LABORDO, JOVELYN C. d.

commission on the sale of a product

Prelim Exam
7. Period costs
Multiple Choice. a. are expensed in the same period in which they
are incurred.
1. Which of the following defines variable cost b. are always variable costs.
behavior? c. remain unchanged over a given period of
Total cost reaction Cost per unit time.
to increase in reaction d. are associated with the periodic inventory
activity to increase in method.
activity
a remains constant remains constant 8. Period costs include
. distribution outside sales
b remains constant increases costs processing commissions
. costs
c increases increases a yes no yes
. .
d increases remains constant b no yes yes
. .
c no no no
2. The cost estimation method that gives the most .
mathematically precise cost prediction equation is d yes yes yes
a. the high-low method. .
b. the scatter-diagram method.
c. the contribution margin method. 9. Which of the following would need to be
d. regression analysis allocated to a cost object?
a. direct material c. direct production costs
3. Which of the following would generally be b. direct labor d. indirect
considered a fixed factory overhead cost? production costs
Straight-line Factory Units-of-
production 10. Conversion cost does not include
Depreciation insurance depreciation a. direct labor. c. factory depreciation
a no no no b. direct material. d. supervisors' salaries
.
b yes no yes
. 11. The distinction between direct and indirect
c yes yes no costs depends on whether a cost
. a. is controllable or non-controllable.
d no yes no b. is variable or fixed.
. c. can be conveniently and physically traced to a
cost object under consideration.
4. A(n) ____ cost increases or decreases in d. will increase with changes in levels of
intervals as activity changes. activity.
a. historical cost c. step cost
b. fixed cost d. budgeted cost 12. Which of the following costs would be
considered overhead in the production of
5. When the number of units manufactured chocolate chip cookies?
increases, the most significant change in unit cost a. flour b. chocolate chips c. sugar d. oven
will be reflected as a(n) electricity
a. increase in the fixed element.
b. decrease in the variable element. 13. Plastic used to manufacture dolls is a
c. increase in the mixed element. prime product direct fixed cost
d. decrease in the fixed element. cost cost cost
a no yes yes yes
6. Which of the following is not a product cost .
component? b yes no yes no
a. rent on a factory building .
b. indirect production labor wages c yes yes no
c. janitorial supplies used in a factory . yes
 d yes yes yes no 20. In a multiple-product firm, the product that
. has the highest contribution margin per unit will
a. generate more profit for each P1 of sales than
14. CVP analysis relies on the assumptions that the other products.
costs are either strictly fixed or strictly variable. b. have the highest contribution margin ratio.
Consistent with these assumptions, as volume c. generate the most profit for each unit sold.
decreases total d. have the lowest variable costs per unit.
a. fixed costs decrease.
b. variable costs remain constant. 21. On a break-even chart, the break-even point is
c. costs decrease. located at the point where the total
d. costs remain constant. a. revenue line crosses the total fixed cost line.
b. revenue line crosses the total contribution
15. CVP analysis is based on concepts from margin line.
a. standard costing c. job order costing c. fixed cost line intersects the total variable cost
b. variable costing d. process costing line.
d. revenue line crosses the total cost line.
16.Cost-volume-profit analysis is a technique
available to management to understand better the 22. The most useful information derived from a
interrelationships of several factors that affect a cost-volume-profit chart is the
firm's profit. As with many such techniques, the a. amount of sales revenue needed to cover
accountant oversimplifies the real world by enterprise variable costs.
making assumptions. Which of the following is b. amount of sales revenue needed to cover
not a major assumption underlying CVP analysis? enterprise fixed costs.
a. All costs incurred by a firm can be separated c. relationship among revenues, variable costs,
into their fixed and variable components. and fixed costs at various levels of activity.
b. The product selling price per unit is constant d. volume or output level at which the enterprise
at all volume levels. breaks even.
c. Operating efficiency and employee
productivity are constant at all volume levels. 23. The margin of safety would be negative if a
d. For multi-product situations, the sales mix can company('s)
vary at all volume levels. a. was presently operating at a volume that is
below the break-even point.
17. Which of the following will decrease the b. present fixed costs were less than its
break-even point? contribution margin.
Decrease in Increase in Increase in c. variable costs exceeded its fixed costs.
fixed cost direct selling price d. degree of operating leverage is greater than
labor cost 100.
a yes yes yes
. 24. Management is considering replacing an
b yes no yes existing sales commission compensation plan with
. a fixed salary plan. If the change is adopted, the
c yes no no company's
. a. break-even point must increase.
d no yes no b. margin of safety must decrease.
. c. operating leverage must increase.
d. profit must increase.
18. At the break-even point, fixed costs are always
a. less than the contribution margin. 25. As projected net income increases the
b. equal to the contribution margin. a. degree of operating leverage declines.
c. more than the contribution margin. b. margin of safety stays constant.
d. more than the variable cost. c. break-even point goes down.
d. contribution margin ratio goes up.
19. Break-even analysis assumes over the relevant
range that 26.A managerial preference for a very low degree
a. total variable costs are linear. of operating leverage might indicate that
b. fixed costs per unit are constant. a. an increase in sales volume is expected.
c. total variable costs are nonlinear. b. a decrease in sales volume is expected.
d. total revenue is nonlinear. c. the firm is very unprofitable.
d. the firm has very high fixed costs.
 following production and average cost data for
27. Company A has a lower variable cost per unit two levels of monthly production volume. The
and higher total fixed costs than Company B. The company produces a single product.
selling prices of their products are the same. Sales Production volume 7,000 units 8,000 units
fluctuate considerably for both companies. Direct materials P87.40/unit P87.40 /unit
Therefore, Direct labor P20.20/ unit P20.20 / unit
a. Company A has a lower break-even point Manufacturing P101.50/
than Company B. overhead unit P90.80 /unit
b. Company A earns more profit than The best estimate of the total cost to
Company B. manufacture 7,300 units is closest to:
c. Company A is more risky than Company B. a. P1,487,375 c. P1,500,750
d. Company A has a lower contribution b. P1,448,320 d. P1,526,430
margin percentage than Company B
28. Target costing is 33– 36 Below is an income statement for Calmer
a. a substitute for CVP analysis. Co.:
b. used by companies that cannot classify their Sales P400,000 
costs by behavior. Variable costs (125,000)
c. inappropriate if a company has already Contribution margin P275,000 
established a target profit. Fixed costs (200,000)
d. used in decisions to offer a new product or Profit before taxes P 75,000 
enter a new market. 33. What is Palmer’s degree of operating
leverage?
29. The following data have been collected for a. 3.67 b. 5.33 c. 1.45 d. 2.67
four different cost items.
Cost at 100 34. Based on the cost and revenue structure on
Cost Item units Cost at 140 unitsthe income statement, what was Palmer’s break-
W P8,000 P10,560 even point in pesos?
X P5,000 P5,000 a. P200,000 b. P325,000 c. P300,000 d.
Y P6,500 P9,100 P290,909
Z P6,700 P8,580
Which of the following classifications of these
cost items by cost behavior is correct? 35. What was Palmer’s margin of safety?
Cost W Cost Cost Y Cost Z P200,000 P75,000 P100,000 P109,091
X
a. variabl fixed mixed variable 36. Assuming that the fixed costs are expected to
e remain at P200,000 for the coming year and the
b. mixed fixed variable mixed sales price per unit and variable costs per unit are
c. variabl fixed variable variable also expected to remain constant, how much profit
e before taxes will be produced if the company
d. mixed fixed mixed mixed anticipates sales for the coming year rising to 130
percent of the current year’s level?
30.Which of the following methods of analyzing a. P97,500 b. P195,000 c. P157,500
mixed costs can be used to estimate an equation d. A prediction cannot be made from the
for the mixed cost? information given.
High-
Low Least- Squares 37. The following information relates to financial
a. Yes Yes projections of Ford Company:
b. Yes No Projected sales 75,000 units
c. No Yes Projected variable costs P3.00 per unit
d. No No Projected fixed costs P60,000 per
year
31. A multiple regression equation has: Projected unit sales price P8.00
a. more than one dependent variable. 38. How many units would Ford Company need
b. more than one independent variable. to sell to earn a profit before taxes of P15,000?
c. more than one amount for total fixed a. 9,375 b. 12,000 c. 15,000 d. 37,500
cost.
d. both A and B above. 39. Andrew is interested in entering the catfish
farming business. He estimates if he enters this
32. Monaco Corporation has provided the business, his fixed costs would be P50,000 per
year and his variable costs would equal 30 percent
of sales. If each catfish sells for P2, how many 44. Campbell Manufacturing incurs annual fixed
catfish would Andrew need to sell to generate a costs of P250,000 in producing and selling a
profit that is equal to 10 percent of sales? a. single product. Estimated unit sales are 125,000.
40,000 b. 41,667 c. 35,000 An after-tax income of P75,000 is desired by
d. No level of sales can generate a 10 percent net management. The company projects its income
return on sales. tax rate at 40 percent. What is the maximum
amount that Campbell can expend for variable
costs per unit and still meet its profit objective if
the sales price per unit is estimated at P6?
40. The following information pertains to a. P3.37 b. P3.59 c. P3.00 d. P3.70
Mercury Company’s cost-volume-profit
relationships:
Break-even point in units sold 1,000
Variable costs per unit P500
Total fixed costs P150,000
How much will be contributed to profit before
taxes by the 1,001st unit sold?
a. P650 b. P500 c. P150 d. P0

45. Sunshine Company manufactures a single

41. Information concerning Clarkson product. In the prior year, the company had sales
Corporation's Product A follows: of P90,000, variable costs of P50,000, and fixed
Sales P300,000 costs of P30,000. Sunshine expects its cost
Variable costs 240,000 structure and sales price per unit to remain the
Fixed costs 40,000 same in the current year, however total sales are
Assuming that Clarkson increased sales of expected to increase by 20 percent. If the current
Product A by 20 %, what should the profit from year projections are realized, net income should
Product A be? exceed the prior year’s net income by:
a. P20,000 b. P24,000 c. P32,000 d. a. 100 % b. 80 % c. 20 % d. 50 %
P80,000

42. Ideal Company produces and sells a single

product. Information on its costs follow:
Variable costs:
SG&A P2 per unit 46. Smith Company reported the following results
Production P4 per unit from sales of 5,000 units of Product A for June:
Fixed costs: Sales44 P200,000 
SG&A P12,000 per year Variable costs24 103200 (120,000)
Production P15,000 per year Fixed costs  (60,000)
Assume Ideal Company produced and sold 5,000 Operating income P 20,000 
units. At this level of activity, it produced a profit Assume that Smith increases the selling price
of P18,000. What was Ideal Company's sales price of Product A by 10 percent in July. How many
per unit? a. P15.00 b. P11.40 c. P9.60 d. units of Product A would have to be sold in July
P10.00 to generate an operating income of P20,000?
a. 4,000 b. 4,300 c. 4,545 d. 5,000
43. Simmons Corporation's Product A follows:
Sales P400,000
Variable costs 300,000 47 - 48 Buhay Company manufactures and sells
Fixed costs 50,000 Batik handbags in assorted prints. Data of the
Assuming that Simmons increased sales of previous year were as follows :
Product A by 25 percent, what should the profit Selling price P 8.00 Variable cost P 2.00/piece
from Product A be? a. P 50,000 b. P 62,500 c. P Net income P 5,850 Breakeven 25,000 pieces
75,000 d. P170,000 For the coming year, the company estimates
the selling price will be P 9.50 per piece, variable
costs to manufacture will increase by 25 % and
fixed cost will increase by 10 % . Income tax of
35 % will not change
47. What is the selling price per piece that would
give the same contribution margin rate as previous
year ? a. P 10.00 b. P 8.00 c. P 9.50 d. P 10.50

48. If the sales for the coming year are expected to

exceed last year by 1,800 pieces. What is the
expected sales volume for the coming year ?
a. 28,300 b. 27,225 c. 26,500 d. none of these

49 A manufacturer produces a product that sells

for P 10 per unit . Variable costs per unit are P
6 and total fixed costs are 12,000 . at this selling
price , the company earns a profit equal to 10% of
total dollar sales . By reducing its selling price to
P 9.00 per unit , the manufacturer can increase its
unit sales volume by 25% . Assume that there are
no taxes and that total fixed costs and variable
costs per unit remain unchanged. If the selling
price is reduced t P 9.00 per unit, the profit will
be
a. P 3,000 b. P 4,000 c. P 5,000 d. P 6,000

50. Jones Co. sells widgets . The company breaks

even at an annual sales volume of 75,000 units.
Actual annual sales volume was 100,000, and the
company reported a profit of P 200,000 The
annual fixed costs for Jones Company are
a. P800,000 c.P75,000
b.P600,000 d. none of these

a. P550,000 c. P650,000
b. P465,000 d. None of these