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POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

COLLEGE OF ACCOUNTANCY
ACCO 4113 – Management Services
SECOND EVALUATION EXAMINATION
Second Semester, AY2016-2017
January 11, 2017

Instructions: Choose the BEST answer for each of the following items. For all questions requiring solutions, show
your computations in a separate worksheet provided.
Theory Questions 1-40 and Problem Solving Questions 41-70 (equal pointing system)

1. The inventory control supervisor at Prague Manufacturing Corporation reported that a large quantity of a
part purchased for a special order that was never completed remains in stock. The order was not
completed because the customer defaulted on the order. The part is not used in any of Prague’s regular
products. After consulting with Prague’s engineers, the vice president of production approved the
substitution of the purchased part for a regular part in a new product. Prague’s engineers indicated that
the purchased part could be substituted providing it was modified. The units manufactured using the
substituted part required additional direct labor hours resulting in an unfavorable direct labor efficiency
variance in the Production Department. The unfavorable direct labor efficiency variance resulting from the
substitution of the purchased part in inventory is best assigned to the
a. Sales manager.
b. Inventory supervisor.
c. Production manager.
d. Vice president of production.

2. The relevant range refers to the activity levels over which


a. Costs fluctuate.
b. Relevant costs are incurred.
c. Cost relationships hold constant.
d. Production varies.

3. The primary role of the budget director and the budgeting department is to
a. Compile the budget and manage the budget process.
b. Develop the annual profit plan by selecting the alternatives to be adopted from the suggestions
submitted by the various operating segments.
c. Settle disputes among operating executives during the development of the annual operating plan.
d. Justify the budget to the executive committee of the board of directors.

4. Which one of the following items would have to be included for a company preparing a schedule of cash
receipts and disbursements for Calendar Year 1?
a. A purchase order issued in December Year 1 for items to be delivered in February Year 2.
b. The amount of uncollectible customer accounts for Year 1.
c. The borrowing of funds from a bank on a note payable taken out in June Year 1 with an agreement
to pay the principal and interest in June Year 2.
d. Dividends declared in November Year 1 to be paid in January Year 2 to shareholders of record as of
December Year 1.

5. Warsaw Corporation has long-term debt of P1, 200, 000 and equity of P1, 000, 000. The board of directors
has set a goal of 1:1 for the company’s debt-equity ratio. Which of the following could the company
employ to achieve this goal?
a. Paying a stock dividend to the existing shareholders.
b. Issuing rights to purchase new common stock.
c. Issuing new bonds.
d. Paying a dividend on its common stock.

6. Which one of the following factors would likely cause a firm to increase its use of debt financing as
measured by the debt-to-total-capitalization ratio?
a. An increase in the degree of operating leverage.
b. Increased economic uncertainty.
c. An increase in the corporate income tax rate.
d. An increase in the price-earnings ratio.
7. Glasgow Company is a manufacturer of industrial products and employs a calendar year for financial
reporting purposes. Assume that total quick assets exceeded total current liabilities both before and after
each transaction described. Further assume that Glasgow has positive profits during the year and a credit
balance throughout the year in its retained earnings account.

The early liquidation of a long-term note with cash affects the


a. Current ratio to a greater degree than the quick ratio.
b. Quick ratio to a greater degree than the current ratio.
c. Current and quick ratio to the same degree.
d. Current ratio but not the quick ratio.

8. Assume that a company's total debt to total assets (debt-to-assets) ratio is currently 50%. It plans to
purchase fixed assets either by using borrowed funds for the purchase or by entering into an operating
lease. The company's debt-to-assets ratio as measured by the balance sheet will
a. Increase if the assets are purchased, and decrease if the assets are leased.
b. Remain unchanged whether the assets are purchased or leased.
c. Increase if the assets are purchased, and remain unchanged if the assets are leased.
d. Increase whether the assets are purchased or leased.

9. Venice France is the manager of SleepTight Inn, one of a chain of motels located throughout the country.
An example of an operating cost at SleepTight that is semi–variable is
a. The security guard’s salary.
b. Local yellow pages advertising.
c. Electricity.
d. Postage for reservation confirmations.

10. All of the following statements concerning standard costs are correct except that
a. Standard costs are usually set for one year.
b. Time and motion studies are often used to determine standard costs.
c. Standard costs are usually stated in total, while budgeted costs are usually stated on a per-unit
basis.
d. Standard costs can be used in costing inventory accounts.

11. Which one of the following statements concerning approaches for the budget development process is
correct?
a. Since department managers have the most detailed knowledge about organizational operations,
they should use this information as the building blocks of the operating budget.
b. With the information technology available, the role of budgets as an organizational
communication device has declined.
c. To prevent ambiguity, once departmental budgeted goals have been developed, they should
remain fixed even if the sales forecast upon which they are based proves to be wrong in the
middle of the fiscal year.
d. The top-down approach to budgeting will not ensure adherence to strategic organizational goals.

12. Which one of the following variances is most controllable by the production control supervisor?
a. Fixed overhead budget variance.
b. Materials price variance.
c. Variable overhead spending variance.
d. Materials usage variance.

13. Activity-based costing (ABC) is increasingly more feasible because of technological advances that allow
managers to obtain better and more timely information at relatively low cost. For this reason, a
manufacturer is considering using bar-code identification for recording information on parts used by the
manufacturer. A reason to use bar codes rather than other means of identification is to ensure that
a. The movement of parts is easily and quickly recorded.
b. The movement of all parts is recorded.
c. Vendors use the same identification methods.
d. Vendors use the same part numbers.

14. Pristina Co. is a manufacturer whose cost assignment and product costing procedures follow activity-
based costing principles. Activities have been identified and classified as being either value-adding or

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nonvalue-adding as to each product. Which of the following activities, used in Pristina's production
process, is nonvalue-adding?
a. Heat treatment activity.
b. Raw materials storage activity.
c. Drill press activity.
d. Design engineering activity.

15. A company with three products classifies its costs as belonging to five functions: design, production,
marketing, distribution, and customer services. For pricing purposes, all company costs are assigned to the
three products. The direct costs of each of the five functions are traced directly to the three products. The
indirect costs of each of the five business functions are collected into five separate cost pools and then
assigned to the three products using appropriate allocation bases. The allocation base that would most
likely be the best for allocating the indirect costs of the distribution function is
a. Number of customer phone calls.
b. Number of sales persons.
c. Peso sales volume.
d. Number of shipments.

16. Which of the following statements about activity-based costing is not true?
a. Activity-based costing is useful for allocating marketing and distribution costs.
b. Activity-based costing is more likely to result in major differences from traditional costing systems
if the firm manufactures only one product rather than multiple products.
c. In activity-based costing, cost drivers are what cause costs to be incurred.
d. Activity-based costing differs from traditional costing systems in that products are not cross-
subsidized.

17. A manufacturing firm produces multiple families of products requiring various combinations of different
types of parts. The manufacturer has identified various cost pools, one of which consists of materials
handling costs. This cost pool includes the wages and employee benefits of the workers involved in
receiving materials, inspecting materials, storing materials in inventory, and moving materials to the
workstations; depreciation and maintenance of materials handling equipment (e.g., forklift trucks); and
costs of supplies used as well as other related costs. Of the following, the most appropriate cost driver for
assigning materials handling costs to the various products most likely is
a. Number of parts used.
b. Direct labor hours.
c. Number of units produced.
d. Number of vendors involved.

18. In allocating factory service department costs to producing departments, which one of the following items
would most likely be used as an activity base?
a. Salary of service department employees.
b. Direct materials usage.
c. Units of product sold.
d. Units of electric power consumed.

19. When using the PERT method for network analysis, the critical path through the network is
a. The longest path through the network.
b. The shortest path through the network.
c. The path with the most slack.
d. The least cost path.

20. In a Program Evaluation and Review Technique (PERT) system, activities along the critical path:
a. Intersect at a corner point described by the feasible area.
b. May be delayed without affecting completion time.
c. Follow the line of best fit.
d. Have a slack of zero.

21. The management of a company computes net income using both the absorption and variable costing
approaches to product costing. This year, the net income under the variable costing approach was greater
than the net income under the absorption costing approach. This difference is most likely the result of
a. A decrease in the variable marketing expenses.
b. An increase in the finished goods inventory.
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c. Sales volume exceeding production volume.
d. Inflationary effects on overhead costs.

22. Jansen, Inc. pays bonuses to its managers based on operating income. The company uses absorption
costing, and overhead is applied on the basis of direct labor hours. To increase bonuses, Jansen's
managers may do all of the following except
a. Increase production schedules independent of customer demands.
b. Defer expenses such as maintenance to a future period.
c. Decrease production of those items requiring the most direct labor.
a. Produce those products requiring the most direct labor.

23. Helen Thomas, Amador Corporation's vice president of planning, has seen and heard it all. She has told
the corporate controller that she is "....very upset with the degree of slack that veteran managers use
when preparing their budgets."

Thomas has considered implementing some of the following activities during the budgeting process.
1. Develop the budgets by top management and issue them to lower-level operating units.
2. Study the actual revenues and expenses of previous periods in detail.
3. Have the budgets developed by operating units and accept them as submitted by a company-wide
budget committee.
4. Share the budgets with all employees as a means to reach company goals and objectives.
5. Use an iterative budgeting process that has several "rounds" of changes initiated by operating
units and/or senior managers.

Which one of these activities should Amador implement in order to best remedy Thomas's concerns, help
eliminate the problems experienced by Amador, and motivate personnel?
a. 2 and 3.
b. 1 only.
c. 2 and 4.
d. 2, 4 and 5.

24. The following sequence of steps are employed by a company to develop its annual profit plan.
 Planning guidelines are disseminated downward by top management after receiving input from all
levels of management.
 A sales budget is prepared by individual sales units reflecting the sales targets of the various
segments. This provides the basis for departmental production budgets and other related
components by the various operating units. Communication is primarily lateral with some upward
communication possible.
 A profit plan is submitted to top management for coordination and review. Top management's
recommendations and revisions are acted upon by middle management. A revised profit plan is
resubmitted for further review to top management.
 Top management grants final approval and distributes the formal plan downward to the various
operating units.
This outline of steps best describes which one of the following approaches to budget development?
a. Total justification of all activities by operating units.
b. Bottom-up approach.
c. Imposed budgeting by top management.
d. Top-down approach.

25. A municipal government requires each department supervisor to submit an annual budget request stating
the specific goals of the department and listing a series of "decision packages" relating to each goal. Each
decision package describes a set of desired activities, the benefits of these activities, and the potential
consequences of not performing the activities. Funds are allocated based on the estimated costs and
benefits of each package. This is an example of
a. Zero-base budgeting.
b. A static budget.
c. An imposed budget.
d. Incremental budgeting.

26. What would be the correct chronological order of preparation for the following budgets?
I. Cost of goods sold budget.

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II. Production budget.
III. Purchases budget.
IV. Administrative budget.
Which of the above costs is (are) relevant to the decision situation noted?
a. IV, II, III, I
b. II, III, I, IV
c. III, II, IV, I
a. I, II, III, IV

27. Which one of the following items is the last schedule to be prepared in the normal budget preparation
process?
a. Cash budget.
b. Manufacturing overhead budget.
c. Cost of goods sold budget.
d. Selling expense budget.

28. Which one of the following variances is of least significance from a behavioral control perspective?
a. Fixed overhead volume variance resulting from management's decision midway through the fiscal
year to reduce its budgeted output by 20%.
b. Favorable labor rate variance resulting from an inability to hire experienced workers to replace
retiring workers.
c. Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours for the
output attained.
d. Unfavorable material quantity variance amounting to 20% of the quantity allowed for the output
attained.

29. The variance in an absorption costing system that measures the departure from the denominator level of
activity that was used to set the fixed overhead rate is the
a. Production volume variance.
b. Spending variance.
c. Flexible budget variance.
d. Efficiency variance.

30. Breakeven quantity is defined as the volume of output at which revenues are equal to
a. Fixed costs.
b. Marginal costs.
c. Total costs.
d. Variable costs.

31. Management has prepared a graph showing the total costs of operating branch warehouses throughout
the country. The cost line crosses the vertical axis at P200, 000. The total cost of operating one branch is
P350, 000. The total cost of operating ten branches is P1, 700, 000. For purposes of preparing a flexible
budget based on the number of branch warehouses in operation, what formula should be used to
determine budgeted costs at various levels of activity?
a. Y = P200,000 + P150,000X
b. Y = P350,000 + P150,000X
c. Y = P200,000 + P170,000X
d. Y = P350,000 + P200,000X

32. For cost estimation simple regression differs from multiple regression in that simple regression uses only
a. One dependent variable, while multiple regression uses more than one dependent variable.
b. Dependent variables, while multiple regression can use both dependent and independent
variables.
c. One independent variable, while multiple regression uses more than one independent variable.
d. One dependent variable, while multiple regression uses all available data to estimate the cost
function.

33. In regression analysis, which of the following correlation coefficients represents the strongest relationship
between the independent and dependent variables?
a. – 0.02
b. 0.75
c. – 0.89
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d. 1.03

34. The correlation coefficient that indicates the weakest linear association between two variables is
a. – 0.11
b. 0.35
c. 0.12
d. – 0.73

35. The value chain is made up of both primary and support activities. Of the following, which is a primary
activity?
a. Human Resources.
b. Marketing and Sales.
c. Infrastructure.
d. Information Systems.

36. An organization is said to have a "competitive advantage" over its industry rivals when:
a. The profitability of the company is greater than that of the average profitability for all other
organizations in its industry.
b. Its distribution channels are wider than others in its industry.
c. It spends more money on advertising than its competitors do.
d. It can distribute its product more quickly than other industry competitors.

37. Consider the following manufacturing-related activities.


I. Conducting the final assembly of wooden furniture.
II. Moving completed production to the finished goods warehouse.
III. Painting newly-manufactured automobiles.
IV. Setting up a machine related to a new production run.
V. Reworking defective goods to bring them up to quality standards.

The activities that would be classified as value-added activities are


a. II, III, IV, and V only.
b. I and III only.
c. I, IV, and V only.
d. I, III, and V only.

38. A controller became aware that a competitor appeared to have access to the company's pricing
information. The internal auditor determined that the "leak of information" was occurring during the
electronic transmission of data from branch offices to the head office. Which of the following controls
would be most effective in preventing the leak of information?
a. Use of fiber optic transmission lines.
b. Encryption.
c. Asynchronous transmission.
d. Use of passwords.

39. Which of the following statements regarding security of electronic mail is correct?
a. All messages on the Internet are encrypted thereby providing enhanced security.
b. Passwords are effective in preventing casual access to another's electronic mail.
c. Supervisory-level access to the file server containing electronic messages would not give access to
the file containing electronic mail messages without first decrypting the security control log.
d. Passwords are not needed with discretionary access control.

40. Assume that a managerial accountant regularly communicates with business associates to avoid conflicts
of interest and advises relevant parties of potential conflicts. In so doing, the accountant will have applied
the ethical standard of:
a. Objectivity.
b. Confidentiality.
c. Integrity.
d. Credibility.

Items 41 to 43 are based on the following information:

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41. Vienna Inc. employs an absorption costing system for internal reporting purposes; however, the company
is considering using variable costing. Data regarding Vienna’s planned and actual operations for the
calendar year are presented below

Planned Activity Actual Activity


Beginning finished goods inventory in units 35,000 35,000
Sales in units 140,000 125,000
Production in units 140,000 130,000

The planned per-unit cost figures shown in the next schedule were based on the estimated production
and sale of 140,000 units for the year. Vienna uses a predetermined manufacturing overhead rate for
applying manufacturing overhead to its product; thus, a combined manufacturing overhead rate of P9.00
per unit was employed for absorption costing purposes. Any over- or under-applied manufacturing
overhead is closed to the cost of goods sold account at the end of the reporting year.

Planned Cost Incurred


Per Unit Total Costs
Direct materials 12.00 1,680,000 1,560,000
Direct labor 9.00 1,260,000 1,170,000
Variable manufacturing overhead 4.00 560,000 520,000
Fixed manufacturing overhead 5.00 700,000 715,000
Variable selling expenses 8.00 1,120,000 1,000,000
Fixed selling expenses 7.00 980,000 980,000
Variable administrative expenses 2.00 280,000 250,000
Fixed administrative expenses 3.00 420,000 425,000
Total (P) 50.00 7,000,000 6,620,000

The beginning finished goods inventory for absorption costing purposes was valued at the previous year’s
planned unit manufacturing cost, which was the same as the current year’s planned unit manufacturing
cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned
and actual unit selling price for the current year was P70.00 per unit.

The difference between Vienna Inc.’s operating income calculated on the absorption costing basis and
calculated on the variable costing basis was
a. P25, 000 c. P40, 000
b. P65, 000 d. P90, 000

42. Vienna Inc.’s actual manufacturing contribution margin calculated on the variable costing basis was
a. P4, 375, 000 c. P5, 625, 000
b. P4, 910, 000 d. P4, 935, 000

43. The value of Vienna Inc.’s actual ending finished goods inventory on the absorption costing basis was
a. P1, 220, 000 c. P1, 200, 000
b. P900, 000 d. P1, 350, 000

Items 44 to 46 are based on the following information:


44. Budapest Funtime, Inc. manufactures video game machines. Market saturation and technological
innovations have caused pricing pressures, which have resulted in declining profits. To stem the slide in
profits until new products can be introduced, an incentive program has been developed to reward
production managers who contribute to an increase in the number of units produced and effect cost
reductions.

The managers have responded to the pressure of improving manufacturing in several ways. The video
game machines are put together by the Assembly Group which requires parts from both the Printed
Circuit Boards (PCB) and the Reading Heads (RH) groups. To attain increased production levels, the PCB
and RH groups commenced rejecting parts that previously would have been tested and modified to meet

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manufacturing standards. Preventive maintenance on machines used in the production of these parts has
been postponed with only emergency repair work being performed to keep production lines moving.

The more aggressive Assembly Group production supervisors have pressured maintenance personnel to
attend to their machines at the expense of other groups. This has resulted in machine downtime in the
PCB and RH groups that, when coupled with demands for accelerated parts delivery by the Assembly
Group, has led to more frequent parts rejections and increased friction among departments.

Budapest Funtime operates under a standard cost system. The standard costs for video game machines
are as follows:

Standard Cost per Unit


Cost Item Quantity Cost (P) Total (P)
Direct Materials
Housing unit 1 20 20
Printed circuit boards 2 15 30
Reading heads 4 10 40
Direct labor hours
Assembly group 2 8 16
PCB group 1 9 9
RH group 1.5 10 15
Variable overhead hours 4.5 2 9
Total standard cost per unit 139

Budapest Funtime prepares monthly performance reports based on standard costs. Presented below is the
contribution report for May when production and sales both reached 2,200 units.

Budapest Funtime, Inc.


Contribution Report
For the Month of May

In Pesos Budget Actual Variance


Units 2,000 2,200 200 F
Revenue 400,000 440,000 40,000 F
Variable costs
40,400
Direct materials 180,000 220,400 U
13,460
Direct labor 80,000 93,460 U
Variable overhead 18,000 18,800 800 U
54,660
Total variable costs 278,000 332,660 U
Contribution margin 122,000 107,340 200 F

Budapest Funtime’s top management was surprised by the unfavorable contribution to overall corporate
profits despite the increased sales in May. Jack Wick, cost accountant, was assigned to identify the reasons
for the unfavorable contribution results as well as the individuals or groups responsible. After review, Wick
prepared the Usage Report presented below.

Budapest Funtime, Inc.


Contribution Report
For the Month of May

Cost Item Quantity Cost (P)


Direct Materials
Housing unit 2,200 units 44,000
Printed circuit boards 4,700 units 75,200
Reading heads 9,200 units 101,200
Direct labor

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Assembly 3,900 hours 31,200
Printed circuit boards 2,400 hours 23,760
Reading heads 3,500 hours 38,500
Variable overhead 9,900 hours 18,800
Total variable cost 332,660

Wick reported that the PCB and RH groups supported the increased production levels but experienced
abnormal machine downtime, causing the idling of workers that required the use of overtime to keep up
with the accelerated demand for parts. The idle time was charged to direct labor. Wick also reported that
the production managers of these two groups resorted to parts rejections, as opposed to testing and
modification procedures formerly applied. Wick determined that the Assembly Group met management’s
objectives by increasing production while using lower than standard hours.

What is Budapest Funtime’s variable overhead spending variance?


a. P1, 000 favorable c. P1, 800 unfavorable
b. P1, 800 favorable d. P1, 000 unfavorable

45. What is Budapest Funtime’s variable overhead efficiency variance?


a. P900 unfavorable c. P1, 800 favorable
b. P0 d. P1, 800 unfavorable

46. What is Budapest Funtime’s total direct materials quantity variance?


a. P9, 200 unfavorable c. P9,200 favorable
b. P8, 500 favorable d. P8,500 unfavorable

47. Lisbon’s sales budget for the coming year is as follows.

Item Volume in Units Sales Price (P) Sales Revenue (P)


1 200,000 50 10,000,000
2 150,000 10 1,500,000
3 300,000 30 9,000,000
Total Sales Revenue 20,500,000

Items 1 and 3 are different models of the same product. Item 2 is a complement to Item 1. Past experience
indicates that the sales volume of Item 2 relative to the sales volume of Item 1 is fairly constant. Lisbon is
considering a 10% price increase for the coming year for Item 1, which will cause sales of Item 1 to decline
by 20%, while simultaneously causing sales of Item 3 to increase by 5%. If Lisbon institutes the price
increase for Item 1, total sales revenue will decrease by
a. P850, 000 c. P550, 000
b. P1, 050, 000 d. P750, 000

Items 48 to 50 are based on the following information:


48. Mountain View Hospital (MVH) has adopted a standard cost accounting system for evaluation and control
of nursing labor. Diagnosis Related Groups (DRGs), instituted by a foreign government for health insurance
reimbursement, are used as the output measure in the standard cost system. A DRG is a patient
classification scheme in which hospitals are regarded as multiproduct firms with inpatient treatment
procedures related to the numbers and types of patient ailments treated. MVH has developed standard
nursing times for the treatment of each DRG classification, and nursing labor hours are assumed to vary
with the number of DRGs treated within a time period. The nursing unit on the fourth floor treats patients
with four DRG classifications. The unit is staffed with registered nurses (RNs), licensed practical nurses
(LPNs), and aides. The standard nursing hours and salary rates and actual numbers of patients for the
month of May were as follows.

DRG No. of Standard Hours per DRG Total Standard Hours


Classification Patients RN LPN Aide RN LPN Aide
1 250 6 4 5 1,500 1,000 1,250
2 90 26 16 10 2,340 1,440 900
3 240 10 5 4 2,400 1,200 960
4 140 12 7 10 1,680 980 1,400
7,920 4,620 4,510

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Standard Hourly Rates (P)
RN 12.00
LPN 8.00
Aide 6.00

The results of operations during May for the fourth floor nursing unit are presented below:

RN LPN Aide
Actual hours 8,150 4,300 4,400
Actual salary (P) 100,245 35,260 25,300
Actual hourly rate (P) 12.30 8.20 5.75

Because MVH does not have data to calculate variances by DRG, it uses a flexible budgeting approach to
calculate labor variances for each reporting period by labor classification (RN, LPN, Aide). Labor mix and
labor yield variances are also calculated because one labor input can be substituted for another. The
variances are used by nursing supervisors and hospital administration to evaluate the performance of
nurses.

What is the labor yield variance?


a. P1, 850 unfavorable c. P1, 908 favorable
b. P1, 908 unfavorable d. P1, 850 favorable

49. What is the labor mix variance?


a. P3, 539 unfavorable c. P1, 390 favorable
b. P1, 390 unfavorable d. P3, 539 favorable

50. What is the total direct labor variance?


a. P1, 745 unfavorable c. P1, 745 favorable
b. P2, 205 unfavorable d. P2, 205 favorable

Items 51 to 53 are based on the following information:


51. Hamburg Company manufactures a line of products distributed nationally through wholesalers. Presented
below are planned manufacturing data for the year and actual data for November of the current year. The
company applies overhead based on planned machine hours using a predetermined annual rate.

Planning Data Data for


Annual November November
P1, P
Fixed overhead 200,000 100,000 Direct labor hours (actual) 4,200
P2, P Direct labor hours (plan based
Variable overhead 400,000 220,000 on output) 4,000

Direct labor hours 48,000 4,000 Machine hours (actual) 21,600


2 Machine hours (plan based on
Machine hours 40,000 22,000 output) 21,000
Fixed overhead P101,200
Variable overhead P214,000

Hamburg’ total amount of overhead applied to production for November was


a. P315, 000 c. P316, 200.
b. P320, 000. d. P300, 000.

52. Hamburg’ amount of over- or underapplied variable manufacturing overhead for November was
a. P3, 800 underapplied. c. P4, 000 underapplied.
b. P6, 000 underapplied. d. P200 underapplied.

53. Hamburg’ fixed overhead volume variance for November was

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a. P2, 000 unfavorable. c. P5, 000 favorable.
b. P5, 000 unfavorable. d. P2, 000 favorable.

54. Oslo Bargain Press is considering publishing a new textbook. The publisher has developed the following
cost data related to a production run of 6,000, the minimum possible production run. Oslo Bargain Press
will sell the textbook for P45 per copy. How many textbooks must Oslo Bargain Press sell in order to
generate operating earnings (earnings before interest and taxes) of 20% on sales? (Round your answer up
to the nearest whole textbook.)

Development (reviews, class testing, editing) 35, 000


Typesetting 18, 500
Depreciation on Equipment 9, 320
General and Administrative 7, 500
Miscellaneous Fixed Costs 4, 400
Printing and Binding 30, 000
Sales staff commissions (2% of selling price) 5, 400
Bookstore commissions (25% of selling price) 67, 500
Author's Royalties (10% of selling price) 27, 000
Total costs at production of 6,000 copies P204, 620

a. 5,412 copies.
b. 5,207 copies.
c. 2,076 copies.
d. 6,199 copies.

55. Zagreb MetalCraft produces three inexpensive socket wrench sets that are popular with do-it-yourselfers.
Budgeted information for the upcoming year is as follows.

Model Selling Price Variable Cost Estimated Sales Volume


No. 109 P10.00 P5.50 30, 000 sets
No. 145 P15.00 P8.00 75, 000 sets
No. 153 P20.00 P14.00 45, 000 sets

Total fixed costs for the socket wrench product line is P961, 000. If the company's actual experience
remains consistent with the estimated sales volume percentage distribution, and the firm desires to
generate total operating income of P161, 200, how many Model No. 153 socket sets will Zagreb MetalCraft
have to sell?

a. 54, 300 c. 26, 000


b. 181, 000 d. 155, 000

56. Helsinki & Company produces educational software. Its unit cost structure, based upon an anticipated
production volume of 150,000 units, is as follows (denominated in US$).

Selling price $150


Variable costs 60
Contribution margin 90
Fixed costs 60
Operating income 30

Sales for the coming year are estimated at 175,000 units, which is within the relevant range of Helsinki's
cost structure. Cost management initiatives are expected to yield a 20% reduction in variable costs and a
reduction of $750, 000 in fixed costs. Helsinki's cost structure for the coming year will include a

a. Variable cost ratio of 32% and operating income of $9, 600, 000.
b. Total contribution margin of P15, 300, 000 and fixed costs of $8, 250, 000.
c. Per unit contribution margin of $72 and fixed costs of $55.
d. Contribution margin ratio of 68% and operating income of $7, 050, 000.

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57. Polar Company sells refrigeration components both in the U.S. and to a subsidiary located in France. One
of the components, Part No. 456, has a variable manufacturing cost of $30. The part can be sold
domestically or shipped to the French subsidiary for use in the manufacture of a residential subassembly.
Relevant data with regard to Part No. 456 are shown below.

Part No. 456


Domestic selling price $ 65
Shipping charges to France $ 15
Cost of acquiring Part No. 456 in France $ 75
French residential subassembly sales price $170
Other variable manufacturing costs in France for residential subassembly $ 55
Units shipped to France 150,000*

*If deemed preferable, these units could be sold in the U.S.

Polar's applicable income tax rates are 40% in the U.S. and 70% in France.

Polar will transfer Part No. 456 to the French subsidiary at either variable manufacturing cost or the
domestic market price. On the basis of this information, which one of the following strategies should be
recommended to Polar's management?

a. Sell 150,000 units in the U.S. and the French subsidiary obtains Part No. 456 in France.
b. Transfer 150,000 units at $30 and the French subsidiary pays the shipping costs.
c. Transfer 150,000 units at $65 and the French subsidiary pays the shipping costs.
d. Transfer 150,000 units at $65 and have the U.S. Company absorb the shipping costs.

58. Kiev Co.'s budgeted sales and budgeted cost of sales for the coming year are P212, 000, 000 and P132,
500, 000, respectively. Short-term interest rates are expected to average 5%. If Kiev could increase
inventory turnover from its current 8 times per year to 10 times per year, its expected cost savings in the
current year would be
a. P331, 250. c. P82, 812
b. P165, 625 d. P250, 000

59. Historically, Pine Hill Wood Products has had no significant bad debt experience with its customers. Cash
sales have accounted for 10% of total sales, and payments for credit sales have been received as follows:

40% of credit sales in the month of the sale


30% of credit sales in the first subsequent month
25% of credit sales in the second subsequent month
5% of credit sales in the third subsequent month

The forecast for both cash and credit sales is as follows:

Month Sales (P)


January 95,000
February 65,000
March 70,000
April 80,000
May 85,000

Due to deteriorating economic conditions, Pine Hill Wood Products has now decided that its cash forecast
should include a bad debt adjustment of 2% of credit sales, beginning with sales for the month of April.
The 5% collection in the fourth month should be reduced to reflect the bad debt. Because of this policy
change, the total expected cash inflow in April related to sales made in April will

a. Decrease by P1, 260. c. Decrease by P1, 530.


b. Decrease by P1, 440. d. Be unchanged.

Items 60 to 63 are based on the following information:

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60. Bratislava Retailers is developing cash and other budget information for July, August, and September. At
June 30, Bratislava had cash of P6, 600, accounts receivable of P524, 000, inventories of P371, 280, and
accounts payable of P159, 666. The budget is to be based on the following assumptions:

Sales

Each month’s sales are billed on the last day of the month. Customers are allowed a 2% discount if
payment is made within 10 days after the billing date. Receivables are booked gross. 65% of the billings
are collected within the discount period, 20% are collected by the end of the month, 10% are collected by
the end of the second month, and 5% prove uncollectible.

Purchases

60% of all purchases of materials and selling, general, and administrative expenses are paid in the month
purchased and the remainder in the following month. Each month’s ending inventory in units is equal to
120% of the next month’s units of sales. The cost of each unit of inventory is P25. Selling, general, and
administrative expenses, of which P3, 000 is depreciation, are equal to 20% of the current month’s sales.

Actual and projected sales are as follows:

Month Pesos Units


May 424,000 10,600
June 436,000 10,900
July 428,000 10,700
August 408,000 10,200
September 432,000 10,800
October 440,000 11,000

The budgeted number of units of inventory Bratislava will purchase during September is
a. 13, 200. c. 11, 040.
b. 10, 800. d. 10, 560.

61. Bratislava’s budgeted purchases for July and August are


a. P236, 000 and P242, 500 c. P247, 500 and P260, 000
b. P252, 500 and P273, 000 d. P275, 000 and P292, 500

62. Bratislava’s budgeted cash disbursements during August are


a. P272, 518 c. P262, 300
b. P345, 000 d. P297, 306

63. Bratislava’s budgeted cash collections during July are


a. P422, 338. c. P417, 675
b. P407, 332. d. P413, 000.

Items 64 to 65 are based on the following information:


64. Believing that its traditional cost system may be providing misleading information, Frankfurt
Manufacturing is considering an activity based costing (ABC) approach. It now employs a full cost system
and has been applying its manufacturing overhead on the basis of machine hours.

Frankfurt plans on using 50,000 direct labor hours and 30,000 machine hours in the coming year. The
following data show the manufacturing overhead that is budgeted.
Budgeted Budgeted
Activity Cost Driver Activity Cost
Material handling No. of parts handled 6,000,000 720,000
Setup costs No. of setups 750 315,000
Machining costs Machine hours 30,000 540,000
Quality control No. of batches 500 225,000

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Total manufacturing overhead cost: 1,800,000

Cost, sales, and production data for one of Frankfurt’s products for the coming year are as follows:

Prime costs (P):


Direct material cost per unit 4.40
Direct labor cost per unit
.05 DLH @ P15.00/DLH 0.75
Total prime cost 5.15
Sales and production data:
Expected sales 20,000 units
Batch size 5,000 units
Setups 2 per batch
Total parts per finished unit 5 parts
Machine hours required 80 MH per batch

If Frankfurt employs an activity-based costing system, the cost per unit for the product described for the
coming year would be

a. P6.08. c. P6.21.
b. P6.30. d. P6.00.

65. If Frankfurt uses the traditional full cost system, the cost per unit for this product for the coming year
would be
a. P6.11. c. P5.44.
b. P6.95. d. P5.39.

66. An organization’s sales revenue is expected to be P72, 600, a 10% increase over last year. For the same
period, total fixed costs of P22, 000 are expected to be the same as last year. If the number of units sold is
expected to increase by 1,100, the marginal revenue per unit will be
a. P4 c. P46
b. P6 d. P20

67. The following information applies to a project:


Activity Time (days) Immediate Predecessor
A 5 None
B 3 None
C 4 A
D 2 B
E 6 C, D

a. 11 days. c. 15 days.
b. 14 days. d. 20 days.

Items 68 to 70 are based on the following information:


68. Stockholm Products is a divisionalized furniture manufacturer. The divisions are autonomous segments,
with each division being responsible for its own sales, costs of operations, working capital management,
and equipment acquisition. Each division serves a different market in the furniture industry. Because the
markets and products of the divisions are so different, there have never been any transfers between
divisions.

The Commercial Division manufactures equipment and furniture that is purchased by the restaurant
industry. The division plans to introduce a new line of counter and chair units that feature a cushioned
seat for the counter chairs. John Kline, the division manager, has discussed the manufacturing of the
cushioned seat with Russ Fiegel of the Office Division. They both believe a cushioned seat currently made
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by the Office Division for use on its deluxe office stool could be modified for use on the new counter chair.
Consequently, Kline has asked Russ Fiegel for a price for 100-unit lots of the cushioned seat. The following
conversation took place about the price to be charged for the cushioned seats:

Fiegel: “John, we can make the necessary modifications to the cushioned seat easily. The direct materials
used in your seat are slightly different and should cost about 10% more than those used in our deluxe
office stool. However, the direct labor time should be the same because the seat fabrication operation
basically is the same. I would price the seat at our regular rate--full cost plus 30% markup.”

Kline: “That’s higher than I expected, Russ. I was thinking that a good price would be your variable
manufacturing costs. After all, your capacity costs will be incurred regardless of this job.”

Fiegel: “John, I’m at capacity. By making the cushion seats for you, I’ll have to cut my production of deluxe
office stools. Of course, I can increase my production of economy office stools. The direct labor time freed
by not having to fabricate the frame or assemble the deluxe stool can be shifted to the frame fabrication
and assembly of the economy office stool. Fortunately, I can switch my labor force between these two
models of stools without any loss of efficiency. As you know, overtime is not a feasible alternative in our
community. I’d like to sell it to you at variable cost, but I have excess demand for both products. I don’t
mind changing my product mix to the economy model if I get a good return on the seats I make for you.
Here are my standard costs for the two stools and a schedule of my overhead.”

Kline: “I guess I see your point, Russ, but I don’t want to price myself out of the market. Maybe we should
talk to Corporate to see if they can give us any guidance.”

Office Division
Standard Cost and Prices

Deluxe Economy
Office Office
Stool (P) Stool (P)
Direct materials
Framing 8.15 9.76
Cushioned seat
Padding 2.40 -
Vinyl 4.00 -
Molded seat(purchased) - 6.00
Direct labor
Frame fabrication (.5 x P7.50 per DLH) 3.75 (.5 x P7.50 per DLH) 3.75
Cushion fabrication (.5 x P7.50 per DLH) 3.75 -
Assembly* (.5 x P7.50 per DLH) 3.75 (.3 x P7.50 per DLH) 2.25
Overhead (1.5 DLH x P12.80 per DLH) 19.20 (.8 x P12.80 per DLH) 10.24
Total standard cost 45.00 32.00
Selling price (30% markup) 58.50 41.60

*Attaching seats to frames and attaching rubber feat.

Office Division
Overhead Budget

Overhead Item Nature Amount (P)


Supplies Variable -- at current market prices 420,000
Indirect labor Variable 375,000
Supervision Nonvariable 250,000
Power Use varies with activity, rates are fixed 180,000
Heat and Light Nonvariable -- light is fixed regardless of production
while heat/air conditioning varies with fuel charges 140,000
Property taxes and Nonvariable -- any change in amount/rates is
insurance taxes independent of production 200,000

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Depreciation Fixed peso total 1,700,000
Employee benefits 20% of supervision, direct and indirect labor 575,000
Total overhead (P) 3,840,000
Capacity in DLH 300,000
Overhead rate per DLH (P) 12.80

How many economy office stools can be produced with the labor hours currently used to make 100 deluxe
stools?
a. 125 c. 80
b. 100 d. 150

69. What is Stockholm’s fixed manufacturing overhead rate?


a. P11.25 per hour c. P5.17 per hour
b. P7.80 per hour d. P5.00 per hour

70. What is Stockholm’s variable overhead rate?


a. P11.25 per hour c. P5.17 per hour
b. P7.80 per hour d. P5.00 per hour

“I’m not telling you it is going to be easy — I’m telling you it’s going to be worth it” – Art Williams

**End of Examination**
Good Luck and God Bless You – GMSanchez 
#RoadtoPICCMay2017 #CPA2017

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