FAR EASTERN UNIVERSITY

INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE

DEPARTMENT OF ACCOUNTANCY

CST ACT&MGT

Name: ________________________________ Date: ___________ Raw Score: ______ Grade: ______

Predetermined overhead rate; flexible budgets; variable and absorption costing

Part I True/False (1 pt each)

Instruction: Write True if the statement is correct, and False otherwise.

F 1. Actual manufacturing overhead costs should be charged to the Work in Process Inventory account as they are
incurred.
T 2. Total manufacturing costs for a period consists of the costs of direct materials used, the cost of direct labor
incurred, and the manufacturing overhead applied during the period.
F 3. Manufacturing overhead is the only product cost that can be assigned to jobs as soon as the costs are incurred.
F 4. At the end of the year, underapplied overhead is usually credited to Cost of Goods Sold.
T 5. The predetermined overhead rate is based on the relationship between estimated annual overhead costs and
expected annual operating activity expressed in terms of a common activity base.
T 6. The process of assigning overhead cost to jobs is known as overhead application.
F 7. A debit balance in the Manufacturing Overhead account at the end of the year means that manufacturing overhead
is overapplied.
F 8. Under variable costing, all variable costs are treated as product costs.
F 9. The unit product cost under absorption costing does not include fixed manufacturing overhead cost.
T 10. When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead
costs deferred in inventory under absorption costing should be added to variable costing net operating income to
arrive at the absorption costing net operating income.
T 11. When production is less than sales for the period, absorption costing net operating income will generally be less
than variable costing net operating income.
F 12. Absorption costing is more compatible with cost-volume-profit analysis than is variable costing.
T 13. A flexible budget can be used to determine what costs should have been at a given level of activity.
F 14. In order for a cost to be variable it must vary with either units produced or units sold.
T 15. A spending variance is the difference between how much a cost should have been, given the actual level of
activity, and the actual amount of the cost for the period.

Instruction: Encircle the letter of correct answer.

16. In computing its predetermined overhead rate, Marple Company inadvertently left its indirect labor costs out of the
computation. This oversight will cause:
A. Manufacturing Overhead to be overapplied.
B. the Cost of Goods Manufactured to be understated.

C. the debits to the Manufacturing Overhead account to be understated.

D. the ending balance in Work in Process to be overstated.

17. The advertising costs that Pepsi incurred to air its commercials during the Super Bowl can best be described as a:
A. variable cost.
B. fixed cost.

C. product cost.
D. prime cost.

18. Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this level of activity, variable
costs are 50% of total unit costs. If 10,500 units are manufactured next month and cost behavior patterns remain unchanged the:
A. total variable cost will remain unchanged.
B. fixed costs will increase in total.
C. variable cost per unit will increase.
D. total cost per unit will decrease.

19. In describing the cost formula equation Y = a + bX, which of the following statements is correct?
A. "X" is the dependent variable.
B. "a" is the fixed component.

C. In the high-low method, "b" equals change in activity divided by change in costs.
D. As "X" increases "Y" decreases.

20. The term "relevant range" means the range of activity over which:
A. relevant costs are incurred.
B. costs may fluctuate.
C. production may vary.
D. the assumptions about fixed and variable cost behavior are reasonably valid.

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INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE
DEPARTMENT OF ACCOUNTANCY

21. Would the following costs be classified as product or period costs under variable costing at a retail clothing store?

A. Option A
B. Option B
C. Option C
D. Option D

22. Under variable costing, costs that are treated as period costs include:
A. only fixed manufacturing costs.
B. both variable and fixed manufacturing costs.
C. all fixed costs.

D. only fixed selling and administrative costs.

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 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE
DEPARTMENT OF ACCOUNTANCY

23. Routsong Company had the following sales and production data for the past four years:

Selling price per unit, variable cost per unit, and total fixed cost are the same in each year. Which of the following statements is
not correct?
A. Under variable costing, net operating income for Year 1 and Year 2 would be the same.
B. Because of the changes in production levels, under variable costing the unit product cost will change each year.

C. The total net operating income for all four years combined would be the same under variable and absorption costing.
D. Under absorption costing, net operating income in Year 4 would be less than the net operating income in Year 2.

24. Which of the following are considered to be product costs under variable costing?

I. Variable manufacturing overhead.

II. Fixed manufacturing overhead.
III. Selling and administrative expenses.

A. I.

B. I and II.
C. I and III.
D. I, II, and III.

25. Selling and administrative expenses are considered to be:

A. a product cost under variable costing.
B. a product cost under absorption costing.
C. part of fixed manufacturing overhead under variable costing.
D. a period cost under variable costing.

26. If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will:
A. be equal to the net operating income under variable costing.
B. be greater than net operating income under variable costing.

C. be equal to the net operating income under variable costing plus total fixed manufacturing costs.
D. be equal to the net operating income under variable costing less total fixed manufacturing costs.

27. Which terms will make the following statement true? When manufacturing overhead is overapplied, the Manufacturing
Overhead account has a __________ balance and applied manufacturing overhead is greater than __________ manufacturing
overhead.
A. debit, actual
B. credit, actual

C. debit, estimated
D. credit, estimated

28. Which of the following is the correct formula to compute the predetermined overhead rate?
A. Estimated total units in the allocation base divided by estimated total manufacturing overhead costs.
B. Estimated total manufacturing overhead costs divided by estimated total units in the allocation base.

C. Actual total manufacturing overhead costs divided by estimated total units in the allocation base.
D. Estimated total manufacturing overhead costs divided by actual total units in the allocation base.

29. Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated
manufacturer of specialty valves?
A. machine-hours
B. power consumption
C. direct labor-hours

D. machine setups

30. The overhead allocation method that allocates service department costs without consideration of services rendered to other
service departments is the
A. step method.
B. direct method.

C. reciprocal method.
D. none of the above.

Part II Problems (2 pts each)

Instructions: Supply your answer in the problems. Write your supporting computation in the worksheet. No computation, no credit.
Round-off final answer to two decimal places (as applicable)

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 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE
DEPARTMENT OF ACCOUNTANCY

1. Bato Corporation has provided the following production and total cost data for two levels of monthly production volume. The
company produces a single product.

The best estimate of the total variable manufacturing cost per unit is:

2. Allan Trillanes Co. has provided the following production and total cost data for two levels of monthly production volume. The
company produces a single product.

The best estimate of the total monthly fixed manufacturing cost is:

3. A soft drink bottler incurred the following plant utility costs: 1,800 units bottled with utility costs of $5,750, and 1,500 units
bottled with utility costs of $5,200. What is the variable cost per unit bottled (Use the High-low method. Round to the nearest
cent.)

4. The following data pertains to activity and utility costs for two recent years:

Using the high-low method, the cost formula for utilities is:

5. Du30 Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels
of monthly sales volume. The company sells the product for $151.60 per unit.

The best estimate of the total monthly fixed cost is:

6. Using information in Du30 Corporation, the best estimate of the total variable cost per unit is:

7. Using information in Du30 Corporation, the best estimate of the total contribution margin whe n 6,300 units are sold is:

8. The following production and average cost data for two levels of monthly production volume have been supplied by a De5
Corporation that produces a single product:

The best estimate of the total monthly fixed manufacturing cost is:

9. Using information in De5 Corporation, the best estimate of the total variable manufacturing cost per unit is:

10. Using information in De5 Corporation, the best estimate of the total cost to manufacture 1,200 units is:

11. The Liberal Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The predetermined
overhead rate is based on labor cost in Dept. A and machine-hours in Dept. B. At the beginning of the year, the company made
the following estimates:

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 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE
DEPARTMENT OF ACCOUNTANCY

What predetermined overhead rates would be used in Dept A and Dept B, respectively?

12. Jose Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. At the
beginning of the most recently completed year, the company estimated the machine-hours for the upcoming year at 22,000
machine-hours. The estimated variable manufacturing overhead was $8.65 per machine-hour and the estimated total fixed
manufacturing overhead was $609,400. The predetermined overhead rate for the recently completed year was closest to:

13. Maria Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs.

The cost records for September will show under (over) applied manufacturing overhead by how much?

14. Lenny Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs.
The company estimated manufacturing overhead at $510,000 for the year and direct labor-hours at 100,000 hours. Actual
manufacturing overhead costs incurred during the year totaled $540,000. Actual direct labor-hours were 105,000. What was the
overapplied or underapplied overhead for the year?

15. P-Noy Company applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year,
the company based its predetermined overhead rate on total estimated overhead of $77,250 and 2,500 estimated direct labor-
hours. Actual manufacturing overhead for the year amounted to $79,000 and actual direct labor-hours were 2,400.

The predetermined overhead rate for the year was closest to:

16. Using information in P-Noy Company, the applied manufacturing overhead for the year was closest to:

17. Using information in P-Noy Company, the overhead for the year will be under (over) applied by how much?

18. Tamaraw Corporation, which applies manufacturing overhead on the basis of machine-hours, has provided the following data
for its most recent year of operations.

The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the year for the purpose of
computing the company's predetermined overhead rate for the year.

The predetermined overhead rate is closest to:

19. Using information in Tamaraw Corporation, the applied manufacturing overhead for the year is closest to:

20. Using information in Tamaraw Corporation, the overhead for the year will be under (over) applied by how much?

21. Joy Company produces a single product. Last year, the company's variable production costs totaled $8,000 and its fixed
manufacturing overhead costs totaled $4,800. The company produced 4,000 units during the year and sold 3,600 units. Assuming
no units in the beginning inventory, by how much will be the difference of ending inventory between absorption and variable
costing?

22. Last year, Fear Corporation's variable costing net operating income was $97,000. Fixed manufacturing overhead costs
released from inventory under absorption costing amounted to $14,000. What was the absorption costing net operating income
last year?

23. Forgetter Company produces a single product. During the most recent year, the company had a net operating income of
$90,000 using absorption costing and $84,000 using variable costing. The fixed overhead application rate was $6 per unit. There
were no beginning inventories. If 22,000 units were produced last year, then sales for last year were:

24. The Asia Pacific Company manufactures a single product. The following data relate to the year just completed:

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 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE
DEPARTMENT OF ACCOUNTANCY

During the last year, 5,000 units were produced and 4,800 units were sold. There were no beginning inventories.

Under variable costing, the unit product cost would be:

25. Using information in Asia Pacific Company, the amount of finished goods inventory at the end of the year under variable
costing would be different under absorption costing by how much?

26. Using information in Asia Pacific Company, the cost of goods sold for the year would be:

27. Rolex Corporation produces a single product. During July, Rolex produced 10,000 units. Costs incurred during the month
were as follows:

Under absorption costing, any unsold units would be carried in the inventory account at a unit product cost of:

28. Integrity Catering uses two measures of activity, jobs and meals, in the cost formulas in its flexible budgets. The cost formula
for catering supplies is $430 per month plus $80 per job plus $14 per meal. A typical job involves serving a number of meals to
guests at a corporate function or at a host's home. The company expected its activity in January to be 20 jobs and 190 meals, but
the actual activity was 21 jobs and 194 meals. The actual cost for catering supplies in January was $4,850. The catering supplies
in the planning budget for January would be closest to:

29. Manila Air uses two measures of activity, flights and passengers, in the cost formulas in its flexible budgets. The cost formula
for plane operating costs is $44,420 per month plus $2,008 per flight plus $1 per passenger. The company expected its activity in
May to be 80 flights and 281 passengers, but the actual activity was 81 flights and 277 passengers. The actual cost for plane
operating costs in May was $199,650. The spending variance for plane operating costs in May would be closest to: (indicate if
Favorable or Unfavorable)

30. Philippines Finest Co. cost formula for its vehicle operating cost is $1,900 per month plus $430 per snow-day. For the month
of December, the company planned for activity of 16 snow-days, but the actual level of activity was 21 snow-days. The actual
vehicle operating cost for the month was $11,470. The vehicle operating cost in the planning budget for December would be
closest to:

*** END ***

There are no secrets to success. It is the result of preparation, hard work, and learning from failure. Colin Powell

Fall seven times, stand up eight. Japanese Proverbs

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 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE
DEPARTMENT OF ACCOUNTANCY

Press on nothing can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not;
unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Perseverance and determination alone are omnipotent.
- Calvin Coolidge

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