RESPONSIBILITY ACCOUNTING AND TRANSFER PRICING
1. The budgetary unit of an organization which is led by a manager who has both the authority over and
responsibility for the unit's performance is known as a:
a. control center
b. budgetary area
c. responsibility center
d. managerial department
2. Which is the best example of a decentralized operation?
a. One owner who prepares plans and makes decisions for the entire company.
b. Each unit is responsible for their own operations and decision making.
c. In a major company, operating decisions are made by top management.
d. None of the above. All are examples of a centralized management.
3. In evaluating the profit center manager, the income from operations should be compared:
a. across profit centers
b. to historical performance or budget
c. to the competition's net income
d. to the total company earnings per share
4. Which one of the following is NOT a measure that management can use in evaluating and controlling
investment center performance?
a. Rate of return on investment
b. Negotiated price
c. Residual income
d. Income from operations
5. Which of the following is not a commonly used approach to setting transfer prices?
a. Market price approach
b. Revenue price approach
c. Negotiated price approach
d. Cost price approach
6. When is it appropriate to use the market price approach when two related companies are providing
services or products to each other?
a. The production for the selling company is falling under full capacity and it needs to increase
its sales.
b. The purchasing company is currently purchasing a product at a price from an outside
supplier as it would from its related company that is operating at full capacity.
c. The purchasing company is considered a cost center and is not concerned with maximizing
profits for the company.
d. The policy of the parent company is that when a product is sold by an outside supplier and by
a related party, purchases must be made within the company.
The Megatron Corporation reported the following information for its Optimus Division: Revenues –
P1.0M, Operating Costs – P600,000; Taxable income – P200,000, and Operating Assets – P500,000.
Income is defined as operating income.
7. What is the Division's return on investment?
a. 80%
b. 50%
c. 40%
d. 60%
8. Shaun, Inc. is a highly automated manufacturing firm. The vice president of operations has decided
that traditional standards are inappropriate for performance measures in an automated environment.
Labor is insignificant in terms of the total cost of production and tends to be fixed. Material quality is
considered more important than minimizing material cost, and customer satisfaction is the number one
priority. As a result, delivery performance measures have been chosen to evaluate performance.
The following information is considered typical of the time involved to complete orders.
Wait time from order being placed to start of production 10.0 days
Wait time from start of production to completion 5.0 days
Inspection time 1.5 days
Process time 3.0 days
Move time 1.5 days
Queue time 1.0 day
What is the manufacturing cycle time and manufacturing cycle efficiency for this order?
a. 12 days and 25%
b. 22 days and 13.6%
c. 22 days and 25%
d. 17 days and 17.6%
9. The Alpha Division of a company, which is operating at capacity, produces and sells 1,000 units of a
certain electronic component in a perfectly competitive market. Revenue and cost data are as follows:
Sales P50,000
Variable costs 34,000
Fixed costs 12,000
The minimum transfer price that should be charged to the Omega Division of the same company for
each component is
a. P12
b. P46
c. P34
d. P50
10. Following a strategy of product differentiation, Liberty Company makes a high-end Appliance,
Mamajalin. Liberty Company presents the following data for the years 2020 and 2021:
2020
2021
Units of Mamajalin produced and sold
20,000
21,000
Selling price
P200
P220
Direct materials (square feet)
60,000
61,500
Direct materials costs per square foot
P20
P22
Manufacturing capacity in units of Mamajalin
25,000
25,000
Total conversion costs
P1,000,000
P1,100,000
Conversion costs per unit of capacity
P40
P44
Selling and customer-service capacity (customers)
60
58
Total selling and customer-service costs
P360,000
Selling and customer-service capacity cost per customer P6,000
P362,500
P6,250
Liberty Company produces no defective units but it wants to reduce direct materials usage per unit of
Mamajalin in 2021. Manufacturing conversion costs in each year depend on production capacity defined
in terms of Mamajalin units that can be produced. Selling and customer-service costs depend on the
number of customers that the customer and service functions are designed to support. Liberty Company
has 46 customers in 2020 and 50 customers in 2021. The industry market size for high-end appliances
increased 5% from 2020 to 2021.
What is the net effect on operating income as a result of the price-recovery component?
a. P179,000 F
b. P179,000 U
c. P241,000 U
d. P420,000 F
COST BEHAVIOR
1. In describing the linear cost formula Y = a + bX, which of the following statements is correct?
a. “a” and “b” are valid for all levels of activity
b. “Y” is the independent variable
c. “a” is the variable rate
d. In the high-low method, “b” equals the change in cost (Y) divided by the change in activity
(X)
2. Which of the following is NOT a method of splitting a semi-variable cost?
a. High and low point
c. Scatter diagram
b. Least squares method
d. Linear programming
5. Multiple regression analysis involves
a. One dependent variable and one independent variable
b. One dependent variable and many independent variables
c. Many dependent variables and one independent variable
d. Many dependent variables and many independent variables
COST-VOLUME-PROFIT ANALYSIS
1. Jov Company plans to market a new product. Based on its market studies, Jov estimates that it can
sell 6,000 units in 2022. The selling price will be P4 per unit. Variable cost is estimated to be 40% of
the selling price. Fixed cost is estimated to be P12,000. What is the breakeven point?
a. 3,750 units c. 5,500 units
b. 5,000 units d. 7,500 units
PRODUCT COSTING
1. Which of the following must be known in order to institute a direct (variable) costing system?
a. A controllable and non-controllable component of all costs related to production
b. The variable and fixed components of all costs related to production
c. Standard production rates and times for all elements of production
d. Contribution margin and break-even point for all goods in production
2. Super variable costing treats which of the following costs as the only variable and product costs?
a. Direct labor
b. Direct materials
c. Straight-line depreciation of factory machine
d. Supervisory salary of an assembly line manager
BUDGETING AND FINANCIAL PLANNING
1. Budgets are a necessary component of financial decision making because they provide a(n)
a. Efficient allocation of resources
b. Means to use all the firm’s resources
c. Means to check managerial discretion
d. Automatic corrective mechanism for errors
2. When management seeks to achieve personal departmental objectives that may work to the
detriment of the entire company, the manager is experiencing:
a. budgetary slack
b. padding
c. goal conflict
d. cushions
3. Budgets need to be fair and attainable for employees to consider the budget important in their
normal daily activities. Which of the following is not considered a human behavior problem?
a. Allowing employees, the opportunity to be a part of the budget process.
b. Setting goals among managers that conflict with one another.
c. Setting goals too tightly making it difficult to meet performance expectation.
d. Allowing goals to be so low that employees develop a “spend it or lose it” attitude
4. Which of the following is included in a firm’s financial budget?
a. Cash budget c. Sales budget
b. Capital budget d. Both A and B
5. The cash budget should help to ensure
a. That enough cash is on hand at all times to satisfy maximum cash requirements
b. That cash dividends can be paid every quarter
c. That sufficient cash is available to pay salaries, even if it means borrowing the money
d. Sufficient liquidity without an excess amount of idle cash
STANDARD COSTING AND VARIANCE ANALYSIS
1. A company using very tight standards in standard cost system should expect that
a. Most variances will be unfavorable
b. No incentive bonus will be paid
c. Employees will be strongly motivated to attain the standards
d. Costs will be controlled better that if lower standards were used
2. Which level of capacity if used would result into the lowest fixed overhead application rate?
a. Theoretical capacity c. Normal capacity
b. Practical capacity d. Expected actual capacity
3. Setting standards
a. Is largely a matter of calculating rates and quantities
b. Should be done to make them as tight as possible
c. Has important behavioral implications
d. Is done only for manufacturing activities
8. What is the conversion cost efficiency variance for the period?
a. P3,000 unfavorable c. P4,200 unfavorable
b. P1,200 unfavorable d. P4,000 unfavorable
9. What is the controllable variance for the period?
a. P2,730 favorable c. P2,880 unfavorable
b. P1,530 unfavorable d. P2,730 unfavorable
10. What is the volume variance for the period?
a. P2,400 unfavorable c. P2,730 unfavorable
b. P2,730 favorable d. P2,400 favorable