procedure?
a. Fixed overhead costs will occur whether or not production occurs and so it presents a
clearer picture of how changes in production volume affect costs and income.
b. Fixed overhead costs are generally immaterial in amount and the cost of assigning the
amounts to specific products would outweigh the benefits.
c. Allocation of fixed overhead costs is arbitrary at best and could lead to erroneous decisions
by management.
d. Fixed overhead costs are uncontrollable and should not be charged to a specific product.

10. Net income reported under absorption costing will exceed net income reported under variable
costing for a given period if:
a. Production equals sales for that period.
b. Production exceeds sales for that period.
c. Sales exceed production for that period.
d. The variable overhead exceeds the fixed overhead.

11. What factor related to manufacturing costs causes the difference in net earnings computed
using absorption costing and net earnings computed using variable costing?
a. Absorption costing considers all costs in the determination of net earnings, whereas variable
costing considers only direct costs.
b. Absorption costing "inventories" all direct costs, but variable costing considers direct costs
to be period costs.
c. Absorption costing "inventories" all fixed costs for the period in ending finished goods
inventory, but variable costing expenses all fixed costs.
d. Absorption costing allocates fixed costs between cost of goods sold and inventories, and
variable costing considers all fixed costs to be period costs.

12. During 2021, Excel Co. supplied hospitals with a comprehensive diagnostic kit for P120. At a
volume of 80,000 kits, Excel Co. had a fixed costs of P1 million and operating income before
income taxes of P200,000. Because of an adverse legal decision, Excel’s 2022 liability insurance
increased by P1.2 million over 2021. Assuming the volume and other costs are unchanged, what
should the 2022 price be if Excel is to make the same P200,000 operating income before income
taxes?
a. P120.00 b. P135.00 c. P150.00 d. P240.00

13. Bailey Co. currently has only one store. The firm is considering opening a second store which
will cost an additional P10,000 of fixed expense per year while providing additional sales
revenue of P75,000. Variable expenses are currently 60% of sales; this percentage will not
change if the new store is opened. By how much will net income increase if the new store is
opened?
a. P45,000 b. P35,000 c. P30,000 d. P20,000

14. The conventional break-even chart used by accountants and businessmen does not assume
a. that prices will remain fixed.
b. that fixed costs will remain the same irrespective of changes in volume.
c. that some costs are semivariable.
d. that all costs are linear and continuous.
15. Ensuring that the organization operates in the intended manner and achieves its goals is known
as:
a. decision making
b. planning
c. directing operations
d. controlling

16. Which of the following is true of Managerial Accounting?

a. Complies with Securities and Exchange Commission rules and regulations.
b. Prepares general-purpose reports for people outside an organization.
c. Uses cost-benefit analysis to determine the amount of detail presented.
d. Presents summary historical data in compliance with generally accepted accounting
principles.

17. Which of the following is not true of Managerial Accounting?

a. Prepares general-purpose reports for people outside an organization and presents summary
historical data in compliance with generally accepted accounting principles.
b. Does not comply with generally accepted accounting principles.
c. Uses historical data and future estimates for planning, decision making, and performance
evaluation.
d. Managerial accounting provides information used by managers inside the organization.

18. How do managers use accounting information to implement strategies?

a. To evaluate the consequences of various courses of action in the negotiation process.
b. To evaluate the consequences of various courses of action in the auditing process.
c. To evaluate the consequences of various courses of action in the decision-making and
planning process.
d. To evaluate consequences of various courses of action in the control process.

19. King Co., a manufacturer operating at 95% of capacity, has been offered a new order at P7.25
per unit requiring 15% of capacity. No other use of the 5% current idle capacity can be found.
However, if the order were accepted, the subcontracting for the required 10% additional
capacity would cost P7.50 per unit. The variable cost of production for King on a per unit basis
follows:

Materials P3.50
Labor 1.50
Variable overhead 1.50
Total P6.50

In applying the contribution margin approach to evaluating whether to accept the new order,
assuming subcontracting, what is the average variable cost per unit?
a. P6.83
b. P7.17
c. P7.25
d. P7.50

20. Suppose that regression is run on 30 months of data. The dependent variable is overhead, and
the independent variable is machine hours. The coefficient of determination is 0.78. Which of
the following is true?
a. Machine hours and overhead are negatively correlated.
b. The coefficient of correlation is approximately 0.61.
c. Machine hours account for about 61 percent of the variation in overhead.
d. The coefficient of correlation is approximately 0.78.
e. Factors other than machine hours account for approximately 22 percent of the variation in
overhead.
21. A company manufactures a single product for its customers by contracting in advance of
production. Thus, the company produces only units that will be sold by the end of each period.
For last period, the following data were available:

Sales P40,000
Direct Materials 9,050
Direct labor 6,050
Rent (9/10 factory, 1/10 office) 3,000
Depreciation on factory equipment 2,000
Supervision (2/3 factory, 1/3 office 1,500
Salespeople’s salaries 1,300
Insurance (2/3 factory, 1/3 office) 1,200
Office supplies 750
Advertising 700
Depreciation on office equipment 500
Interest on loan 300

The gross margin percentage (rounded) was:

a. 41% b. 44% c. 46% d. 51%

22. Which of the following is not a controller’s function?

a. in charge of planning and control
b. protection of assets such as adequate insurance coverage, etc.
c. interpreting and reporting on effects of external factors on the business
d. arranging short-term financing

The next three questions are based on Brannen Corporation, which 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 last year was P5,040. Brannen’s expectation for the coming year include the
following:

• The sales price of the T-shirts will be P9.

• Variable cost to manufacture will increase by one-third.
• Fixed costs will increase by 10%.
• The income tax rate of 40% will be unchanged.

23. The selling price that would maintain the same contribution margin rate as last year is:
a. P10.00.
b. P9.75.
c. P9.00.
d. P8.25.

24. The number of T-shirts Brannen Corporation must sell to break even in the coming year is:
a. 22,000.
b. 20,000.
c. 19,250.
d. 17,500.

25. If Brannen wishes to earn P22,500 in net income for the coming year, the company’s sales
volume in dollars must be:
a. P257,625.
b. P229,500.
c. P213,750.
d. P207,000.

The next four questions are based on the following information. Webb Company manufactures a
single electronic product called Micronix. This unit is a batch-density monitoring device attached to
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College of Accountancy
large industrial mixing machines used in chemical manufacturing. Micronix sells for P900 per unit.
The following variable costs are incurred to produce each Micronix device:

Direct labor P180

Direct material 240
Factory overhead 105
Total variable production costs P525
Marketing costs 75
Total variable costs P600

Webb’s income tax rate is 40%, and annual fixed costs are P6,600,000. Except for an operating loss
incurred in the year of incorporation, the firm has been profitable over the last five years.

26. If Webb Company achieves a sales and production volume of 8,000 units, the annual before-tax
income (loss) will be:
a. P2,400,000.
b. P1,780,000.
c. P(420,000).
d. P(4,200,000).

27. The annual sales volume required for Webb Company to break even is:
a. 8,400 units.
b. 11,000 units.
c. 14,000 units.
d. 22,000 units.

28. A significant change in Webb Company’s production technology caused a 10% increase in
annual fixed costs and a 20% unit cost increase in the direct labor component as a result of
higher skilled direct labor. However, this change permitted the replacement of a costly imported
component with a domestic component. The effect was to reduce unit material costs by 25%.
However, there has been no change in the product selling price. After incorporating these
changes, Webb Company’s contribution margin would be:
a. 34%.
b. 36%
c. 69%.
d. 64%.

29. A significant change in Webb Company’s production technology caused a 10% increase in
annual fixed costs and a 20% unit cost increase in the direct labor component as a result of
higher skilled direct labor. However, this change permitted the replacement of a costly imported
component with a domestic component. The effect was to reduce unit material costs by 25%.
However, there has been no change in the product selling price. After incorporating these
changes, Company’s break-even point [rounded to the nearest whole unit] would increase
(decrease) by:
a. 407 units.
b. (407 units).
c. 1,604 units.
d. 3,960 units.

30. The extreme observations of cost-activity relationships are known as:

a. missing data
b. outliers
c. discretionary costs
d. dependent variables

31. The following information pertains to Brian Stone Corporation:

Beginning fixed manufacturing overhead in inventory P60,000

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College of Accountancy
Ending fixed manufacturing overhead in inventory 45,000
Beginning variable manufacturing overhead in inventoryP30,000
Ending variable manufacturing overhead in inventory 14,250

Fixed selling and administrative costs P724,000

Units produced 5,000 units
Units sold 4,800 units

What is the difference between operating incomes under absorption costing and variable
costing?
a. P750
b. P7,500
c. P15,000
d. P30,750

32. Joy Company is preparing a flexible budget for 2018 and requires a breakdown of the cost of
steam used in its factory into the fixed and variable elements. The following data on the cost of
steam used and direct labor hours worked are available for the last six months of 2017:
Months Cost of Steam Direct labor hours
July P 15,850 3,000
August 13,400 2,050
September 16,370 2,900
October 19,800 3,650
November 17,000 2,670
December 18,500 2,650
Total P101,000 16,920

Assuming that Joy uses the high-low point method of analysis, the estimated variable cost of
steam per direct-labor hour should be:
a. P6.00
b. P4.00
c. P5.82
d. P5.42

33. In its first year of operations, a firm had P50,000 of fixed operating costs. It sold 10,000 units at
a P10 unit price and incurred variable costs of P4 per unit. If all prices and costs will be the
same in the second year and sales are projected to rise to 25,000 units, what will the degree of
operating leverage be in the second year.
a. 1.25
b. 1.50
c. 2.0
d. 6.0

34. Simple regression differs from multiple regression in that

a. Multiple regression uses all available data to estimate the cost function whereas simple regression
only uses simple data
b. Simple regression uses only one dependent variable and multiple regression uses more than one
dependent variable
c. Simple regression is limited to the used of only the dependent variables and multiple regression can
use both dependent and independent variables
d. Simple regression uses only one independent variable and multiple regression more than one
independent variable

35. Controllership has attained special recognition in corporate management as business expands
in complexity and reach, and as the controller exerts influence for management to take
organization’s goals. Controllership and treasurership constitutes corporate finance. These are
among the controller’s traditional functions:

i. Tax management
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College of Accountancy
ii. Financial reporting and interpretation
iii. Credit management
iv. Sourcing and investing funds
v. Reporting to government regulatory agencies
vi. Risk management
vii. Economic appraisal
viii. Planning for control

a. all eight items

b. items I,II,V,VII and VIII only
c. items I,II,III,IV,V,VII, and VIII only
d. items II,III,V,VII and VIII only

END OF EXAMINATION.