Republic of the Philippines

City of Caloocan
St. Vincent de Ferrer College of Camaranin, Inc.
SVFC Compound, San Vicente de Ferrer Rd. Area D, Brgy. 179, Caloocan City

COURSE TITLE: Strategic Cost Management Professor: Orland L. Adrigado, CPA

FINAL TERM EXAMINATION

1. The term "prime cost" refers to

a. all manufacturing costs incurred to produce units of output.
b. all manufacturing costs other than direct labor and raw material costs.
c. raw material purchased and direct labor costs.
d. the raw material used and direct labor costs.
ANS: D DIF: Easy OBJ: 2-2

2. Conversion of inputs to outputs is recorded in the

a. Work in Process Inventory account.
b. Finished Goods Inventory account.
c. Raw Material Inventory account.
d. both a and b.
ANS: A DIF: Easy OBJ: 2-4

3. In a perpetual inventory system, the sale of items for cash consists of two entries. One entry is
a debit to Cash and a credit to Sales. The other entry is a debit to
a. Work in Process Inventory and a credit to Finished Goods Inventory.
b. Finished Goods Inventory and a credit to Cost of Goods Sold.
c. Cost of Goods Sold and a credit to Finished Goods Inventory.
d. Finished Goods Inventory and a credit to Work in Process Inventory.
ANS: C DIF: Easy OBJ: 2-4

4. The formula to compute cost of goods manufactured is

a. beginning Work in Process Inventory plus purchases of raw material minus ending
Work in Process Inventory.
b. beginning Work in Process Inventory plus direct labor plus direct material used plus
overhead incurred minus ending Work in Process Inventory.
c. direct material used plus direct labor plus overhead incurred.
d. direct material used plus direct labor plus overhead incurred plus beginning Work in
Process Inventory.
ANS: B DIF: Easy OBJ: 2-5

5. The final figure in the Schedule of Cost of Goods Manufactured represents the
a. cost of goods sold for the period.
b. total cost of manufacturing for the period.
c. total cost of goods started and completed this period.
d. total cost of goods completed for the period.
ANS: D DIF: Easy OBJ: 2-5

6. The formula for cost of goods sold for a manufacturer is

a. beginning Finished Goods Inventory plus Cost of Goods Manufactured minus ending
Finished Goods Inventory.
b. beginning Work in Process Inventory plus Cost of Goods Manufactured minus ending
Work in Process Inventory.
c. direct material plus direct labor plus applied overhead.
d. direct material plus direct labor plus overhead incurred plus beginning Work in Process
Inventory.
 ANS: A DIF: Easy OBJ: 2-5

7. Which of the following replaces the retailing component "Purchases" in computing Cost of
Goods Sold for a manufacturing company?
a. direct material used
b. cost of goods manufactured
c. total prime cost
d. cost of goods available for sale
ANS: B DIF: Easy OBJ: 2-5

8. Costs that are incurred to preclude defects and improper processing are:
a. prevention costs c. appraisal costs
b. detection costs d. failure costs
ANS: A DIF: Moderate OBJ: 2-4

9. Costs that are incurred for monitoring and inspecting are:

a. prevention costs c. appraisal costs
b. detection costs d. failure costs
ANS: C DIF: Moderate OBJ: 2-4

10. Costs that are incurred when customers complain are:

a. prevention costs c. appraisal costs
b. detection costs d. failure costs
ANS: D DIF: Moderate OBJ: 2-4

11. CVP analysis requires costs to be categorized as

a. either fixed or variable.
b. fixed, mixed, or variable.
c. product or period.
d. standard or actual.
ANS: A DIF: Easy OBJ: 9-1,9-6

12. With respect to fixed costs, CVP analysis assumes total fixed costs
a. per unit remain constant as volume changes.
b. remain constant from one period to the next.
c. vary directly with volume.
d. remain constant across changes in volume.
ANS: D DIF: Easy OBJ: 9-2,9-6

13. CVP analysis relies on the assumptions that costs are either strictly fixed or strictly variable.
Consistent with these assumptions, as volume decreases total
a. fixed costs decrease.
b. variable costs remain constant.
c. costs decrease.
d. costs remain constant.
ANS: C DIF: Easy OBJ: 9-2,9-6
14. According to CVP analysis, a company could never incur a loss that exceeded its total
a. variable costs.
b. fixed costs.
c. costs.
d. contribution margin.
ANS: C DIF: Easy OBJ: 9-2,9-6

15. CVP analysis is based on concepts from

a. standard costing.
b. variable costing.
c. job order costing.
d. process costing.
ANS: B DIF: Easy OBJ: 9-2

16. 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.
ANS: D DIF: Easy OBJ: 9-2

17. In CVP analysis, linear functions are assumed for

a. contribution margin per unit.
b. fixed cost per unit.
c. total costs per unit.
d. all of the above.
ANS: A DIF: Easy OBJ: 9-2,9-6

18. Which of the following factors is involved in studying cost-volume-profit relationships?

a. product mix
b. variable costs
c. fixed costs
d. all of the above
ANS: D DIF: Easy OBJ: 9-2

19. Cost-volume-profit relationships that are curvilinear may be analyzed linearly by considering
only
a. fixed and mixed costs.
b. relevant fixed costs.
c. relevant variable costs.
d. a relevant range of volume.
ANS: D DIF: Easy OBJ: 9-2

20. After the level of volume exceeds the break-even point

a. the contribution margin ratio increases.
b. the total contribution margin exceeds the total fixed costs.
c. total fixed costs per unit will remain constant.
d. the total contribution margin will turn from negative to positive.
 ANS: B DIF: Easy OBJ: 9-2

21. Which of the following will decrease the break-even point?

Decrease in Increase in direct Increase in

fixed cost labor cost selling price

a. yes yes yes

b. yes no yes
c. yes no no
d. no yes no

ANS: B DIF: Easy OBJ: 9-2

22. At the break-even point, fixed costs are always

a. less than the contribution margin.
b. equal to the contribution margin.
c. more than the contribution margin.
d. more than the variable cost.
ANS: B DIF: Easy OBJ: 9-2

23. The method of cost accounting that lends itself to break-even analysis is
a. variable.
b. standard.
c. absolute.
d. absorption.
ANS: A DIF: Easy OBJ: 9-2

24. Given the following notation, what is the break-even sales level in units?

SP = selling price per unit, FC = total fixed cost, VC = variable cost per unit
a. SP/(FC/VC)
b. FC/(VC/SP)
c. VC/(SP - FC)
d. FC/(SP - VC)
ANS: D DIF: Easy OBJ: 9-2

25. Consider the equation X = Sales - [(CM/Sales)  (Sales)]. What is X?

a. net income
b. fixed costs
c. contribution margin
d. variable costs
ANS: D DIF: Moderate OBJ: 9-2

26. For one product that a firm produces, the manufacturing cycle efficiency is 20 percent. If the
total production time is 12 hours, what is the total manufacturing time?
a. 15.0 hours
b. 60.0 hours
c. 12.0 hours
d. 2.4 hours
 ANS: B DIF: Easy OBJ: 5-2

27. Activity analysis allows managers to

a. classify activities so that processes can be eliminated.
b. devise ways to minimize or eliminate non-value-added activities.
c. evaluate process performance to gain competitive advantages.
d. all of the above.
ANS: B DIF: Easy OBJ: 5-3

Payac Company

The following information relates to financial projections of Payac Company:

Projected sales 60,000 units

Projected variable costs P2.00 per unit
Projected fixed costs P50,000 per year
Projected unit sales price P7.00

28. Refer to Payac Company. How many units would Payac Company need to sell to earn a profit
before taxes of P10,000?
a. 25,714
b. 10,000
c. 8,571
d. 12,000
ANS: D
Contribution Margin per Unit: $5
$5x - $50,000 - $10,000
$5x = $60,000
x = 12,000 units

DIF: Moderate OBJ: 9-3

29. Refer to Payac Company. If Payac Company achieves its projections, what will be its degree
of operating leverage?
a. 6.00
b. 1.20
c. 1.68
d. 2.40
ANS: B
Net profit = (60,000 units * $5/unit) - $50,000
= $300,000 - $50,000
= $250,000
DOL = $(300,000/120,000) = 1.20

DIF: Moderate OBJ: 9-5

30. Garcelazo Company manufactures a single product. In the prior year, the company had sales
of P90,000, variable costs of P50,000, and fixed costs of P30,000. Unique expects its cost
structure and sales price per unit to remain the same in the current year, however total sales
are expected to increase by 20 percent. If the current year projections are realized, net income
should exceed the prior year’s net income by:
a. 100 percent.
b. 80 percent.
c. 20 percent.
d. 50 percent.
ANS: B
Contribution margin: $40,000
Net profit: $(40,000 - 30,000) = $10,000

20% CM increase: $40,000 * 1.20 = $48,000

Net profit: $(48,000 - 30,000) = $18,000

Increase in profit $8,000

$8,000/$10,000 = 80%

DIF: Moderate OBJ: 9-3

Peralta Corporation

Peralta Corporation manufactures and sells two products: A and B. The operating results of
the company are as follows:

Product A Product B
Sales in units 2,000 3,000
Sales price per unit P10 P5
Variable costs per unit 7 3

In addition, the company incurred total fixed costs in the amount of P9,000.
31. Refer to Peralta Corporation.. How many total units would the company have needed to sell
to break even?
a. 3,750
b. 750
c. 3,600
d. 1,800
ANS: A
Let B = 1.5A

3A + 2(1.5A) - $9,000 = $0
6A - $9,000 = $0
A = 1,500
B = 2,250

Total units = 3,750

DIF: Moderate OBJ: 9-4

32. Refer to Peralta Corporation. If the company would have sold a total of 6,000 units, consistent
with CVP assumptions how many of those units would you expect to be Product B?
a. 3,000
b. 4,000
c. 3,600
d. 3,500
ANS: C
A + 1.5A = 6,000 units
2.5A = 6,000 units
A = 2,400 units
B = 3,600 units

DIF: Moderate OBJ: 9-4

33. Refer to Peralta Corporation. How many units would the company have needed to sell to
produce a profit of P12,000?
a. 8,750
b. 20,000
c. 10,000
d. 8,400
ANS: A
3A + 2(1.5A) - $9,000 = $12,000
6A = $21,000
A = 3,500 units
B = 5,250 units
Total = 8,750 units

DIF: Moderate OBJ: 9-4

 Barlizo Company

Below is an income statement for Barlizo Company:

Sales P300,000
Variable costs (150,000)
Contribution margin P150,000
Fixed costs (100,000)
Profit before taxes P 50,000

34. Refer to Barlizo Company. What was the company's margin of safety?
a. P50,000
b. P100,000
c. P150,000
d. P25,000
ANS: B
Margin of safety = Sales - BEP Sales
CM = .50
BEP Sales = .50x - $100,000 = 0
= .50x = $100,000
x = $200,000
$(300,000 - 200,000) = $100,000

DIF: Moderate OBJ: 9-5

35. Refer to Barlizo Company. If the unit sales price for Barlizo sole product was P10, how many
units would it have needed to sell to produce a profit of P40,000?
a. 27,500
b. 29,000
c. 28,000
d. can't be determined from the information given
ANS: C
Contribution Margin at $40,000 profit: $(40,000 + 100,000) = $140,000
Contribution Margin Ratio: 0.50
$140,000 / .50 = $280,000
$280,000 / $10 = 28,000 units

DIF: Moderate OBJ: 9-3

36. A firm estimates that it will sell 100,000 units of its sole product in the coming period.
It projects the sales price at P40 per unit, the CM ratio at 60 percent, and profit at P500,000.
What is the firm budgeting for fixed costs in the coming period?
a. P1,600,000
b. P2,400,000
c. P1,100,000
d. P1,900,000
ANS: D
Profit + Fixed Cost = (100,000 units * $60/unit CM)
Fixed Cost = (100,000 units * $24/unit CM) - Profit
= $2,400,000 - $500,000
= $1,900,000

DIF: Moderate OBJ: 9-3

36. Jugo Company manufactures a western-style hat that sells for P10 per unit. This is its sole
product and it has projected the break-even point at 50,000 units in the coming period. If
fixed costs are projected at P100,000, what is the projected contribution margin ratio?
a. 80 percent
b. 20 percent
c. 40 percent
d. 60 percent
ANS: B
Fixed Costs=Contribution Margin at Breakeven Point
= $100,000
Breakeven Sales: $500,000
CM Ratio: $(100,000/500,000) = 20%

DIF: Moderate OBJ: 9-3

37. Which of the following statements about business-value-added activities (BVAs) is true?
a. BVAs reflect the same processes in all organizations.
b. A process map will not reflect BVAs because such activities are not essential to process
performance.
c. BVAs are actually value-added activities of an organization that relate to administrative
processes.
d. It is impossible to eliminate all BVAs in an organization.
ANS: D DIF: Easy OBJ: 5-1

38. A value chart indicates

a. all steps in a process and the time it takes for them to be completed.
b. the value-added steps in a process and the time it takes for them to be completed.
c. the time and cost of all value-added steps in a process.
d. the time and costs of all value-added and non-value-added steps in a process.
ANS: A DIF: Moderate OBJ: 5-1

39. In the pharmaceutical or food industries, quality control inspections would most likely be
viewed as
a. non-value-added activities.
b. business-value-added activities.
c. value-added-activities.
d. process-efficiency activities.
ANS: C DIF: Difficult OBJ: 5-1

40. A just-in-time manufacturing process should have substantially less of which of the
following than a traditional manufacturing process?

Idle time Transfer time Value-added time Cycle time

a. yes yes yes yes

b. yes no no yes
c. yes yes no yes
d. no yes yes no

ANS: C DIF: Difficult OBJ: 5-6

41. When cost driver analysis is used, organizational profit or loss can be determined by
subtracting
a. organizational costs from total margin provided by products.
b. organizational costs from total product revenue.
c. total product costs from total product revenue.
d. total unit, batch, product/process, and organizational level costs incurred for a period from
total product revenue.
ANS: A DIF: Moderate OBJ: 5-3

42. An activity center is an organizational unit

a. that makes a single product or performs a single service.
b. in which only value-added activities are performed.
c. that incurs only unit, batch, or product/process level costs.
d. for which management wants separate activity information.
ANS: D DIF: Easy OBJ: 5-4

43. The following items are used in tracing costs in an ABC system. In which order are they used?

(1) cost object

(2) cost driver
(3) activity driver
(4) cost pool

a. 1, 2, 3, 4
b. 2, 3, 4, 1
c. 2, 4, 3, 1
d. 4, 3, 1, 2
ANS: C DIF: Difficult OBJ: 5-4

Avenido Company

Avenido Company produces 50,000 units of Product Q and 6,000 units of Product Z during a
period. In that period, four set-ups were required for color changes. All units of Product Q are
black, which is the color in the process at the beginning of the period. A set-up was made for
1,000 blue units of Product Z; a set-up was made for 4,500 red units of Product Z; a set-up
was made for 500 green units of Product Z. A set-up was then made to return the process to
its standard black coloration and the units of Product Q were run. Each set-up costs P500.

44. Refer to Avenido Company. If set-up cost is assigned on a volume basis for the department,
what is the approximate per-unit set-up cost for Product Z?
a. P.010.
b. P.036.
c. P.040.
d. None of the responses are correct.
ANS: B
Total setup cost: $500 x 4 = $2,000

$2,000/56,000 = $0.0357

DIF: Moderate OBJ: 5-3

45. Refer to Avenido Company. If set-up cost is assigned on a volume basis for the department,
what is the approximate per-unit set-up cost for the red units of Product Z?
a. P.036.
b. P.111.
c. P.250.
d. None of the responses are correct.
ANS: A
Total setup cost: $500 x 4 = $2,000

$2,000/56,000 = $0.0357

DIF: Moderate OBJ: 5-3

46. Refer to Avenido Company. Assume that Avenido Company has decided to allocate overhead
costs using levels of cost drivers. What would be the approximate per-unit set-up cost for the
blue units of Product Z?
a. P.04.
b. P.25.
c. P.50.
d. None of the responses are correct.
ANS: C
Setup cost for blue units = $500.00

Number of blue units produced = 1,000

$500/1,000 = $.50

DIF: Moderate OBJ: 5-3

47. Refer to Avenido Company. Assume that Avenido Company has decided to allocate overhead
costs using levels of cost drivers. What would be the approximate per-unit set-up cost for the
green units of Product Z?
a. P1.00.
b. P0.25.
c. P0.04.
d. None of the responses are correct.
ANS: A

Setup cost = $500.00

Units produced = 500

$500.00/500 = $1.00/unit

DIF: Moderate OBJ: 5-3

 PROBLEM SOLVING

1. (5POINTS) From the following information for the Loyogoy Company, compute prime costs
and conversion costs.

Inventories Beginning Ending

Raw Material P 9,900 P 7,600
Work in Process 44,500 37,800
Finished Goods 36,580 61,300

Raw material purchased during the period cost P40,800; overhead incurred and paid or
accrued for the period was P21,750; and 23,600 direct labor hours were incurred at a rate of
P13.75 per hour.

ANS:

Prime Costs:
Raw Material (Beginning) $ 9,900
Purchases 40,800
Raw Material Available $50,700
Raw Material (Ending) (7,600)
Raw Material Used $ 43,100
Direct Labor (23,600 x $13.75) 324,500
Prime Costs $367,600

Conversion Costs:
Direct Labor (Above) $324,500
Overhead 21,750
Conversion Costs $346,250

DIF: Moderate OBJ: 2-5

2. (7POINTS) The following miscellaneous data of Cristorum Company has been collected for a
manufacturing company for the most recent year-end:

Inventories: Beginning Ending

Raw material P50,000 P55,000
Work in process 40,000 45,000
Finished goods 60,000 50,000
Costs recorded during the year:
Purchases of raw material P195,000
Direct labor 150,000
Cost of goods sold 595,000

Required: Prepare a cost of goods manufactured statement showing how all unknown
amounts were determined.

ANS:

BEGIN WIP $ 40,000

+ DM (1) 190,000
+ DC 150,000
+ OH ? = $250,000
- END WIP (45000)
= COGM (2) $585,000

(1) BEG RM $ 50,000

+ PURCHASE 195,000
- END RM
(55,000)
= DM $190,000

(2) BEGIN FG $ 60,000

+ COGM ? = $585,000
- END FG (50,000)
= COGS $595,000

DIF: Moderate OBJ: 2-5