CHAPTER 1
Multiple Choice
1. Which of the following is false?
a. Cost accounting measures and reports short-term, long-term financial, and
nonfinancial information.
b. Cost management provides information that helps increase value for
customers.
c. All strategies should be evaluated regarding the resources and capabilities
of the company.
d. A good cost accounting system is narrowly focused on a continuous
reduction of costs.
2. Which of the following statements is correct?
a. The best-designed strategies are valuable whether or not they are
effectively implemented.
b. To take advantage of changing market opportunities, the annual budget
should be strictly enforced.
c. Linking rewards to performance is a major deterrent to good management
performance.
d. An important strategic decision is making the correct investments in
productive assets.
3. All of the following statements are true except:
a. A budget is a tool used to plan and express strategy.
b. Financial accounting reports financial and nonfinancial information that
helps managers implement company strategies.
c. Feedback links planning and control.
d. Control includes deciding what feedback to provide that will help with
future decision making.
4. All of the following statements are false except:
a. Attention-directing activities should focus on cost-reduction opportunities,
and not on value-adding opportunities.
b. For strategic decisions, scorekeeping is the most prominent role played by
management accounting.
c. A budget may be used as a planning tool, but not as a control tool.
d. Management accountants often are simultaneously doing problem-solving,
scorekeeping, and attention-directing activities.
5. Management accounting
a. focuses on estimating future revenues, costs, and other measures to
forecast activities and their results.
b. provides information about the company as a whole.
c. reports information that has occurred in the past that is verifiable and
reliable.
d. provides information that is generally available only on a quarterly or
annual basis.
6. The person MOST likely to use management accounting information is a(n)
a. banker evaluating a credit application.
b. shareholder evaluating a stock investment.
c. governmental taxing authority.
d. assembly department supervisor.
7. Which of the following description refers to management accounting information?
a. It is verifiable and reliable.
b. It is driven by rules.
c. It is prepared for shareholders.
d. It provides reasonable and timely estimates.
8. Which of the following groups would be LEAST likely to receive detailed
management accounting reports?
a. Stockholders
b. Sales representatives
c. Production supervisors
d. Managers
9. Management accounting information includes
a. tabulated results of customer satisfaction surveys.
b. the cost of producing a product.
c. the percentage of units produced that are defective.
d. all of the above.
10. Which of the following types of information are used in management accounting?
a. Financial information
b. Nonfinancial information
c. Information focused on the long term
d. All of the above
11. Management accounting includes
a. implementing strategies.
b. developing budgets.
c. preparing special studies and forecasts.
d. all of the above.
12. Financial accounting is concerned PRIMARILY with
a. external reporting to investors, creditors, and government authorities.
b. cost planning and cost controls.
c. profitability analysis.
d. providing information for strategic and tactical decisions.
13. Financial accounting provides a historical perspective, whereas management
accounting emphasizes
a. the future.
b. past transactions.
c. a current perspective.
d. reports to shareholders.
14. Strategy specifies
a. how an organization matches its own capabilities with the opportunities in the
marketplace.
b. standard procedures to ensure quality products.
c. incremental changes for improved performance.
d. the demand created for products and services.
15. Control includes
a. implementing planning decisions.
b. evaluating performance.
c. providing feedback to help with future decision making.
d. all of the above.
16. Linking rewards to performance
a. helps to motivate managers.
b. allows companies to charge premium prices.
c. should only be based on financial information.
d. does all of the above.
17. Control measures should
a. be set and not changed until the next budget cycle.
b. be flexible to allow for employees who are slackers.
c. be kept confidential from employees so that competitors don't have an
opportunity to gain a competitive advantage.
d. be linked by feedback to planning.
18. For control decisions, emphasis is placed on the ______ role(s) of management
accounting.
a. problem-solving
b. scorekeeping
c. attention-directing
d. both (b) and (c)
19. Which of the following terms does not represent a main focus of cost management
information?
a. Usefulness
b. Timeliness
c. Relative accuracy
d. Compliance with external reporting requirements
20. Strategic management can be defined as the development of sustainable:
a. chain of command
b. competitive position
c. cash flow
d. business entity
21. The control area of management is primarily concerned with:
a. standards and variances
b. monitoring and evaluation
c. structure and discipline
d. organization and implementation
22. Cost management has moved from a traditional role of product costing and
operational control to a broader strategic focus, which places an emphasis on:
a. non-competitive pricing
b. domestic marketing
c. short-term thinking
d. integrative thinking
23. Dramatic improvements in communication have resulted in increasing global
competition, which has required firms to:
a. completely replace existing cost information systems.
b. expand existing cost information systems.
c. modify existing cost information systems to handle more data.
d. develop cost management systems to help firms be more competitive.
24. All the information the manager needs to effectively manage the firm or not-forprofit organization is termed:
a. planning information.
b. cost management information.
c. financial information.
d. life cycle information.
25. Those who develop cost management information are most often referred to as:
a. cost accountants.
b. operational accountants.
c. management accountants.
d. industrial accountants.
26. The main focus of cost management information must be:
a. reliability and usefulness.
b. timeliness and reliability.
c. objectivity and reliability.
d. usefulness and timeliness.
27. The development of a sustainable competitive position - understanding what
specific activities are needed for the firm to succeed, and making the appropriate
strategic choices - is termed:
a. strategic cost management.
b. strategic management.
c. total quality management.
d. activity-based management
28. The development of cost information to facilitate the principal management
function is termed:
a. life cycle costing.
b. activity-based costing
c. total quality management
d. strategic cost management
29. The ability to deliver a product or service faster than the competition is termed:
a. just-in-time.
b. statistical quality control
c. flexible manufacturing.
d. speed-to-market.
30. A set of policies, procedures and approaches to business to produce long-term
success is termed
a. critical success factor.
b. competitive position.
c. mission.
d. strategy.
CHAPTER 2
Multiple Choice
1. ____________ means reporting and interpreting information that helps managers to focus
on operating problems, imperfections, inefficiencies, and opportunities.
a.
Scorekeeping
b.
Attention directing
c.
Problem solving
d.
None of the above
2. Management accounting is considered successful when it
a.
helps creditors evaluate the company's performance.
b.
helps managers improve their decisions.
c.
is accurate.
d.
is relevant and reported annually.
3. The Institute of Management Accountants (IMA)
a.
is a professional organization of management accountants.
b.
is a professional organization of financial accountants.
c.
issues standards for management accounting.
d.
issues standards for financial accounting.
4. Line management includes
a.
manufacturing managers.
b.
human-resource managers.
c.
information-technology managers.
d.
management-accounting managers.
5. Staff management includes
a.
manufacturing managers.
b.
human-resource managers.
c.
purchasing managers.
d.
distribution managers.
6. Responsibility of a CFO include all EXCEPT
a.
b.
c.
d.
providing financial reports to shareholders.
managing short-term and long-term financing.
investing in new equipment.
preparing tax returns.
7. The Standards of Ethical Conduct for management accountants include concepts
related to
a.
competence, performance, integrity, and reporting.
b.
competence, confidentiality, integrity and objectivity.
c.
experience, integrity, reporting, and objectivity.
d.
none of the above as ethical issues do not affect management accountants.
8. Ethical challenges for management accountants include
a. whether to accept gifts from suppliers, knowing it is an effort to indirectly
influence
decisions.
b. whether to report unfavorable department information that may result in
unfavorable
consequences for a friend.
c. whether to file a tax return this year.
d. both (a) and (b).
9. If a financial manager/management accountant has a problem in identifying unethical
behavior or resolving an ethical conflict, the first action (s)he should normally take is to
a.
consult the board of directors.
b.
discuss the problem with his/her immediate superior.
c.
notify the appropriate law enforcement.
d.
resign from the company.
10. Katrina is a financial manager who has discovered that her company is violating
environmental regulations. If her immediate superior is involved, her appropriate action
is to
a.
do nothing since she has a duty of loyalty to the organization.
b.
consult the audit committee.
c.
present the matter to the next higher managerial level.
d.
confront her immediate superior.
11. If financial manager/management accountant discovers unethical conduct in his/her
organization and fails to act, (s)he will be in violation of which ethical standard(s)?
a. "Actively or passively subvert the attainment of the organization's legitimate
and ethical objectives."
b. "Communicate unfavorable as well as favorable information."
c. "Condone the commission of such acts by others within their organizations."
d. All of the answers are correct.
12. Corporate social responsibility is
a. effectively enforced through the controls envisioned by classical economics.
b. the obligation to shareholders to earn a profit.
c. the duty to embrace service to the public interest.
d. the obligation to serve long-term, organizational interests.
13. A common argument against corporate involvement in socially responsible behavior
is that
a. it encourages government intrusion in decision making.
b. as a legal person, a corporation, is accountable for its conduct.
c. it creates goodwill.
d. in a competitive market, such behavior incurs costs that place the company at a
disadvantage.
14. Integrity is an ethical requirement for all financial managers/management
accountants. One aspect of integrity requires
a.
performance of professional duties in accordance with applicable laws.
b.
avoidance of conflict of interest.
c.
refraining from improper use of inside information.
d.
maintenance of an appropriate level of professional competence.
15. A financial manager/management accountant discovers a problem that could mislead
users of the firm's financial data and has informed his/her immediate superior. (S)he
should report the circumstances to the audit committee and/or the board of directors
only if
a. the immediate superior, who reports to the chief executive officer, knows about
the situation but refuses to correct it.
b. the immediate superior assures the financial manager/management accountant
that the
problem will be resolved.
c. the immediate superior reports the situation to his/her superior.
d. the immediate superior, the firm's chief executive officer, knows about the
situation but refuses to correct it.
16. In which situation is a financial manager/management accountant permitted to
communicate confidential information to individuals or authorities outside the firm?
a. There is an ethical conflict and the board has refused to take action.
b. Such communication is legally prescribed.
c. The financial manager/management accountant knowingly communicates the
information indirectly through a subordinate.
d. An officer at the financial manager/management accountant's bank has
requested information on a transaction that could influence the firm's stock price.
17. Which ethical standard is most clearly violated if a financial manager/management
accountant knows of a problem that could mislead users but does nothing about it?
a.
Competence
c.
Objectivity
b.
Legality
d.
Confidentiality
18.____________ produces information that helps workers, managers,
organizations make better decisions.
a.
Governmental accounting
and executives in
b.
c.
d.
Management accounting
Auditing
Financial accounting
19.____________ is the recognition and evaluation of business transactions and other
economic events for appropriate accounting action.
a.
Identification
c. Communication
b.
Analysis
d. Evaluating
20.____________ is the quantification of business transactions or other economic events that
have occurred or forecasts of those that may occur.
a.
Accumulation
b.
External reporting
c.
Measurement
d.
Internal reporting
21.___________ is a determination of the reasons for the reported activity and its
relationship with other economic events and circumstances.
a.
Analysis
b.
Measurement
c.
Evaluation
d.
Accumulation
22.___________ includes strategic, tactical and operating aspects.
a.
Controlling
b.
Communication
c.
Planning
d.
Evaluating
23.___________ judges implications of historical and expected events and helps to choose
the optimum course of action.
a.
Controlling
b.
Communication
c.
Planning
d.
Evaluating
24. Which of the following is a basic feature of a financial accounting system?
a.
Internal audience
b.
Historical data
c.
Subjective information
d.
Disaggregate information
25. Which of the following is NOT a basic feature of a financial accounting system?
a.
objective information
b.
reports on past performance
c.
future oriented reports
d.
highly aggregated data
26. Which of the following is a basic feature of a managerial accounting system?
a.
external audience
b.
reports are current and future oriented
c.
objective data only
d.
reports on the entire organization
27. Which of the following is NOT a basic feature of a managerial accounting system.
a.
financial measures only
b.
subjective information
c.
internal audience
d.
informs local decision and actions
28. Which of the is a basic feature of a managerial accounting system?
a.
The scope tends to be highly aggregate.
b.
There are no regulations governing the reports.
c.
The reports are generally delayed and historical.
d.
The audience tends to be stockholders, creditors and tax authorities.
29. Which of the following groups would be LEAST likely to receive detailed management
accounting reports?
a.
management accountants
b.
scientists and engineers
c.
stockholders
d.
managers
30.__________ indicate whether the organization is creating long-term value and
profitability.
a.
Strategic information
c. Net income
b.
ROI
d. Critical success factors
31.__________ is when a firm compares itself with the best practice of competitors or other
comparable organizations.
a.
Process improvement
b.
Benchmarking
c.
Employee empowerment
d.
Total quality philosophy
32. Which of the following is NOT a function of a management accounting system?
a.
operating control
b.
product and customer costing
c.
management control
d.
financial reporting
33. Which of the following functions provides feedback information about the efficiency
of tasks performed?
a.
operating control
b.
c.
d.
product and customer costing
management control
financial reporting
34. Which of the following functions provides information on the performance of
managers and operating units?
a.
operating control
b.
product and customer costing
c.
management control
d.
financial reporting
35. Which of the following is NOT a role of management accounting information in
operating control?
a.
to provide feedback information about quality
b.
to provide feedback information about timeliness
c.
to provide feedback information about the efficiency of tasks performed
d.
to provide performance measures for decentralized organizational units
36. Which of the following is NOT a role of management accounting information in
product and customer costing?
a. to measure the cost of resources used to produce a service
b. to assess the profitability of the organization's services by linking resources
generated
c. to provide feedback information about the quality, timeliness, and efficiency of
tasks performed
d. to assess customer profitability for a particular segment
37. An organization develops a code of ethics because
a. it is required by law.
b. the Chief Executive Officer demands it.
c. it wishes to reduce ethical conflicts by avoiding ambiguity or
misunderstandings.
d. it wishes to punish those whose ethical standards are different from its own.
38. If an individual faces a conflict between the organization's stated and practiced
values experts recommend that
a.
the individual resign immediately and call the media.
b.
the individual call the media.
c.
delay action and work with respected leaders in the organization.
d.
delay action and hope the problem goes away.
39. The elements of an ethical control system include the following EXCEPT
a.
a reward system for turning in those who violate the ethical code.
b.
a statement of the organization's values and code of ethics.
c.
an ongoing internal audit of the ethical control system.
d.
a statement of the employee's ethical responsibilities.
40. Certified Management Accountants are required to adhere to the following ethical
standards, EXCEPT
a.
competence.
b.
ingenuity.
c.
integrity.
d.
objectivity.
41. A study of organization that are among the best in the world at performing a
particular task
a.
Business process
b.
Benchmarking
c.
Control
d.
Feedback
42. An activity that consumes resources or takes time out that does not add value for
which customers are willing to pay
a.
Non-value added activity
b.
Value-added activity
c.
Process reengineering
d.
Total quality management
43. Accounting and other reports that help managers monitor performance and focus on
problems and/or opportunities that might otherwise go unnoticed
a. Feedback
c. Financial accounting
b. Performance report
d. Managerial accounting
CHAPTER 3
Multiple Choice
1. The strategic approach to management requires integrative thinking, i.e., the ability to
identify and solve problems:
a. from a cross-functional view.
b. without using accounting data.
c. quickly and decisively.
d. under considerable stress.
2. Firms have responded to the recent changes in business in all but which one of the
following ways?
a. down-sizing the workforce
b. developing smaller structures
c. outsourcing service functions
d. promoting more effective policies
3. The competitive strategy in which the firm succeeds by producing at the lowest cost in
the industry is termed:
a. differentiation
b. cost advantage
c. price strategy
d. cost leadership
4. The competitive strategy in which the firm succeeds by developing and maintaining a
unique value for the product, as perceived by the customers is termed:
a. differentiation
b. cost advantage
c. price strategy
d. cost leadership
5. Skills or competencies that the firm employs especially well are called:
a. critical skills.
b. core competencies.
c. essential strategies.
d. competitive factors.
6. Which one of the following describes the type of information that cost management
must provide that is not provided by traditional cost accounting systems?
a. information of a record keeping nature
b. reported financial information
c. reported nonfinancial information
d. information that addresses the strategic objectives of the firm
7. Activities that firm in the industry must perform in the process of taking raw material
and converting it into final product are known as:
a. value activities
b. conversion activities
c. production activities
d. production activities
CHAPTER 4
Multiple Choice
1. Well-implemented just-in-time production and purchasing techniques
A. Result in large stockpiles of inventory to keep production running.
B. strengthen a company’ ability to compete in the marketplace.
C. Increase a reliance on long-term consumer forecasts.
D. reduce a company’s competitive edge.
2. Computer-integrated manufacturing (CIM) plants allow management to do all EXCEPT
A. Create brand recognition.
B. diagnose the reason for a defect.
C. Access timely and accurate information reading production costs.
d. respond faster to changes in customer preferences.
3. __________ is/are when a firm compares itself with the be other comparable
organizations.
A. Value chain
B. Supply chain
C. Key success factors
D. Benchmarking
4. R&D, production and customer service are business functions that are all included as
part of
A. the value chain
B. benchmarking
C. marketing
D. the supply chain
5. The value chain is the sequence of business functions in which
A. Value is deducted from the products or services of an organization
B. Value is proportionately added to the products or services of an organization.
C. Products and services are evaluated with respect to their value to the supply
chain.
D. Usefulness is added to the products or services of an organization.
6. is the generation of, and experimentation with, ideas related to new products, services,
or processes.
A. Research and development
B. Design of products, services, or processes
C. Production
D. Marketing
7. Is the acquisition, coordination, and assembly of resources to produce a product or
deliver a service.
A. Research and development
B.Customer services
C. Production
D. Marketing
8. is an operational factor that directly affects the economic viability of the organization,
A.Customer focus
B A key success factor
C. Continuous improvement
D. Supply chain
9. Customers are demanding improved performance related to
A.Reduced costs.
B.Both reduced costs and increased quality.
C. Lower costs, improved quality, and improved customer service.
D. Lower costs, improved quality, improved customer service, and innovative
products and services.
10. The sequence of activities that creates a good or service is:
A. an organization
B. a value chain
C. a customer chain
D. an Information system
11. There are four broad classes of activities in the value chain, Research and
development would be in which class?
A. activities relating to getting ready to make the product
B. activities related to making the product
C. activities related to dealing with the customer
D. other activities that support the first three activities
12. There are four broad classes of activities in the value chain. Storing work in process
would be in which class?
A. Activities relating to getting ready to make the product
B. Activities related to making the product
C. Activities related to dealing with the customer
D. Other activities that support the first three activities
13. There are four broad classes of activities in the value chain. Billing activities would be
in which class?
A. activities relating to getting ready to make the product
B. activities related to making the product
C. activities related to dealing with the customer
D. other activities that support the first three activities
14. There are four broad classes of activities in the value chain. Accounting activities
would be in which class?
A. Activities relating to getting ready to make the product
B. Activities related to making the product
C. Activities related to dealing with the customer
D. Other activities that support the first three activities
15. Which of the following activities is value-added?
A. Processing
B. moving
C. storing
D. Inspecting
16. Which of the following four general steps to improve the effectiveness and efficiency
of an organization's activities would be performed first?
A. Identify what is now being done
B. Measure current performance
C. Analysis
D. Improve
17. Employees improve effectiveness and efficiency by performing four general steps
regarding the organization’s activities. The following describes which step?
The employee measures the performance of each activity in the process (value chain)
from the perspective of customer requirements while assuring that the overall
performance of activities meets the requirements of the organization’s other
stakeholders.
A. Identify what is now being done.
B. Measure current performance.
C. Analyze.
D. Improve.
18. Which of the following would NOT happen when quality is bad?
A. Rework
B. Scrap
C. Zero-defects
D. An increase in the cost of good units increases
19. Which of the following statements is true?
A. The customer will choose the product with the lower price.
B. If two products provide the same services and quality, the customer will choose
the product with the lower price.
C. If two products provide the same services and quality, the customer will choose
the product with the higher price.
D. The customer will choose the product with the higher price.
20. A key advantage of cross-functional teams in today’s manufacturing and service
environments is
A. Information is shared much more quickly by people in different functions and
this helps speed products to market.
B. The physical size of the organization gets smaller.
C. There are fewer computing system requirements.
D. The number of senior managers decreases.
21. Rewarding team performance based on team output can cause problems for team
members because
A. Some team members work different shifts than others.
B. Not all team members pull their weight.
C. The team leader has to get a much higher share Of the reward and team
members resent it.
D. Day shift workers are entitled to a higher share of the reward than evening
shift workers.
22. Continuous education has the following advantages, Except
A. Employees learn about organizational changes and improvements.
B. Employees skills are kept up-to-date.
C. Employees learn too much too quickly and get frustrated.
D. Employees become more committed to their jobs as they believe the
organization is investing in them.
23. Goal congruence means
A. An employee has set high goals for him/herself.
B. An employee has set low goals for him/herself.
C. An employee’s goals are aligned with those of the organization.
D. An employee will never attain his or her goals.
24. A management approach that emphasizes the importance of managing constraints
A. Decentralization
B. Theory of Constraints
C. Control
D. Business Process
25. A production system in which units are produced and materials are purchased only
as needed to meet actual customer demand is called
A. Total quality management
B. Just-in-time
C. Process reengineering
D. Benchmarking
26. In Process Reengineering, two objectives are to simplify and to eliminate
A. Constraint
B. Non-valued-added activities
C. Nonconstraint
D. Losses
27. A detailed report to management comparing budgeted data with actual data for a
specific time period is called a
A. Performance report
B. Feedback
C. Financial accounting report
D. Budget
28. The critical success factors for a business today are all:
A. planning-oriented
B. production-oriented
C. sales-oriented
D. customer-oriented
29. A process by which a finn identifies its critical success factors, studies the best
practices of other firms for these critical success factors, and then implements
improvements in the firm’s processes to match or beat the performance of these
competitors is termed:
A. Continuous improvement
B. reengineering
C. strategic management
D. benchmarking
30. A technique in which management develops policies and practices to ensure that the
firm’s products and services exceed the customer’s expectations is:
A. continuous improvement
B. benchmarking
C. critical success factoring
D. total quality management
31. A process for creating competitive advantage in which a firm reorganizes its
operating and management functions, often with the result that jobs are modified,
combined, or eliminated is termed:
A. benchmarking
B. life cycle costing
C. target costing
D. reengineering
32. A strategic technique to help firms effectively improve the most common and
important critical success factor – cycle time, is:
A. activity-based costing
B. benchmarking
C. the theory of constraints
D. continuous improvement
33. The competitive strategy of <cost leadership= allows a firm to outperform
competitors by producing products or services:
A. With lowered quality standards.
B. In smaller operational units,
C. At lower costs achieved by increased productivity.
D. With attractive added features.
34. The competitive strategy of <differentiation= requires that a product or service must
be:
A. Always readily available.
B. Price competitive.
C. Produced at the lowest possible cost.
D. Unique in some important way, usually of being of higher quality.
35. Many firms find that a consideration of critical success factors yields a renewed focus
on the three key factors of:
A. Product design, manufacture and distribution
B. Cost, price and volume
C. Innovation, regulation and utilization
D. Cost, quality and speed of product development and delivery
36. After critical success factors (CSFs) have been identified, the next step in developing
a competitive strategy is to develop relevant and reliable meaSUre for these CFSs. If
these measures are not developed, a firm cannot hope to:
A. Make profit for any extended period.
B. Increase sales above previous year(s).
C. Develop policies to enhance profitability.
D. Monitor its progress toward achieving its strategic goals.
37. In order to achieve a firm’s objectives, the strategic cost accounting system must
collect, record and report:
A. The right king of information.
B. Information on a very regular basis.
C. Only incremental information.
D. Detailed information.
38. The <balanced scorecard= accounting report can be made more effective by
developing it at a detail level so that employees:
A. Can see how it is put together.
B. Appreciate all the effort that goes into its preparation.
C. Respect management for including them in its formulation.
D. Can see how their actions contribute to the success of the firm.
39. Both leading and lagging indicators should be used in the development of the
<balanced scorecard= accounting report because:
A. Leading indicators are future oriented and lagging indicators are primarily
historical output measures.
B. One type of indicator will always correct the other type.
C. Leading indicators are expressed non-quantitatively while lagging indicators
are expressed only in quantitative terms.
D. Both answer a and answer b are correct.
40. The objective of the value chain analysis is to identify stages of the value chain where
the firm can:
A. Justify increases in the price of the product or service.
B. Increase value to the customer or reduce cost.
C. Sublet production to other producers.
D. Answer b is most correct, but answer a and c are possibly true.
41. The second step in value chain analysis is to identify the cost driver(s) at each value
activity. The objective of the second step is to identify activities where the firm has a
current or future:
A. revenue potential.
B. legal responsibility.
C. cost advantage
d. cost overrun.
3. The competitive strategy in which the firm succeeds by producing at the lowest cost in
the industry is termed:
a. differentiation
b. cost advantage
c. price strategy
d. cost leadership
4. The competitive strategy in which the firm succeeds by developing and maintaining a
unique value for the product, as perceived by the customers is termed:
a. differentiation
b. cost advantage
c. price strategy
d. cost leadership
5. Skills or competencies that the firm employs especially well are called:
a. critical skills.
b. core competencies.
c. essential strategies.
d. competitive factors.
6. Which one of the following describes the type of information that cost management
must provide that is not provided by traditional cost accounting systems?
a. information of a record keeping nature
b. reported financial information
c. reported nonfinancial information
d. information that addresses the strategic objectives of the firm
7. Activities that firm in the industry must perform in the process of taking raw material
and converting it into final product are known as:
a. value activities
b. conversion activities
c. production activities
d. production activities
CHAPTER 4
Multiple Choice
1. Well-implemented just-in-time production and purchasing techniques
A. Result in large stockpiles of inventory to keep production running.
B. strengthen a company’ ability to compete in the marketplace.
C. Increase a reliance on long-term consumer forecasts.
D. reduce a company’s competitive edge.
2. Computer-integrated manufacturing (CIM) plants allow management to do all EXCEPT
A. Create brand recognition.
B. diagnose the reason for a defect.
C. Access timely and accurate information reading production costs.
d. respond faster to changes in customer preferences.
3. __________ is/are when a firm compares itself with the be other comparable
organizations.
A. Value chain
B. Supply chain
C. Key success factors
D. Benchmarking
4. R&D, production and customer service are business functions that are all included as
part of
A. the value chain
B. benchmarking
C. marketing
D. the supply chain
5. The value chain is the sequence of business functions in which
A. Value is deducted from the products or services of an organization
B. Value is proportionately added to the products or services of an organization.
C. Products and services are evaluated with respect to their value to the supply
chain.
D. Usefulness is added to the products or services of an organization.
6. is the generation of, and experimentation with, ideas related to new products, services,
or processes.
A. Research and development
B. Design of products, services, or processes
C. Production
D. Marketing
7. Is the acquisition, coordination, and assembly of resources to produce a product or
deliver a service.
A. Research and development
B.Customer services
C. Production
D. Marketing
8. is an operational factor that directly affects the economic viability of the organization,
A.Customer focus
B A key success factor
C. Continuous improvement
D. Supply chain
9. Customers are demanding improved performance related to
A.Reduced costs.
B.Both reduced costs and increased quality.
C. Lower costs, improved quality, and improved customer service.
D. Lower costs, improved quality, improved customer service, and innovative
products and services.
10. The sequence of activities that creates a good or service is:
A. an organization
B. a value chain
C. a customer chain
D. an Information system
11. There are four broad classes of activities in the value chain, Research and
development would be in which class?
A. activities relating to getting ready to make the product
B. activities related to making the product
C. activities related to dealing with the customer
D. other activities that support the first three activities
12. There are four broad classes of activities in the value chain. Storing work in process
would be in which class?
A. Activities relating to getting ready to make the product
B. Activities related to making the product
C. Activities related to dealing with the customer
D. Other activities that support the first three activities
13. There are four broad classes of activities in the value chain. Billing activities would be
in which class?
A. activities relating to getting ready to make the product
B. activities related to making the product
C. activities related to dealing with the customer
D. other activities that support the first three activities
14. There are four broad classes of activities in the value chain. Accounting activities
would be in which class?
A. Activities relating to getting ready to make the product
B. Activities related to making the product
C. Activities related to dealing with the customer
D. Other activities that support the first three activities
15. Which of the following activities is value-added?
A. Processing
B. moving
C. storing
D. Inspecting
16. Which of the following four general steps to improve the effectiveness and efficiency
of an organization's activities would be performed first?
A. Identify what is now being done
B. Measure current performance
C. Analysis
D. Improve
17. Employees improve effectiveness and efficiency by performing four general steps
regarding the organization’s activities. The following describes which step?
The employee measures the performance of each activity in the process (value chain)
from the perspective of customer requirements while assuring that the overall
performance of activities meets the requirements of the organization’s other
stakeholders.
A. Identify what is now being done.
B. Measure current performance.
C. Analyze.
D. Improve.
18. Which of the following would NOT happen when quality is bad?
A. Rework
B. Scrap
C. Zero-defects
D. An increase in the cost of good units increases
19. Which of the following statements is true?
A. The customer will choose the product with the lower price.
B. If two products provide the same services and quality, the customer will choose
the product with the lower price.
C. If two products provide the same services and quality, the customer will choose
the product with the higher price.
D. The customer will choose the product with the higher price.
20. A key advantage of cross-functional teams in today’s manufacturing and service
environments is
A. Information is shared much more quickly by people in different functions and
this helps speed products to market.
B. The physical size of the organization gets smaller.
C. There are fewer computing system requirements.
D. The number of senior managers decreases.
21. Rewarding team performance based on team output can cause problems for team
members because
A. Some team members work different shifts than others.
B. Not all team members pull their weight.
C. The team leader has to get a much higher share Of the reward and team
members resent it.
D. Day shift workers are entitled to a higher share of the reward than evening
shift workers.
22. Continuous education has the following advantages, Except
A. Employees learn about organizational changes and improvements.
B. Employees skills are kept up-to-date.
C. Employees learn too much too quickly and get frustrated.
D. Employees become more committed to their jobs as they believe the
organization is investing in them.
23. Goal congruence means
A. An employee has set high goals for him/herself.
B. An employee has set low goals for him/herself.
C. An employee’s goals are aligned with those of the organization.
D. An employee will never attain his or her goals.
24. A management approach that emphasizes the importance of managing constraints
A. Decentralization
B. Theory of Constraints
C. Control
D. Business Process
25. A production system in which units are produced and materials are purchased only
as needed to meet actual customer demand is called
A. Total quality management
B. Just-in-time
C. Process reengineering
D. Benchmarking
26. In Process Reengineering, two objectives are to simplify and to eliminate
A. Constraint
B. Non-valued-added activities
C. Nonconstraint
D. Losses
27. A detailed report to management comparing budgeted data with actual data for a
specific time period is called a
A. Performance report
B. Feedback
C. Financial accounting report
D. Budget
28. The critical success factors for a business today are all:
A. planning-oriented
B. production-oriented
C. sales-oriented
D. customer-oriented
29. A process by which a finn identifies its critical success factors, studies the best
practices of other firms for these critical success factors, and then implements
improvements in the firm’s processes to match or beat the performance of these
competitors is termed:
A. Continuous improvement
B. reengineering
C. strategic management
D. benchmarking
30. A technique in which management develops policies and practices to ensure that the
firm’s products and services exceed the customer’s expectations is:
A. continuous improvement
B. benchmarking
C. critical success factoring
D. total quality management
31. A process for creating competitive advantage in which a firm reorganizes its
operating and management functions, often with the result that jobs are modified,
combined, or eliminated is termed:
A. benchmarking
B. life cycle costing
C. target costing
D. reengineering
32. A strategic technique to help firms effectively improve the most common and
important critical success factor – cycle time, is:
A. activity-based costing
B. benchmarking
C. the theory of constraints
D. continuous improvement
33. The competitive strategy of <cost leadership= allows a firm to outperform
competitors by producing products or services:
A. With lowered quality standards.
B. In smaller operational units,
C. At lower costs achieved by increased productivity.
D. With attractive added features.
34. The competitive strategy of <differentiation= requires that a product or service must
be:
A. Always readily available.
B. Price competitive.
C. Produced at the lowest possible cost.
D. Unique in some important way, usually of being of higher quality.
35. Many firms find that a consideration of critical success factors yields a renewed focus
on the three key factors of:
A. Product design, manufacture and distribution
B. Cost, price and volume
C. Innovation, regulation and utilization
D. Cost, quality and speed of product development and delivery
36. After critical success factors (CSFs) have been identified, the next step in developing
a competitive strategy is to develop relevant and reliable meaSUre for these CFSs. If
these measures are not developed, a firm cannot hope to:
A. Make profit for any extended period.
B. Increase sales above previous year(s).
C. Develop policies to enhance profitability.
D. Monitor its progress toward achieving its strategic goals.
37. In order to achieve a firm’s objectives, the strategic cost accounting system must
collect, record and report:
A. The right king of information.
B. Information on a very regular basis.
C. Only incremental information.
D. Detailed information.
38. The <balanced scorecard= accounting report can be made more effective by
developing it at a detail level so that employees:
A. Can see how it is put together.
B. Appreciate all the effort that goes into its preparation.
C. Respect management for including them in its formulation.
D. Can see how their actions contribute to the success of the firm.
39. Both leading and lagging indicators should be used in the development of the
<balanced scorecard= accounting report because:
A. Leading indicators are future oriented and lagging indicators are primarily
historical output measures.
B. One type of indicator will always correct the other type.
C. Leading indicators are expressed non-quantitatively while lagging indicators
are expressed only in quantitative terms.
D. Both answer a and answer b are correct.
40. The objective of the value chain analysis is to identify stages of the value chain where
the firm can:
A. Justify increases in the price of the product or service.
B. Increase value to the customer or reduce cost.
C. Sublet production to other producers.
D. Answer b is most correct, but answer a and c are possibly true.
41. The second step in value chain analysis is to identify the cost driver(s) at each value
activity. The objective of the second step is to identify activities where the firm has a
current or future:
A. revenue potential.
B. legal responsibility.
C. cost advantage
d. cost overrun.
42. In value chain analysis, the third step choice made by a firm to emphasize its strong
research and development reputation is an example of:
A. low cost manufacturing.
B. price leadership.
C. cost leadership
D. innovative design.
43. In regard to critical success factors, which one of the following would not be
considered a financial measure of success?
a. cash flow
b. brand growth
c. sales growth
d. earnings growth
44. In regard to critical success factors, which one of the following would not be
considered a non-financial customer measure of success?
a. education
b. on-time delivery
c. customer satisfaction
d. customer service
45. In regard to critical success factors, which one of the following would not be
considered a non-financial internal business process measure of success?
A. cycle time
B. Yield
C. high product quality
D. market share
46. Which of the following financial critical success factors is measured by earnings from
operations?
a. profitability
b. sales
c. liquidity
d. flexibility
47. Many firms are finding it is difficult to compete successfully on cost leadership or
differentiation alone, and they must, in fact, compete on both:
A. Cost and design
B. Price and functionality
C. Cost and price
D. Design and functionality
CHAPTER 5
Multiple of Choice
1. The first step involved in preparing a master budget is
a. Preparing a forecasted income statement.
b. Preparing a general operating budget
c. Preparing a forecasted statement of financial position.
d. Preparing detailed period budgets.
2. The second logical step in preparing a master budget would be to:
a. Estimate the cost of goods sold.
b. Forecast sales during the budget period.
c. Establish the basic goals and long-range plans for the company.
d. Forecast general and administrative expenses for the budget period.
3. Which of the following components of the master budget must be prepared before the
others?
a. Direct labor peso budget
b. Cost of goods sold forecast
c. Production budget
d. Raw materials purchase budget
4. Which of the following factors are not important to consider in making a sales
forecast?
a. Past sales volume
b.Distribution costs involved
c. Conditions within the industry
d. Plant capacity
e. None of the above.
5. The period budget should begin with a forecast of
a. overhead.
b. production
c. sales
d. direct labor.
.
6. The basic difference between a master budget and a flexible budget is:
a. Flexible budget considers only variable costs but a master budget considers all
costs.
b. Flexible budget allows management latitude in meeting goals whereas a master
budget is based on a fixed standard.
c. Master budget is based on one specific level of production and a flexible budget
can be prepared for any production level within a relevant range.
d. Master budget is for an entire production facility but a flexible budget is
applicable to a single department only.
7. A flexible budget is
a. Appropriate for control of factory overhead but not for control of direct
materials and direct labor.
b. Appropriate for control of direct materials and direct labor but not for control
of factory overhead.
c. Not appropriate when costs and expenses are affected by the fluctuations in
volume limits.
d. Appropriate for any level of activity.
8. The purpose of a flexible budget is to
a. Allow management some latitude in meeting goals.
b. Eliminate cyclical fluctuations in production reports by ignoring variable costs
c. Compare actual and budgeted results at virtually any level of production.
d. Reduce the total time in preparing the annual budget
9. When using a flexible budget, what will occur to fixed costs (on a per unit basis) as
production increased within the relevant range?
a. Fixed costs per unit will decrease.
b. Fixed costs per unit will remain unchanged.
c. Fixed costs per unit will increase.
d. Fixed costs are not considered in flexible budgeting.
10. A budget that identifies revenues and costs with an individual controlling their
incurrence is:
a. Budgetary control.
b. Master budget.
c. Product budget.
d. Responsibility budget.
e. None of the above.
11. In preparing quarterly budget estimates, who should be responsible for the cash
budget?
a. Sales manager
b. Production manager
c. Finance manager
d. General manager
12. The cash budget is prepared
a. Before all period budgets are prepared.
b. After all forecasted income statement but before the forecasted statement of
financial position.
c. As the last step in the master budget.
d. Only if the company has doubts about the debt-paying ability.
13. The calculation of reasonable probabilities about the future, based on the analysis of
all the latest relevant information by tested and logically sound statistical and
econometric techniques, and applied in terms of an executive's personal judgment and
knowledge of his business is:
a. Budgeting
b. Planning and control.
c. Business forecasting.
d. Project feasibility studies.
e. None of the above.
14. Zero-based budgeting (ZBB) is a
a. Budget system which measures actual or estimated results, in terms of benefit
accruing to the public and their unit cost.
b. Process which requires systematic consideration of all programs, projects and
activities with the use of defined ranking procedures, the activities analyzed and
presented in decision packages.
c. Undertaking that comprises all the functions and activities devoted to the
accomplishment of a major purpose for which government entity is established.
d. Line-item budgeting justified from a base of P1,000.
e. Budget system based on a appropriation or zero limit of funds.
b. common to all stages.
d. lesser in amount in the early stages.
11. The sequence of activities within the firm which begins with research and
development, followed by design, and manufacturing, marketing / distribution, and
customer service is the:
a. sales life cycle
c. market life cycle
b. target life cycle
d. critical life cycle
12. The sequence of phases in the product or service's life in the market - from the
introduction of the product or service to the growth in sales and finally maturity, decline,
and withdrawal from the market is the:
a. sales life cycle
c. market life cycle
b. target life cycle
d . cost life cycle
13. When a firm determines the desired cost for a product or service, given a competitive
market price, in order to earn a desired profit, the firm is exercising
a. target costing
c. variable costing
b. life cycle costing
d. absorption costing
14. Which one of the following is used in target costing to reduce product cost by
analyzing the tradeoffs between (1) different types and levels of product functionality
and (2) total product cost?
a. Benchmarking
c. productivity analysis
b. functional analysis
d. value engineering
15. Which one of the following is a common type of value engineering in which each
major function or feature of the product is examined in terms of its performance and cost?
a. benchmarking
c. productivity analysis
b. functional analysis
d. functional engineering
16. Which one of the following is a common form of value engineering in which the
designing team prepares several possible designs of the product?
a. benchmarking
c. productivity analysis
b. functional analysis
d. design analysis
17. Which one of the following is not one of the five steps in TOC analysis?
a. Identify the binding constraint(s).
b. Determine the most efficient utilization for each binding constraint.
c. Manage the flow through the binding constraint.
d. Deduct capacity from the constraint.
18. Which one of the following is true concerning TOC?
Short-Term Focus
Long-Term Focus
Cost Drivers
a.
No
No
Yes
b.
No
Yes
No
c.
Yes
No
No
d.
No
Yes
Yes
19. Which one of the following is a downstream cost?
a. research and development
c. purchasing
b. packaging
d. prototyping
20. which one of the following industries has high upstream costs?
a. retail
c. cosmetics
b. perfumes
d. computer software
21. Which of the following is not a critical success factor at the design stage?
a. improved ease-of-manufacture
b. reduced time-to-market
c. reduced expected service costs
d. enhanced quality
22. Which one of the following is not a common design method?
a. concurrent engineering.
c. templating
b. design engineering
d. prototyping
23. Sales begin to grow rapidly and product variety increases in:
a. phase three
c. phase five
b. phase two
d. phase four
24. Sales continue to increase but at a decreasing rate is:
a. phase three
c. phase five
b. phase two
d. phase four
25. Sales begin to decline, as does the number of competitors, in:
a. phase three
c. phase five
b. phase two
d. phase four
CHAPTER 9
Multiple Choice
1. A good example of a common cost which normally could not be assigned to products
on a segmented income statement except on an arbitrary basis would be:
a. product advertising outlays.
b. salary of a corporation president.
c. direct materials.
d. the product manager's salary.
2. All other things being equal, if a division's traceable fixed expenses increase:
a. the division's contribution margin ratio will decrease.
b. the division's segment margin ratio will remain the same.
c. the division's segment margin will decrease.
d. the overall company profit will remain the same.
3. Devlin Company has two divisions, C and D. The overall company contribution margin
ratio is 30%, with sales in the two divisions totaling P500,000. If variable expenses are
P300,000 in Division C, and if division C's contribution margin ratio is 25%, then sales in
Division D must be:
a. P 50,000.
c. P150,000.
b. P100,000.
d. P200,000.
4. Walsh Company has three stores: X, Y, and Z. During August, the variable expenses in
Store X were P90,000 and the contribution margin ratio was 25%. Store Y had a
contribution margin of P27,000 and a contribution margin ratio of 20%. Store Z had
variable expenses of P120,000 and a variable expense ratio of 60% of sales. For August,
Walsh Company's sales were:
a. P318,000.
c. P485,000.
b. P455,000.
d. P555,000.
5. Channing Company has two divisions, S and T. The company's overall contribution
margin ratio is 30% when sales in the two divisions total P750,000. If variable expenses
are P405,000 in Division S, and if Division S's contribution margin ratio is 25%, then
sales in Division T must be:
a. P 75,000.
c. P225,000.
b. P150,000.
d. P300,000.
Questions 6 and 7 are based on the following information.
JTC Company has two sales areas: East and West. During last year, the contribution
margin in the East area was P50,000, or 20% of sales. The segment margin in the West
area was P15,000, or 8% of sales. Traceable fixed costs are P15,000 in the East and
P10,000 in the West. During last year, the company reported total net income of P26,000.
6. The total fixed costs (traceable and common) for JTC Company for the year were:
a. P49,000.
c. P24,000.
b. P25,000
d. P50,000.
7. The variable costs for the West Area for the year were:
a. P230,000
c. P162,500.
b. P185,000.
d. P 65,000.
Questions 8 through 11 are based on the following information.
Okinawa Company has two stores: D and S. During November, Okinawa Company
reported a net income of P30,000 and sales of P450,000. The contribution margin in
Store D was P100,000, or 40% of sales. The segment margin in Store S was P30,000, or
15% of sales. Traceable fixed expenses are P60,000 in Store D, and P40,000 in Store S.
8. Sales in Store D totaled:
a. P400,000.
c. P150,000.
b. P250,000.
d. P100,000.
9. Variable expenses in Store S totaled:
a. P 70,000.
c. P200,000.
b. P110,000.
d. P130,000.
10. Okinawa Company's total fixed expenses for the year were:
a. P 40,000.
c. P140,000.
b. P100,000.
d. P170,000.
11. The segment margin ratio in Store D was:
a. 16%.
c. 40%.
b. 24%.
d. 60%.
12. Mamee Company has two divisions, 1 and 2. During July, the contribution margin in
Division 1 was P60,000. The contribution margin ratio in Division 2 was 40% and its
sales were P250,000. Division 2's segment margin was P60,000. The common fixed
expenses were P50,000 and the company net income was P20,000. The segment margin
for Division 1 was:
a. P0.
c. P50,000.
b. P10,000.
d. P60,000.
CHAPTER 10
Multiple Choice
1. Under variable costing, fixed manufacturing overhead is:
a. carried in a liability account.
b. carried in an asset account.
c. ignored.
d. immediately charged against sales as a p
period
eriod cost.
2. Which one of the following statements is true for a firm that uses variable costing?
a. The unit product cost changes because of changes in the number of units
manufactured.
b. Profit fluctuates with sales.
c. Any underapplied overhead is calculated into the product cost.
d. Product costs include variable administration costs.
3. A principal difference between variable costing and absorption costing centers on:
a. whether variable manufacturing costs should be included as product costs.
b. whether fixed manufacturing costs should be included as product costs.
c. whether fixed manufacturing costs and fixed selling and administrative costs
should be included as product costs.
d. none of these.
4. Under variable costing:
a. net income will tend to move upward and downward in response to changes in
levels of production.
b. inventory costs will always be lo
lower
wer than under absorption costing.
c. net income will tend to vary inversely with production changes.
d. net income will always be higher than under absorption costing.
5. When sales are constant, but the production level fluctuates, net income determined
by the variable costing method will:
a. fluctuate in direct proportion to changes in production.
b. remain constant.
c. fluctuate inversely with changes in production.
d. be greater than net income under absorption costing.
6. The costing method that treats all fixed costs as period costs is:
a. absorption costing.
c. variable costing.
b. job-order costing.
d. process costing.
7. Under absorption costing, fixed factory overhead costs:
a. are deferred in inventory when production exceed
exceedss sales.
b. are always treated as period costs.
C. are released from inventory when production exceeds sales.
d. none of these.
8. WB Company computes net income under both the absorption costs approach and the
variable costing approach. For a given year, the absorption costing net income was
greater than the variable costing net income. This fact suggests that:
a. variable manufacturing cots were less than fixed manufacturing costs.
b. more units were produced during the year than were sold.
c. more units were sold during the year than were produced.
d. common costs were greater than variable costs for the year.
9. Net income computed using variable costing would exceed net income computed using
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.
10. When sales are constant, but the production level fluctuates, net income determined
by the absorption costing method will:
a. tend to fluctuate in the same d
direction
irection as fluctuations in the level of production.
b. tend to remain constant.
c. tend to fluctuate inversely with fluctuations in the level of production.
d. none of these.
11. Manga, Inc. manufactured 700 units last year. The ending inventory consisted of 100
units. There was no beginning inventory. Variable manufacturing costs were P6.00 per
unit and fixed manufacturing costs were P2.00 per unit. What would be the change in the
peso amount of ending inventory if variable costing was used instead of absorption
costing?
a. P800 decrease
c. P0
b. P200 decrease.
d. P200 increase
12. Variable production costs are P12 per unit and variable selling and administrative
expenses are P3 per unit. Fixed manufacturing overhead totals P36,000 and fixed selling
and administration expenses total P40,000. Assuming a beginning inventory of zero,
production of 4,000 units and sales of 3,600 units, the peso value of the ending inventory
under variable costing would be:
a. P4,800.
c. P6,000.
b. P8,400.
d. P3,600.
13. The following data pertain to last year's operations at HP Corp.:
Units in beginning inventory
0
Units produced
20,000
Units sold
19,000
Selling price per unit
P100.00
Variable costs per unit:
Direct materials
P12.00
Direct labor
25.00
Variable manufacturing overhead
3.00
Variable selling and administrative
2.00
Fixed costs per year:
Fixed manufacturing overhead
P500,000
Fixed selling and administrative
600,000
What was the variable costing net income last year?
a. P12,000
c. P 2,000
b. P57,000
d. P27,000
14. Last year, Mayumi Company had income of P40,000 using variable costing. Beginning
and ending inventories were 22,000 and 27,000 units, respectively. If the fixed
manufacturing overhead cost was P3.00 per unit, what was the income using absorption
costing?
a. P15,000
c. P40,000
b. P25,000
d. P55,000
15. The following data pertain to last year's operations at Lois, Incorporated:
Units in beginning inventory
0
Units produced
100,000
Units sold
98,000
Selling price per unit
P10.00
Variable costs per unit:
Direct materials
P1.50
Direct labor
2.50
Variable manufacturing overhead
1.00
Variable selling and administrative
2.00
Fixed costs per year:
Fixed manufacturing overhead
P200,000
Fixed selling and administrative
50,000
What was the absorption costing net income last year?
a. P44,000
c. P50,000
b. P48,000
d. P49,000
Questions 16 through 19 refer to the following:
Magic Company manufactures a single product. The following data pertain to the
company's operations last year:
Selling price per unit
P24
Variable costs per unit:
Production
P8
Selling and administrative
P2
Fixed costs per year:
Production
P48,000
Selling and administrative
36,000
At the beginning of the year there was no units in inventory. A total of 12,000 units were
produced during the year, and 10,000 units were sold.
16. Under variable costing, the unit product cost is:
a. P 8.00.
c. P12.00.
b. P10.00.
d. P14.00.
17. Under absorption costing, the unit product cost is:
a. P 8.00.
c. P12.0
P12.00.
0.
b. P10.00.
d. P15.00.
18. The net income under variable costing would be:
a. P64,000.
c. P56,000.
b. P60,000.
d. P52,000.
19. The net income under absorption costing would be:
a. the same as the income under variable costing.
b. P8,000 greater than the income under variable costing.
c. P12,000 greater than the income under variable costing.
d. P8,000 less than the income under variable costing.
20. A company had a net income of P85,500 using variable costing and a net income of
P90,000 using absorption costing. Total fixed manufacturing overhead was P150,000,
and production was 100,000 units. Between the beginning and the end of the year, the
inventory level:
a. increased by 4,000 units.
c. increased by 3,000 units.
b. decreased by 4,500 units.
d. decreased by 3,000 units.
CHAPTER 11
Multiple Choice
1.Cost that do not appear in accounting records and that do not require peso outlays but
do involve a foregone opportunity by the entity whose costs are being measured are
A. Conversion costs
B. Differential costs
C. Imputed costs
D. Prime costs
2.Pear Company temporarily has unused production capacity. The idle plant facilities can
be used to manufacture a low-margin item. The low-margin item should be produced if it
can be sold for more its
A.Fixed costs
B.Variable costs
C.Variable costs plus any opportunity cost of the idle facilities
D.Indirect costs plus any opportunity cosy of the idle facilities
3.As part of the data presented in support if a proposal to increase the production of
clock-radios, the sales manager of Whittaker Electronics reported the total additional
cost required for the proposed increased production level. The increase in total cost is
known as
A.Controllable cost
B.Differential cost
C.Opportunity cost
D.Out-of-pocket cost
4.An item whose entire amount is usually a differential cost is
A.Factory overhead
B. Direct cost
C.Conversion cost
D.Period cost
5.In the development of accounting data for decision-making purpose, relevant costs are
defined as
A.Future costs which will under each alternative course of action
B.The change in prime cost under each alternative course of action
C.Standard costs which are developed by time and motion study techniques
because of their relevance to managerial control
D.Historical costs which are the best available basis for estimating future
6.Which of the following costs are always irrelevant in decision making?
A.Avoidable costs
C.Opportunity costs
B.Sunk cost
D.Fixed costs
7.Consider the following statements:
I.Assemble all costs associated with each alternative being considered
II.Eliminate those costs that are sunk
III.Eliminate those costs that differ between alternatives
Which of the above statements does not represent a step in identifying the relevant costs
in a decision problem?
A.Only I
C.Only III
B.Only II
D.Only I and III
8.The acceptance of a special order will improve overall net operating income so long as
the revenue from the special order exceeds:
A.The contribution margin on the order
B.The incremental costs associated with the order
C.The variable cost associated with the order
D.The sunk costs associated with the order
9.Allocated common fixed costs:
A.Can make a product line appear to be unprofitable
B.Are always incremental costs
C.Are always relevant in decisions involving dropping a product line
D.Responses a, b, and c are all correct
10.Consider the following statements:
I. A division’s net operating income, after deducting both traceable and allocated
common corporate costs, is negative
II. The division’s avoidable fixed costs exceed its contribution margin
III. The division’s traceable fixed costs plus its allocated common corporate costs
exceed its contribution margin
Which of the above statements give an economic reason for eliminating the division?
A.Only I
C.Only III
B.Only II
D.Only I and II
11.In make or buy decision:
A.Only the variable costs are relevant
B.Only the fixed costs are relevant
C.Both the variable costs and the fixed costs which will continue regardless of the
decision are relevant
D.Both the variable costs and the fixed costs which are avoidable are relevant
12.Which of the following best describes an opportunity cost?
A.It is a relevant cost in decision making, but it is not part of the traditional
accounting records
B.It is not a relevant cost in decision making but is part of the traditional
accounting records
C.It is a relevant cost in decision making, and is part of the traditional accounting
records
D.It is not a relevant cost in decision making, and is not part of the traditional
accounting records
13.The opportunity cost pf making a component part in factory with excess capacity for
which there is no alternative use is:
A.The variable manufacturing cost of the component
B.The total manufacturing cost of the component
C.The fixed manufacturing cost of the component
D.Zero
14.In a sell or process further decision, consider the following costs:
I.A variable production cost incurred prior to split-off
II.A variable production cost incurred after split-off
III.An avoidable fixed production cost incurred after slit-off
Which of the above costs is (are) not relevant in a decision regarding whether the
product should be processed further?
A.Only I
C.Only I and II
B.Only III
D.Only I and III
15.Consider the following statements:
I.A firm that decides to produce its own parts runs the risk of destroying long-run
relationships with suppliers
II.A integrated firm is less dependent on its suppliers
III.Changing technology often makes continued production of one’s own parts
more costly than buying them from the outside
Which of these statements indicate hazards to a firm that arise from being vertically
integrated?
A.Only I
C.Only I and II
B.Only II
D.Only I and III
16.Kala Company prepared the following tentative forecast concerning product A fro
20X3
Sales
Selling price per unit
Variable costs
Fixed costs
P 500, 000
P 5.00
P 300,000
P 150,000
Study made by the sales manager disclosed that the unit selling price could be increased
by 20% with an expected volume decrease of only 10%. Assuming that Kala incorporates
these changes its 20X3 forecast, what should be the operating income from product A?
A.P66,000
C.P120,000
B.P90,000
D.P145,000
17.Wiggle Company sells product A at a selling price of P21 per unit. Wiggle’s cost per
unit based on the full capacity of P200,000 units is as follows
Direct Materials
Direct Labor
Overhead (two-third of which is fixed)
P 4
5
6
P 15
A special order affecting to buy 20,000 units was received from a foreign distributor. The
only selling costs that would be incurred on this order would be P3 per unit for shipping.
Wiggle has sufficient existing capacity to manufacture the additional units. In negotiating
a price for the special order, Wiggle should consider that the minimum selling price per
unit should be
A.P14
C.P16
B.P15
D.P18
18.Plainfield Company manufactures Part G for use in its production cycle. The costs per
unit for 10,000 units for part G are as follows:
Direct Materials
Direct Labor
Variable overhead
Fixed overhead
P 3
15
6
8
P 32
Verona Company has offered to sell Plainfield 10,000 units of Part G for P30 per unit. If
Plainfield accepts Verona’s offer, the released facilitated could be used to save P45,000
in relevant costs in the manufacture of Part H. In addition P5 per unit of the fixed
overhead applied to Part G would be totally eliminated. What alternative is more
desirable and by what amount is it more desirable?
Alternative
Amount
A. Manufacture
B. Manufacture
C. Buy
D. Buy
P10,000
15,000
35,000
65,000
19.Relic Corp. Manufactured batons. Relic can manufactured 300,000 baton a year at a
variable cost of P750,000 and a fixed cost of P450,000. Based on Relic’s predictions,
240,000 batons will be sold at the regular price of P5.00 each. In addition, a special order
was placed for 60,000 batons to be sold at a 40% discount off the regular price. By what
amount would income before taxes be increased or decreased as a result of the special
order?
A.P60,000 decrease
C.P36,000 increase
B.P30,000 increase
D. P180,000 increase
20.
Three companies are each manufactures and selling annually 10,000 units of a
similar product at a sales price of P20 per unit. The companies have fixed and variable
costs as follows:
Company
Fixed cost
Variable cost per unit
R
S
T
P40,000
80,000
120,000
P12
8
4
Each company contemplated a price decrease from P20 to P16 per unit in the
expectation that sales will increase from 10,000 to 15,000 units per year
The contribution margin for each company at the present sales level is:
A. R, P80,000;
S, P80,000;
T, P80,000
B. R, P160,000;
S, P120,000,
T, P80,000
C. R, P80,000;
S, P120,000;
T, P160,000
D. R, P40,000;
S, P40,000;
T, 40,000
E. None of the above
21.Refer to No. 20. The operating income for each company at the contemplated price
and sales level are:
A. R, P60,000;
S, P120,000;
T, P80,000
B. R, P60,000;
S, P60,000,
T, P80,000
C. R, P40,000;
S, P40,000;
T, P40,000
D. R, P20,000;
S, P40,000;
T, P60,000
E. None of the above
22.Refer to No. 20. The increase (decrease) in operating income for R Company resulting
from the price decrease and the sales volume increase is:
A.P(20,000) decrease
D.No increase or decrease
B.P20,000 increase
E.None of the above
C.P5,000 increase
23.From the accounting records of Sta. Barbara Company, the following data on costs for
the quarter ended September 30, 20X3 were determined:
Direct materials
Direct labor
Factory overhead
Marketing expenses
Administrative expenses
Variable costs
P 300,000
400,000
80,000
70,000
50,000
Fixed costs
P 50,000
30,000
20,000
Sales for the quarter totaled P1,200,000
The company is considering two alternative proposals that would change certain cost
items. Proposal A would increase fixed costs by P10,000 with sales and variable costs
remaining the same. Proposal B would involve acquiring modern equipment at an annual
annual increase of fixed costs of P25,000, with the expectation of saving the same
amount in each of the direct materials and direct labor costs.
If Proposal A is adopted, the company’s profit would be:
A.P110,000
D.P190,000
B.P120,000
E.None of the above
C.P175,000
24.Refer to Question No. 23. If Proposal B is adopted, the company’s profit would be:
A.P110,000
D.P190,000
B.P120,000
E.None of the above
C.P175,000
25.Scully, Inc. has been manufacturing 5,000 units of Part 20561 which is used in the
manufacture of one of its products. At this level of production, the cos per unit of
manufacturing Part 20561 is as follows:
Direct Materials
Direct Labor
Variable overhead
Fixed overhead applied
TOTAL
P 2
8
4
6
P 20
Mulder Company has offered to sell Scully 5,000 units of Part 20561 for P19 a unit. Scully
has determined that it could use the facilities presently used to manufacture Part 20561
to manufacture Product X and generate an operating income of P4,000. Scully has also
determined that two thirds of the fixed overhead applied will continue even if Part
20561 is purchased from Mulder. To determine whether to accept Mulder’s offer, the net
relevant manufacturing costs to Scully are:
A.P70,000
C.P90,000
B.P80,000
D.P95,000
26.Dipper Company needs 20,000 of a certain part to use in its production cycle. The
following information is available:
Cost to Dipper to make the part:
Direct Materials
Direct Labor
Variable overhead
Fixed overhead applied
P 4
16
18
10
P 48
Cost to buy the part from the Orion Company:
Orion Company:
P 36
If dipper buys the part from Orion instead of making it, Dipper would not use the
released facilities in another manufacturing activity. 60% of the foxed overhead applied
will continue regardless of what decision is made.
In deciding whether to make or buy the part, the total relevant costs to make the part are:
A.P560,000
C.P720,000
B.P640,000
D.P840,000
27. The Blade Company Division of Dana Company produces hardened steel blades. One
third of the Blade Division’s output is sold to the Lawn Products Division of Dana: the
remainder is sold to outside customers. The Blade Division’s estimated sales and
standard cost data for the fiscal year ending June 30, 20X3, are as follows:
Sales
Variable costs
Fixed costs
Gross Margin
Lawn Products
P15,000
(10,000)
(3,000)
P2,000
Outsiders
P40,000
(20,000)
(6,000)
P14,000
Unit sales
P10,000
P20,000
The Lawn Products Division has an opportunity to purchase 10,000 blades of identical
quality from an outside supplier at a cost of P1.25 per unit on a continuing basis. Assume
that the Blade Division cannot sell any additional products to outside customers. Should
Dana allow its Lawn Products Division to purchase the blades from the outside supplier,
and why?
A. Yes,because buying the blades would save Dana Company P500
B. No, because making the blades would save Dana Company P1,500
C. Yes, because buying the blades would save Dana Company P2,500
D. No, because making the blades would save Dana Company P2,500
28. Sta. Helena Company manufactures men’s caps. The projected income statement for
the year before any special order is as follows:
Amount
Per Unit
Sales
P400,000
P20
Cost of Goods sold
320,000
16
Gross margin
P80,000
P4
Selling expenses
30,000
3
Operating income
P50,000
P1
Fixed costs included in above projected income statement are P80,000 in cost of goods
sold and P9,000 in selling expenses.
A special order offering to buy P2,000 caps for P17 each was made to Sta. Helena. No
additional selling expenses will be incurred if the special order is accepted. Sta. Helena
has the capacity to manufacture 2,000 more caps.
As a result of the special order, the operating income would increase by:
A. P34,000
B. P24,000
C. P10,000
D. No increase or decrease
E. None of these
29. Petey Company is considering a proposal to replace existing machine used for the
manufacturing of Product A. The new machines are expected to cause increase annual
fixed costs of P120,000; however, variable costs 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, Petey had budgeted product A sales and costs for 20X3
as follows:
Sales
P2,000,000
Variable costs
Fixed costs
70% of sales
P400,000
Assuming that Petey implemented the above proposal by January 1 20X3. What would be
the increase in budgeted operating profit for Product A for 20X3?
A. P160,000
B. P280,000
C. P360,000
D. P480,000
30. Laney Appliance Company makes and sells electric fans. Each fan regularly sells for
P42. The following cost data per fan is based in a full capacity of 150,000 fans produced
each period.
Direct materials
P8
Direct labor
9
Manufacturing overhead (70% variable and 30% unavoidable fixed)
10
A special order as been received by Laney for a sale of 25,000 fans to an overseas
customer. The only selling costs that would be incurred on this order would be P4 per
fan for shipping. Laney is now selling 120,000 fans through regular channels each period.
What should Laney use as a minimum selling price per fan in negotiating a price for this
special order?
A. P28
B. P27
C. P31
D. P24
31. Zach Company produces and sells 8,000 units of Product X each year. Each unit of
Product X sells for P10 and has a contribution margin of P6. It is estimated that if Product
X is discontinued, P50,000 of the P60,000 in fixed costs charged to Product X could be
eliminated. These data indicate that if Product X is dicontinued, overall company
operating income should:
A. Increase by P2,000 per year
B. Decrease by P2,000 per year
C. Increase by P38,000 per year
D. Decrease by P38,000per year
32. The Siller Company has two divisions-East and West. The divisions have the
following revenues and expenses:
East
West
Sales
Variable costs
Traceable fixed costs
Allocated common corporate costs
Operating income (loss)
P720,000
370,000
130,000
120,000
P100,000
P359,000
240,000
80,000
50,000
P(20,000)
The management at Siller is pondering the elimination of the West division since it has
shown an operating loss for the past several years. If the West division were eliminated,
its traceable fixed costs could be avoided. The total common corporate costs would be
unaffected by this decision. Given these data, the elimination of the West Division would
result in an overall company operating income of:
A. P100,000
B. P80,000
C. P120,000
D. P50,000
33. ADD Realty manages five apartment complexes in its region. Shown below are
summary income statements for each apartment complex:
Apartment complexes
U
V
W
X
Y
Rental Income
P1,000
P1,210
P2,347
P1,878
P1,065
Expenses
800
1,300
2,600
2,400
1,300
Operating
P200
P(90)
P(253)
P(522)
P(235)
Income
Included in the expenses is P1,300 of common corporate expenses that have been
allocated to the apartment complexes based on rental income. These common corporate
expenses would have to be incurred regardless if how many apartment complexes ADD
Realty manages. The apartment complex(s) that ADD Realty should consider dropping is
(are):
A. V,W,X,Y
B. W,X,Y
C. X,Y
D. X
34. Mott Company manufactures 10,000 units of Part EM each year for use in its
production. The following total costs were reported last year:
Direct materials
Direct labor
Variable manufacturing overhead
P20,000
55,000
45,000
d. prevention costs.
40. Costs incurred as a result of poor quality found through appraisal prior to
delivery to customers are
a. external failure costs.
b. appraisal costs.
c. internal failure costs.
d. prevention costs.
41. Warranty costs would be classified as
a. prevention costs.
b. retention costs.
c. appraisal costs.
d. external failure costs.
42. Rework costs would be classified as
a. prevention costs.
b. retention costs.
c. appraisal costs.
d. internal failure costs.
43. Test acquisition costs would be classified as
a. prevention costs.
b. retention costs.
c. appraisal costs.
d. Internal failure costs.
44. Reinspection costs would be classified as
a. prevention costs
b. retention costs.
c. appraisal costs.
d. Internal failure costs.
45. Costs of meetings would be classified as
a. prevention costs.
b. retention costs.
c. appraisal costs.
d. internal failure costs.
46. Finished goods inspection costs would be classified as
a. prevention costs.
b. retention costs.
c. appraisal costs.
d. internal failure costs.
47. Cost conformance includes
a. prevention costs and appraisal costs.
b. internal failure costs and external failure costs.
c. prevention costs and internal failure costs.
d. appraisal costs and external failure costs.
CHAPTER 7
Multiple Choice
1. Which of the following represents value-added time in the manufacturing cycle?
a. Inspection time
b. Queue time
c. Move time
d. Process time
2. Throughput time consists of:
a. Process time
b. Inspection time and move time.
c. Process time, inspection time, and move time
d. Process time, inspection time, move time, and queue time
3. Manufacturing Cycle Efficiency (MCE) is computed as:
a. Throughput Time ÷ Delivery Cycle Time
b. Process Time ÷ Delivery Cycle Time
c. Value-Added Time ÷ Throughput Time
d. Value-Added Time ÷ Delivery Cycle Time
4. Lorenzo Corporation has provided the following data for one of its products:
Process time
3 days
Queue time
4 days
Inspection time
0.7 days
Move time
0.3 days
Wait time
9 days
The manufacturing cycle efficiency for this operation would be closest to:
a. 0.375
b. 0.45
c. 0.18
d. 0.33
Use the following information to answer
answer questions 5 through 8.
Rainee Manufacturing Corporation has the following information:
Moving time
8 days
Inspection time
2 days
Processing time
10 days
Storage time
30 days
5. What is the total amount of value-added time?
a. 10 days
c. 40 days
b. 30 days
d. 50 days
6. What is the total amount of nonvalue-added time?
a. 10 days
b. 30 days
c. 40 days
d. 50 days
7. What is the product’s cycle time?
a. 10 days
b. 30 days
c. 40 days
d. 50 days
8. What is the manufacturing cycle efficiency?
a. 25.0%
b. 80.0%
c. 20.0%
d. 60.0%
Use the following information to answer questions 9 and 10.
Nicole Corporation has the following information:
Moving time
10 days
Inspection time
5 days
Processing time
15 days
Storage time
20 days
9. What is the product’s cycle time?
a. 10 days
b. 15 days
c. 35 days
d. 50 days
10. What is the manufacturing cycle efficiency?
a. 30.0%
b. 20.0%
c. 50.0%
d.70.0%
CHAPTER 8
Multiple Choice
1. The critical success factors for a business today are all:
a. planning-oriented.
c. sales-oriented.
b. production-oriented.
d. customer-oriented.
2. The Theory of Constraints (TOC) focuses on improving cycle time, the rate at which
raw materials are converted to finished product. This strategic management technique is
primarily concerned with the critical success factor of:
a. energy.
c. originality.
b. quality.
d. speed.
3. The key concept in TOC is:
a. benchmarking.
c. the bottleneck
b. throughout
d. reengineering
4. Which of the following determines the desired cost for a product based upon a given
competitive price?
a. benchmarking.
c. reengineering
b. target costing.
d. life-cycle costing.
5. Target costing forces the firm to become more competitive, like:
a. reengineering.
c. activity-based costing
b. life-cycle costing.
d. benchmarking.
6. Which of the following is not one of the steps in the life cycle of a product?
a. manufacturing, inspecting, packaging and warehousing
b. research and development
c. purchasing and receiving
d. marketing, promotion and distribution
7. In comparison to the Cost Life Cycle of a product, the Sales Life Cycle of a product is:
a. much shorter
b. much longer
c. exactly parallel, except that it is expressed in sales terms.
d. different because it represents a sequence of phases relating to sales, not
production.
8. In each of the phases of a product's sales life cycle, management's focus will be:
a. parallel
c. different
b. on the next phase as well as the current one.
d. undifferentiated
9. generally, firms will price a product more competitively at which stage of the products
sales life cycle?
a. Product Introduction
c. Maturity
b. Growth
d. Decline
10. Because of the four stages of a product's sales life cycle has a different emphasis, the
cost management system will be expected to provide data that is:
a. different at each stage.
c. lesser in amount in the later stages.
b. common to all stages.
d. lesser in amount in the early stages.
11. The sequence of activities within the firm which begins with research and
development, followed by design, and manufacturing, marketing / distribution, and
customer service is the:
a. sales life cycle
c. market life cycle
b. target life cycle
d. critical life cycle
12. The sequence of phases in the product or service's life in the market - from the
introduction of the product or service to the growth in sales and finally maturity, decline,
and withdrawal from the market is the:
a. sales life cycle
c. market life cycle
b. target life cycle
d . cost life cycle
13. When a firm determines the desired cost for a product or service, given a competitive
market price, in order to earn a desired profit, the firm is exercising
a. target costing
c. variable costing
b. life cycle costing
d. absorption costing
14. Which one of the following is used in target costing to reduce product cost by
analyzing the tradeoffs between (1) different types and levels of product functionality
and (2) total product cost?
a. Benchmarking
c. productivity analysis
b. functional analysis
d. value engineering
15. Which one of the following is a common type of value engineering in which each
major function or feature of the product is examined in terms of its performance and cost?
a. benchmarking
c. productivity analysis
b. functional analysis
d. functional engineering
16. Which one of the following is a common form of value engineering in which the
designing team prepares several possible designs of the product?
a. benchmarking
c. productivity analysis
b. functional analysis
d. design analysis
17. Which one of the following is not one of the five steps in TOC analysis?
a. Identify the binding constraint(s).
b. Determine the most efficient utilization for each binding constraint.
c. Manage the flow through the binding constraint.
d. Deduct capacity from the constraint.
18. Which one of the following is true concerning TOC?
Short-Term Focus
Long-Term Focus
Cost Drivers
a.
No
No
Yes
b.
No
Yes
No
c.
Yes
No
No
d.
No
Yes
Yes
19. Which one of the following is a downstream cost?
a. research and development
c. purchasing
b. packaging
d. prototyping
20. which one of the following industries has high upstream costs?
a. retail
c. cosmetics
b. perfumes
d. computer software
21. Which of the following is not a critical success factor at the design stage?
a. improved ease-of-manufacture
b. reduced time-to-market
c. reduced expected service costs
d. enhanced quality
22. Which one of the following is not a common design method?
a. concurrent engineering.
c. templating
b. design engineering
d. prototyping
23. Sales begin to grow rapidly and product variety increases in:
a. phase three
c. phase five
b. phase two
d. phase four
24. Sales continue to increase but at a decreasing rate is:
a. phase three
c. phase five
b. phase two
d. phase four
25. Sales begin to decline, as does the number of competitors, in:
a. phase three
c. phase five
b. phase two
d. phase four
CHAPTER 9
Multiple Choice
1. A good example of a common cost which normally could not be assigned to products
on a segmented income statement except on an arbitrary basis would be:
a. product advertising outlays.
b. salary of a corporation president.
c. direct materials.
d. the product manager's salary.
2. All other things being equal, if a division's traceable fixed expenses increase:
a. the division's contribution margin ratio will decrease.
b. the division's segment margin ratio will remain the same.
c. the division's segment margin will decrease.
d. the overall company profit will remain the same.
3. Devlin Company has two divisions, C and D. The overall company contribution margin
ratio is 30%, with sales in the two divisions totaling P500,000. If variable expenses are
P300,000 in Division C, and if division C's contribution margin ratio is 25%, then sales in
Division D must be:
a. P 50,000.
c. P150,000.
b. P100,000.
d. P200,000.
4. Walsh Company has three stores: X, Y, and Z. During August, the variable expenses in
Store X were P90,000 and the contribution margin ratio was 25%. Store Y had a
contribution margin of P27,000 and a contribution margin ratio of 20%. Store Z had
variable expenses of P120,000 and a variable expense ratio of 60% of sales. For August,
Walsh Company's sales were:
a. P318,000.
c. P485,000.
b. P455,000.
d. P555,000.
5. Channing Company has two divisions, S and T. The company's overall contribution
margin ratio is 30% when sales in the two divisions total P750,000. If variable expenses
are P405,000 in Division S, and if Division S's contribution margin ratio is 25%, then
sales in Division T must be:
a. P 75,000.
c. P225,000.
b. P150,000.
d. P300,000.
Questions 6 and 7 are based on the following information.
JTC Company has two sales areas: East and West. During last year, the contribution
margin in the East area was P50,000, or 20% of sales. The segment margin in the West
area was P15,000, or 8% of sales. Traceable fixed costs are P15,000 in the East and
P10,000 in the West. During last year, the company reported total net income of P26,000.
6. The total fixed costs (traceable and common) for JTC Company for the year were:
a. P49,000.
c. P24,000.
b. P25,000
d. P50,000.
7. The variable costs for the West Area for the year were:
a. P230,000
c. P162,500.
b. P185,000.
d. P 65,000.
Questions 8 through 11 are based on the following information.
Okinawa Company has two stores: D and S. During November, Okinawa Company
reported a net income of P30,000 and sales of P450,000. The contribution margin in
Store D was P100,000, or 40% of sales. The segment margin in Store S was P30,000, or
15% of sales. Traceable fixed expenses are P60,000 in Store D, and P40,000 in Store S.
8. Sales in Store D totaled:
a. P400,000.
c. P150,000.
b. P250,000.
d. P100,000.
9. Variable expenses in Store S totaled:
a. P 70,000.
c. P200,000.
b. P110,000.
d. P130,000.
10. Okinawa Company's total fixed expenses for the year were:
a. P 40,000.
c. P140,000.
b. P100,000.
d. P170,000.
11. The segment margin ratio in Store D was:
a. 16%.
c. 40%.
b. 24%.
d. 60%.
12. Mamee Company has two divisions, 1 and 2. During July, the contribution margin in
Division 1 was P60,000. The contribution margin ratio in Division 2 was 40% and its
sales were P250,000. Division 2's segment margin was P60,000. The common fixed
expenses were P50,000 and the company net income was P20,000. The segment margin
for Division 1 was:
a. P0.
c. P50,000.
b. P10,000.
d. P60,000.
CHAPTER 10
Multiple Choice
1. Under variable costing, fixed manufacturing overhead is:
a. carried in a liability account.
b. carried in an asset account.
c. ignored.
d. immediately charged against sales as a p
period
eriod cost.
2. Which one of the following statements is true for a firm that uses variable costing?
a. The unit product cost changes because of changes in the number of units
manufactured.
b. Profit fluctuates with sales.
c. Any underapplied overhead is calculated into the product cost.
d. Product costs include variable administration costs.
3. A principal difference between variable costing and absorption costing centers on:
a. whether variable manufacturing costs should be included as product costs.
b. whether fixed manufacturing costs should be included as product costs.
c. whether fixed manufacturing costs and fixed selling and administrative costs
should be included as product costs.
d. none of these.
4. Under variable costing:
a. net income will tend to move upward and downward in response to changes in
levels of production.
b. inventory costs will always be lo
lower
wer than under absorption costing.
c. net income will tend to vary inversely with production changes.
d. net income will always be higher than under absorption costing.
5. When sales are constant, but the production level fluctuates, net income determined
by the variable costing method will:
a. fluctuate in direct proportion to changes in production.
b. remain constant.
c. fluctuate inversely with changes in production.
d. be greater than net income under absorption costing.
6. The costing method that treats all fixed costs as period costs is:
a. absorption costing.
c. variable costing.
b. job-order costing.
d. process costing.
7. Under absorption costing, fixed factory overhead costs:
a. are deferred in inventory when production exceed
exceedss sales.
b. are always treated as period costs.
C. are released from inventory when production exceeds sales.
d. none of these.
8. WB Company computes net income under both the absorption costs approach and the
variable costing approach. For a given year, the absorption costing net income was
greater than the variable costing net income. This fact suggests that:
a. variable manufacturing cots were less than fixed manufacturing costs.
b. more units were produced during the year than were sold.
c. more units were sold during the year than were produced.
d. common costs were greater than variable costs for the year.
9. Net income computed using variable costing would exceed net income computed using
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.
10. When sales are constant, but the production level fluctuates, net income determined
by the absorption costing method will:
a. tend to fluctuate in the same d
direction
irection as fluctuations in the level of production.
b. tend to remain constant.
c. tend to fluctuate inversely with fluctuations in the level of production.
d. none of these.
11. Manga, Inc. manufactured 700 units last year. The ending inventory consisted of 100
units. There was no beginning inventory. Variable manufacturing costs were P6.00 per
unit and fixed manufacturing costs were P2.00 per unit. What would be the change in the
peso amount of ending inventory if variable costing was used instead of absorption
costing?
a. P800 decrease
c. P0
b. P200 decrease.
d. P200 increase
12. Variable production costs are P12 per unit and variable selling and administrative
expenses are P3 per unit. Fixed manufacturing overhead totals P36,000 and fixed selling
and administration expenses total P40,000. Assuming a beginning inventory of zero,
production of 4,000 units and sales of 3,600 units, the peso value of the ending inventory
under variable costing would be:
a. P4,800.
c. P6,000.
b. P8,400.
d. P3,600.
13. The following data pertain to last year's operations at HP Corp.:
Units in beginning inventory
0
Units produced
20,000
Units sold
19,000
Selling price per unit
P100.00
Variable costs per unit:
Direct materials
P12.00
62. When simulating with the Monte Carlo technique, the average Simulated demand
over the long run should approximate the
a. actual demand.
b. real demand.
c. sampled demand.
d. expected demand.
63. Through the use of decision models, managers thoroughly analyze many alternatives
and decide on the best alternative for the company. Often the actual results achieved
from a particular decision are not what was expected when the decision was made. In
addition, an alternative that was not selected would have actually been the best decision
for the company. The appropriate technique to analyze the alternatives by using
expected inputs and altering .them before a decision is made is
a. expected value analysis.
b. linear programming.
c. Program Evaluation Review Technique (PERT).
d. sensitivity analysis.
CHAPTER 13
Multiple Choice
1. The relevance of a particular cost to a decision is determined by
a. riskiness of the decision.
b. number of decision variables.
c. amount of the cost.
d. potential effect on the decision.
2. In equipment-replacement decisions, which one of the following does not affect the
decision-making process?
a. Current disposal price of the old equipment.
b. Operating costs of the old equipment.
c. Original fair market value o
off the old equipment.
d. Cost of the new equipment.
3. Which one of the following statements concerning cash flow determination for capital
budgeting purposes is not correct?
a. Tax depreciation must be considered because it affects cash payments for taxes.
b. Book depreciation is relevant because it affects net in
income.
come.
c. Sunk costs are not incremental flows and should not be included.
d. Net working capital changes should be included in cash flow forecasts.
4. A depreciation tax shield is
a. an after-tax cash outflow.
b. a reduction in income taxes.
c. the cash provided by recording depreciation.
d. the expense caused by depreciation.
5. Del Corporation is evaluating a lease that takes effect on March 1. The company must
make eight equal payments, with the first payment due on March 1. The concept most
relevant to the evaluation of the lease is
A. the present value of an annuity due.
B. the present value of an ordinary annuity.
C. the future value of an annuity due.
D. the future value of an ordinary annuity.
6. Cruzer Corporation is expanding its plant, which requires an investment of P8 million
in new equipment. Cruzer's sales are expected to increase by P6 million per year as a
result of the expansion. Cash investment in current assets averages 30% of sales, and
accounts payable and other current liabilities are 10% of sales. What is the estimated
total cash investment for this expansion?
a. P6.8 million.
b. P8.6 million.
c. P9.2 million.
d. P9.8 million.
7. Of the following decisions, capital budgeting techniques would least likely be used in
evaluating the
A. acquisition of new aircraft by a cargo company.
B. design and implementation of a major advertising program.
C. trade for a star quarterback by a football team.
D. adoption of a new method of al
allocating
locating nontraceable costs to product lines.
8. The length of time required to recover the initial cash outlay of a capital project is
determined by using the
a. discontinued cash flow method.
b. payback method.
c. weighted net present value method.
d. net present value method.
9. A characteristic of the payback method (before taxes) is that it
a. incorporates the time value of money.
b. neglects total project profitability.
c. uses accrual accounting inflows in the numerator of the calculation.
d. uses the estimated expected life of the asset in the denominator of the calculation.
10. Which one of the following statements about the payback method of investment
analysis is correct? The payback method
a. does not consider the time value of money.
b. considers cash flows after the payback has been reached.
c. Uses discounted cash flows techniques
d. generally leads to the same decision as other methods for long-term projects.
11. The payback reciprocal can be used to approximate a project's
a. profitability index.
b. net present value.
c. accounting rate of return if the cash flow pattern is relatively stable.
d. internal rate of return if the cash flow pattern is relatively stable.
12. The bailout payback method
a. incorporates the time value of money.
b. equals the recovery period from normal operations.
c. eliminates the disposal value from the payback calculation.
d. measures the risk if a project is terminated.
13. When evaluating projects, breakeven time (discounted payback period) is best
described as
a. annual fixed costs + monthly contribution margin.
b. project investment + annual net cash inflows.
c. the point where cumulative cash inflows on a project equal total cash outflows.
d. the point at which discounted cumulative cash infl
inflows
ows on a project equal
discounted total cash outflows.
14. The net present value (NPV) method of investment project analysis assumes that the
project's cash flows are reinvested at the
a. computed internal rate of return.
b. risk-free interest rate.
c. discount rate used in the NPV calculation.
d. firm's accounting rate of return.
15. The proper discount rate to use in calculating with certainty, equivalent net present
value is the
a. risk-adjusted discount rate.
b. cost of capital.
c. risk-free rate.
d. cost of equity capital.
16. The rankings of mutually exclusive investments determined using the internal rate of
return method (IRR) and the net present value method (NPV) may be different when
a. the lives of the multiple projects are equal and the size of the required investments
are equal.
b. the required rate of return equal the IRR of each project.
c. the required rate of return is higher than the IRR of each project.
d. multiple projects have unequal li
lives
ves and the size of the investment for each project
is different.
17. Anya Corporation has not yet decided on its hurdle rate for use in evaluation of
capital budgeting projects. This lack of information will prohibit Anya from calculating a
project's
Accounting Rate of
Net Present Value
Internal Rate of
Return
Return
No
No
No
A.
Yes
Yes
Yes
B.
No
Yes
Yes
C.
D.
No
Yes
No
18. When determining net present value in an inflationary environment, adjustments
should be made to
a. increase the discount rate only.
b. increase the estimated cash inflows and increase the d
discount
iscount rate.
c. increase the estimated cash inflows but not the discount rate.
d. decrease the estimated cash inflows and increase the discount rate.
Questions 19 through 21 are based on the following information.
Harry, Inc. has purchased a new fleet of trucks to deliver its merchandise. The trucks
have a useful life of 8 years and cost a total of P500,000. Harry expects its net increase in
after-tax cash flow to be P150,000 in Year 1, P175,000 in Year 2, P.125,000 in Year 3, and
P100,000 in each of the remaining years.
19. Ignoring the time value of money, how long will it take Harry to recover the amount
of investment?
a. 3.5 years.
b. 4.0 years.
c. 4.2 years.
d. 5 years.
20. What is the payback reciprocal for the fleet of trucks?
a. 29%
b. 25%
c. 24%
d. 20%
21. Assume the net cash flow to be P130,000 a year. What is the payback time for the
fleet of trucks?
a. 3 years.
b. 3.15 years
c. 3.85 years.
d. 4 years.
22. Westlife Co. is considering the acquisition of a new, more efficient press. The cost of
the press is P360,000, and the press has an estimated 6-year life with zero salvage value.
Westlife uses the straight-line depreciation for both financial reporting and income tax
reporting purposes and has a 40% corporate income tax rate. In evaluating equipment
acquisitions of this type, Westlife uses a goal of a 4-year payback period. To meet
Westlife's desired payback period, the press must produce a minimum annual before-tax
operating cash savings of
a. P90,000.
b. P110,000.
c. P114,000.
d. P150,000.
23. Duchess Inc. is expanding its manufacturing plant, which requires an investment of
P4 million in new equipment and plant modifications. Duchess sales are expected to
increase by P3 million per year as a result of the expansion. Cash investment in current
assets averages 30% of sales: accounts payable and other current liabilities are 10% of
sales. What is the estimated total investment for this expansion?
a. P3.4 million.
b. P4.3 million.
c. P4.6 million.
d. P4.9 million.
24. Use the following 8% interest rate factors for this question.
Period
Future Value of P1
Future Value of
Annuity of P1
1
1.08
1.00
2
1.17
2.08
3
1.25
3.25
4
1.36
4.51
The Lady Company has P150,000 in a bank account as of December 31, 2003. If the
company plans to deposit P8,000 in the account at the end of each of the next 3 years
(20X2, 20X3, and 20X4), and all amounts in the account earn 8% per year, what will the
account balance be at December 31, 20X4? Ignore the effect of income taxes.
a. P174,000
b. P176,000
c. P192,140
d. P215,000
25. A firm's new financing will be in proportion to the market value of its current
financing, shown below:
Carrying Amount (P000 Omitted)
Long-term debt
Preference
shares
(100,000
shares)
Ordinary shares (200,000 shares)
P7,000
1,000
7,000
The firm's bonds are currently selling at 80% of par, generating a current market yield of
9%, and the corporation has a 40% tax rate. The preference share is selling at its par
value and pays a 6% dividend. The ordinary share has a current market value of P40 and
is expected to pay a P1.20 per share dividend this fiscal year. Dividend growth is
expected to be 10% per year, and flotation costs are negligible. The firm's weightedaverage cost of capital is (round calculations to tenths of a percent)
a. 13.0%
b. 8.3%
c. 9.6%
d. 9.0%
26. Queen owns a computer reselling business and is expanding her business. Queen is
presented with one proposal, Proposal A, such that the estimated investment for the
expansion project is P85,000 and it is expected to produce cash flows after taxes of
P25,000 for each of the next 6 years. An alternative proposal, Proposal B. involves an
investment of P32,000 and after-tax cash flows of P10,000 for each of the next 6 years.
The cost of capital that would make Queen indifferent between these two proposals lies
between
a. 10% and 12%.
b. 14% and 16%.
c. 16% and 18%.
d. 18% and 20%.
27. Lady Company has a payback goal of 3 years on new equipment acquisitions. A new
sorter is being evaluated that costs P450,000 and has a 5-year life. Straight-line
depreciation will be used; no salvage is anticipated. Lady is subject to a 40%% income
tax rate. To meet the company's payback goal, the sorter must generate reductions in
annual cash operating costs of
a. P 60,000.
b. P100,000.
c. P150,000.
d. P190,000.
28. Dame Co. is considering an investment in a capital project. The sole outlay will be
P800,000 at the outset of the project, and the annual net after-tax cash inflow will be
P216,309.75 for 6 years. The present value factors at Dame's 8% cost of capital are:
Year
PV Factors
1
0.926
2
0.857
3
0.794
4
0.735
5
0.681
6
0.630
What is the breakeven time (BET)?
a. 3.70 years.
b. 4.57 years.
c. 5.00 years.
d. 6.00 years.
Questions 29 through 32 are based on the following information.
In order to increase production capacity, Lord Gee Industries is considering replacing an
existing production machine with a new technologically improved machine effective
January 1. The following information is being considered by Lord Gee Industries:
❖ The new machine would be purchased for P160,000 in cash. Shipping, installation,
and testing would cost an additional P30,000.
❖ The new machine is expected to increase annual sales by 20,000 units at a sales price
of P40 per unit. Incremental operating costs include P30 per unit in variable costs
and total fixed costs of P40,000 per year.
❖ The investment in the new machine will require an immediate increase in working
capital of P35,000. This cash outflow will be recovered at the end of year 5.
❖ Lord Gee uses straight-line depreciation for financial reporting and tax reporting
purposes. The new machine has an estimated useful lifeof 5 years and zero salvage
value.
❖ Lord Gee is subject to a 40% corporate income tax rate.
Lord Gee uses the net present value method to analyze investments and will employ the
following factors and rates:
Period
Present Value of P1
Present Value of an
at 10%
Ordinary Annuity of
P1 at 10%
1
0.909
0.909
2
0.826
1.736
3
0.751
2.487
4
0.683
3.170
5
0.621
3.791
29. Lord Gee Industries' net cash outflow in a capital budgeting decision is
a. P190,000.
b. P195,000.
c. P204,525.
d. P225,000.
30. Lord Gee Industries' discounted annual depreciation tax shield for the year of
replacement is
a. P13,817.
b. P16,762.
c. P20,725.
d. P22,800.
31. The acquisition of the new production machine by Lord Gee Industries will
contribute a discounted net-of-tax contribution margin of
a. P242,624.
b. P303,280.
c. P363,936.
d. P454,920.
32. The overall discounted cash flow impact of Lord Gee Industries' working capital
investment for the new production machine would be
a. P(7,959).
b. P(10,080).
c. P(13,265).
d. P(35,000).
Questions 33 through 35 are based on the following information.
Pearl Inc. uses a 12% hurdle rate for all capital expenditures and has done the following
analysis for four projects for the upcoming year:
Project 1
Project 2
Project 3
Project 4
Initial capital
P200,000
P298,000
P248,000
P272,000
outlay
Annual net cash
inflows
Year 1
Year 2
Year 3
Year 4
Net Present value
Profitability index
Internal rate of
return
P 65,000
70,000
80,000
40,000
(3,798)
98%
11%
P 100,000
135,000
90,000
80,000
14,064
101%
13%
P 80,000
95,000
90,000
80,000
141,064
106%
145
95,000
125,000
90,000
60,000
14,662
105%
15%
33. Which project(s) should Pearl Inc. undertake during the upcoming year assuming it
has no budget restrictions?
a. All of the projects.
b. Projects 1, 2, and 3.
c. Projects 2, 3, and 4.
d. Projects 1, 3, and 4.
34. Which project(s) should Pearl Inc. undertake during the upcoming if it has only
P600,000 of funds available?
a. Projects 1 and 3.
b. Projects 2, 3, and 4.
c. Projects 2 and 3.
d. Projects 3 and 4.
35. Which project(s) should Pearl Inc. undertake during the upcoming year if it has only
P300,000 of capital funds available?
a. Projects 1.
b. Projects 2, 3, and 4.
c. Projects 3 and 4.
d. Project 3.
Questions 36 through 40 are based on the following information.
A proposed investment is not expected to have any salvage value at the end of its 5-year
life. For present value purposes, cash flows are assumed to occur at the end of each year.
The company uses a 12% after-tax target rate of return.
Year
Purchase cost and
Annual net after-tax Annual net income
book value
cash flows
0
P500,000
P0
P0
1
336,000
240,000
70,000
2
200,000
216,000
78,000
3
100,000
192,000
86,000
4
36,000
168,000
94,000
5
0
144,000
102,000
Year
1
Discount Factors for a 12% Rate of Return
Present Value of P1 at the
Present value of an annuity
end of each period
of P1 at the end of each
period
0.89
0.89
2
0.80
1.69
3
0.71
2.40
4
0.64
3.04
5
0.57
3.61
6
0.51
4.12
36. The accounting rate of return based on the average investment is
a. 84.9%.
b. 34.4%.
c. 40.8 %
d. 12%
37. The net present value is
a. P304,060.
b. P212,320.
c. P(70,000)
d. P712,320
38. The traditional payback period is
a. over 5 years.
b. 2.23 years.
c. 1.65 years
d. 2.83 years
39. The profitability index is
a. a.0.61.
b. b. 0.42.
c. c. 0.86
d. 1.425.
40. Which statement about the internal rate of return of the investment is true?
a. The IRR is exactly 12%.
b. The IRR is over 12%.
c. The IRR is under 12%.
d. No information about the IRR can be determined.
CHAPTER 14
Multiple Choice
1. A management decision may be beneficial for a given profit SBU, but not for the entire
company. From the overall company viewpoint, this decision could lead to action
referred to as:
a. Suboptimization.
b. Centralization.
c. Goal congruence.
d. Maximization.
2. A strategic investment unit is an organization unit headed by a responsible manager. It
is not known as a (an)
a. Cost SBU.
b. Profit SBU.
c. Investment SBU.
d. Uncentralized unit.
3. What term identifies an accounting system in which the operations of the business are
broken down into cost SBUS and the control function of a foreman, sales manager or
supervisor is emphasized?
a. Responsibility accounting
b. Operations research accounting
c. Control accounting
d. Budgetary accounting
4. Which of the following items of cost would be least likely to appear in a performance
report based on responsibility accounting techniques for the supervisor of an assembly
line in a large manufacturing situation?
a. Supervisor's salary
b. Materials
c. Repairs and maintenance
d. Direct labor
5. If a cost cannot be allocated to certain segments of an organization, it should be:
a. Excluded from the segmented income statement
b. Included in it.
c. Included in it but not allocated
allocated..
d. None of these.
6. A profit SBU is any submit or segment of an organization that is assigned:
a. Both revenues and expenses
b. Revenues only
c. Expenses only
d. Variable expenses only
7. Which of the following is not true about a strategic performance measurement
system?
a. It is a basis for judging management performance.
b. It is helpful in pinpointing inefficiency.
c. It consists of a series of reports.
d. It holds management equall
equally
y responsible for all costs.
8. In designing a strategic performance measurement system, one should keep in mind a
certain characteristic of each cost. This characteristic is
a. The degree of cost controllability by the manager.
b. The degree of how the cost behaves with respect to volume.
c. The accuracy of cost allocation.
d. All of these.
9. A company that has a profit can increase its return on investment by:
a. increasing sales revenue and operating expenses by the same peso amount.
b. increasing average operating assets and operating expenses by the same peso
amount.
c. increasing sales revenue and ope
operating
rating assets and sales by the same percentage.
d. decreasing average operating assets and sales by the same percentage.
10. Given the following data:
Return on investment (ROI)
Average operating assets
15%
P 120,000
Sales
60,000
Minimum required rate of return
12%
Margin
7.5%
The residual income would be:
a. P1,800.
b. P5,400.
c. P2,700.
d. P3,600.
11. An internal transfer between divisions is in the best economic interest of a company
when:
a. the variable production costs plus the opportunity cost for the selling division is
greater than the external price for the buying division.
b. there is idle capacity in the buying division.
c. there is no established market value.
d. there is no opportunity cost for the buying division.
e. the variable production costs plus the opportunity cost for the selling division is
less than the external price for the buying division.
12. Which of the following is not an appropriate use of transfer pricing?
a. Decision making
b. Product costing
c. Performance evaluation
d. Establishing cost or volume standards for production department
departmentss
13. The ideal transfer price for decision making is
a. full cost.
b. variable cost.
c. market price.
d. negotiated price.
14. Some managers prefer to use cost rather than market price in controlling transfers
between divisions. If cost is to be used, then it should be
a. variable cost.
b. full-absorption cost
c. standard cost.
d. historical cost.
15. Transfer prices based on actual costs of the selling divisions as opposed to standard
costs
a. are preferred by the buying division.
b. often decline to provide the selling division with incentives control costs.
c. often encourage the selling division to control costs.
d. often encourage the buying division to control costs.
16. In transfer pricing, if the selling division does not meet all bona fide outside prices,
then:
a. the buying division should accept the selling division's offer.
b. the company should drop the market price approach and use cost to control
transfers.
c. the buying division should be free to pu
purchase
rchase outside.
d. the transfer should be made at the lowest outside price.
17. Division A has variable manufacturing costs of P25 per unit and fixed costs of P5 per
unit. What is the opportunity cost of an internal transfer when the market price is P35?
Assume that Division A is operating at capacity.
a. P5
b. P10
c. P25
d. P30
e. P35
18. Josefina Corporation has two producing centers, A and B. Department A has a
variable cost of P12 per unit for its products, and a total fixed cost of P120,000.
Department A also has idle capacity for up to 50,000 units per month. Department B
would like to purchase 20,000 units of Department A's products per month, but is unable
to convince Department A to transfer units to B at P16. Department A has consistently
argued that the market price of P20 is nonnegotiable. What is A's opportunity cost of
transferring to B as opposed to selling to outsiders?
a. P0
b. P12
c. P18
d. P20
19. Jaycee Corporation presented the following information for its three departments for
the past month. Departments A and Bare manufacturing departments, whereas C is
distribution.
Production level of A&&&&&&&&&&&&Significantly below capacity
Sales price to C&&&&&&&&&&&&&&&.P50 per unit
A's variable cost&&&&&&&&&&&&&&&P20 per unit
Total fixed cost (A + B)&&&&&&&&&&&P120,000
C's marketing cost.&&&&&&&&&&&&&10 percent SP
C's selling price&&&&&&&&&&&&&&&Market Value
Determine the minimum transfer price from A to B.
a. P10
b. P20
c. P30
d. P50
20. With regard to information in no. 19, determine the minimum unit price that C can
sell A's product for.
a. P55
b. P40.
c. P30
d. P20+ a percentage of fixed cost
Use the information below for questions 21 through 23.
Canada, Inc. operates two divisions: a management division that owns and manages
cruise ships in the Visayas; and a repair division that operates a dry dock in Dumaguete
City. The repair division works on company ships, as well as other large-hull boats.
The repair division has an estimated variable cost of P28.50 per labor-hour. The repair
division has a two year backlog of work for outside owner ships. They charge P48.00 per
hour for labor, which is standard for this type of work. The management division
complained that it could hire its own repair workers for P30.00 per hour (including
leasing work area).
21. What is the minimum transfer price that the repair division should obtain for its
services, assuming it is operating at capacity?
a. P28.50 per hour
b. P30.00 per hour
c. P48.00 per hour
22. What is the maximum price the management division should pay?
a. P28.50
b. P30.00
c. P48.00
23. If the repair division had idle capacity, what is the minimum transfer price that the
repair division should obtain?
a. P28.50
b. P30.00
c. P48.00
24. A company has two divisions, A and B, each operated as a profit SBU. A charges B P35
per unit for each unit transferred to B. Other data follow:
A's variable cost per unit&&&&&&&&&&&&&.P30
A's fixed costs...&&&&&&&&&&&&&&&&&&.P10,000
A's annual sales to B&&&&&&&&&&&&&&&..5,000 units
A's sales to outsiders&&&&&&&&&&&&&&&..50,000 units
A is planning to raise its transfer price to P50 per unit. Division B can purchase units at
P40 each from outsiders, but doing so would idle A's facilities now committed to
producing units for B. Division A cannot increase its sales to outsiders. From the
perspective of the company as a whole, from whom should Division B acquire the units,
assuming B's market is unaffected?
a. Outside vendors.
b. Division A, but only at the variable cost per unit.
c. Division A, but only until fixed costs are covered, then should purchase from
outside vendors.
d. d Division A, in spite of the increased transfer price.
25. Cookie Company currently manufactures all component parts used in the
manufacture of various hand tools. A steel handle is used in three different tools. The
budget for these handles is 20,000 units with the following unit cost.
Direct material&&&&&&&&&&&&&&&&..P0.60
Direct labor&&&&&&&&&&&&&&&&&&..0.40
Variable overhead &&&&&&&&&&&&&&&0.10
Fixed overhead&&&&&&&&&&&&&&&&&0.20
Total unit cost&&&&&&&..&&&&&P1.30
Patrick Steel has offered to supply 20,000 units of the handle to Cookie Company for
P1.25 each, delivered. If Cookie currently has idle capacity that cannot be used, accepting
the offer will
a. decrease the handle unit cost by P0.05.
b. increase the handle unit cost by P0.15.
c. decrease the handle unit cost by P0.15.
d. decrease the handle unit cost by P0.25.
Use the information below for questions 26 through 29:
Veiss Seafood, Inc. has two divisions: Wholesale Packing, and Retail Stores. Wholesale
Packing purchases seafood from local fishermen and cleans and packages the seafood.
Retail Stores operates retail fish markets. Wholesale Packing sells to the Retail Stores
Division as well as other retail operators in the Visayas region. The Retail Stores Division
purchases its goods from many sources.
Facts regarding Wholesale Packing:
Seafood &&&&&&&&&&&&&&&&&&&&&&&&&&&&Ocean trout
Production&&&&&&&&&&&&&&&&&&&&&&&&&&&Below capacity
Sales price to outsiders&&&&&&&&&&&&&&&&&&&&..P2.00 per lb.
(cleaned)
Variable costs&&&&&&&&&&&&&&&&&&&&&&&&&&.P1.20 per lb.
Fixed costs&&&&&&&&&&&&&&&&&&&&&&&&&&&&.P15,000 per month
(includes Retail Stores Division overhead)
Facts regarding the Retail Stores Division:
Seafood....&&&&&&&&&&&&&&&&&&&&&&&&&&&&Ocean trout
Capacity...... &&&&&&&&&&&&&&&&&&&&&&&&&&..Sells out every day
Sales price (retail)&&&&&&&&&&&&&&&&&&&&&&&..P3.50 per lb.
Variable costs&&&&&&&&&&&&&&&&&&&&&&&&&&.10 percent of sales
price
Fixed costs&&&&&&&&&&&&&&&&&&&&&&&&&&&..Covered by Wholesale
Packing Division
Retail Stores Division is planning to reduce the sales price of ocean trout.
26. What is the minimum prices that can be charged by the Retail Stores Division to
cover the differential costs of Veiss Seafood?
a. P1.33
b. P1.20
c. PL.17
d. P1.10
27. What is the appropriate transfer price for this division?
a. P1.20
b. P1.33
c. P1.67
d. P2.00
28. If the transfer price were set at P2.00 per lb., what effect would this have on the
minimum price set by the Retail Stores Division?
a. No change
b. Increase to P2.22
c. Decrease to P2.00
d. Increase to P3.50
29. Assume that the Wholesale Packing Division was operating at capacity. Would this
affect the appropriate Transfer price?
a. No.
b. Yes, decrease it.
c. Not sure.
d. Yes, increase it.
30. Division X makes a part that it sells to customers outside of the company. Data
concerning this part appear below:
Selling price to outside customers
P50
Variable cost per unit
Total fixed costs
P30
P400,000
Capacity in units
25,000
Division Y of the same company would like to use the part manufactured by Division X in
one of its products. Division Y currently purchases a similar part made by an outside
company for P49 per unit and would substitute the part made by Division X. Division Y
requires 5,000 units of the part each period. Division X can sell all of the units it makes to
outside customers. According to the transfer pricing formula, what is the lower limit on
the transfer price?
a. P50.
b. P49.
c. P46.
d. P30.
31. Division A makes a part that it sells to customers outside of the company. Data
concerning this part appear below:
Selling price to outside customers&&&&&&&&&&&&&&P40
Variable cost per unit&&&&&&&&&&&&&&&&&&&&&P30
Total fixed costs &&&&&&&&&&&&&&&&&&&&&&&..P10,000
Capacity in units&&&&&&&&&&&&&&&&&&&&&&&..20,000
Division B of the same company would like to use the part manufactured by Division A in
one of its products. Division B currently purchases a similar part made by an outside
company for P38 per unit and would substitute the part made by Division A. Division B
requires 5,000 units of the part each period. Division A is already selling all of the units it
can produce to outside customers. If Division A sells to Division B rather than to outside
customers, the variable cost per unit would be P1 lower. According to the transfer
pricing formula, what is the lower limit on the transfer price?
a. P40.
b. P39.
c. P38.
d. P37.
32. The Blade Division of Dana Company produces hardened steel blades. One-third of
the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder
is sold to outside customers. The Blade Division's estimated sales and standard cost data
for the next year are as follows:
Sales To
Lawn Products
Outsiders
Unit sales
10,000
20,000
Sales
P15,000
P40,000
Variable costs
Fixed costs
P10,000
P 3,000
P20,000
P 6,000
The Lawn Products Division has an opportunity to purchase 10,000 identical quality
blades from an outside supplier at a cost of P1.25 per unit on a continuing basis. The
Blade Division cannot sell any additional products to outside customers because that
market is saturated. This decision would have no effect on the company's total fixed
costs. If the Blade Division refuses to meet the P1.25 price internally and the Lawn
Products Division starts buying from the outside supplier, the company as a whole will
be:
a. better off by P500 each period.
b. worse off by P1,500 each period.
c. better off by P2,500 each period.
d. worse off by P2,500 each period.
33. Mar Company has two decentralized divisions, X and Y. Division X has always
purchased certain units from Division Y at P75 per unit. Because Division Y plans to raise
the price to P100 per unit, Division X is seeking an outside supplier of the part for the old
price of P75 per unit.
Division Y's costs follow:
Y's variable costs per unit
P70
Y's annual fixed costs
P15,000
Y's annual production of these units for X
1,000 units
If Division X buys from an outside supplier, the facilities Division Y uses to manufacture
these units would be idle. What would be the result if the top management of Mar
Company insists that Division X purchase from Division Y at a transfer price of P100 per
unit?
a. it would reduce the company's overall profit because Division X should buy from
outside suppliers at P75 per unit if possible.
b. it would provide lower overall company net income than the old transfer price of
P75 per unit.
c. it would provide higher overall company net income than the old transfer price of
P75 per unit.
d. it would be more profitable for the company than allo
allowing
wing X to buy from outside
suppliers at P75 per unit.
34. Decentralized firms can delegate authority and yet retain control and monitor
managers' performance by structuring the organization into strategic business units.
Which one of the following organizational segments is most like an independent
business?
a. Revenue SBU
b. Profit SBU
c. Cost SBU
d. Investment SBU
35. A successful responsibility accounting reporting system is dependent upon
a. the correct allocation of controllable variable costs.
b. identification of the management level at which all costs are controllable.
c. the proper delegation of responsib
responsibility
ility and authority.
d. a reasonable separation of costs into their fixed and variable components since
fixed costs are not controllable and must be eliminated from the responsibility
report.
36. Pongky Manufacturing Corporation uses a strategic performance measurement
system in its operations. Which one of the following items is least likely to appear in a
performance report for a manager of one of Pongky's assembly lines?
a. Direct labor
b. Materials
c. Repairs and maintenance
d. Depreciation on the manufacturing facility.
37. In strategic performance measurement, a unit's performance measured by
controllable costs. Controllable costs are best described including
a. direct material and direct labor, only.
b. only those costs that the manager can influence in the cu
current
rrent time period.
c. only discretionary costs.
d. those costs about which the manager is knowledgeable and informed.
38. A segment of an organization is referred to as a service center if it has
a. responsibility for developing markets and selling the output of the organization.
b. responsibility for combining the raw materials, direct labor, and other factors of
production into a final output.
c. authority to make decisions affecting the major determinants of profit including
the power to choose its markets and sources of supply.
d. authority to provide specialized support to other units within the organization.
39. The basic purpose of a strategic performance measurement system is
a. budgeting.
b. motivation.
c. authority.
d. variance analysis.
40. The least complex segment or area of responsibility for which costs are allocated is
a(n)
a. profit center.
b. investment center.
c. contribution center.
d. cost center.
CHAPTER 15
Multiple Choice
1. A report that measures financial and nonfinancial performance measures for
various organization units in a single report is called a(n)
a. balanced Scorecard.
b. financial report scorecard.
c. imbalanced scorecard.
d. unbalanced scorecard.
2. Customer-satisfaction measures are an example of:
a. Goal-congruence approach.
b. balanced scorecard approach.
c. financial report scorecard approach.
d. investment success approach.
3. An example of a performance measure with a long-run time horizon
a. is direct materials efficiency variances.
b. is overhead spending variances.
c. is number of new patents developed.
d. include all of the above measures.
4. Should assets be defined as total assets or net assets? This question is considered
part of which step in designing an accounting-based performance measure?
a. Choose performance measures that align with top management's financial
goals.
b. Choose the time horizon of each performance measure.
c. Choose a definition for each performance measure.
d. Choose a measurement alternative for each performance measure.
5. Should assets be measured at historical cost or current cost? This question is
considered part of which step in designing an accounting based performance
measure?
a. Choose performance measures that align with top management's financial
goals.
b. Choose the time horizon of each performance measure.
c. Choose a definition for each performance measure.
d. Choose a measurement alternative for each performance measure.
6. Which of the following statements about designing an accounting-based
performance measure is false?
a. The steps may be followed in a random order.
b. The issues considered in each step are independent.
c. Management's beliefs are present during the analyses.
d. Behavioral criteria are important when evaluating the steps.
7. The return on investment is usually considered the most popular approach to
incorporating the investment base into a performance measure because
a. it blends all the ingredients of profitability into a single percentage.
b. once determined, there is no need to use it with other measures of
performance.
c. it is similar to the company's price earnings ratio in that a corporation's return
on investment appears every day in The Wall Street Journal.
d. of both (a) and (c).
8. During the past twelve months, the Seven Corporation had a net income of
P39.200. What is the return on investment if the amount of the investment is
P280,000?
a. 10%
b. 12%
c. 14%
d. 16%
9. The Delta Corporation had the following information for 20X3:
Revenue
P 900,000
Operating expenses
670,000
Total assets
1,150,000
What is the return on investment?
a. 10%
b. 20%
c. 25%
d. 78.2%
The following information applies to questions 10 through 12.
The HZL Corporation reported the following information for its Pasig Division:
Revenues
P1,000,000
Operating costs
600,000
Taxable income
200,000
Operating assets
500,000
Income is defined as operating income.
10. What is the Pasig Division's investment turnover ratio?
a. 2.00
b. 3.33
c. 2.50
d. 0.80
11. What is the Pasig Division's return on sales?
a. 0.2
b. 0.4
c. 0.5
d. 0.6
12. What is the Pasig Division's return on investment?
a. 0.2
b. 0.4
c. 0.5
d. 0.8
13. A problem with utilizing residual income is that
a. a corporation with a high investment turnover ratio always has a higher
residual income than a corporation with a smaller investment turnover ratio.
b. a corporation with a high return on sales always has a higher residual income
than a corporation with a smaller return on sales.
c. a corporation with a larger peso amount of assets is likely to have a higher
residual income than a corporation with a smaller peso amount of assets.
d. none of the above are correct.
14. A company which favors the residual income approach
a. wants managers to concentrate on maximizing an absolute amount of pesos.
b. wants managers to concentrate on maximizing a percentage return.
c. wants managers to maximize the investment turnover ratio.
d. wants managers to maximize return on sales.
The following information applies to questions 15 through 17.
The Globe Medical Supply Company has two divisions that operate
independently of one another. The financial data for the year 20X3 reported
the following results:
Uptown
Downtown
Sales
P3,000,000
P2,500,000
Operating income
750,000
550,000
Taxable income
650,000
375,000
Investment
6,000,000
5,000,000
The company's desired rate of return is 10%. Income is defined as operating
income.
15. What are the respective return-on-investment ratios for the Uptown and
Downtown Divisions?
a. 0.110 and 0.125
b. 0.108 and 0.075
c. 0.125 and 0.110
d. 0.050 and 0.150
16. What are the respective residual incomes for the Uptown and Downtown
Divisions?
a. P30,000 and P50,000
b. P150,000 and P30,000
c. P150,000 and P50,000
d. P50,000 and a negative P150,000
17. Which division has the best return on investment and which division has the best
residual income figure, respectively?
a. Uptown, Uptown
b. Downtown, Downtown
c. Uptown, Downtown
d. Downtown, Uptown
18. A negative feature of defining investment by excluding the portion of total assets
employed that are financed by short-term creditors is
a. current liabilities are sometimes difficult to define.
b. short-term debt is always more expensive to finance than long-term debt.
c. this method encourages managers to use an excessive amount of short-term
debt.
d. this method encourages managers to use an excessive amount of long-term
debt.
The following information applies to questions 19 through 21.
Federov Company has two sources of funds: long-term debt with a market and
book value of P10 million issued at an interest rate of 12%, and equity capital that
has a market value of P8 million (book value of P4 million). Federov Company has
profit centers in the following locations with the following operating incomes,
total assets, and total liabilities. The cost of equity capital is 12%, while the tax
rate is 25%.
Operating Income
Current Liabilities
Assets
Tarlac
P960,000
P 4,000,000 P 200,000
Quezon ·
P1,200,000
P 8,000,000 P 600,000
Manila
P2,040,000
P12,000,000 P1,200,000
19. What is the EVA for Tarlac?
a. P255,740
b. P327,460
c. P392,540
d. P720,000
20. What is the EVA for Quezon?
a. P135,580
b. P220,000
c. P234,000
d. P305,000
21. What is the EVA for Manila?
a. P 450,000
b. P1,530,000
c. P 414,360
d. P1,115,640
The following information applies to questions 22 through 24.
P. Jones Cleaning Products manufactures home cleaning products. The company
has two divisions, Bleach and Cleanser. Because of different accounting methods
and inflation rates, the company is considering multiple evaluation measures. The
following information is provided for 2013:
Assets
Income
Book value Current value
Book value Current
value
Bleach
P225,000
P300,000
P150,000
P155,000
Cleanser
P450,000
P250,000
P100,000
P105,000
The company is currently using a 15% required rate of return.
22. What are Bleach's and Cleanser's return on investment based on book values,
respectively?
a. 0.22; 0.67
b. 0.42; 0.52
c. 0.52; 0.42
d. 0.67; 0.22
23. What are Bleach's and Cleanser's return on investment based on current values,
respectively?
a. 0.22; 0.67
b. 0.42; 0.52
c. 0.52; 0.42
d. 0.67; 0.22
24. What are Bleach's and Cleanser's residual incomes based on book values,
respectively?
a. P116,250; P 32,500
b. P110,000; P 67,500
c. P 67,500; P110,000
d. P 37,500; P116,250
25. If a company is a multinational company with operations in several different
countries, one way to achieve comparability of historical-cost based on ROls for
facilities in different countries is
a. restate the results of operations using the cash basis method of accounting.
b. use GAAP for all reporting and calculations.
c. restate the results of all operations in pesos.
d. all of the above would achieve comparability.
26. Which of the following statements is true?
a. The economic, legal, political, social and cultural environments differ across
countries.
b. Governments in some countries may impose controls and limit selling prices
of a company's products.
c. Because of advances in telecommunications and transportation, the
availability of materials and skilled labor docs not differ significantly across
countries.
d. Both (a) and (b) are correct.
27. Tying performance measures more closely to a manager's efforts
a. encourages the use of nonfinancial measures.
b. results in a strict use of financial ratios.
c. results in the salary component of compensation dominating the total
compensation package.
d. includes both (a) and (c).
28. Team incentives encourage cooperation by
a. forcing people to work together on difficult tasks.
b. improving morale.
c. letting individuals help one another as they strive toward a common goal.
d. rewarding all teams the same amount.
29. Many manufacturing, marketing, and design problems require employees with
multiple skills; therefore, teams are used and the members have the added
encouragement of
a. individual incentives.
b. management incentives.
c. morale incentives.
d. team incentives.
30. Designers of executive compensation plans emphasize which of the following
factors?
a. Achievement of organizational goals
b. Administrative case
c. The probability that the executives affected by the plan will perceive the plan
as fair
d. All of the above are emphasized.
31. Rate of sales growth and number of customers are two examples of critical
performance indicators for which of the following critical success factors?
a. Service
b. Quality
c. Cost
d. Revenue
32. An effective system of performance measurement contains critical performance
indicators that are a reflection of the customer’s perspective, a reflection of the
customer's validation, a reflection of comprehensive information, and a provision
for feedback.
What critical performance indicator is described by the following statement?
Customer-focused performance measures help organization members manage
activities by concentrating their attention on improving what matters to the
customers.
a. Reflection of the customer's perspective
b. Reflection of the customer's validation
c. Reflection of comprehensive information
d. Provision of feedback
33. An effective system of performance measurement contains critical performance
indicators that are a reflection of the customer's perspective, a reflection of the
customer's validation, a reflection of comprehensive information, and a provision
for feedback.
What critical performance indicator is described by the following statement?
Performance measures should be external, rather than internal and should reflect
an understanding of the difference between the output and outcome of activities.
a. Reflection of the customer's perspective
b. Reflection of the customer's validation
c. Reflection of comprehensive information
d. Provision of feedback
34. When a firm discovers that sales have been declining because of poor service and
slow delivery schedules, they are receiving a(n):
a. diagnostic signal.
b. warning signal.
c. supporting signal.
d. <green light= signal.
35. An effective system of performance measurement contains critical performance
indicators that are a reflection of the customer's perspective, a reflection of the
customer's validation, a reflection of comprehensive information, and a provision
for feedback:
What critical performance indicator is described by the following statement?
An effective program of performance measurement assesses all facets of relevant
performance so that the decision maker will not trade off relevant, but
unmeasured, facets of performance for performance on measured facets.
a. Reflection of the customer's perspective
b. Reflection of the customer's validation
c. Reflection of comprehensive information
d. Provision of feedback
36. An effective system of performance measurement contains critical performance
indicators that are a reflection of the customer's perspective, a reflection of the
customer's validation, a reflection of comprehensive information, and a provision
for feedback.
What critical performance indicator is concerned with outcomes?
a. Reflection of the customer's perspective
b. Reflection of the customer's validation
c. Reflection of comprehensive information
d. Provision of feedback
37. An effective system of performance measurement contains critical performance
indicators that are a reflection of the customer's perspective, a reflection of the
customer's validation, a reflection of comprehensive information, and a provision
for feedback.
What critical performance indicator uses performance measures as warning and
diagnostic signals?
a. Reflection of the customer's perspective
b. Reflection of the customer's validation
c. Reflection of comprehensive information
d. Provision of feedback
CHAPTER 16
Multiple Choice
Questions I through 6 are based on the following data:
Rosales Automotive Company manufactures fuel-injection systems. It manufactured and
sold 60,000 units in 20x3 and 64,000 units in 20X4 at P25 per unit. In 20x3 the firm used
75,000 pounds of alloy X-45 at P7.20 per pound and spent 10,000 direct labor-hours at
an hourly wage rate of P30. In 20X4 the firm used 89,600 pounds of alloy X-45 at P6.80
per pound and spent 10,847 direct labor-hours at an hourly wage rate of P32. The total
amount for all other expenses remains the same at P450, 000 each year. Paolo Rosales,
CEO, was disappointed that while the total sales increased, the P195, 616 operating
income earned in 20X4 is only 93 percent of the amount earned in 20X3, which was
P210, 000.
1. The operational partial productivity of direct material for 20x3 and 20X4 are
20X3
20X4
a. 0.8
0.7143
b. 0.1111
0.105
c. 6.0
5.9002
d. 0.2
0.1844
2. The operational partial productivity of direct labor for 20x3 and 20X4 are
20X3
20X4
a. 0.8
0.7143
b. 0.1111
0.105
c. 6.0
5.9002
d. 0.2
0.1844
3. The financial partial productivity of the direct material for 20x3 and 20X4 are
20X3
20X4
a. 0.8
0.7143
b. 0.1111
0.105
c. 6.0
5.9002
d. 0.2
0.1844
4. The financial partial productivity of the direct labor for 20X3 and 20X4 are
20X3
20X4
a. 0.8
0.7143
b. 0.1111
0.105
c. 6.0
5.9002
d. 0.2
0.1844
5. The total productivity for COX3 as measured in both units and sales pesos are
Units
P
a. 0.071429
P1.7857
b. 0.066919
P1.6730
c. 0.004510
P0.1127
d. 0.071249
P1.7587
6. The decrease in productivity in 20X4 as measured in both units and sales pesos
are
Units
P
a. 0.071429
P1.7857
b. 0.066919
c. 0.004510
d. 0.071249
P1.6730
P0.1127
P1.7587
7. Patrick, Inc., provided the foil wing information for a production factor:
Budgeted production
10,000 units
Actual production
9,500 units
Budgeted input
9,750 gallons
Actual input
8,950 gallons
What is the operational partial productivity ratio of the production factor?
a. 0.97 unit per gallon.
b. 1.02 units per gallon.
c. 1.06 units per gallon.
d. 112 units per gallon.
Questions 8 and 9 ure used on the following data:
ETC Corporation makes small parts from steel alloy sheets. ETC's management has some
ability to substitute direct materials for direct manufacturing labor. It workers cut the
steel carefully, ETC can manufacture more parts out of a metal sheet, but this requires
more direct manufacturing labor-hours. Alternatively, ETC can use fewer direct
manufacturing labor-hours if it is willing to tolerate more waste of direct materials. ETC
provides this information for the years 20X3 and 20X4:
20X3
20X4
Output units
400,000
486,000
Direct manufacturing labor-hours used
10,000
13,500
Wages per hour
P26
P25
Direct materials used
160 tons
180 tons
Direct materials cost per ton
P3,375
P3,125
8. The financial partia productivity for direct materials for 20X4 is
a. 0.7407.
b. 0.864.
c. 1.5385.
d. 1.44.
9. The total productivity in units for 20X3 is
a. 0.864.
b. 0.7407.
c. 0.5.
d. 0.54.
Questions 10 through 12 are based on the following data:
Ching Company manufactiiles one product. Its budget and operating results for 20X3 are:
Budgeted
Actual
Units sold
90,000
100,000
Unit contribution margin
Unit selling price
P 8.00
P20.00
P10.00
P21.00
Industry volume was estimated to be 1,500,000 units at the time the budget was
prepared. Actual industry volume for the period was 2,000,000 units.
10. The market size variance is
a. P160, 000 U.
b. P 80, 000 U.
c. P240, 000 U.
d. P240, 000 F.
11. The market share variance is 12.
a. P160, 000 U.
b. P 80, 000 U.
c. P240, 000 U.
d. P240, 000 F.
12. The sales quantity variance is
a. P160, 000 U.
b. P 80, 000 F.
c. P 80, 000 U.
d. P160, 000 F.
Questions 13 through 21 are based on the following data:
Cai & Si, Ltd., manufactures two products that sell to the same market. Its budget and
operating results for 20X3 are:
Budgeted
Actual
Unit sales
Product A
30,000
35,000
Product B
60,000
65,000
Unit contribution margin
Product A
P 4.00
P3.00
Product B
P 10.00
P12.00
Unit selling price
Product A
P10.00
P12.00
Product B
P25.00
P24.00
Industry volume was estimated to be 1,500,000 units at the time the budget was
prepared. Actual industry volume for the period was 2,000,000 units.
13. The budgeted average unit contribution margin is
a. P 8.00.
b. P 4.00
c. P10.00.
d. P 7.50.
14. The sales volume contribution margin variance for each product is
a. P70,000 U.
b. P70,000 F.
c. P50,000 F.
d. P20,000 U.
15. Managing Productivity and Marketing Effectiveness The sales mix contribution
margin variance for each product is
Product A
Product B
a. P6,667 F
P16,667 F
b. P6,667 U
P16,667 U
c. P6,667 F
P16,667 U
d. P6,667 U
P16,667 U
16. The sales quantity contribution margin variance for each product is
Product A
Product B
a. P13,333 U
P66,667 U
b. P13,333 F
P66,667 U
c. P13,333 U
P66,667 F
d. P13,333 F
P66,667 F
17. The market size contribution margin variance is
a. P240,000 U.
b. P240,000 F.
c. P160,000 U.
d. P160,000 F.
18. The market share contribution margin variance is
a. P240,000 U.
b. P240,000 F.
c. P160,000 U.
d. P160,000 F.
19. The total flexible budget contribution margin variance is
a. P95,000 F.
b. P95,000 U.
c. P130,000 F.
d. P130,000 U.
20. The total variable cost price variance if the total contribution margin price
variance is P50,000 favorable is
a. P50,000 F.
b. P5,000 F.
c. P5,000 U.
d. P45,000 F.
21. The total variable cost efficiency variance if the total contribution margin price
variance is P50,000 favorable is
a. P45,000 F.
b. P95.000 F.
c. P50,000 F.
d. P45,000 U.
Questions 22 through 24 are based on the following data:
Chips Galore sells two KISC chips to small machine tool manufacturers: R66 and
R100. Pertinent data for 20X3;
Budgeted
Actual
R66 R100
R66 R100
Selling price per chip
P50 P160
P55 P155
Variable cost per chip
40
90
43
95
Contribution margin
10 P 70
P 12 P 60
Fixed cost per chip
6
30
5
25
Operating income
P 4 P 40
P 7 P 35
Sales in units
1,200
400
1,000 1,000
22. What is the R66 sales quantity variance?
a. P400 F
b. P1,000 F
c. P1,200 F
d. P3,000 F
23. What is the R100 sales mix variance?
a. P20,000 F
b. P30,000 F
c. P35,000 F
d. P40,000 F
24. What is the total sales volume variance?
a. P10,000 F
b. P12,400 F
c. P22,000 F
d. P40,000
CHAPTER 17
Multiple Choice
1. All of the following statements are true except
a. Cash bonuses, meals, and trips are examples of extrinsic rewards.
b. Pay for performance systems base rewards on achieving or exceeding some
measured performance.
c. An intrinsic reward is based on performance and is any reward that one person
provides to another person to recognize a job well done.
d. In an effective compensation system, each employee should be paid a basic
wage that reflects the market assessment for his skills and experience.
2. Which of the following statements is false?
a. Incentive compensation systems work best in organizations in which
employees have no skill or have not been empowered.
b. Profit sharing is a group incentive compensation plan focused on rewarding
short-term performance.
c. A stock option is the right to purchase a unit of the organization's stock at a
specified price for a set time limit.
d. An important element of control is motivating employees to pursue the
organization's interests as they undertake their daily jobs.
3. Which of the following is NOT a true statement?
a. An important element of control is motivating employees to pursue the
organization's interests as they undertake their daily jobs.
b. An important element of motivation is compensation.
c. Hygiene factors relate to the job context and define the environment of the
individual's work.
d. Compensation is not useful in motivating employees.
4. ____________________ is based on performance and is any reward that one person provides
to another in recognition of a job well done.
a. Valence
c. Extrinsic rewards
b. Intrinsic rewards
d. Hygiene factors
5. Which of the following is an intrinsic reward?
a. cash bonuses
c. trips
b. job satisfaction
d. meals
6. Which of the following is an extrinsic reward?
a. stock bonuses
b. recognition in the organization's newsletter
c. recognition on a plaque
d. All of the above are extrinsic rewards.
7. Which of the following is NOT an attribute of effective performance measurement
systems?
a. The person must understand the job.
b. The job's performance measures should reflect the organization's key success
factors.
c. The performance measurement system should set clear standards or targets
for performance.
d. The pay for performance systems base rewards on only net income.
8. _______________ systems base rewards on achieving or exceeding some measured
performance.
a. Pay for performance
b. Base salary agreement
c. Intrinsic reward
d. Marketing
9. Which of the following is NOT an attribute of effective performance measurement
systems?
a. The performance measurement system should be accurate.
b. The reward system should focus on individual or group rewards depending on
the nature of the job.
c. The performance measurement system should set clear standards or targets
for performance.
d. Incentive compensation are rewards systems that pay only an hourly wage for
hours worked.
10. Under the independent wage policy guideline for effective incentive compensation
systems, wage and incentive compensation policy for senior management should be
developed by:
a. senior management.
b. a board of directors' compensation committee.
c. employees.
d. middle management.
11. Which of the following is true about the independent wage policy for effective
incentive systems?
a. Senior management should have its own wage and incentive compensation.
b. The compensation committee should not operate independently of senior
management's direction.
c. A board of director's compensation committee should design the incentive
compensation plan for senior management.
d. All of the above are true statements.
12. Which of the following is true about the participation guideline for effective incentive
compensation systems?
a. Many experts believe that only the senior management should participate in an
incentive compensation plan.
b. Many experts believe that all employees should participate in an incentive
compensation plan.
c. Incentive plans do not need to be documented clearly.
d. Many experts feel that the incentive compensation should be about 200% of
the employees basic wage for senior levels of the organization.
13. Which of the following guidelines is being described by the statement below?
A board of directors' compensation committee should design the incentive compensation
plan for senior management without direct influence from the senior management.
a. fairness
b. Participation
c. basic wage level
d. independent wage policy
14. __________________ is a group incentive compensation plan focused on rewarding shortterm performance.
a. A cash bonus
c. Gain sharing
b. Profit sharing
d. A stock options
15. _________________ is (are) also called lump-sum rewards, pay for performance, and merit
pay.
a. Cash bonuses
c.Gain sharing
b. Profit sharing
d. Stock options
16. _________________ is the right to purchase a unit of the organization's stock at a specified
price.
a. A cash bonus
c. Gain sharing
b. Profit sharing
d. A stock option
17. Which of the following would not be an advantage for distributing the proceeds of a
bonus pool in a profit-sharing plan based on each person's salary?
a. easy to administer
b. likely to be considered fair
c. always reflects contributions made
d. easy to calculate
18. Which of the following would not be an advantage for distributing the proceeds of a
bonus pool in a profit-sharing plan based on an equal share?
a. easy to administer
b. may have little motivational effect
c. likely to be considered fair
d. reflects how people often divide rewards
19. Single performance measures can often
a. increase an employee's overall performance by focusing his or her attention on
only one aspect of their work.
b. create employee myopia by focusing their attention on only one aspect of their
work.
c. lead to greater job satisfaction for employees.
d. increase the level of teamwork in an organization.
20. Reward system designers consider all of the following when designing an incentive
system except
a. the level of uncertainty about goal achievement.
b. the personalities of employees.
c. the risk attitudes of employees.
d. the work ethic of employees.
21. Participation in decision-making involves
a. filling out budget requests that are passed on to a superior
b. telling a superior where you would like the budget set.
c. a joint decision-making process in which all parties agree to the levels at which
the budget should be set.
d. electing a spokesperson to tell a superior where you would like the budget set.
22. Empowering employees mean
a. they are free to strike at any time.
b. they can hold secret meetings on company time.
c. they get a greater share of the raise pool than they did before.
d. they are given the ability to suggest and make changes to their work
environment.
23. Participation in decision-making may lead to the following benefits except
a. increased job satisfaction
b. increased tensions between coworkers.
c. improved morale.
d. greater commitment to the decision.
24. Which of the following is NOT an attribute of effective performance measurement
systems?
a. The person must understand the job.
b. The reward system should focus on individual or group rewards depending on
the nature of the job.
c. The performance measurement system should be accurate.
d. The performance measurement system should set clear standards or targets
for performance.