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Icare MAS First Preboard Examinations Batch 3
Accountancy (Divine Word College of Calapan)
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MANAGEMENT ADVISORY SERVICES
iCARE Accountancy Review
st
1 Open Preboard Examination, Batch 3
INSTRUCTIONS: Choose the best answer among the given choices. Policies on academic
honesty are strictly enforced.
1. Cost-volume-profit analysis cannot be used if which of the following occurs?
a. The per unit variable costs change.
b. The total fixed costs change.
c. Per unit sales prices change.
d. Costs cannot be properly classified into fixed and variable costs.
2. The scatter diagram method of cost estimation
a. is influenced by extreme observations
b. requires the use of judgment
c. uses the least-squares method
d. is superior to other methods in its ability to distinguish between
discretionary and committed fixed costs
3. A standard costing system is most often used by a firm in conjunction with
a. Management by exception.
b. Participative management programs.
c. Target (hurdle) rates of return.
d. Static budgets.
4. An advantage of participatory budgeting is that is
a. Minimizes the cost of developing budgets.
b. Reduces the effect on the budgetary process of employee biases.
c. Yields information known to management but not to employees
d. Encourages acceptance of the budget by the employees.
5. Which of the following statements is false?
a. There is a cause-and-effect relationship between the cost driver and the
level of activity.
b. Fixed costs have cost drivers over the short run.
c. Over the long run all costs have cost drivers.
d. Volume of production is a cost driver of direct manufacturing costs.
6. The materials mix variance equals
a. (Inputs allowed – inputs used) x budgeted weighted-average materials
units price for the planned mix.
b. (Budgeted weighted-average labor rate for planned mix – budgeted
weighted-average labor rate for actual mix) x inputs used.
c. (Inputs allowed – inputs used) x budgeted weighted-average labor rate for
the planned mix.
d. (Budgeted weighted-average materials unit cost for planned mix –
budgeted weighted-average materials unit cost for actual mix) x inputs
used.
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7. The flexible-budget variance for direct cost inputs can be further subdivided into
a. a static-budget variance and a sales-volume variance.
b. a sales-volume variance and an efficiency variance.
c. a price variance and an efficiency variance.
d. a static-budget variance and a price variance.
8. Dane, Inc., has a standard variable overhead rate of P8 per machine hour, with
each completed unit expected to take six machine hours to produce. A review of
the company's accounting records found the following:
Actual variable overhead:
P420,000
Variable-overhead efficiency variance: P36,000U
Variable-overhead spending variance: P60,000F
How many units did Bushnell actually produce during the period?
a. 6,750
b. 11,625
c. 9,250
d. 10,750
9. Last year, Septuplets Company reported P750,000 in sales (25,000 units) and a
net income of P25,000. At the break-even point, the company's total contribution
margin equals P500,000. Based on this information, the company's:
a. contribution margin ratio is 40%.
b. break-even point is 24,000 units.
c. variable expense per unit is P9.
d. variable expenses are 60% of sales.
10. Break-even analysis assumes over the relevant range that
a. total variable costs are linear.
b. fixed costs per unit are constant.
c. total variable costs are nonlinear.
d. total revenue is nonlinear.
11. Fischer Price Farms is preparing its cash budget for the next year. Sales are
expected to be P100,000 in January, P200,000 in February, P300,000 in March,
and P100,000 in April. Approximately half of all sales are cash sales and the other
half are on credit. Experience indicates that 70% of the credit sales will be collected
in the month following the sale, 20% the month after that, and 10% in the third
month after the sale. What are the budgeted collections in April?
a. P130,000
b. P180,000
c. P260,000
d. P360,000
12. A fixed overhead volume variance based on standard direct labor hours measures
a. Deviation from standard direct labor hour capacity.
b. Deviation from the normal, or denominator, level of direct labor hours.
c. Fixed overhead efficiency.
d. Fixed overhead use.
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13. The accepted purpose of standard costing is
a. To allocate costs to standard production effort.
b. To allocate the costs with more accuracy.
c. To control costs.
d. To assure a standard level of performance.
14. Management scrutinizes variances because
a. Management desires to detect such variances to be able to plan for
promotions.
b. Management needs to determine the benefits foregone by such variances.
c. It is desirable under conventional knowledge on good management.
d. Management recognizes the need to know why variances happen to be able
to make corrective actions and fairly reward good performers.
15. A variable overhead spending variance is caused by
a. using more or fewer actual hours than the standard hours allowed for the
production achieved.
b. paying a higher/lower average actual overhead price per unit of the activity
base than the standard price allowed per unit of the activity base.
c. larger/smaller waste and shrinkage associated with the resources involved
than expected.
d. both b and c are causes.
16. Which of the following characteristics is inherent to management accounting?
a. Contribution margin income statement
b. Reporting of past data and information
c. Compliance to IFRS
d. External users of financial statements
17. An unfavorable materials price variance coupled with a favorable materials usage
variance would most likely result from
a. Machine efficiency problems.
b. Product mix production changes.
c. The purchase of lower than standard quality materials.
d. The purchase and use of higher than standard quality materials.
For the next item: Cassano Corporation used the following data to evaluate their current
operating system. The company sells items for P20 each and used a budgeted selling
price of P20 per unit.
Units sold
Variable costs
Fixed costs
Actual
92,000 units
P901,600
190,000
Budgeted
90,000 units
P864,000
200,000
18. What is the static-budget variance of variable costs?
a. P2,400 favorable
b. P40,000 favorable
c. P37,600 unfavorable
d. P2,400 unfavorable
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19. Zero-base budgeting requires managers to
a. Justify expenditures that are increases over the prior period’s budgeted
amount.
b. Maintain a full-year budget intact at all times.
c. Justify all expenditures, not just increases over last year’s amount.
d. Maintain a budget with zero increases over the prior period.
20. The cost function y = 2,000 + 3X means that it
a. has a slope coefficient of 3.
b. has an intercept of 2,000.
c. is within the relevant range
d. All of the above.
21. When deciding to accept a one-time-only special order from a wholesaler,
management should do all EXCEPT
a. analyze product costs.
b. consider the special order’s impact on future prices of their products.
c. determine whether excess capacity is available.
d. verify past design costs for the product.
22. Pacioli, Inc., has a standard variable overhead rate of P10 per machine hour, with
each completed unit expected to take three machine hours to produce. A review
of the company's accounting records found the following:
Actual production:
19,500 units
Variable-overhead efficiency variance: P18,000U
Variable-overhead spending variance: P42,000F
What was Pacioli’s actual variable overhead during the period?
a.
b.
c.
d.
P525,000.
P561,000.
P609,000.
P645,000.
23. Assuming fixed cost is zero. On a cost-volume-profit chart (break-even graph),
where is the total cost line and the breakeven point shown if the X axis represents
the volume while the Y axis represents the peso value?
a. As the point where the sales line intersects the vertical axis
b. As the point where the total cost line intersects the vertical axis
c. As the zero point of both vertical and horizontal axis
d. All of the above
24. Merriam Company uses a standard cost system in which manufacturing overhead
is applied to units of product on the basis of machine hours. During February, the
company used a denominator activity of 160,000 machine hours in computing its
predetermined overhead rate. However, only 150,000 standard machine hours
were allowed for the month's actual production. If the fixed overhead volume
variance for February was P3,200 unfavorable, then the total budgeted fixed
overhead cost for the month was:
a. P48,000.
b. P51,200.
c. P50,000.
d. P49,000.
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25. Michigan Corporation uses two materials in the production of their product. The
materials, Low and High, have the following standards:
Material
Standard Mix
Low
High
Yield
3,500 units
1,500 units
4,000 units
Standard
Unit Standard Cost
Price
P2.00 per unit
P7,000
6.00 per unit
P9,000
During January, the following actual production information was provided:
Material
Actual Mix
Low
30,000 units
High
20,000 units
Yield
36,000 units
What is the materials mix variance?
a. P10,000 (F)
c. P20,000 (F)
b. P20,000 (U)
d. P30,000 (F)
26. The most likely cost driver of distribution costs is
a. the number of parts within the product.
b. the number of miles driven.
c. the number of products manufactured.
d. the number of production hours.
27. If there was limited capacity, all of the following amounts would change EXCEPT
a. opportunity costs.
b. differential costs.
c. variable costs per unit.
d. the minimum acceptable price.
For the next two items): The iCARE Company, a merchandising firm, has budgeted its
activity for December according to the following information:







Sales at P1,100,000, all for cash.
Merchandise inventory on November 30 was P600,000.
Budgeted depreciation for December is P70,000.
The cash balance at December 1 was P50,000.
Selling and administrative expenses are budgeted at P120,000 for December and
are paid in cash.
The planned merchandise inventory on December 31 is P540,000.
The invoice cost for merchandise purchases represents 75% of the sales price. All
purchases are paid for in cash.
28. The budgeted cash receipts for December are:
a. P825,000.
b. P275,000.
c. P1,170,000.
d. P1,100,000.
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29. The budgeted net income for December is:
a. P215,000.
b. P85,000.
c. P275,000.
d. P155,000.
30. Practical capacity as a plant capacity concept:
a. Assumes all personnel and equipment will operate at peak efficiency and
total plant capacity will be used.
b. Does not consider idle time caused by inadequate sales demand.
c. Includes consideration of idle time caused by both limited sales orders and
human and equipment inefficiencies.
d. Is the production volume that is necessary to meet sales demand for the
next year.
31. After the goals of the company have been established and communicated, the next
step in the planning process is development of the
a. Production Budget
b. Sales Budget
c. Direct Materials
d. Cash Budget
32. Traditional overhead allocations result in which of the following situations?
a. Overhead costs are assigned as period costs to manufacturing operations.
b. High-volume products are assigned too much overhead, and low-volume
products are assigned too little overhead.
c. Low-volume products are assigned too much, and high-volume products
are assigned too little overhead.
d. The resulting allocations cannot be used for financial reports.
33. As projected net income increases the
a. degree of operating leverage declines.
b. margin of safety declines.
c. break-even point goes down.
d. contribution margin ratio goes up.
34. Problems that should be avoided when identifying relevant costs include all
EXCEPT
a. assuming all variable costs are relevant.
b. assuming all fixed costs are irrelevant.
c. using unit costs that do not separate variable and fixed components.
d. using total costs that separate variable and fixed components
35. In allocating fixed costs to products in activity-based costing,
a. direct labor hours should always be used as the allocation base.
b. a company should use the same allocation base that it uses for variable
costs.
c. a cost driver that is not volume-related should be used.
d. machine hours should always be used.
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36. Recognition of the many uncertainties in budgeting is exemplified by companies
normally
a. forecasting sales
b. establishing minimum required cash balances
c. forecasting only fixed costs
d. omitting expected dividend payments from budgeted disbursements
37. A continuous budget
a. is a budget that is revised monthly or quarterly.
b. is a medium term plan that consists of more than 2 years’ projections.
c. is appropriate only for use of a not-for-profit entity.
d. works best for an entity that can reliably forecast events a year or more
into the future.
38. Activity-based costing and generally accepted accounting principles differ in that
ABC
a. does not define product costs in the same manner as GAAP.
b. cannot be used to compute an income statement, but GAAP can.
c. is concerned only with costs generated from automated processes, but
GAAP is concerned with costs generated from both manual and automated
processes.
d. information is useful only to managers, while GAAP information is useful to
all organizational stakeholders.
39. If activity-based costing is implemented in an organization without any other
changes being implemented, total overhead costs will
a. be reduced because of the elimination of non-value-added activities.
b. be reduced because organizational costs will not be assigned to products or
services.
c. be increased because of the need for additional people to gather
information on cost drivers and cost pools.
d. remain constant and simply be spread over products differently.
40. Which cost estimation method may utilize time-and-motion studies to analyze the
relationship between inputs and outputs in physical terms?
a. The account analysis method
b. The least squares regression method
c. The industrial engineering method
d. The conference method
41. The opportunity cost of making a component part in a factory with no excess
capacity is the:
a. variable manufacturing cost of the component.
b. net benefit foregone from the best alternative use of the capacity required.
c. fixed manufacturing cost of the component.
d. cost of the production given up in order to manufacture the component.
42. Costs
are
a.
b.
c.
d.
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that increase as the volume of activity decreases within the relevant range
Total fixed costs.
Average variable cost per unit.
Total variable costs.
Mixed cost per unit.
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43. When using conventional cost-volume-profit analysis, some assumptions about
costs and sales prices are made. Which of the following is one of those
assumptions?
a. The contribution margin will change as volume increases
b. The variable cost per unit will decrease as volume increases
c. The sales price per unit will remain constant as volume increases
d. Fixed cost per unit will remain the same as volume increases
44. The Computer Corporation has 1,000 obsolete monitors that are carried in
inventory at a manufacturing cost of P10,000. If the monitors are re-machined for
P2,500, they could be sold for P4,500. Alternatively, the monitors could be sold for
scrap for P500. Which alternative is more desirable and what are the total relevant
costs for that alternative?
a. re-machine and P12,500.
b. re-machine and P2,500.
c. scrap and P10,000.
d. scrap and P9,500.
45. Rock Company produces 50,000 units of Product Cue and 6,000 units of Product
Si during a period. In that period, four set-ups were required for color changes. All
units of Product Cue 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 Si; a set-up was
made for 4,500 red units of Product Si; a set-up was made for 500 green units of
Product Si. A set-up was then made to return the process to its standard black
coloration and the units of Product Cue were run. Each set-up costs P500. If setup cost is assigned on a volume basis for the department, what is the approximate
per-unit set-up cost for Product Z?
a. P0.010
b. P0.036
c. P0.040
d. None of the above
46. Historical records show the highest cost of P276,000 and the lowest cost of
P208,000. The data shows P74,000 as the highest level of sales and P48,500 as
the lowest level. What is the variable cost per peso sales?
a. P4.27
b. P2.67
c. P3.72.
d. P23.78
47. R-squared is a measure of
a. the spurious relationship between cost and activity
b. the fixed cost component
c. how well the regression line accounts for the changes in the dependent
variable
d. the variable cost per unit of activity
48. A plant operating at capacity would suggest that:
a. every machine and person in the plant is working at the maximum possible
rate.
b. only some specific machines or processes are operating at the maximum
rate possible.
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c. fixed costs will need to change to accommodate increased demand.
d. managers should produce those products with the highest contribution
margin in order to deal with the constrained resource.
49. A manager is attempting to determine whether a segment of the business should
be eliminated. The focus of attention for this decision should be on
a. the net income shown on the segment's income statement.
b. sales minus total variable expenses and avoidable fixed expenses of the
segment.
c. sales minus total expenses of the segment.
d. sales minus total direct expenses of the segment.
50. Costs
are
a.
b.
c.
d.
that increase as the volume of activity decreases within the relevant range
Total fixed costs.
Average cost per unit.
Average variable cost per unit.
Total variable costs.
51. Which of the following topics is of more concern to management accounting than
to cost accounting?
a. inventory measurement
b. cost of goods sold measurement
c. impact of economic conditions on company operations
d. generally accepted accounting principles
52. Relevant costs of a make-or-buy decision include all EXCEPT
a. fixed salaries that will not be incurred if the part is outsourced.
b. current direct material costs of the part.
c. special machinery for the part that has no resale value.
d. material-handling costs that can be eliminated.
53. Period costs
a. include only fixed costs.
b. seldom influence financial success or failure.
c. include the cost of selling, delivering, and after-sales support for customers.
d. should be treated as an indirect cost rather than as a direct manufacturing
cost.
54. Absorption costing
a. includes fixed manufacturing overhead as an inventoriable cost only
b. includes fixed manufacturing overhead as a period cost only
c. includes fixed manufacturing overhead as an inventoriable and period cost
(when sold).
d. Ignores fixed manufacturing overhead in the computation of inventoriable
cost.
55. Direct
a.
b.
c.
d.
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costing
treats direct manufacturing costs as a product cost.
includes fixed manufacturing overhead as an inventoriable cost only
expenses administrative costs as cost of goods sold.
includes fixed manufacturing overhead as an inventoriable and period cost.
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56. Cost-volume-profit relationships that are curvilinear may be analyzed linearly by
considering only
a. relevant rage of fixed and variable costs.
b. relevant fixed costs only.
c. relevant variable costs only.
d. a relevant range of volume.
57. If a firm's net income does not change as its volume changes, the firm('s)
a. contribution margin is 100%.
b. must have no fixed costs.
c. operating leverage is equal to 1
d. sales price must equal its variable costs.
58. Discontinuing unprofitable products will increase profitability
a. if the resources no longer required by the discontinued product can be
eliminated.
b. if capacity constraints are adjusted.
c. automatically.
d. when a large portion of the fixed costs are unavoidable.
(For the next two items) Beeda Company has 400 obsolete scientific calculators that are
carried in inventory at a total cost of P13,400. If these calculators are upgraded at a total
cost of P5,000, they can be sold for a total of P15,000. As an alternative, the calculators
can be sold in their present condition for P5,600.
59. The sunk cost in this situation is:
a. P5,000.
b. P13,400.
c. P5,600.
d. P0
60. Assume that Beeda decides to upgrade the calculators. At what selling price per
unit would the company be as well off as if it just sold the calculators in their
present condition?
a. P4.00
b. P15.00
c. P26.50
d. P33.50
61. The level of production affects income under which of the following methods?
a. Full costing
b. Direct costing
c. Absorption costing
d. Both a and c
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(For the next 3 items)
Shei Company produces a single product. The cost of producing and selling a single
unit of this product at the company's normal activity level of 40,000 units per month
is as follows:
Direct materials ..........................
P85.20
Direct labor ..............................
16.20
Variable manufacturing overhead ...........
2.20
Fixed manufacturing overhead ..............
34.60
Variable selling & administrative expense .
3.60
Fixed selling & administrative expense ....
16.00
The normal selling price of the product is P172.20 per unit. An order has been received
from a VIP customer for 2,000 units to be delivered this month at a special offer price.
This order would have no effect on the company's normal sales and would not change
the total amount of the company's fixed costs. The variable selling and administrative
expense would be P2.40 less per unit on this order than on normal sales.
62. Suppose there is ample idle capacity to produce the units required by the VIP
customer and the special discounted price on the special order is P152.80 per unit.
By how much would this special order increase (decrease) the company's net
operating income for the month?
a. (P34,000)
b. P26,800
c. P96,000
d. (P10,000)
63. Suppose the company is already operating at capacity when the special order is
received from the VIP customer. What would be the opportunity cost of each unit
delivered to the VIP customer?
a. P65.0
b. P16.8
c. P19.4
d. P14.4
64. Suppose there is not enough idle capacity to produce all of the units for the VIP
customer and accepting the special order would require cutting back on production
of 700 units for regular customers. The minimum acceptable price per unit for the
special order is closest to:
a. P172.20.
b. P157.80.
c. P138.20.
d. P127.55.
65. On a cost-volume-profit chart (break-even graph), where are the total fixed costs
shown if the X axis represents the volume while the Y axis represents the peso
value?
a. As the point where the sales line intersects the vertical axis
b. As the point where the sales line crosses the total cost line
c. As the point where the sales line crosses the horizontal axis
d. As the point where the total cost line intersects the vertical axis
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66. Net profit under absorption costing may differ from net profit determined under
direct costing. How is this difference calculated?
a. Change in the quantity of all units produced times the relevant fixed costs
per unit.
b. Change in the quantity of all units in inventory times the relevant fixed costs
per unit.
c. Change in the quantity of all units in inventory times the relevant variable
cost per unit.
d. Change in the quantity of all units produced times the relevant variable cost
per unit.
67. Under absorption costing, if sales remain constant from period 1 to period 2, the
company will report a larger income in period 2 when
a. period 2 production exceeds period 1 production.
b. period 1 production exceeds period 2 production.
c. variable production costs are larger in period 2 than period 1.
d. fixed production costs are larger in period 2 than period 1.
(For the next two items) Meliodas Company sells a single product for P50. It had no
beginning inventories. Operating data for 200Y follows:
Sales
Normal Capacity
Production Costs:
Variable per unit
Fixed Production
Selling and Administrative Expenses
Variable per unit sold
Fixed Selling
Number of units produced
54,000 units
60,000 units
P24
P600,000
P4
P80,000
66,000 units
Assume actual costs were as budgeted.
68. Income under the standard variable costing is:
a. P508,000
b. P490,000
c. P682,000
d. P628,000
69. Income under the standard absorption costing is:
a. P508,000
b. P568,000
c. P682,000
d. P628,000
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70. Alphabet Company sells products A, B & C. Alphabet sells three times units of A
for each unit of C, and two units of B for each unit of A. The contribution margins
are P1 per unit of A, P1.50 per unit of B and P3 per unit of C. Fixed costs are
P600,000. How many units of A would Alphabet Co. sell at the breakeven point?
a. 40,000
b. 120,000
c. 360,000
d. 400,000
-Nothing Follows-
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JBUGATAN/JSARIPADA
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lOMoARcPSD|13195813
No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile
: 0927 283 8234
Telephone
: (043) 723 8412
Gmail
: icarecpareview@gmail.com
MAS First Preboard Examinations – ANSWER KEY
iCARE Accountancy Review
st
1 Open Preboard Examination, Batch 3
1. D
2. B
3. A
4. D
5. B
6. D
7. C
8. C
9. C
10. A
11. B
12. B
13. C
14. D
15. D
16. A
17. D
18. C
19. C
20. D
21. D
22. B
23. D
24. B
25. B
26. B
27. C
28. D
29. B
30. B
31. B
32. B
33. A
34. D
35. C
36. B
37. A
38. A
39. D
40. C
14 | P a g e
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
B
D
C
B
B
B
C
B
B
B
C
C
C
C
A
D
D
A
B
C
D
C
A
D
D
B
A
A
D
B
JBUGATAN/JSARIPADA
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