Multiple Choice Questions

Multiple Choice Questions
1. Which of the following statements is false?

a. Financial statement analysis involves little judgment on analysts when industry
comparisons are available.
b. Valid comparative financial analysis depends on the availability data for appropriately
defined industries.
c. Different accounting procedures may affect ratio comparison between individual
companies and industry averages.
d. The statement of cash flows summarizes à firm's operating investing and financing
activities for a specific period and explains the change in cash from one period to the
next.
a. Financial ratios serve as yardsticks to evaluate a firm's performance.
b. A firm with a high current ratio may have trouble paying its bills when they become
due.
c. A quick ratio of 2.0 times indicates that a firm's current assets are twice as much
as its current liabilities.
d. A firm's average collection period is influenced by its credit and collection policies.
a. The first step in financial analysis is computing financial ratios.
b. A decrease in accounts receivable is a source of cash.
c. The quick ratio is a more rigorous test of short-term solvency than the current ration
d. The statement of cash flows summarizes a firm's operating, investing and financing
activities for a specific period and explains the change in cash from one period to the
next.
4. Which of the following statements is true?
a. A debt-equity ratio greater than 1.0 indicates that a firm finances more of its assets
through owners than creditors.
b. The times-interest-earned ratio is a broader measure of a firm's coverage capabilities
than the fixed-charge coverage ratio.
c. Creditors view a firm as more risky when the fixed-charge coverage ratio increases
d. Financial leverage is the extent to which a firm uses debt financing.
a. Creditors tend to favor a firm with high financial leverage.
b. A firm's return on equity exceeds its return on investment under conditions of
favorable leverage.
c. Common-size statements are used to evaluate trends and to make industry
comparisons.
d. A common-size balance sheet states each asset, liability, and shareholders' equity
account as a percentage of total assets.
6. Which of the following statement is false?
a. A net profit margin of 10 percent indicates that a firm generates 10 centavos in
net income for every peso of total assets.
b. Time-series analysis measures a firm's financial ratios over time.
c. Some ratios can be computed in several ways.
d. Liquidity ratios measure a firm's ability to meet short-term obligations.
7. Liquidity ratios are computed using information from the
a. balance sheet
b. income statement
c. statement of changes in financial position
d. both a and B.
a. Financial leverage concerns only owner
b. Financial leverage provides owners with the opportunity to increase their rate of
return
c. High financial leverage may increase the cost of obtaining additional debt financing
d. Financial leverage affects the riskiness of a firm
9. Which type of ratio measures the earning power of a firm?
a. Liquidity
b. Asset management
c. Debt management
d. Profitability
10. Which of the following are used in comparative financial analysis as standards?
a. Historical standards
b. Company goals
c. Industry averages
d. All of the above
11. All of the following statements about management's discussion and analysis that
accompany financial statements are true, except:
a. it is restricted to a discussion and analysis of the historical data presented in the
financial statements.
b. the SEC requires it of public corporations.
c. it is useful because top management is in the best position to know how well the
company is performing.
d. it helps investors and creditors interpret the financial statements.
12. Creditors and investors use financial statement analysis to:
a. help determine the cause of a company's financial problems.
b. predict the amount of expected returns, as well as the risks associated with those
returns.
c. help determine how to solve a company's financial problems.
d. both a and b are correct.
13. Creditors are most concerned with assessing:
a. short-term liquidity
b. long-term solvency
c. ability to generate income on a continuing basis
d. both a and b are correct
14. The tools and techniques used to analyze financial statements are divided into broad
categories including all of the following except
a. ratio analysis
b. vertical analysis
c. horizontal analysis
d. profitability analysis
15. Horizontal analysis involves the study of:
a. the changes in individual financial statement amounts as a percentage of some related
total.
b. the peso amount of the change in various financial statement amounts from year to
year.
c. the change in key financial statement ratios over a certain time frame or horizon.
d. percentage changes in the balances shown in comparative financial statements.
16. The percentage change in any individual item shown on comparative financial statements
is calculated by dividing the peso amount of the change from the base period to the current
period by:
a. the amount shown for the current period
b. the average of the amounts shown for the base and the current periods
c. the base period amount
d. 100
17. A company reported P10,000 of income for 2004, P12,000 for year 2005, and P13,000 for
2006. The percentage change in net income from 2005 to 2006 was:
a. 10.0%
b. 8.3%
c. 7.7%
d. 8.0%
18. Given the following data for total sales:
2004 P50,000
2005 55,000
2006 56,000
2007 53,000
A table showing trend percentages for 2004 - 2007, respectively, using 2004 as the base year
would show:
a. 100%, 110%, 102%, and 95%
b. 100%, 10%, 2%, and (5%)
c. 100%, 110%, 112%, and 106%
d. 94%, 1.04%, 1.06%, and 100%
19. Vertical analysis looks at:
a. percentage changes in the balances shown in comparative financial statements.
b. individual financial statement items expressed as a percentage of a base (which
represents 100%).
c. the peso amount of the change in various financial statement amounts from year to
year.
d. the change in key financial statement ratios over a specified period of time.
20. When an income statement is subjected to vertical analysis, the base (representing the
100% figure) is generally:
a. net income after taxes
b. B. gross profit
c. net sales
d. net income before taxes
21. If vertical analysis, using net sales as the base, showed a 67% figure for cost of goods
sold in the prior year, and a 70% figure for the current yea this would mean that:
a. the peso amount of cost of goods sold has increased.
b. cost of goods sold as a percentage of net sales has increased.
c. gross profit has declined.
d. both a and b are correct.
22. If a balance sheet is subjected to vertical analysis which shows that total liabilities (using
total liabilities plus shareholders' equity as the base) have increased from 50% to 63%, this
would mean that:
a. liabilities have increased as a percentage of shareholders' equity.
b. the peso amount of liabilities has increased
c. shareholders' equity has decreased
d. the current ratio has decreased
23. If assets shown or a balance sheet are subjected to vertical analysis (using total assets as
the base), a decrease in the figure for current assets from 40% to 34% would mean that:
a. the peso amount of non-current assets has increased.
b. the current ratio has decreased.
c. the peso amount of total current assets has decreased.
d. total non-current assets have increased as a percentage of total current assets.
24. Of the items listed below, the one that would be most helpful comparison of different-
sized companies is:
a. comparison of their working capital balances
b. preparation of common-size financial statements
c. horizontal analysis
d. to look at the amount of income earned by each company
25. A company that generates a great deal of ―free cash" each year generally considered to
be:
a. financially weak because it does not have enough investment opportunities available
to put all its cash to work.
b. financially strong because it generates more than enough cash to satisfy
reinvestment opportunities.
c. one that raises most of its cash from stock sales that do not require the payment of
interest.
d. using its cash unwisely
26. All of the following ratios measure the profitability of a company except:
a. rate of return on total assets
b. earnings per ordinary share
c. price/earnings ratio
d. rate of return on net sales
27. All of the following ratios directly relate to the analysis of a given share as an investment
except:
a. debt ratio
b. P/E ratio
c. dividend yield
d. book value per share of ordinary share
28. Company A has total current liabilities equal to P500,000, and working capital of
P20,000. Company B has the same amount of working capital, but it has current liabilities of
P30,000. The company with the better working capital position is:
A. they both have exactly the same working capital position
B. Company A
C. Company B
D. cannot determined with the information given
29. The ratio(s) that help in the analysis of working capital are:
A. debt ratio
B. current ratio
C. quick ratio
D. both b and c are correct.
30. Which of the following statements about inventory is most appropriate?

A. high inventory turnover ratio indicates the company is having trouble selling its
inventory
B. a low inventory turnover ratio generally means the company is not
keeping enough inventory on hand
C. companies generally strive to have the highest possible inventory turnover ratio.
D. the most profitable inventory turnover ratio may not necessarily be the highest
31. If ending inventory balance was overstated on the financial statements, and the beginning
inventory balance was understated, but all other items were properly reported the calculated
inventory turnover ratio
A. would be too high
B. would be too low
C. would be unaffected by these errors
D. cannot be determined with the information given.
32. A high accounts receivable turnover would most likely indicate that
A. Accounts receivable balances have been overstated
B. The company is unsuccessful in its effort to collect cash from customers
C. Policies from extending credit to customers are too high
D. Net credit sales for the year have been understated
33. If accounts receivable turnover is being computed for a retail store that does a great deal
of business in the Summer and Winter months, but very little business in the Fall and Spring,
the denominator in the equation would probably be calculated as:
A. (total of 12 month-end net accounts receivable balances) / 12
B. (beginning plus ending net accounts receivable) / 12
C. (sales for the first month plus last month of year) /2
D. (total of sales for each month) / 12
Situational
Use the following information to answer question 34 to 45
The following data represent selected information from the comparative income statement
and balance sheet for Little Mermaid Company for the years ended December 31, 2006 and
2007:
Selected Data
2007 2006
Net sales (all on credit) P 370 000 P 333.000
Cost of goods sold 160,000 150,000
Gross profit 210,000 183,000
Income from operations 95,000 87,000 Interest
expense 8,000 8,000
Net income 70,000 57,000
Cash 10,000 14,000
Accounts receivable, net 30,000 25,000
Inventory 43,000 40.000
Prepaid expenses 5,000 7,000
Total current assets 88,000 86,000
Total current liabilities 70,000 60,000
Total noncurrent liabilities 40,000 45,000
Ordinary share capital, no-par* 60,000 60,000
Retained earnings 30,000 25,000
• Note: 10,000 ordinary shares have been issued and outstanding since the
company was establisheD. They had a market value of P90 per share at 12/31/06, and they
were selling for P91 50 per share at 12/31/07
34. The current ratio for Little Mermaid Company at 12/31/07 is:
A. 0.80 C. 1.02
B. 1.26 D. 0.57
35. The acid-test ratio for Little Mermaid Company at 12/31/06 is:
A. 0.23 C. 0.65
B. 1.43 D. 1.32
36. The inventory turnover for Little Mermaid Company for the year ended 12/31/07 is:
A. 8.92 C. 3.72
B. 5.06 D. 3.86
37. Little Mermaid's accounts receivable turnover for the year ended 12/31/07 is:
A. 5.82 C. 13.45
B. 0.07 D. 12.78
38. Little Mermaid's days' sales in receivables for the year ended 12/31/07 is:
A. 12.33 C. 82.19
B. 26.77 D. 75. 34
39. Little Mermaid's debt ratio at 12/31/07 is:

A. 0.55 C. 0.36
B. 1.82 D. 2.80
40. Little Mermaid's times-interest-earned ratio for the year ended 12/31/07
A. 11.875 C. 8.75
B. 26.25 D. 46.25
41. For the year ended 12/31/06, Little Mermaid's rate of return on net sales is:
A. 0.17 C. 0.26
B. 0.55 D. cannot be determined with the information given
42. Little Mermaid's rate of return or total assets for the year ended 12/31/07 is
A. 0.515 C. 0.475
B. 0.36 D. 0.40
43. Little Mermaid's rate of return on ordinary shareholders' equity for the
year ended 12/31/07 is:
A. 1.17 C. 2.55
B. 0.80 D. cannot be determined with information
given
44. Little Mermaid's earnings per share for the year ended 12/31/07 is
A. P21.00 C. P 7.00
B. P9.50 D. P 37.00
45. Little Mermaid’s price/earnings ratio at 12/31/07 is

A. 2.47 C. 9.63
B. 4.36 D. 13.07
46. A company's current ratio is 2.2 to 1 and quick (acid test) ratio is Loto 1 at the beginning
of the year. At the end of the year, the company has a current ratio of 2.5 to 1 and a quick
ratio of 0.8 to 1. Which of the following could help explain the divergence in the raties from
the beginning to the end of the year?
A. An increase in inventory levels during the current year
B. An increase in credit sales in relationship to cash sales
C. An increase in the use of trade payables during the current year
D. An increase in the collection rate of accounts receivable.
47. Which of the following will cause a decrease in a company's accounts

receivable turnover ratio?
A. Tighten credit standards
B. Enforce credit terms more aggressively
C. Ease enforcement of credit terms
D. Factor all accounts receivable
48. If, just prior to a period of rising prices, a company changed its inventory measurement
method from LIFO to FIFO, the effect in the next period would be to
A. increase both the current ratio and inventory turnover
B. decrease both the current ratio and inventory turnover
C. increase the current ratio and decrease inventory turnover
D. decrease the current ratio and increase inventory turnover.
49. A firm that has substantial leased assets that need not be capitalized world tend
A. overstate its debt ratio
B. overstate its earnings per share
C. overstate its return on assets
D. overstate its debt to tangible net worth
50. A measure of profitability and not short-term liquidity is the
A. accounts receivable turnover ratio
B. sales to working capital ratio
C. total asset turnover ratio
D. acid- test ratio
51. Return on investment (ROI) is a tore often used to express income earned on capital
invested in a business unit. A company's ROI would be increased if
A. sales increased by the same peso amount as expense and total assets increased
B. sales remained the same and expenses were reduced by the same peso amount
that total assets increased
C. sales decreased by the same peso amount that expenses increased
D. sales and expenses increased by the same percentage that total assets increased
(CMA adapted)
52. When a balance sheet amount is related to an income statement amount in

computing a ratio
A. the balance sheet amount should be converted to an average for the year
B. the income statement amount should be converted to an average for the year
C. both amounts should be converted to market value
D. comparisons with industry ratios are not meaningful.
(PhilCPA adapted)
53. Ratios are used for many purposes in financial statement analysis. In
order to determine the return on investment for a company, the numerator of the fraction used
should be
A. net income
B. income before nonrecurring items
C. income before nonrecurring items and before income taxes
D. Income before nonrecurring items plus interest expense net of income tax
54. The ratio that measures a firm's ability to generate earnings is

A. times interest earned
B. sales to working capital
C. days’ sales in receivables
D. operating asset turnover
Situational
The following data apply to items 55 through 57:
Listed below are selected ratios for Romeo Company and Juliet Limited, both large firms in
manufacturing pressure valves. Also listed are the industry average: for the same ratios. All
of the ratios are for the same year.
________Ratio________ Romeo Juliet Industry
Company Limited Average
Current Ratio 3.0 2.1 1.8
Quick (acid test) ratio 1.6 1.0 1.0
Accounts Receivable turnover 5.0 6.3 6.0
Inventory turnover 4.1 6.3 5.3
Total liabilities to net worth 2.1 3.0 2.0
Sales to net worth 15.0 20.0 13.5
Sales to total assets 2.8 7.3 5.5
Net income to sales 2.4% 1.1% 1.6%
Net income to net worth 8.6% 16.5% 9.9%
Net income to net assets 6.6% 8.2% 7.8%
Times interest earned 4.3 2.6 4.0
55. Based on the information presented, the ratios that should be used to determine which
company has a stronger liquid position are
A. current ratio and inventory turnover
B. current ratio and quick ratio
C. quick ratio and times interest earned
D. total liabilities to net worth and current ratio
56. The ratios that can be used to determine which company is more efficiently using
leverage to its advantage are
1. times interest earned and sales to net worth
2. net income to sales and sales to total assets
3. net income to net worth and net income to total assets
4. net income to sales and total liabilities to net worth.
57. The operating cycle represents the average time it takes to invest cash in inventory and
eventually collect the cash from sales. If both Romeo Company and Juliet Limited make all
sales on open account, which of the following items is most accurate?
A. Romeo's operating eyele is about 12 days longer than Juliet's
B. Juliet's operating eyele is about the same as the industry average
C. Romeo's and Juliet's operating cycles are about equal in length
D. Both Romeo and Juliet have operating cycles that are longer than the industry average
58. Af December 31, 2006, the Back Company had 350,000 ordinary shares
outstanding. On September 1, 2007, an additional 150,000 ordinary shares were issueD. In
addition, Back had P10,000,000 of 8 percent convertible bonds outstanding at December 31,
2006 which are convertible into 200,000 ordinary shares. The bonds were considered
potential ordinary shares at the time of their issuance and no bonds were converted into
ordinary shares in 2005. The net income for the year ended December 31, 2007, was
P3,000,000. Assuming the income tax rate was 50 percent, what should be the diluted
earnings per share for the year ended December 31, 2007?
A. P 4.33 C. P 5.67
B. P 5.00 D. P 7.50
(AICPA adapted)
Situational
Use the following data to answer items 59 and 60:
The Brown Company was organized on January 1, 2006, at which time it issued 10,000
shares of P10 par ordinary shares. On July 1, 2006, Brown declared and issued a 10 percent
ordinary share dividenD. On October 1, 2006, an additional 2,000 ordinary shares were
issued at par. The net income for the year ended December 31, 2006, was P12,650.
As a result of the events described, Brown Company had 13,000 ordinary shares outstanding
as of January 1, 2007. On that date options were granted to certain employees which entitled
them to buy 1,000 ordinary shares at P16 per share. The average price of the ordinary share
during 2007 was P20 per share. The price of the ordinary share on December 31, 2007 was
P25 per share. Net income for the year ended December 31, 2007, was P29,172. No ordinary
shares were issued during 2007.
59. Brown Company's basic earnings per share for the year ended December 31, 2007, is
A. P 2.24 C. P 2.14
B. P 2.08 D. P2.18
60. Diluted earnings per share for Brown Company for the year ended December 31, 2007, is
A. P2.21 C. 2.14
B. P2.08 D. 2.18
61. December 31, 2006 the balance sheet of Belle Co disclosed total of P8000000, current
liabilities of P1.500.000 anxi long-term debt of P2,400,00. Ordinary shares outstanding
amounted to 500,000 shares. The retained earnings account indicated a deficit balance of
P2.000.000. Belle's book value par ordinary share as of December 31, 2006 is
A. P16.00 C. 12.20
B. P 6.20 D. 8.20
(PhilCPA adapted)
Situational
The following data apply to items 62 and 63
Newell Corporation's long term capital structure consists of the following at the end of the
current fiscal year on November 30, 2006
● P10,000,000 of 8% convertible bonds
● 100,000 shares of P5 par value ordinary share
● 40,000 shares of P100 par value, 6% cumulative preference share
All of these securities have been outstanding for the entire 2006 fiscal year. The bonds are
potential ordinary shares and each P1,000 bond is convertible into 10 ordinary shares.
Dividends on the preference shares are current as of November 30, 2006. Newell Corporation
is subject to an effective income tax rate of 40 percent. Newell's reported net income is
P1,840,000 for the year ended November 30, 2006.
62. The basic earnings per ordinary share that would be reported on Nowell
Corporation's income statement for the year ended November 30, 2006, is
A. P 18.40 C. 12.00
B. P16.00 D. 11.60
63. The diluted earnings per ordinary share that would be reported on Newell
Corporation's income statement for the year ended November 30, 2006, is
A. P 12.00 C. P 10.40
B. P 11.60 D. P9.60
64. A financial analyst made up the following schedule for Health Care Products:
2006 2005 2004 2001
Net sales 134% 116% 107% 100%
Net income 123% 111% 110% 100%
This analytical technique is termed:

A. Percentage change analysis C. Component analysis
B. Trend analysis D. Revenue and expense analysis
65. A high quality of earnings is indicated by:

A. earnings derived largely from newly introduced products
B. declaration of both cash dividends and share dividends
C. use of FIFO method of inventory during sustained inflation
D. A history of increasing earnings and conservative accounting methods
66. Dividend yield on ordinary shares owned by an investor is computed by:

A. dividing annual dividend per share by current market price per
B. dividing annual dividend per share by the investor's average cost per share
C. dividing annual dividend per share by the lower of investor's cost or current market
price per share
D. dividing annual dividend per share by the price-earnings ratio.
67. Nell, InC., earns a rate of return on ordinary shareholders' equity of 16%. a. Which of the
following will cause the rate of return to increase?
A. Issuing 12% bonds and investing the proceeds to earn 14%
B. Increasing the size of the cash dividend paid on ordinary shares
C. An increase in the company's price-earnings ratio
D. An increase in the market price of the company's shares
68. Extensive use of leverage is usually associated with

A. A low equity ratio C. a low debt ratio
B. A high current ratio D. high quality of earning
69. The times interest earned ratio is computed by dividing:

A. Operating income before interest and income taxes by annual interest expense
B. net income by annual interest expense
C. carrying value of bonds by cash interest payments
D. earnings per share by the prime rate of interest.
70. The yield of investors in bonds:

A. is the effective interest rate that can be earned by buying bonds at
their current market price and holding them to maturity
B. is measured by the debt ratio
C. is measured by the number of times interest requirements are earned
D. increases as market prices of bonds increase.
71. From the viewpoint of short-term creditors, which of the follwring

relationships would be the least meaningful?
A. Short-term notes payable as a percentage of accounts payable
B. The amount of working capital
C. The accounts receivable turnover
D. Quick assets as a percentage of current liabilities
72. At the end of Year 10, Brave Corporation has a current ratio of 2 to l. Which of the
following transactions will decrease the current ratio?
A. Issuance of long-term bonds at a premium
B. Sale of merchandise on open account at a price above cost
C. Sale of plant assets for less than book value
D. Declaration of a cash dividend on ordinary share
73. If the accounts receivable turnover is five times, then the average number of days to
collect accounts receivable is approximately:
A. 50 days C. 73 days
B. 65 days D. 91 days
74. In evaluating a company's ability to repay a 60-day loan, a creditor would probably be
most interested in which of the following ratios?
A. The debt ratio C. The quick ratio
B. The price-earnings ratio D. The number of times interest earned
75. Which of the following events is most likely to increase the accounts receivable turnover?
A. Sales decrease
B. Accounts receivable are collected more quickly
C. Sales increase
D. Accounts receivable are collected less quickly
76. Earnings per share and dividends per share are of particular interest to:
A. preference shareholders C. short-term creditors
B. ordinary shareholders D. long-term creditors
77. Which of the following combinations of situations is worse for the ordinary shareholders?
A. Return on assets exceeds the cost of borrowing, debt ratio is high
B. Cost of borrowing exceeds the return on assets; equity ratio is high
C. Return on assets exceeds the cost of borrowing; equity ratio is high
D. Cost of borrowing exceeds the return on assets; debt ratio is high
78. The Sealand Company has a current ratio of 3.5 to 1 and an acid test ratio of 2.8 to 1.
Inventory equals P49,000, receivables equal P35,000, and must be there are no prepaid
expenses. Sealand Company's current liabilities must be
A. P 70,000 C. P 49,000
B. P100,000 D. P125,000
79. Desktop Co. presently has a current ratio of 1.2 to 1 and an acid test ratio facilities will of
0.8 to 1. The prepayment of next year's rent of P50,000 on its office facilities will
A. have no effect on either the company's current ratio or its acid test ratio
B. have no effect on the company's current ratio but will decrease its acid test ratio
C. decrease the company's current ratio and decrease its acid test ratio
D. Increase the company's current ratio and increase its acid test ratio.
80. The per share market price of Far Eastern Co. shares on January 1, 2006 was P60 and on
December 31, 2006 was P72. Net income for 2006 was P46,000. Dividends to the preference
shareholders for the year totaled P12,000, and dividends of P2.50 per share were paid on the
6,000 ordinary shares outstanding during the year. The price-earnings ratio for Far Eastern
Co. at year end was
A. 10 to 1 C. 11 to 1
B. 6 to 1 D. 12 to 1
81. The total assets in the Detdet Co. on December 31, 2006 were P2.3 million and on
December 31, 2007 were P2.5 million. Income after taxes for 2007 was P 188,000. Dividends
for 2007 totaled P75,000, interest expenses totaled P70,000, and the tax rate was 30%. The
return on total assets for 2007 (rounded to the nearest tenth of a percentage point) is
A. 9.5% C. 9.9%
B. 6.8% D. 10.8%
82. Karen Company's net accounts receivable were P430,000 on December

31, 2006 and P 480,000 on December 31, 2007. Cash sales during 2007 were P175,000. The
accounts receivable turnover for 2007 was 5. Karen Company's total sales for 2007 were
A. P3,150,000 C. P 2,275,000
B. P 2,450,000 D. P2,575,000
83. The average shareholders' equity for Bettina Co. for 2006 was P 2,000,000.
Included in this figure is P200,000 par value of 8% preference share, which remained
unchanged during the year. If the return on ordinary shareholders' equity was 12.5% during
2006, net income was
A. P 225,000 C. P 241,000
B. P 250,000 D. P 234.000
84. Gilbert Co. presently has a current ratio of 0.8 to 1. The company has
been informed by its bank that it must improve its current ratio to qualify current ratio for a
line of credit. Which of the following actions would improve the current ratio
A. Use cash to pay off some current liabilities
B. Purchase additional marketable securities with cash
C. Acquire a parcel of land in exchange for ordinary shares
D. Purchase additional inventory on credit
85. A company has just converted a long-term note receivable into a short term note
receivable. This transaction will
A. increase the company's times interest earned ratio
B. increase working capital and decrease the acid test ratio
C. increase the current ratio and have no effect on the times interest
earned ratio
D. decrease the current ratio
86. A firm has total interest expense of P16,000 per year, sales of P600,000 per year, a tax
rate of 30%, and a net profit after tax of P56,000. What is the firm’s times interest
earned ratio?
A. 6. C. 4.5.
B. 5. D. 3.5.
87. A drop in the market price of a firm’s ordinary share will immediately affect its
(CMA adapted)
A. return on ordinary shareholders’ equity.

B. current ratio.
C. dividend payout ratio.
D. dividend yield ratio.
88. The Dexter Company had 50,000 ordinary shares issued and outstanding during 2006.
Earnings per share for 2006 were P15. The dividend to the preference shareholders
was P2 per share. The ordinary shareholders received a dividend totaling P150,000.
The dividend payout ratio for Dexter Company for 2006 was
A. 38.4%.
B. 23.1%.
C. 33.3%.
D. 20.0%.
89. Ryan Company had 20,000 ordinary shares outstanding through 2006. These shares
were originally issued at a price of P15 per share. The book value on December 31,
2006 was P25 per share and the market value on December 31, 2006 was P30 per
share. The dividend on ordinary shares in total for 2006 was P45,000. The dividend
yield ration for Ryan Company for 2006 was
A. 9.0%. C. 15.0%.
B. 7.5%. D. 10.0%.
90. Throughout 2006, Sherwin Company had 40,000 ordinary shares outstanding. The
book value per share was P60 and the market value per share was P75 on December
31, 2006. Net income for 2006 was P400,000. Interest on long-term debt was
P40,000. Dividends to ordinary shareholders were P3 per share. The tax rate for 2006
was 30%. Sherwin Company’s price- earning ration would be
A. 25 TO 1. C. 7.50 TO 1.
B. 20 TO 1. D. 6.00 TO 1.
91. Francis Company’s debt to equity ratio is 0.6 to 1. Current liabilities total P120,000
and long term liabilities total P360,000. If Francis Company has working capital equal
to P140,000, total assets must equal
A. P600,000. C. P800,000.
B. P1,200,000. D. P1,280,000.
92. During 2006, Concon Company paid a current dividend of P35,000 to its preference
shareholders. In addition, Concon Company paid a P55,000 dividend to its ordinary
shareholders. If 25,000 ordinary shares were outstanding through the years and net
income was P160,000, then the earnings per ordinary share was
A. P2.80. C. P5.00.
B. P4.25. D. P6.40.
93. Rommel Corporation has a current ratio of 2 to 1 and a quick ratio (acid test) of 1 to 1.
A transaction that would change Rommel’s quick ratio but not its current ratio is
(CMA adapted)
A. the sale of short-term marketable securities for cash that results in a profit.
B. the sale of inventory on account at cost.
C. the collection of accounts receivable.
D. the payment of accounts payable.
94. How are dividends per ordinary share used in the calculation of the following?
(PhilCPA adapted)
Dividend per share Earnings per share
payout ratio
A. Denominator Denominator
B. Denominator Not used
C. Numerator Not used
D. Numerator Numerator
95. During 2006, Reuel Company purchased P1,920,000 of inventory. The cost of goods
sold for 2006 was P1,800,000 and the ending inventory at December 31, 2006 was
P360,000. What was the inventory turnover for 2006? (PhilCPA adapted)
A. 5.0. C. 6.0.
B. 5.3. D. 6.4.
96. JunJun & Co. has debt ratio of 0.50, a total assets turnover of 0.25, and a profit
margin of 10%. The president is unhappy with the current return on equity, and he
thinks it could be doubleD. This could be accomplished (1) by increasing the profit
margin to 14% and (2) by increasing debt utilization. Total assets turnover will not
change. What new debt ratio, along with the 14% profit margin, is required to double
the return on equity? (CMA adapted)
A. 0.75. C. 0.65.
B. 0.70. D. 0.55.
97. When a balance sheet amount is related to an income statement amount in computing
a ratio,
A. the income statement amount should be converted to an average for the year.
B. comparisons with industry ratios are not meaningful.
C. the balance sheet amount should be converted to an average for the year.
D. the ratio loses its historical perspective because a beginning-of-the-year amount
is combined with an end-of-the-year amount.
98. Mark & Sons, InC. has a 2 to 1 acid test (quick) ratio. The ration would decrease to
less than 2 to 1 if
A. the company purchased inventory on open account.
B. the company sold merchandise on open account that earned a normal gross
margin.
C. the company collected an count receivable.
D. the company paid an account payable.
99. A firm has total interest charges of P20,000 per year, sales of P2 million, a tax rate of
40 percent, and a profit margin of 6 percent. What is the firm’s times-interest-earned
ratio?
A. 10. C. 12.
B. 11 D. 13
100. Which of the following statements is incorrect?
A. a. Profitability evaluation ratios have a higher power than solvency
determination ratio for predicting performance for both income and solvency.
B. Gross profit percentages do not vary a great deal among industries.
C. It is appropriate to compare a company’s current financial ratio with the same
financial ratio for (1) that company in prior years and/or (2) the ratio for the
industry in which the company is affiliateD.
D. Companies where product costs represent a high percentage of total costs
could be expected to have a low gross profit percentage.
101. Financial ratios which assess the profitability of a company, include all of the
following except the
A. dividend yield ratio. C. earnings per share ratio.
B. gross profit percentage. D. return on sales ratio.

Situational
The following data apply to items 1 through 4.
Deadwood Company is a metal and woodcutting manufacturer, selling products to the home
construction market. Consider the following data for 2007:
Sandpaper P 2,000
Materials- handling costs 70,000
Lubricants and coolants 5,000
Miscellaneous indirect manufacturing labor 40,000
Direct manufacturing labor 300,000
Direct materials inventory, Jan.1, 2007 40,000
Direct materials inventory, DeC.31, 2007 50,000
Finished goods inventory, Jan.1, 2007 100,000
Finished goods inventory, DeC.31, 2007 150,000
Work in process inventory, Jan.1, 2007 10,000
Work in process inventory, DeC.31, 2007 14,000
Plant- leasing costs 54,000
Depreciation- plant equipment 36,000
Property taxes on plant equipment 4,000
Fire insurance on plant and equipment 3,000
Direct materials purchased 460,000
Revenues 1,360,000
Marketing promotions 60,000
Marketing salaries 100,000
Distribution costs 70,000
Customer-service costs 100,000
1. How much is the company’s cost of goods manufactured for the year ended
December 31, 2007?
A. P890,000
B. P1,010,000
C. P960,000
D. 970,000
2. How much is Deadwood’s operating income for 2007?

A. P190,000
B. P120,000
C. P180,000
D. P140,000
3. Suppose that that direct material cost is for the production of 900,000 units. What is
the direct material cost of each unit produced?
A. P0.55 per unit
B. P0.61 per unit
C. P0.51 per unit
D. P0.50 per unit
4. Suppose that the plant-leasing cost is for the production of 900,000 units. What is the
plant-leasing cost of each unit produced?
A. P0.060 per unit
B. P0.067 per unit
C. P0.107 per unit
D. P0.237 per unit
5. The term ―conversion costs‖ refers to

A. manufacturing costs incurred to produce units of output.
B. all costs associated with manufacturing other than direct labor cost and raw
material costs.
C. costs which are associated with marketing, shipping, warehousing, and billing
activities.
D. the sum of direct labor costs and all factory overhead costs.
6. The term ―prime costs‖ refers to

material costs.
C. costs which are predetermined and should be attaineD.
D. the sum of raw material costs and direct labor costs.
7. Costs which are ―inventoriable‖ are

A. manufacturing costs incurred to produce units of output
material costs.
C. costs which are associated with marketing, shipping, warehousing, and billing
activities.
D. the sum of direct labor costs and all factory overhead costs.
8. The term ―variable costs‖ refers to

A. all costs which are likely to respond to the amount of attention devoted to them by
a specified manager.
B. costs which are associated with marketing, shipping, warehousing, and billing
activities.
C. all costs which do not change in total for a given period of time and relevant range
but become progressively smaller on a per unit basis as volume increases.
D. all costs which fluctuate in total in response to small changes in the rate of
utilization of capacity.
9. The term ―committed costs‖ refers to those

A. costs which management decides to incur in the current period to enable the
company to achieve objectives other than the filling of orders placed by customer.
B. costs which are likely to respond to the amount of attention devoted to them by a
specified manager.
C. costs which are governed mainly by past decisions that established the
present levels of operating and organizational capacity and which one
changes slowly in response to small changes in capacity.
D. costs which fluctuate in total in response to small changes in the rate of utilization
of capacity.
10. The term ―discretionary costs‖ refers to those

company to achieve objectives other than the filling of orders placed by
customers.
specified manager.
C. costs which are governed mainly by past decisions that established the present
levels of operating and organizational capacity and which one changes slowly in
response to small changes in capacity.
D. amortization of costs which were capitalized in previous periods.
11. Those costs referred to as ―controllable costs‖ are

customers.
B. costs which are likely to respond to the amount of attention devoted to them
by a specified manager.
C. costs which are governed mainly by past decisions that established the present
levels of operating and organizational capacity and which one changes slowly in
response to small changes in capacity.
of capacity.
12. The term ―differential costs‖ refers to

A. the difference in total costs that results from selecting one alternative instead
of another.
B. the profit forgone by selecting one alternative instead of another.
C. a cost that does not entail any peso outlay but is relevant to the decision-making
process.
D. a cost that continues to be incurred even though there is no activity.
13. A ―sunk‖ cost is

A. a cost that may be saved by not adopting an alternative.
B. a cost that may be shifted to the future with little or no effect on current
operations.
C. a cost that cannot be avoided because it has already been incurreD.
D. a cost that does not entail any peso outlay but is relevant to the decision-making
process.
14. An ―opportunity cost‖ is

A. the difference in total costs that results from selecting one alternative instead of
another.
B. the profit forgone by selecting one alternative instead of another.
C. a cost that may be saved by not adopting an alternative.
D. a cost that may be shifted to the future with little or no effect on current
operations.
15. Those costs referred to as ―capacity costs‖ are

customers.
specified manager.
C. cost of providing the capability to operate at a particular volume for such
activities as manufacturing, sales, and research.
of capacity.
16. The term ―factory overhead‖ refers to

B. all costs associated with manufacturing other than direct labor costs and raw
material costs.
C. costs associated with marketing, shipping, warehousing, and billing activities.
D. the sum of direct labor and all factory overhead costs.
17. The term ―standard costs‖ refers to

material costs.
C. costs that are predetermined and should be attained.
D. the sum of raw material costs and direct labor costs.
18. ―Distribution costs‖ are

A. manufacturing costs incurred to produce units of output
material costs.
C. costs associated with marketing, shipping, warehousing, and billing activities.
D. the sum of direct labor and all factory overhead costs.
19. The term ―fixed costs‖ refers to

A. all costs which are likely to respond to the amount of attention devoted to them by
a specified manager.
B. all costs associated with marketing, shipping, warehousing, and billing activities.
C. all costs that do not change in total for a given period of time and relevant
change but become progressively smaller on a per- unit basis as volume
increases.
D. all costs that fluctuate in total in response to small changes in the rate of
utilization of capacity.
Situational
The following data apply to items 20 through 23.
Selected data concerning the past fiscal year’s operations (000 omitted) of the Televans
Manufacturing Company are presented below:
Inventories
Beginning Ending
Raw materials P75 P85
Work in process 80 30
Finished goods 90 110
Other Data
Raw materials used P326
Total manufacturing costs charged to
production during the year (in-
includes raw materials, direct labor,
and factory overhead applied at a
rate of 60% of direct labor cost) 686
Cost of goods available for sale 826
Selling and general expenses 25
20. The cost of raw materials purchased during the year amounted to
A. P411. C. P316.
B. P360. D. P336.
21. Direct labor costs charged to production during the year amounted to
a. P135. C. P360.
B. P225. D. P216.
22. The cost of goods manufactured during the year was

A. P363. C. P736.
B. P766. D. P716.
23. The cost of goods sold during the year was
a. P736. C. P691.
B. P716. D. P801.
The following data apply to items 24 and 25.

Management accountants are frequently asked to analyze various decision situations
including the following:
1. Alternative uses of plant of plant space, to be considered in a make/buy decision.
2. Joint production costs incurred, to be considered in a sell-at-split versus a process-
further decision.
3. Research and development costs incurred in prior months, to be considered in a
product- introduction decision.
4. The cost of a special device that is necessary if a special order is accepteD.
5. The cost of obsolete inventory acquired several years ago, to be considered in a keep-
versus-disposal decision.
24. The costs described in situations 1 and 4 above are

A. prime costs. C. discretionary costs.
B. sunk costs. D. relevant costs.
25. The costs described in situations 2, 3, and 5 above are

A. prime costs C. discretionary costs.
B. sunk costs. D. relevant costs.
26. Simple regression analysis provides the means to evaluate a line of regression which
is fitted to a plot of data and represents
A. the way costs change in respect to the dependent variable.
B. the way costs change in respect to both independent and dependent variables.
C. the variability of expense with pesos of production.
D. the way costs change in respect to the independent variable.
27. The slop of the regression is

A. the rate at which the independent variable varies.
B. the rate at which the dependent variable varies.
C. the level of fixed costs.
D. the level of total variable costs.
28. Mine and Yours Company uses a regression equation to analyze the behavior of its
transportation costs (T) as function of travel time (H). They developed the following
equation using two years’ observations with a related coefficient of determination of
0.85:
T= P100,000 + P50H
If 500 hours of travel time were logged in one period, the related point estimate of
total transportation costs would be
A. P110,000. C. P106,250.
B. P121,250. D. P125,000.
29. Salaries of accounts receivable clerks when one clerical worker is needed for every
750 accounts receivable is an example of
a. fixed cost. C. mixed cost.

B. a step-variable cost. D. curvilinear cost.
Situational
Use the following information to answer questions 20 and 31:
Month Meals served Utilities costs
December 55 P401.00
January 30 P360.00
February 25 P347.50
March 40 P385.50
April 60 P414.00
30. Using the method of least squares, the variable rate for utilities costs per meal served
is
A. P2.00. C. P3.00
B. P1.90. D. P1.80
31. Using the method of least squares, the fixed cost is

A. P306. C. P303.
B. P300. D. P331.
32. Which costs will change with a decrease in volume?

A. total fixed cost and total variable cost.
B. unit fixed cost and total variable cost.
C. unit variable cost and unit fixed cost.
D. unit fixed cost and total fixed cost.
33. Contribution margin means
A. What remains from total sales after deducting fixed expenses.
B. What remains after deducting cost of goods sold to cover fixed and variable expenses.
C. The sum of cost of goods sold and variable expenses.
D. What remains from total sales after deducting all variable expenses.
34. When production levels are expected to decline within a relevant range, what effects
would be anticipated with respect to each of the following?
Fixed cost per unit variable cost per unit
A. increase increase
B. increase No change
C. No change No change
D. No change Increase
35. Within a relevant range, the amount of variable cost per unit,
A. Differs at each production level.
B. Remains constant at each production level.
C. increases as production increase
D. Decreases as production increases.
36. Brooks Company uses the following cost formula for the maintenance cost in department
T:
Y = P7,20) P0.60 per machine hour
The July 2007 operating budget is based upon 2).000 hours of planned machine time.
Maintenance cost expected to be incurred during the month is
A. A.P 11,400.
B. P 12,000
C. P 12,600.
D. P 19,200
37. The following relationships pertain to activity and cost for two different years for Smyth
Company:
Direct-labor hours 300,000 400,000
Total costs P 129,000 P 154,000
What are the expected fixed costs for a year?

A. A.P 25,000.
B. P 54,000.
C. P 75,000.
D. P100,000.
38. Junk Food Imports determines that its shipping expense is P18,00" for 16,000 pounds
shipped and P22,500 for 22,00 pounds shipped. If the company shipped 18,000 pounds
during the current month projected shipping cost should be
A. A.P 18,500. .
B. P 20,400.
C. P 19,500
D. P 24,000.
39. The Variable Cost of Goods Sold in the Marin Company totaled P325,000. Fixed selling
and administrative expenses total P115,000 and variable selling and administrative expenses
were P210,000. If Marin Company's contribution margin totaled P590,000, then sales must
have been
A. P 1,125,000.
B. P 1,030,000.
C. P 650,000.
D. P 915,000.
40. An example of a committed fixed cost for a manufacturing firm is
A. A.a development program for the foreman.
B. factory clerical salaries with no annual salary or time guarantee.
C. property taxes on the factory building
D. new product research and development.
41. In describing the equation y = a.+ bx, which of the following statements is correct?
A. 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.
42. Which of the following statements is true when referring to fixed costs?
A. a.. Committed fixed costs arise from the annual decisions by management
B. As volume increases, unit fixed cost and total fixed cost will change.
C. Fixed costs increase in total throughout the relevant range.
D. Discretionary fixed costs can often be reduced to zero for short periods of time
without seriously impairing the long-run goals of the firm.
Situational Use the following information to answer questions 43 and 44:
Cosco, Inc. has accumulated the following data for the cost of maintenance on its machinery
for the last four months of 2006:
Month Meals served Utilities costs
September P 26,020 21,000
October P 24.600 18,500
November P 22,300 15,000
December P 25,100 19,000
43. Assuming Cosco Company uses the high-low method of analysis, the fixed cost of
maintenance would be
A.P 14,500.
B. P 5,020,
C. P 13,000.
D. P 12,320.
44, If machine hours are; budgeted to be 20,000 hours during January, 2007, the budgeted
total maintenance cost would be
A. A.P 23,400. .
B. P 25,560.
C. P 23,700
D. P 24,720.
45. Given the cost formula y = P12,500 + P5.00x, total costs for an activity level of 4,000
units would be
A. A.P 20,000.
B. P 7,500
C. P 16,000.
D. P32,500.
40. An analysis of clerical costs in the billing department of Craig Company indicates that
total unit (variable and fixed) processing costs will be P0.50 per account processed at an
activity level of 32,000 accounts. 'When only 22,000 accounts are processed, the total cost of
processing is P12,500. Given these data, at a budgeted level of 25,000 accounts
A. processing costs will total P8, 750.
B. fixed processing costs will be P10,400.
C. the variable processing costs will equal P0.35 per account processed.
D. processing costs will total P14,975. (CMA adapted)
Situational
Use the following information to answer questions 47 through 50:
The University Store, Inc. is the major supplier of books for the four area colleges. An
income statement for the first quarter of 2007 is presented below:
University Store, Inc.
Income Statement
For the Quarter Ended March 31, 2007
Sales P 800,000
Cost of Goods Sold 560,000
Gross Margin 240,000
Less Operating Expenses: Selling P 105,000
Administrative 105 000 210.000
Net Income P 30,000
On average, a book sells for P40. Variable selling expenses are P3 per book; the remaining
selling expenses are fixed. The variable administrative expenses are 5% of sales; the
remainder is fixed.
47. The contribution margin for the University Store for the first quarter of 2007 is
A. A.P 660,000
B. P 700,000.
C. P 180,000
D. P 140,000.
48. The net income computed using the contribution approach for the first quarter of 2007 is
A. P 30,000. .
B. P 180,000.
C. P 140,000
D. P 0.
49. The cost formula for operating expenses with "x" equal to the number of books sold is
a y = P105,000 + P3x . C. y = P110,000 + P5x. ,
B. y = P105,000 + P5x. D. y = P110,000 + P33x.
50. If 25,000 books are sold during the second quarter of 2007, the company's contribution
margin would equal
A. A.P 875,000.
B. P 300,000.
C. P 175,000.
D. D. P 65,000. (CMA adapted)
Use the following information to answer questions 51 through 53:

April May
Sales in Units 3,200 4.500
Cost:
Cost S P6 ,400 P9,000
Cost T 5,600 5,600
Cost U 7,100 7,100
Cost V 4,480 6.300
Cost W 3,950 5,250
51. Which of the following classifications describes Cost T?

A. Variable
B. Curvilinear
C. Fixed
D. Mixed
52. Which of the following classifications describes Cost V?

A. A.Variable
B. Curvilinear
C. Fixed
D. Mixed
53. Which of the following classifications describes Cost W?
A. A.Variable
B. B. Curvilinear
C. C. Fixed
D. Mixed
54. Glory Company's gross margin exceeded its contribution margin by P25,000. If sales
totaled P175,000 when net income equaled P20,000 and total selling and administrative
expenses equaled P55,000, then the contribution margin equaled
A. P 75,000 .
B. P 80,000.
C. P 30,000.
D. P 50,000.

Situational
The following information pertain to questions 1 and 2:
Destiny Products uses a job-costing system with two direct-cost categories (direct materials
and direct manufacturing labor) and one manufacturing overhead cost pool. Destiny allocates
manufacturing overhead costs using direct manufacturing labor costs. Destiny provides the
following information:
Budget for Actual Results

for
Year 2006 Year 2006
Direct materials costs P1,500,000 P1,450,000
Direct manufacturing labor costs 1,000,000 980,000
Manufacturing overhead costs 1,750,000 1,862,000
During March, the job cost record for Job 123 contained the following information:
Direct materials used P40,000
Direct manufacturing labor costs 30,000
1. The budgeted manufacturing overhead rate for 2006 is
A. 125%
B. 120%
C. 175%
D. 150%
2. Using the actual costing system, what is the cost of Job 123?
A. A.P75,000
B. P122,000
C. P155,000
D. P127,000
Situational
The following information pertain to questions 3 through 6:
Arctic Construction assembles residential houses. It uses a job-costing system with two
direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly
support). Direct labor-hours is the allocation base for assembly support costs. In December
2006, Arctic budgets years 2007 assembly support costs to be P8,000,000 and year 2007
direct labor-hours to be 160,000.
At the end of 2007, Arctic is comparing the costs of several jobs that were started and
completed in 2007.
L Model M Model
Construction period Feb — June 2007 May -- Oct 2007
Direct materials P106,450 P127,604
Direct labor P 36,276 P 41,410
Direct labor-hours 900 1,010
Direct materials and direct labor are Paid for on a contract basis. The costs of each are known
when direct materials are used or direct labor-hours are worked. The 2007 actual assembly
support. costs were P6,888,000, and the actual direct labor-hours were 164,000.
3. What is the budgeted indirect-cost rate?

A. A.P30
B. P25
C. P50
D. P75
4. What is the actual indirect-cost rate?

A. A.P50
B. P35
C. P42
D. P55
5. What is the job cost of the L Model using normal costing?

A. A.P176,288
B. P170,627
C. P187,726
D. P147,086
6. What is the job cost of the M Model using actual costing?

A. A.P241,344
B. P233,043
C. P243,000
D. P211,434
Situational
The Lion Company uses a job-costing system at its Mindanao plant. The plant has a
Machining Department and an Assembly Department. Its job-costing system has two direct-
cost categories (direct materials and direct manufacturing labor) and two manufacturing
overhead cost pools (the Machining Department overhead, allocated using actual machine-
hours, and the Assembly .Departnient overhead, allocated using actual direct manufacturing
labor. cost). The 2007 budget for the plant is as follows:
Machining Assembly
Department Department
Manufacturing overhead P1,800,000 P3,600,000
Direct manufacturing labor cost P1,400,000 P2,000,000
Direct manufacturing labor-hours 100,000 200,000
Machine-hours 50,000 200.000
During February, the job cost record for Job 444 contained the following:
Machining Assembly
Department Department
Direct materials used P45,000 P70,000
Direct manufacturing labor costs P14,000 P15,000
Direct manufacturing labor-hours 1,000 1,500
Machine-hours 2,000 1,000
7. At the end of 2007, the actual manufacturing overhead costs were P2,100,000 in
Machining and P3,700,000 in Assembly. Assume that 55,000 -actual machine-hours were
used in Machining and that actual direct manufacturing labor costs in Assembly were
P2,200,000. Compute the over- or under allocated manufacturing overhead for each
department. 7 What is the total manufacturing overhead cost of Job 444?
A. A.P99,000
B. P97,000
C. c P80,000
D. P86,000
8. The (over) or under allocated manufacturing overhead for the Machining Department is
A. 100,000
B. P180,000
C. C.120.000
D. P160,000
9. The (over) or under allocated manufacturing overhead for the Machining Department is
A. A.P300,000
B. P(200,000)
C. P360,000
D. P(260,000)
Situational
The following information pertain to questions 10 through 12
Hicks & Associates, a consulting firm, has the following condensed budget for 2006:
Revenues P 20,000,000
Total costs:
Direct costs
Professional labor P 5,000,000
Indirect costs
Consulting support 13.000.000
18,000.000
Operating income
P2,000,000
Hicks has a single direct-cost category (professional labor) and a single indirect-cost pool
(client support). Indirect costs are allocated to jobs on the basis of professional labor costs.
The markup rate for pricing jobs is intended to produce operating income equal to 10% of
revenues.
Flicks is bidding on a consulting job for Little Chicken, a fast-food chain specializing in
poultry meats. The budgeted breakdown of professional labor on the job is as follows:
Professional Labor Budget rate Budgeted
Category per hour hours
Director • P200 3
Partner 100 16
Associate 50 40
Assistant 30 160
10. What is the mark-up rate as a percentage of professional labor costs?
A. A.250%
B. 400%
C. 100%
D. 300%
11. What is the budgeted cost of the Little Chicken job?
A. A.P32,400
B. P44,000
C. P36,600
D. P40,000
12. How much will Hicks bid for the job if it is to earn its target operating income of 10% of
revenues?
A. A.P44,000
B. P42,000
C. P35,000
D. P36,000
Situational
Consider the following selected cost data for the Katharine Forging Company for 2006:
Budgeted manufacturing overhead P7,000,000
Budgeted machine hours 200,000
Actual manufacturing overhead P 6,800,000
Actual machine hours ` 195,000
Katharine’s job-costing system has a single manufacturing overhead cost pool. Costs are
allocated to jobs using a budgeted machine-hour rate and actual machine-hours. Any amount
of under or over allocation is written off to cost of goods sold.
13. The budgeted manufacturing overhead rate is

a. P35 per machine hour
b. P40 per machine hour
c. P50 per machine hour
d. P25 per machine hour
14. The journal entry for the allocation of manufacturing overhead will include a
a. Debit of P6,825,000 to Manufacturing Overhead Allocated.
b. Credit of P6,825,000 to Manufacturing Overhead Allocated.
c. Debit of P6,800,000 to Manufacturing Department Overhead Control.
d. Credit of P6,800,000 to Manufacturing Department Overhead Control.
Situational
The following information pertain to questions 15 to 19:
The Luzon Company uses a job-costing system at its Dagupan plant. The plant has a
Machining Department and a Finishing department. Luzon uses a normal costing system with
two direct cost categories ( direct materials and direct manufacturing labor) and two
manufacturing overhead cost pools (the Machining Department, with machine hours as the
allocation base, and the Finishing Department, with direct manufacturing labor costs as the
allocation base). The year 2006 budget for the plant is as follows:
Machining Department Finishing

Department
Manufacturing overhead P 10,000,000 P 8,000,000
Direct manufacturing labor costs 900,000 4,000,000
Direct manufacturing labor hours 30,000 160,000
Machine hours 200,000 33,000
15. What is the budgeted overhead rate that should be used in the Machining Department?
16. What is the budgeted overhead rate that should be used in the Finishing Department?
a. 100% of direct manufacturing labor costs
b. 250% of direct manufacturing labor costs
c. 200% of direct manufacturing labor costs
d. 150% of direct manufacturing labor costs
17. During the month of January, the job cost record for Job 143 shows the following:

Department
Direct materials used P14,000 P3,000
Direct manufacturing labor costs 600 1,250
Direct manufacturing labor hours 30 50
Machine hours 130 10
What is the total manufacturing overhead allocated to Job 143?

a. P7,750
b. P8,250
c. P6,500
d. P9,000
18. Assuming that Job 143 consisted of 200 units of product, what is the unit product cost of
Job 143?
a. P250
b. P125
c. P139.25
d. P142.50
19. Amounts at the end of 2006 are as follows:

Department
Manufacturing overhead incurred P11,200,000 P7,900,000
Direct manufacturing labor costs 950,000 4,100,000
Machine hours 220,000 32,000
What is the under or overallocated manufacturing overhead for the Dagupan plant as a
whole?
a. P100,000 underallocated
b. P200,000 overallocated
c. P150,000 underallocated
d. P100,000 overallocated
Situational
Kipling & Associates is a law firm specializing in labor relations and employee-related work.
It employs 25 professionals (5 partners and 20 associates) who work directly with its clients.
The average budgeted total compensation per professional for 2006 is P104,000. Each
professional is budgeted to have 1,600 billable hours to clients in 2006. Kipling is a highly
respected firm, and all professionals work for clients to their maximum 1,600 billable hours
available. All professional labor cost are included in a single direct cost category and are
traced to jobs on a per hour basis.
All costs of Kipling & Associates other than professional labor costs are included in a single
indirect cost pool (legal support) and are allocated to jobs using professional labor hours as
the allocation base. The budgeted level of indirect costs in 2006 is P2,200,000.
20. The budgeted direct cost rate per hour of professional labor for 2006 is
a. P75
b. P50
c. P65
d. P105
21. The budgeted indirect cost rate per hour of professional labor for 2006 is
a. P65
b. P55
c. P80
d. P120
Situational
New York Limited is a company that produces machinery to customer order. Its job costing
system (using normal costing) has two direct cost categories (direct materials and direct
manufacturing labor) and one indirect cost pool (manufacturing overhead, allocated using a
budgeted rate based on direct manufacturing labor costs). The budget for 2006 was:
Direct manufacturing labor P420,000

Manufacturing overhead 252,000
At the end of 2006, two jobs were incomplete: No. 123A (total direct manufacturing labor
costs were 11,000) and No. 789C (total direct manufacturing labor costs were P39,000).
Machine time totaled 287 hours for No. 123A and 647 hours for No. 789C. Direct materials
issued to No. 123A amounted to P22,000. Direct materials for No. 789C were P42,000.
Total charges to the Manufacturing Overhead Control account for the year were P186,840.
Direct manufacturing labor costs of all jobs were P400,000, representing 20,000 direct
manufacturing labor hours.
There were no beginning inventories. In addition to the ending work in process, the ending
finished goods showed a balance of P156,000 (including direct manufacturing labor costs of
P40,000). Revenues for 2006 totaled P2,700,680, cost of goods sold was P1,600,000, and
marketing costs were P857,870. New York prices on a cost-plus basis. It currently uses a
guideline of cost plus 40% of cost.
22. The under or overallocated manufacturing overhead for 2006 is

a. P53,160
b. P60,140
c. P50,360
d. P40,340
23. If New York Limited had used the adjusted allocation rate approach to disposing of under
or overallocated manufacturing overhead in 2006, what is the cost of job No. 789C?
a. P91,299.60
b. P88,229.90
c. P99,216.90
d. P102,612.60
Situational
The Bluey Company is a small machine shop that uses normal costing in its job costing
system. The total debits and credits in certain accounts just before year-end are as follows:
December 30,2006
Total Debits Total
Credits
Materials Control P100,000 P70,000
Work-in-Process Control 320,000 305,000
Manufacturing Department Overhead Control 85,000 -
Finished Goods Control 325,000 300,000
Cost of Goods Sold 300,000 -
Manufacturing Overhead Allocated - 90,000
All materials purchased are for direct materials. Note that ―total debits‖ in the inventory
accounts would include beginning inventory balances, if any.
The preceding total debits and total credits above do not include the following:
a. The manufacturing labor costs for the December 31 working day: direct
manufacturing labor, P5,000, and indirect manufacturing labor, P1,000.
b. Miscellaneous manufacturing overhead incurred on December 31: P1,000.
● Manufacturing overhead has been allocated as a percentage of direct manufacturing

labor costs through December 30.
● Direct materials purchased during 2006 were P85,000.
● No direct materials were returned to suppliers.
● Direct manufacturing labor costs during 2006 totaled P150,000, not including
December 31 working day described previously.
24. The December 31, 2006 ending inventory, after adjustments and closing of Work-in-
Process Control is
a. P35,000
b. P28,000
c. P23,000
d. P128,000
25. The December 31,2006 ending inventory, after adjustments and closing of Finished
Goods Control is
a. P5,000
b. P25,000
c. P35,000
d. P20,000
Situational
Dada Inc. is a job order manufacturing company. The company uses a predetermined
overhead rate based on direct labor hours are 95,000, and estimated factory overhead is
P579,500. The following information is for September 2006. Job A was completed during
September, and Job B was started and not finished.
September 1, 2006, inventories:

Materials Control P7,500
Work-in-Process Control (All job in A) 31,200
Finished Goods Control 67,000
Material purchases 104,000
Direct Materials requisitioned:
Job A 45,000
Job B 33,500
Direct Labor hours:
Job A 4,200
Job B 3,500
Labor costs incurred:
Direct labor (P5.50/hr) 42,350
Indirect labor 13,500
Supervisory salaries 6,000
Rental costs:
Factory 7,000
Administrative offices 1,800
Total equipment depreciation costs:
Factory 7,500
Administrative offices 1,600
Indirect materials used 12,000
26. What is the total cost of Job A?

a. P112,620
b. P119,880
c. P124,920
d. P104,220
27. What is the total factory overhead applied during September?

a. P35,660
b. P66,990
c. P25,220
d. P46,970
28. What is the underapplied or overapplied overhead for September?

a. P970 overapplied
b. P970 underapplied
c. P660 overapplied
d. P660 underapplied
Situational
Kimberly Company uses a job costing system. Normal costing is used and factory overhead
is applied on the basis of machine hours. At the beginning of the year, management estimated
that the company would incur P1,007,500 of factory overhead costs and use 77,500 machine
hours.
Kimberly Company recorded the following events during the month of May:
1. Purchased 180,000 pounds of materials on account; the cost was P2.50 per pound.
2. Issued 120,000 pounds of materials to production. Of this amount, 15,000 pounds
were used as indirect materials.
3. Direct labor costs incurred were P240,000 and indirect labor costs were P50,000.
4. Depreciation on equipment for the month amounted to P15,700.
5. Insurance costs were P3,500 for the manufacturing property.
6. Paid P8,500 cash for utilities and other miscellaneous items for the manufacturing
plant.
7. Job E5 costing P6,500 and Job F4 costing P77,000 were completed during the month
and transferred to the Finished Goods account.
8. Job F4 was shipped to the customer during the month. The job was invoiced at 35%
above cost.
9. During May, 7,800 machine hours were used.
29. The company’s overhead rate for the year is

30. The amount of overapplied or underapplied overhead on May 31 is

a. P13,800 underapplied
b. P13,800 overapplied
c. P12,500 underapplied
d. P12,500 overapplied
Situational
Anderson Company use a job costing system in which factory overhead is applied on the
basis of direct labor hours. There was no job in process on February 1. During the month of
February, the company worked on these three jobs:
Job Number
K1 G2 M3
Direct labor (P8/hr) P24,000 ? P8,800
Direct materials 42,000 61,000 ?
Overhead applied ? 24,750 6,050
During the month, the company completed and transferred job K1 to the finished goods
inventory at the cost of P82,500. Jobs G2 and M3 were not completed and remain in work in
process at the cost of P148,650 at the end of the month. Actual factory overhead costs during
the month totaled P48,600.
31. What is the amount of underapplied or overapplied overhead for February?

a. P1,300 overapplied
b. P1,300 underapplied
c. P1,150 overapplied
d. P1,150 underapplied
32. What is the predetermined factory overhead rate?
a. P6.50 per direct labor hour
b. P7.00 per direct labor hour
c. P5.50 per direct labor hour
d. P3.50 per direct labor hour
33. The cost of direct materials issued to production during the month is
a. P124,000
b. P115,050
c. P118,250
d. P126,500
Situational
Brother Company uses job costing in which factory overhead is applied on the basis of direct
labor cost. Any overapplied or underapplied overhead is allocated between the Work-in-
Process, Finished Goods, and Cost of Goods Sold accounts. The April 1, 2006, balances in
selected accounts are:
Inventories, Apr. 1:
Materials (All direct) P124,000
Work in Process (Job 123) 113,400
Finished Goods (Job 456) 178,200
Job 123 was the only in the manufacturing process at the end of March. Job 456 was
completed during March but not yet sold.
These transactions occurred during April 2006:

a. Materials were purchased on account, P143,000.
b. Materials were requisitioned for use in production:
Direct materials:
Job 123 P23,000
Job 789 ?
Job 555 72,500
Indirect materials 17,700
c. An analysis of labor time cards reveals the following labor usage for April:
Direct labor:
Job 123. ?
Job 789 P102,000
Job 555 36,500
Indirect labor 97,000
d. Depreciation of the factory building and equipment during April amounted to P76,000.
e. Rent for the warehouse was paid in cash, P6,500.
f. Insurance cost covering the factory operation was paid in cash, P11,000.
g. Other factory overhead costs amounted to P63,000.
h. P287,500 of factory overhead cost was applied to production on the basis of direct labor
cost.
i. Job 123 and Job 789 were completed and transferred to the Finished Goods account. The
balance of the Work in Process account on April 30,2006, was P154,625.
j. Job 456 and Job 123 were sold on account during the month. The cost of goods sold for
these jobs was P520,475. The balance of the Finished Goods account on April 30 showed
P254,875.
34. What was the cost of goods manufactured in April?

a. P665,250
b. P342,275
c. P597,150
d. P571,650
35. What is the amount of overapplied or underapplied overhead in April?

a. P15,300 overapplied
b. P16,700 overapplied
c. P14,000 underapplied
d. P18,300 overapplied
36. Emerald Company uses a job costing system and applies factory overhead cost to
products on the basis of direct labor hours. Management prepared this overhead budget for
2006:
Budgeted direct labor hours 59,000

Budgeted factory overhead P678,500
During 2006, an economic recession caused the curtailment of production and a buildup of
inventory in Emerald Company’s warehouse. The company’s ledger shows the following
operating data:
Direct labor (P8/hr; 36,000 hrs) P288,000

Inventories, Jan. 1, 2006:
Materials (All direct) P35,000
Work in Process 198,000
Finished goods 450,000
Inventories, Dec. 31, 2006:
Materials (All direct) 50,000
Work in Process 125,000
Cost of goods sold after adjusting
For underapplied overhead 987,000
The firm closed underapplied or overapplied overhead directly into the Cost of Goods Sold
account. After the adjustment for underapplied overhead, Cost of Goods Sold was increased
by P18,000.
What is the actual overhead for 2006?

a. P432,000
b. P428,000
c. P622,000
d. P588,200
Situational
.Lauren Company uses a job costing system for its production costs. A predetermined factory
overhead rate based on direct labor costs is used to apply factory overhead to jobs. During the
month of July, the firm processed three jobs: A1, B2 and C3. a small fire in the
administration office during the wee hours of August 1 left only these fragments of the
company’s factory ledger:
Inventory, July 1:
Materials (all direct) P42,500
Work in Process (Job A1) 54,000
Inventory, July 31:
Materials (all direct) ?
Work in Process (Job B2 and C3) ?
Cost of Goods Sold, July 102,000
Direct materials purchased, July 25,000
Direct materials issued to production: 63,340
Job A1 21,340
Job B2 26,000
Job C3 16,000
Factory labor hrs used (P5.50/hr)
Job A1 2,800
Job B2 3,800
Job C3 1,700
Indirect labor 900
Other factory overhead costs incurred:
Rent 29,500
Utilities 8,600
Repairs and maintenance 4,600
Depreciation 27,100
Other 6,600
Job A1 is the only job completed during the month, with P123,080 cost of goods
manufactured.
37. What was the ending balance of the Work in Process inventory account?
a. P123,475
b. P88,625
c. P135,775
d. P187,450
38. The amount of overapplied or underapplied overhead is

1. P16,855
2. P13,550
3. P15,350
4. P14,515
Situational
The following information pertain to questions 1 through 3.
General Electronics manufactures microchips in large quantities. Each microchip undergoes

assembly and testing. The total assembly costs during January 2006 were:
Direct materials used P 720, 000
Conversion costs 760, 000
Total manufacturing costs P1, 480, 000
1. Assume there was no beginning inventory on January 1, 2006. During January, 10,
000 microchips were plaved into production and all 10, 000 microchips were fully
completed at the end of January. What is the unit cost of an assembled microchip in
January 2006?
a. P40
b. P120
c. P148
d. P72
2. Assume that during February 10, 000 microchips are placed into production. Further
assume the same total assembly costs for January are also incurred in February 2005
but only 9, 000 microchips are fully completed at the end of February. All direct
materials have been added to the remaining 1, 000 microchips. However, on average,
these remaining 1, 000 microchips are only 50% complete as to conversion costs.
What is the equivalent unit cost for conversion costs for February 2006?
a. 9, 500
b. 11, 000
c. 10, 000
d. 9, 000
3. Assuming the same additional information in no.2, what is the equivalent unit cost for
direct materials for February 2006?
a. 9, 500
b. 11, 000
c. 10, 000
d. 9, 000

Venti Chemicals has a Mixing Department and a Refining Department. Its process-costing
system in the Mixing Department has two direct materials cost categories (Chemical X and
Chemical Y) and one conversion costs pool. The following data pertain to the Mixing
Department for July 2006:
Units
Work in process, July 1 0
Units started 50, 000
Completed and transferred to Refining Department 35, 000
Costs
Chemical X P250, 000
Chemical Y 70, 000
Chemical X is introduced at the start of operations in the Mixing Department, and Chemical
Y is added when the product is three-fourths completed in the Mixing Department.
Conversion costs are added evenly during the process. The ending work in process in the
Mixing Department is two-thirds complete.
4. The equivalent units in the Mixing Department for July 2006 for conversion costs is
a. 50, 000
b. 55, 000
c. 40, 000
d. 45, 000
5. The cost of goods completed and transferred to the Refining Department during July
is
a. P350, 000
b. P225, 000
c. P550, 000
d. P375, 000
6. The cost of work in process as of July 31, 2006 is

a. P75, 000
b. P140, 000
c. P100, 000
d. P105, 000

The Idol Company makes a water-treatment chemical in a single processing department.
Direct materials are added at the start of the process. Idol uses the weighted-average method
of process costing. The following information for July 2006 is available.
Equivalent Units
Physical Units Direct Materials
Conversion Costs
Work in process, July 1 10, 000a 10, 000
7, 000
Started during July 40, 000
Completed and transferred out during July 34, 000 34, 000
34, 000
Work in process, July 31 16, 000b 16, 000
8, 000
a
Degree of completion: direct materials, 100%; conversion costs, 70%.
b
Degree of completion: direct materials, 100% conversion costs, 50%.
Total Costs for July 2006
Work in process, beginning
Direct materials P60, 000
Conversion costs 70, 000 P130, 000
Direct materials added during July 280, 000
Conversion costs added during July 371, 000
Total costs to account for P781, 000
7. The cost per equivalent unit for direct material is

a. P5.00
b. P7.50
c. P6.80
d. P5.20
8. The cost per equivalent unit for conversion costs is

a. P9.00
b. P11.25
c. P10.50
d. P7.50
9. Consider the following data for the Refrigerator Assembly Division for Homeplus:
Physical Units (Refrigerator) Direct Materials
Conversion Costs
Beginning work in process, May 1a 8 P 4, 933, 600
P 910, 000
Started in May 2006 50
Completed during May 2006 46
b
Ending work in process, May 31 12
Cost added during May 2006 P32, 200, 000
P13, 920, 000
a
Degree of completion: direct materials. 90%; conversion costs, 40%.
b
Degree of completion: direct materials, 60%; conversion costs, 30%.
What is the equivalent units for direct materials?

a. 46
b. 53.2
c. 48.2
d. 50

Holiday Chemicals manufactures an industrial solvent into two departments – mixing and
cooking. This question focuses on the Cooking Department. During June 2006, 90 tons of
solvent were completed and transferred out from the Cooking Department. Direct materials
are added at the end of the process. Conversion costs are added evenly during the process.
Holiday Chemicals uses the weighted average method of process costing. The following
information for June 2006 is available.
Equivalent Units
(Tons) 000
Physical Units Transferred-in Direct
Conversion
(Tons) Costs Materials
Costsssssss
Work in Process, Junea 40 40
0 30
Transferred in during June 80
Completed and transferred
out during June 90 90
90 90
b
Work in process, June 30 30 30
0 15
a
Degree of completion: transferred-in costs, 100%; direct materials, 0%; conversion
costs, 75%
b
Degree of completion: transferred-in costs, 100%; direct materials, 0%; conversion
costs, 50%
Total costs for June 2006

Work in process, beginning
Transferred-in costs P 40, 000
Direct materials 0
Conversion costs 18, 000 P
58, 000
Transferred-in costs added during June
87, 200
Direct materials added during June
36, 000
Conversion costs added during June
49, 725
Total costs to account for
P230, 925
10. The cost per equivalent unit for transferred-in costs is

a. 105.
b. 97.5.
c. 90.
d. 120.
11. The cost per equivalent unit for direct materials is

a. 105.
b. 97.5.
c. 90.
d. 120.
12. The cost per equivalent unit conversion costs is
a. 105.
b. 97.5.
c. 90.
d. 120.
The Western Fisheries, Inc., processes tuna for various distributors. Two departments are
involved, processing and
packaging. Data related to tons of tuna sent to the processing department during May 2006
are
Percent Completed_____
Tons of Tuna
Material Conversion
Work-in-process inventory, May 1 1, 500 80%
70%
Work-in-process inventory May 31 2, 300 50
30
Started processing during May 2006 6, 500
13. The number of tons completed and transferred out during the month are
a. 8, 000
b. 6, 500
c. 5, 700
d. 1, 500
14. Assuming the company uses the weighted-average method, what are the equivalent units
for materials?
a. 5, 700
b. 6, 500
c. 6, 850
d. 7, 750
15. Assuming the company uses the weighted-average method, what are the equivalent units
for conversion?
a. 6, 390
b. 5, 700
c. 8, 000
d. 6, 250
16. Click Company has the following information for December 1, 2006, to December 31,
2006. All direct materials are 100 percent complete; beginning materials cost P12,
000.
Work-in-Process
Beginning balance Completed 800 units and
December 1, 200 units, 9% P14, 000 transferred to P140,
complete 54,000 finished goods inventory 000
Raw material 34, 000
Direct labor
Factory overhead: P 6, 000
Property taxes 32, 000
Depreciation 18, 000
Utilities 4, 000
Indirect labor
Ending balance December 31, P22, 000
300 units
11.6 percent complete
Using the FIFO method, the equivalent units for direct materials is
a. 100.
b. 750.
c. 900
d. 1, 000
Oriental Company manufactures a variety of natural fabrics for the clothing industry in Cebu.
The following data pertain to the month of October 2006.
Work-in-process inventory, October 1 25, 000 units
Direct materials: 60 percent complete P 57, 000
Conversion: 30 percent complete P 45, 000
Cost incurred during October
Direct materials P 736, 000
Conversion P1, 094, 950
During October, 175, 000 units were completed and transferred out. At the end of the month,
30, 000 units (direct materials 80 percent and conversion 40 percent complete) remain in the
work-in-process inventory.
Oriental uses weighted-average process costing.
17. The equivalent units of direct materials is

a. 199, 000.
b. 175, 000.
c. 205, 000.
d. 187, 000.
18. The equivalent units of conversion is

a. 205, 000
b. 175, 000
c. 199, 000
d. 187, 000
19. What is the unit cost of direct materials?

a. P4.0005
b. P3.8490
c. P3.9849
d. P4.8840
20. What is the unit cost of conversion?

a. P6.690
b. P4.069
c. P4.669
d. P6.096
21. The cost of goods completed and transferred out during October is
a. P1, 647, 517.50.
b. P1, 764, 157.50.
c. P1, 664, 557.50.
d. P1, 457, 675.50
22. The cost of the work-in-process inventory at October 31 is

a. P103, 637.60.
b. P168, 789.60.
c. P176, 089.00.
d. P166, 998.00.
Ysage Company manufactures a single product that goes through two process, mixing and
cooking. These data pertain to the mixing department for August 2016:
Work-in-process, August 1 27, 000 units
Conversion: 80 percent complete
Work-in-process inventory, August 31 17, 000 units
Conversion: 40 percent complete
Units started into production 60, 000 units

Units completed and transferred out ?
Costs
Work-in-process inventory, August 1
Material X P 64, 800
Material Y 89, 100
Conversion 119, 880
Costs added during August
Material X 152, 700
Material Y 138, 400
Conversion 302, 520
Material X is added at the beginning of work in the mixing department. Material Y also is
added in the mixing department, but not until units of product are 60 percent complete with
regard to conversion. Conversion costs are incurred uniformly during the process.
For questions 23 through 26, assume that the company uses the weighted-average cost
method.
23. The equivalent units of Material X is

a. 70, 000.
b. 77, 000.
c. 87, 000.
d. 100, 000.
24. The cost per equivalent unit of material Y is

a. P5.25
b. P4.50
c. P3.25
d. P5.00
25. The cost of units transferred out is

a. P650, 000.
b. P787, 500.
c. P688, 500.
d. P750, 500.
26. What is the value of ending Work-in-Process Inventory?

a. P79, 900
b. P65, 500
c. P68, 900
d. P89, 400
For questions 27 and 28 assume that the company uses the FIFO method.
27. The cost of units transferred out is

a. P887, 766
b. P809, 754
c. P786, 866
d. P707, 465
28. What is the value of ending Work-in-Process Inventory?

a. P80, 532
b. P70, 454
c. P67, 367
d. P86, 565
29. Carrie produces a single model of popular digital watches in large quantities. A single
watch moves through two departments. The manufacturing costs in the assembly
department during March were
Direct materials added P137, 500
P322, 000
There was no beginning inventory of work-in-process. During the month, 25, 000
watches were started, but only 23, 000 were completed and transferred to the testing
department. All the parts had been made and placed in the remaining 2, 000 watches,
but only 80 percent of the labor had been completed. The company is using the
weighted-average method of processing costing to accumulated product costs.
How much is the costs of ending work-in-process?

a. P23, 000
b. P31, 000
c. P22, 000
d. P35, 000
Situational
Canada Pulp Company processes wood pulp for manufacturing various paper products. The
company employs a process costing system for its manufacturing operations. All direct
materials are added at the beginning of the process, and conversion costs are incurred
uniformly throughout the process. This is the company’s production quantity schedule for
May:
Tons of Percent Completed
Pulp Materials Conversion
Work-in-process inventory, May 1 1500 100
Units started during May 5000

Total units to account for 6500
Units from beginning work-in-

process which were completed and
transferred out during May 1500
Units started and completed during
May 4000
Work-in-process inventory, May 31
1000 100
Total units accounted for 6500
And the following cost data are available:

Work-in-process inventory, May 1:
Direct materials P20,750
Conversion 23,470
Costs incurred during May

Direct materials P80,000
Conversion 58,880
30. Using FIFO method, the equivalents units of direct materials during May is:
a. 6,500
b. 5,500
c. 6,000
d. 5,000
31. Using FIFO method, the equivalent units of conversion during May is:
a. 5,500
b. 5,050
c. 6,100
d. 6,000
32. Using the weighted-average method, the cost per equivalent unit for direct materials
during May is:
a. 5,500
b. 6,000
c. 6,500
d. 5,000
33. Using the weighted-average method, the cost per equivalent unit for conversion
during May is:
a. ,500
b. 5,600
c. 6,000
d. 6,100
34. Woody Manufacturing Company produces a single product, a wood refinishing kit
that sells for P179.50. The final processing of the kits occurs in the packaging
department. An internal quilted wrap is applied at the beginning of the packaging
process. A compartmented outside box printed with instructions and the company’s
name and logo is added when units are 60 percent through the process. Conversion
costs consisting of direct labor and applied overhead occur evenly throughout the
packaging process. Conversion activities after the addition of the box involve package
sealing, testing for leakage, and final inspection. Rejections in the packaging
department are rare and may be ignored. The following data pertain to the activities of
the packaging department during the month of October.
 Beginning work-in-process inventory was 10,000 units, 40 percent complete
as to conversion costs.
 30,000 units were started and completed in the month.
 There were 10,000 units in ending work-in-process, 80 percent complete as to
conversion costs.
The packaging department’s October costs were:
Quilted wrap P800,000
Outside boxes 500,000
Direct labor 220,000
Applied overhead (P30.00 per direct labor peso) 660,000
The costs transferred in from prior processing were P30.00 per unit. The cost of goods sold
for the month was P240,000 and the ending finished goods inventory was P840,000. Woody
uses the first-in, first-out method of inventory valuation.
Woody’s controller, Marcus Bella, has been asked to analyze the activities of the packaging
department for the month of October. Bella knows that to properly determine the
department’s unit cost of production, he must first calculate the equivalent units of
production.
The cost per equivalent unit of the October production is
a. P35.00
b. P40.00
c. P30.00
d. P50.00
Situational
Powter Company’s one product is manufactured by a process that reacquires two
departments. The production starts in department A and is completed in department B.
Materials are added at the beginning of the process in department A. Additional materials are
added when the process is 50 percent complete in department B. Conversion costs are
incurred proportionally throughout the production processes in both departments.
On April 1, department A had 500 units in production estimated to be 30 percent compete,
while department B had 300 units in production estimated to be 40 percent complete. During
April, department A started 1,500 units and completed 1,600 units, while department B
completed 1,400 units. The work-in-process ending inventory on April 30 in department A is
estimated to be 20 percent complete and the work-in-process ending inventory in department
B is estimated to be 70 percent complete.
The cost sheet for department A shows that the units in the work-in-process beginning
inventory had P3000 in direct materials costs and P1,530 for conversion costs. The
production element costs incurred in April were P12,000 for direct material and P10,710 for
conversion. The work-in-process beginning inventory in department B on April 1 was
P6,100. Department B incurred P38,000 in Direct materials costs and P24,350 in conversion
costs in April.
The cost per unit in March for department A is P14 per unit regardless of which process
costing method is used in determining costs. Powter company uses the FIFO method for
department A and the weighted-average method for department B.
35. The equivalent Units for Direct Materials in Department A is
a. 2,000
b. 1,500
c. 2,500
d. 1,600
36. The cost per equivalent unit for Conversion Costs in Department B is
a. P6.50
b. P7.00
c. P7.25
d. P6.00
Situational
Tan and Wu, an individual income tax preparation firm, uses the FIFO method of process
costing for the monthly reports. The following shows its March 2006 information:
Returns in process, March 1 (30% complete) 100
Returns started in March 1,100
Returns in process, March 31 (90% complete) 200
Labor and overload costs for returns in process, March 1 P330

Labor and overhead costs incurred in March P138,000
The company uses the FIFO method.

37. The equivalent units for March is
a. 1,000
b. 1,180
c. 1,150
d. 1,500
38. How much is the cost per equivalent units?
a. P120
b. P150
c. P175
d. P100
39. How much is the cost of completed returns for the month of March?
a. P108,000
b. P100,400
c. P108,430
d. P116,730
40. How much is the cost of returns in process as of March 31?
a. P22,000
b. P21,600
c. P19,600
d. P29,000
Multiples Choice Questions

1. Nemo Company has the following data:
Budgeted Budgeted Level OH
OH Cost Pool OH Cost For Cost driver Cost driver Rate
Direct Materials 120,000 3,000 pounds Weight of raw 40
material
Machine Setup 9,750 325 repetitions Number of 30
repetitions
Machine repair 1,045 5 units Unit of time* 209
time
Inspections 8,100 135 inspects Number of 60
inspections
Requirements for Job 222

Raw Materials 100 pounds
Machine setup 25 repetitions
Machine repair time 0.5 hours
Inspections 10 inspections
* One unit equals 15-minute intervals

The total overhead that should be assigned to Job 222 is
A. P5,350
B. P4,000
C. P4,750
D. P5,768
Situational
The following information pertain to question 2 and 3:
Kimmy Company has identified the following overhead cost pools and cost drivers:
Cost Pools Activity Costs Cost Drivers
Machine Setup P180,000 1,500
Materials Handling 50,000 12,500 pounds of materials
Electric Power 20,000 20,000 kilowatt-hours
The following cost information pertains to the production of products X and Y:

X Y
Number of units produced 4,000 20,000
Direct materials cost (P) P20,000 P25,000
Direct labor cost (P) P12,000 P20,000
Number of setup hours 100 120
Pounds of materials used 500 1,500
Kilowatt-hours 1,000 2,000
2. The unit cost for product X is:

A. P11.00
B. P11.75
C. P10.00
D. P10.50
3. The unit cost for product Y is:
A. P3.37
B. P4.50
C. P4.27
D. P3.50
Situational
The Randolph Company uses activity-based costing and provides this information:
Manufacturing Activity Area Cost Driver Used as Conversion Cost per Unit of
Application Base Base
C. Materials handling Number of parts P 0.45
D. Machinery Machine-hours 51.00
E. Assembly Number of parts 2.85
F. Inspection Number of finished units 30.00
Assume that 75 units of a component fir packaging machines have been manufactured. Each
unit required 105 parts and 3 machine-hours. Direct materials cost P600 per finished unit. All
other manufacturing costs are classified into one category, conversion cost.
4. The Total manufacturing costs is
B. P87,412.50
C. P78,412.50
D. P84,712.50
E. P82,712.50
5. The unit costs of the 75 units is

A. P1,219.50
B. P1,129.50
C. P912.50
D. P1,050.00
6. The Pangasinan plant of the Pilipinas Company manufactures cash registers. It plans
to implement an activity-based costing system. The controller has prepared the
following estimates regarding cost pools and activity levels for the next year.
Cost Pool Activity Costs Activity driver levels
Electricity P100,000 40,000 kwh
Machine setups 300,000 1,500 setup hours
Material moves 80,000 40,000 moves
Quality inspections 120,000 30,000 inspections
Total P600,000
The plant’s present cost accounting system allocates manufacturing overhead to jobs using a
plant-wide overhead rate based on machine hours. The total machine hours for the coming
year are estimated to be 100,000 hours.
The company has received a request for a bid to deliver 2,000 units of its cash register model
MAI. The following estimates pertain to the production of 2,000 units of MAI:
Direct materials cost P30,000
Direct labor (P10/hour) P15,000
Machine hours 2,000
Setup hours 50
Electricity (Kwh) 2.000
Number of quality inspections 500
Number of material moves 200
What are the estimated manufacturing costs per unit of MAI if the activity-based costing
system is implemented?
A. P22.50
B. P31.20
C. P28.50
D. P26.80
7. KG Company has established the following two cost pools for the month of November
2006:
Committed costs Cost driver Committed level
Material moves P60,000 Number of moves 600
Machine 180,000 Machine hours 20,000
maintenance
The following information pertains to Job KG101 completed during the first week of
November:
Direct materials cost P25,000
Direct labor cost P40,000
Number of material moves 150
Machine hours 4,000
The total manufacturing costs for Job KG101 using activity-based costing is
C. P116.000
D. P75,000
E. P125,000
F. P86,000
8. K-Mart Stores Corporation has established the following selling and distribution
overhead activity cost pools and their corresponding activity drivers for November 2006.
Activity level Activity cost Activity driver

Marketing management P30,000 P500,000 of sales
Customer service 10,000 5,000 customer
Order execution 5,000 100 orders
Warehousing 5,000 5,000 sq. feet
The overhead rate for the marketing management activity is
A. P0.10
B. P0.06
C. P0.90
D. P0.12
Situational
Crunchy Potatoes (CP) processes potatoes into potato cuts at its highly automated Luzon
plant. It sells potatoes to the retail consumer market and, more recently, to the institutional
market, which includes hospitals, cafeteria, and university dormitories.
CP’s existing costing system has a single direct-cost category (direct materials, which are the
raw potatoes) and a single indirect-cost pool (production support).
Support cost are allocated on the basis of pounds of potato cuts processed. Support costs
include packaging materials. The 2006 total actual cost for producing 1,000,000 pounds of
potato cuts (900,000 for the retail market and 100,000 for the institutional market) are:
Direct materials used P150,000
Production support P983,000
The existing costing system does not distinguish between potato cuts produced for the retail
or the institutional markets.
At the end of 2006, CP unsuccessfully bid for a large institutional contract. Its bid was
reported to be 30% above the winning bid. This feedback came as a shock because CP
included only a minimum profit margin on its bid. Moreover, the Luzon plant was widely
acknowledged as the most efficient in the industry.
As a result of its review process of the lost contract bid, CP decided to explore ways to refine
its costing system. First, it identified that P188,000 of the P983,000 pertain to packaging
materials that could be traced to individual jobs (P180,000 for retail and P8,000 for
institutional). These costs will now be classified a direct material. The P150,000 of direct
materials used were classified as P135,000 for retails and P15,000 for institutional. Second, it
used activity-based costing (ABC) to examine how the two products (retail potato cuts and
institutional potato cuts) used indirect support resources. The finding was that three activity
areas could be distinguished and that the different usage occurred in two of these three areas.
E. Cleaning Activity Area – CP uses 1,200,000 pounds of raw potatoes to yield
1,000,000 pounds of potato cuts. No distinction is made as to the end product
when cleaning potatoes. The cost-allocation base is pounds of raw potatoes
cleaned. Costs in the cleaning activity rea are P120,000
F. Cutting Activity Area – CP processes raw potatoes for the retail market
independently of those processed for the institutional market. The production
line produces (a) 250 pounds of retail potato cuts per cutting-hour, and (b) 400
pounds of institutional potato cuts per cutting-hour. The cost-allocation base is
cutting-hours on the production line. Cost in the cutting activity area are
P231,000.
G. Packaging Activity Area – CP packages potato cuts for the retail market
independently of those packaged for the institutional market. The packaging
line packages (a) 25 pounds of retail potato cuts per packaging hour, and (b)
100 pounds of institutional potato cuts per packaging hour. The cost-allocation
base is packaging-hours on the production line. Costs in he packaging activity
area are P4444,000
9. What is the cost rate per unit of the cost-allocation base in the cleaning activity area?
a. P0.10
b. P0.12
c. P1.20
d. P0.20
10. What is the cost rate per unit of the cost-allocation base in the cutting activity area?
a. P50.00
b. P40.00
c. C. P30.00
d. P60.00
11. What is the cost rates per unit of the cost-allocation base in the packaging activity
area?
a. P10.00
b. P12.00
c. P15.00
d. P20.00
Situational
Big Four, Inc., specializes in the distribution of pharmaceutical products. Big Four buys from
pharmaceutical companies and resells to each of three different markets:
a. MC supermarket chains
b. Drugstore chains
c. K and G single-store pharmacies
Lauren Flores, the new controller of Big Four, reported the following data for August 2006:
MC K and G
Supermarket Drugstore Single
Chains Chains Stores
Average revenue per delivery P30,900 P10,500 P1,980
Average cost of goods sold per delivery P30,000 P10,000 P1,800
Number of deliveries 120 300 1,000
For many years, Big Four has used gross margin percentage (Revenue - Cost of goods sold) +
Revenue) to evaluate the relative profitability of its customer groups (distribution outlets).
Flores recently attended a seminar on activity-based costing and decides to consider using it
at Big Four. Flores meets with all the key managers and many staff members. Generally,
these individuals agree that there are five key activity areas at Big Four:
Activity Area Cost Driver

1. Customer purchase order processing Purchase orders by customers
2. Line-item ordering Line items per purchase order
3. Store delivery Store deliveries
4. Cartons shipped to stores Cartons shipped
5. Shelf-stocking at customer store Hours of shelf-stocking
Each customer purchase order consists of one or more line items. A line item gents a single
product (such as Extra-Strength Ponstan capsules). Each store delivery entails the delivery of
one or more cartons of products to a customer. Each product is delivered in one more
separate cartons. Big Four staff stack cartons directly onto display shelves in a store.
Currently, there is no charge for this service, and not all customers use Big Four for this
activity.
The August 2006 operating costs (other than cost of goods sold) of Big Four are P301,080.
These operating costs are assigned to the five activity areas. The costs in each area and the
quantity of the cost-allocation base used in that area for August 2006 are as follows:
Total Units of
Cost
Total Costs in Allocation Base
Used
Activity Area August 2006 in August 2006
1. Customer purchase order processing P 80,000 2,000 orders
2. Line-item ordering 63,840 21,280 line items
3. Store deliveries 71,000 1,420 store
deliveries
4. Cartons shipped to stores 76,000 76,000 cartons
5. Shelf-stocking at customer stores 10.240 640 hours
P301.089
Other data for August 2006 include the following:
MC K and G
Supermarket Drugstore Single
Chains Chains Stores
Total number of orders 140 360 1500
Average number of line 14 12 10
items per
order
Total number of store 120 300 1000
deliveries
Average number of cartons 300 80 16
shipped per store delivery
Average number of hours of 3.0 0.6 0.1
shelf stocking per store
delivery
12. What is the 2006 gross-margin for MC Supermarket Chains?

a. P112,000
b. P150,000
c. P122,000
d. P108,000
13. What is the 2006 gross-margin for Drugstore Chains?

a. P100,000
b. P150,000
c. P120,000
d. P250,000
14. What is the 2006 gross-margin for K and G Single Stores?

a. P180,000
b. P120,000
c. P200,000
d. P320,000
15. What is the operating income of Big Four?

a. P132,080
b. P123,980
c. P136,920
d. P163,290
16. The operating income margin of MC Supermarket Chains in August 2006 using the
activity-based information is
a. 1.31%.
b. 1.23%.
c. 2.00%.
d. 1.51%.
17. The operating income margin of Drugstore Chains in August 2006 using the activity-
based information is
a. 3.43%.
b. 2.56%.
c. 1.75%.
d. 2.18%.
18. The operating income margin of K and G Single Stores in August 2006 using the
activity-based information is
a. 0.37%.
b. 0.75%.
c. 0.43%.
d. 0.27%
19. The total operating income under activity-based costing for August 2006 is:
a. P136, 920.
b. P119, 080.
c. P106, 220.
d. P123, 000.
20. The ratio of operating costs to revenues for MC Supermarket Chains is:
a. 1.60%.
b. 1.50%.
c. 1.75%.
d. 2.00%
21. Taal Mining Tools Ltd. makes specialty tools used in the mining industry. The
company uses an activity-based costing system for internal decision making purposes.
The company has four activity cost pools as listed below:
Activity Cost Pool Activity Measure Activity Rate

Order size Number of direct labor-hours P17.60 per direct labor-hour
Customer orders Number of customer orders P360 per customer order
Product testing Number of testing hours 179 pes testing hour

Selling Number of sales calls P1,494 per sales call
The managing director of the company would like information concerning the cost of a
recently completed order for hard-rock drills. The order required 150 direct labor-hours, 18
hours of product testing, and three sales calls.
What is the total overhead cost assigned to the order?

a. P8,904
b. P6,422
c. P9,408
d. P4,622
22. Sunday Optics has supplied the following data for use in its a costing system:
Overhead
Wages and salaries........ ............ P350,000
Other Overhead costs........ ............ 200,000
Total overhead costs........ ............ P350.000
Activity Cost Pool Activity Measure Total Activity

Volume Number of direct labor-hours 10,000 DLHS
Order processing Number of orders 500 orders
Customer support Number of customers 100 customers
Other These costs are not allocated to Not applicable
products or customers
Distribution of Resource Consumption Across Activity Cost

Pools
Order Customer
Volume Processing Support
Other Total
Wages and salaries 30% 35% 25% 10%
100%
Other overhead costs 25% 15% 20% 40%
100%
During the year, Sunday Optics completed an order for a special optica! switch for a new
customer, Friday Telecom. This customer did not order any other products during the year.
Data concerning that order follow:
Data Concerning the Friday Telecom Order

Selling price............. P295 per unit
Units ordered.................. 100 units
Direct materials ............. P264 per unit
Direct labor-hours .... 0.5 DLH per unit
Direct labor rate....... P25 per DLH
The activity rate for the order processing activity cost pool is
a. P305 per order.
b. P319 per order.
c. P500 per order.
d. P127 per order.
Situational
Par’s Cookhouse is a popular restaurant located on Sual in Panganisan. The owner of the
restaurant has been trying to better understand costs at the restaurant and has hired a student
intern to conduct an activity- based costing study. The intern, in consultation with the owner,
identified three major activities. She then completed the first- stage allocations of costs to the
activity cost pools, using data from last month’s operations. The results appear below:
Activity Cost Pool Activity Measure Total Cost Total Activity

Serving a party of Number of parties P12,000 5,000 parties
diners served
Serving a diner Number of diners P90,000 12,000 diners
served
Serving a drink Number of drinks P26,000 10,000 drinks
ordered
The above costs include all of the costs of the restaurant except for organization-sustaining
costs such as rent, property taxes, and top- management salaries. A group of diners who ask
to sit at the same table are counted as a party. Some costs, such as the costs of cleaning linen,
are the same whether one person is at a table or the table is full. Other costs, such as washing
dishes depend on the number of diners served.
Prior to the activity- based costing study, the owner knew very little about the costs of the
restaurant. He knew that the total cost for the month (including organization- sustaining
costs) was P180, 000 and that 12,000 diners had been served. Therefore, the average cost per
diner was P12.
23. According to the activity- based costing system, what is the total cost of serving a
party of four diners who order three drinks in total?
a. P12.50
b. P20.00
c. P40.20
d. P37.80
party of two diners who do not order any drinks?
a. P20.00
b. P30.00
c. P17.40
d. P32.40
lone diner who orders two drinks?
a. P15.10
b. P9.90
c. P12.70
d. P20.00
26. What is the average cost per diner for serving a party of four diners who order three
drinks in total?
a. P10.05
b. P9.00
c. P7.50
d. P8.25
27. What is the average cost per diner serving a party of two diners who do not order any
drinks?
a. P10.00
b. P9.20
c. P7.50
d. P8.70
28. What is the average cost per diner for serving a lone diner who orders two drinks?
a. P9.90
b. P15.10
c. P 7.50
d. P12.50
Situational
Anya, Inc., manufactures two models of high-pressure steam valves, the ABC model and the
XYZ model. Data regarding the two products follow:
Product Direct Labor- Hours Annual Production Total Direct Labor-

Hours
ABC 0.2 DLHs per unit 20,000 units 4,000 DLHs
XYZ 0.4 DLHs per unit 40,000 units 16,000 DLHs
_20,000_ DLHs
Additional information about the company follows:

a. Product ABC requires P35 in direct materials per unit, and product XYZ requires P25.
b. The direct labor rate is P20 per hour.
c. The company has always used direct labor- hours as the base for applying
manufacturing overhead cost to products. Manufacturing overhead totals P1,280,000
per year.
d. Product ABC is more complex to manufacture than product XYZ and requires the use
of a special milling machine.
e. Because of the special work required in (d) above, the company is considering the use
of activity- based costing to apply overhead cost to products. Three activity cost pools
have been identified and the first- stage allocations have been completed. Data
concerning these activity cost pools appear below:
Total Activity
Activity Cost Pool Activity Measure Total Cost ABC XYZ Total
Machine setups Number of setups P180,000 150 100 250
Special milling Machine- hours 300,000 1,000 0 1,000
General factory Direct labor- hours 1,000,000 4,000 16,00 20,000
0
P1, 480,000
29. Assume that the company continues to use direct labor- hours as the base for applying
overhead cost to products. The unit cost for products ABC would be
a. P53.80
b. P44.20
c. P38.60
d. P58.00
30. Assume that the company decides to use activity- based costing to apply overhead
cost to products. The unit cost of product ABC would be
a. P39.40
b. P56.70
c. P46.70
d. P69.40
31. Assume that the company decides to use activity-based costing to apply overhead cost
to products. The unit cost of product XYZ would be
a. P68.20
b. P54.80
c. P45.20
d. P64.80
Situational
Kimmy Asbestos Removal Company is in the business of removing potentially toxic asbestos
insulation and related products form buildings. The company’s estimator has been involved
in a long- simmering dispute with the on- sure work supervisors. The on- site supervisor
claim that the estimator does not take enough care in distinguishing between routine work
such as removal of asbestos insulation around heating pipes in older homes and nonroutine
work such as removing of asbestos- contaminated ceiling plaster in industrial buildings. The
on-site supervisors believe that nonrutine work is far more expensive that routine work and
should bear higher customer chargers. The estimator sums up his position in this way: ―My
job is to measure the area to be cleared of asbestos. As directed by top management, I simply
multiply the bid price. Since our average cost is only P3.00 per thousand square feet, that
leaves enough cushion to take care of the additional costs of nonroutine work that shows up.
Besides, it is difficult to know what us routine or not routine until you actually start tearing
things apart.‖
Partly to shed light on this controversy, the company initiated an activity-based costing study
of all of its costs. Data from the activity- based costing system follow:
Activity Cost Pool Activity Measure Total Activity

Job size Thousands of square 500 thousands square feet
feet
Estimating and job Number of jobs 200 jobs*
setup
Other (costs of idle Not applicable; these 25 nonroutine jobs
capacity and costs are not allocated
organization- to jobs
sustaining costs)
________
*The total number of jobs includes nonroutine jobs as well as routine jobs. Nonroutine jobs
as well as routine jobs require estimating and setup work:
Wages and salaries P 200,000

Disposal fees 600,000
Equipment depreciation 80,000
On-site supplies 60,000
Office expenses 190,000
Licensing and insurance 370,000
Total cost P1,500,000
Distributing of Resource Consumption Across Activity Cost

Pools
Working
Estimating on
and Job Nonroutin
Job Size Setup e Jobs Other Total
Wages and Salaries 40% 10% 35% 15% 100%
Disposal fees 70% 0% 30% 0% 100%
Equipment depreciation 50% 0% 40% 10% 100%
On-site supplies 55% 15% 20% 10% 100%
Office expenses 10% 40% 30% 20% 100%
Licensing and Insurance 50% 0% 40% 10% 100%
32. The activity rate for job size activity pool is

a. P1,667 per thousand square feet.
b. P1,000 per thousand square feet.
c. P1,554 per thousand square feet.
d. P2,550 per thousand square feet.
33. What is the average cost per thousand square feet of a routine 2,000- square- foot
asbestos removal job according to the activity- based costing system?
a. P1,616.50
b. P1,008.00
c. P1,816.50
d. P1,586.50
34. What is the total cost of a routine 4,000-square-foot asbestos removal job according to
the activity-based costing system?
a. P6,741
b. P3,668
c. P1,685.25
d. P1,856.25
35. What is the cost per thousand square feet of a nonroutine 2,000-square- foot asbestos
removal job according to the activity based- costing system?
a. P9,875.50
b. P10, 896.00
c. P11,250.20
d. P11,796.50
Job Size: (see solution to no. 32) P1,554 per thousand sq. ft.
Estimating and Job Setup: (see solution P525 per job
to no.33)
Working on Nonroutine Jobs:
Wages and salaries P 70,000
Disposal fees 180,000
Equipment depreciation 32,000
On-site supplies 57,000
Office expenses 57,000
Licensing and Insurance _148,000
Total cost P 499,00
* Total activity 25 nonroutine jobs
Activity rate P19,960 per nonroutine job
Job size (2 thousand sq. ft. @ P1,554 per thousand P 3,108

sq.ft.)
Estimating and job setup (1 job@ P525 per job) 525
Nonroutine job (1nonroutine job@ P19,960 per _19,960
nonroutine job)
Total cost of the job P 23,593
Cost per thousand sq. f, (P23, 593/ 2 thousang sq. ft.) P 11, 796.50

a. A top-selling product might actually result in losses for the company.
b. Companies that undercost products will most likely market share.
c. If a company undersosts one of its products, then it will overcost at least one of its
other products.
d. Direct costs plus indirect cost equal total costs.
37. All of the following statements are false except

a. When refining a costing system, a company should classify as many costs as possible
as indirect costs.
b. Indirect labor and distribution costs would likely be in the same activity- cost pool.
c. An activity-based costing system is necessary for costing services that are similar.
d. In a homogenous cost pool, all costs have similar cause-and-effect relationship
with the cost-allocation base.
38. Ali of the following statements are true except

a. Activity-based costing helps identify various activities that explain why costs are
incurred.
b. Direct tracing of costs improves cost accuracy.
c. For activity- based cost systems, activity costs are assigned to products in the
proportion of the demand they place on activity resources.
d. Using multiple unit-level cost drivers generally constitutes an effective activity-
based cost system.

a. Unit- level measures can distort product costing because the demand for overhead
resources may be driven by batch- level or product- sustaining activities.
b. ABC systems seek a cost allocation base that has a cause-and-effect relationship with
costs in the cost pool.
c. For service organizations, activity-based cost systems may be used to clarify
appropriate cost assignments
d. Misleading cost numbers are larger when unit-level assignments and the
alternative activity-cost driver assignments are proportionately similar to each
other
40. Design of an ABC system requires

a. That the job bid process be redesigned.
b. That cause-and-effect relationship exists between resource costs and individual
activities.
c. An adjustment to product mix.
d. Both (b) and (c).
41. 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. Activity-based costing seeks to distinguish batch-level, product-sustaining, and
facility-sustaining costs, especially when they are not proportionate to one another.
d. Activity-based costing differs from traditional costing systems in that products are not
cross-subsidized.
42. Companies use ABC system information

a. To analyze costs.
b. To prepare budgets.
c. To evaluate performance.
d. All of the above.
43. It is important that the product costs reflect as much of the diversity and complexity of the
manufacturing process so that
a. Product costs will reflect their relative consumption of resources.
b. Nonvalue-added costs can be eliminated.
c. There is less likelihood of cross subsidizing of product costs.
d. All of the above.
44. A well-designed, activity-based costing system helps managers make better decisions
because information derived from an ABC analysis
a. Can be used to eliminate nonvalue-added activities.
b. Is easy to analyze and interpret.
c. Takes the choices and judgment challenges away from the managers.
d. Emphasizes how managers can achieve higher sales.
45. A primary reason for assigning selling and distribution costs to products for analytical
purposes is
a. To justify a varied product mix.
b. That controllers are required to assign all costs when valuing inventories.
c. That different processes, products, and costumers require different quantities of
selling and administrative activities.
d. That all indirect costs must be assigned.
46. The unique feature of an ABC system is the emphasis on

a. Costing individual jobs.
b. Department indirect-cost rates.
c. Multiple-cost pools.
d. Individual activities.
47. A key reason for using an ABC system rather than a department-costing system is
because ABC assigns indirect costs
a. Using broader averages.
b. More simply than a department-costing system.
c. In a less costly manner.
d. To reflect differences required by different processes are well as customers.
48. Which of the following is a sign that an ABC system may be useful?
a. There are small amounts of indirect costs.
b. Products make diverse demands on resources because of differences in volume,
process steps, batch size, or complexity.
c. Products a company is less suited to produce and sell show small profits.
d. Operations staff agrees with accountants about the costs of manufacturing and
marketing products and services.
49. Smaller cost distortions occur when traditional systems’ single indirect-cost rate and the
activity-cost driver rates
a. Use the same total costs for computations.
b. Are similar in proportion to each other.
c. Are more different that alike.
d. Use the same cost driver units.
50. Factories producing a more varied and complex mis of products have higher costs that
factories producing only a narrow range of products because
a. More variations and complexities require more activities.
b. They require more engineers.
c. They require more direct laborers.
d. They buy more robotics.
51. Which of the following is not sign that a ―smoothing out‖ costing system exists?
a. Operations managers don’t use the data originated by the cost system.
b. Products that a company is well suited to make and sell, show large profits.
c. New product variations have been added but the cost system has not been upgraded.
d. The company loses bids they believe were priced competitively.
Situational
The following information applies to question 52 through 57:
Barmaid Company provides the following ABC costing information:

Activities Total Costs Activity-costs drivers
Account inquiry hours P400,000 10,000 hours
Account billing lines P280,000 4,000,000 lines
Account verification accounts P150,000 40,000 accounts
Correspondence letters P 50,000 4,000 letters
Total costs P880,000
The above activities are used by Departments A and B as follows:
Department A Department B
Account inquiry hours 2,000 hours 4,000 hours
Account billing lines 400,000 lines 200,000 lines
Account verification accounts 10,000 accounts 8,000 accounts
Correspondence letters 1,000 letters 1,600 letters
52. How much of the account inquiry cost will be assigned to Department A?
a. P80,000
b. P400,000
c. P160,000
d. None of the above.
53. How much account billing cost will be assigned to Department B?

a. P28,000
b. P280,000
c. 14,000
54. How much of account verification costs will be designed to Department A?

a. P30,000
b. P37,500
c. P150,000
d. P10,000
55. How much of correspondence costs will be designed to Department B?

a. P1,600
b. P12,500
c. P50,000
d. P20,000
56. How much of the total costs will be assigned to Department A?

a. P158,000
b. P80,000
c. P224,000
d. P880,000
57. How much of the total costs will be assigned to Department B?

a. P158,000
b. P80,000
c. P224,000
d. P880,000
Situational
The following information applies to questions 58 through 61:
Krisee Corporation manufactures two models of office chairs, a standard and a deluxe model.
The following activity and cost information has been compiled.
Number of Number of Direct

Product Number of Setups Components Labor Hours
Standard 22 8 375
Deluxe 28 12 225
Overhead costs P20,000 P40,000
58. Assume a traditional costing system applies the P60,000 of overheard costs based on
direct labor hours. What is the total amount of overhead costs assigned to the standard
model?
a. P24,800
a. P35,200
b. P37,500
c. P22,500
59. Assume a traditional costing system applies the P60,000 of overheard costs based on
direct labor hours. What is the total amount of overhead costs assigned to the deluxe model?
a. P24,800
b. P35,200
c. P37,500
d. P22,500
60. Number of setups and number of components are identified as activity-cost drivers for
overhead. Assuming an activity-based costing system is used, what is the total amount of
overhead costs assigned to the standard model?
a. P24,800
b. P35,200
c. P37,500
d. P22,500
61. Number of setups and number of components are identified as activity-cost drivers for
overhead. Assuming an activity-based costing system is used, what is the total amount of
overhead costs assigned to the deluxe model?
a. P24,800
b. P35,200
c. P37,500
d. P22,500
Situational
T-shirts Sweatshirts
Production and sales volume 60,000 units 35,000 units
Selling price P16.00 P29.00
Direct material P 2.00 P 5.00

Direct labor P 4.50 P 7.20
Manufacturing overhead P 2.00 P 3.00
Gross profit P 7.50 P13.80
Selling and administrative P 4.00 P 7.00
Operating Profit P 3.50 P 6.80
Red castles produces two product lines: T-shirts and Sweatshirts. Product profitability is
analyzed as follows
Red Castle’s managers have decided to revise their current assignment of overhead costs to
reflect the following ABC cost information:
Activity Activity cost Activity-cost driver

Supervision P100,920 Direct labor hours (DLH)
Inspection P124,000 Inspections
Activities demanded
T-Shirts Sweatshirts
0.75 DLH/unit 1.2 DLH/unit
45,000 DLHs 42,000 DLHs
60,000 inspections 17,500 inspections
62. Under the revised ABC system, the activity-cost driver rate for the supervision activity is
a. P2.58
b. P2.40
c. P2.24
d. P1.16
63. Under the revised ABC system, supervision costs allocated to Sweatshirts will be
a. P48,720
b. P100,800
c. P100,920
64. Under the revised ABC system, total overhead costs allocated to Sweatshirts will be
a. P48,720
b. P76,720
c. P224,920
65. Under the revised ABC system, overhead costs per unit for the Sweatshirts will be
a. P1.39 per unit
b. 1.60 per unit
c. P2.19 per unit
d. P2.47 per unit
66. Using an ABC system, next year’s estimates show manufacturing overhead costs will
total P228,300 for 52,000 T-shirts. If all other T-shirt costs and sales prices remain the same,
the profitability that can be expected is
a. P5.41 per t-shirt
b. P4.39 per t-shirt
c. P1.11 per t-shirt
d. P(0.81) per t-shirt
Situational
Francisjo Inc. manufactures remote controls. Currently the company uses a plant-wide rate
for allocating manufacturing overhead. The plant manager believes it is time to refine the
method of cost allocation and has the accounting department identify the primary production
activities and their cost drivers:
Activities Cost driver Allocation Rate

Material Handling Number of parts P2 per part
Assembly Labor hours P20 per hour
Inspection Time at inspection station P3 per minute
The current traditional cost method allocates overhead based manufacturing labor hours using
a rate of P200 per labor hour.
67. What are the indirect manufacturing costs per remote control assuming the traditional
method is used and a batch of 500 remote controls are produced? The batch requires 1,000
parts, 10 direct manufacturing labor hours, and 15 minutes of inspection time.
a. P2,000.00 per remote control
b. P0.25 per remote control
c. P2.00 per remote control
d. P4.00 per remote control
68. What are the indirect manufacturing costs per remote control assuming an activity-based
costing method is used and a batch of 50 remote controls are produced? The batch requires
100 parts, 6 direct manufacturing labor hours, and 2.5 minutes of inspection time.
a. P4.00 per remote control
b. P6.55 per remote control
c. P24.00 per remote control
d. P327.50 per remote control
Situational
Jaypee Printing has contracts to complete weekly supplements recquired forty-six customers.
For the year 2006, manufacturing overhead cost estimates total P420,000 for an annual
production capacity of 12 million pesos.
For 2006 Jaypee Printing decided to evaluate the use of additional cost pools. After analyzing
manufacturing overhead costs, it was determined that number of design changes, setups, and
inspections are the primary manufacturing overhead cost drivers. The following information
was gathered during analysis:
Cost pool Manufacturing overhead costs Activity level

Design changes P 60,000 200,000 design changes
Setups 320,000 4,000 setups
Inspections 40,000 16,000 inspections
Total manufacturing overhead costs P420,000
During 2006, two customers, Wilton Managers and Hestern Systems, are expected to use the
following printing services:
Activity Wilton Managers Hestern Systems

Pages 60,000 76,000
Design changes 10 2
Setups 20 10
Inspections 30 38
69. If manufacturing overhead costs are considered one large cost pool and are assigned
based on 12 million pages of production capacity, what is the cost driver rate?
a. P0.25 per page
b. P0.05 per page
c. P0.025 per page
d. P0.035 per page
70. Using the cost driver rate determined in the previous question, what is the manufacturing
overhead cost estimate for Hestern Systems during 2006?
a. Manufacturing overhead costs applied to. Hestern Systems total P2,100
b. Manufacturing overhead costs applied to Hestern Systems total P2,100
c. Manufacturing overhead costs applied to Hestern Systems total P2,660
d. Manufacturing overhead costs applied to Hestern Systems total P3,800
71. Assuming activity-cost pools are used, what are the activity-cost driver rates for design
changes, setups, and inspections cost pools?
a. P300 per change, P80 per setup, P2.50 per inspection
b. P250 per change, P200 per setup, P3.75 per inspection
c. P210 per change, P105 per setup, P26.25 per inspection
d. P333 per change, P125 per setup, P4.00 per inspection
72. Using the activity-cost driver rates determined in the previous question, what is the
manufacturing overhead cost estimate for Hestern Systems during 2006?
a. P3,113.75
b. P1,495.00
c. P2,068.00
d. P3,412.50
73. When costs are assigned using the single cost driver, number of pages printed, then
Hestern Systems
a. Is fairly billed because resources are allocated uniformly to all jobs.
b. Is grossly under billed for the job, while other jobs will be unfairly over billed.
c. Will likely seek to do business with competitors.
d. Will contribute too little to profits, and Jaypee Printing will not want to accept
additional work from the company.
74. Activity-based management (ABM) includes decisions about all except

a. Pricing and product mix.
b. Smoothing costs.
c. Reducing costs.
d. Improving processes.
Situational
Queen Corporation has two departments, Petite and Huge. Central costs could be allocated to
the two departments in various ways.
Petite Department Huge Departments

Square footage 6,000 18,000
Number of employees 1,120 480
Sales P400,000 P2,000,000
75. If advertising expense of P300,000 is allocated on the basis of sales, the amount allocated
to the Petite Department would be
a. P50,000.
b. P75,000.
c. P210,000.
d. P250,000.
76. If total advertising expense of P300,000 is allocated on the basis of sales, the amount
allocated to the Huge Department would be
a. P225,000.
b. P90,000.
c. P250,000.
d. P50,000.
77. If total payroll processing costs of P96,000 are allocated on the basis of number of
employees, the amount allocated to the Petite Department would be
a. P67,200.
b. P24,000.
c. P16,000.
d. P28,000
1. Which of the following statements is true?

a. Absorption costing "absorbs" only variable manufacturing costs.
b. Variable costing includes all variable costs – both manufacturing and
nonmanufacturing – in inventory. ,
c. The contribution-margin format of the income statement distinguishes manufacturing
costs from nonmanufacturing costs.
d. A company may use absorption costing for external reports and choose to use
throughput costing for internal reports.

a. Under both variable and absorption costing, all variable manufacturing costs are
inventoriable costs.
b. Determining the ―right‖ level of capacity is one of the most strategic and difficult
decisions managers face.
c. Theoretical capacity is unattainable in the real world.
d. Under variable costing, managers can increase operating income by simply
producing more inventory at the end of the accounting period even if that
inventory never gets sold.
3. Absorption costing is required for all except

a. generally accepted accounting principles.
b. determining a competitive selling price.
c. external reporting to shareholders.
d. income tax reporting.
4. Variable costing
a. expenses administrative costs as cost of goods sold.
b. treats direct manufacturing costs as a product cost.
c. includes fixed manufacturing overhead as an inventoriable cost.
d. is required for external reporting to shareholders.
5. The only difference between variahle and absorption costing is the expensing of
a. direct manufacturing costs.
b. variable marketing costs.
c. fixed manufacturing costs.
d. both (a) and (c).
6. An unfavorable production-volume variance occurs when

a. production exceeds the denominator level.
b. the denominator level exceeds production.
c. production exceeds unit sales.
d. unit sales exceed production.
7. If the unit level of inventory increases during an accounting period, then

a. less operating income will be reported under absorption costing than variable costing.
b. more operating income will be reported under absorption costing than variable
costing.
c. operating income will be the same under absorption costing and variable costing.
d. the exact effect on operating income cannot be determined.
8. The difference between operating incomes under variable costing an absorption costing
centers on how to account for
a. direct materials costs.
b. fixed manufacturing costs.
c. variable manufacturing costs.
d. both (b) and (c).
9. One possible means of determining the difference between operating incomes for
absorption costing and variable costing is
a. by subtracting sales of the previous period from sales of this period.
b. by subtracting fixed manufacturing overhead in beginning inventory from fixed
manufacturing overhead in ending inventory.
c. by multiplying the number of units produced by the budgeted fixed manufacturing
cost rate.
d. by adding fixed manufacturing costs to the production-volume variance.
10. When comparing the operating incomes between absorption costing and variable costing
and beginning finished inventory finished inventory, it may be assumed that
a. sales increased during the period.
b. variable cost per unit is less than fixed
c. there is an unfavorable production-volume exceeds ending cost per unit
d. variable costing operating income exceeds absorption costing operating income.
11. Companies have recently been able to reduce inventory levels because
a. there is better sharing of information between suppliers and manufacturers.
b. just-in-time production strateg9ies are being implemented.
c. production quotas are being implemented
d. of both (a) and (b).
12. Many companies have switched from absorption costing to variable costing for internal
reporting
a. to comply with external reporting requirements
b. to increase bonuses for managers
c. to reduce the undesirable incentive to build up inventories
d. so the denominator level is more accurate.
13. Ways to ―produce for inventory‖ that result in increasing operating income include
a. switching production to products that absorb the least mounts of fixed manufacturing
costs
b. delaying items that absorb the greatest amount of fixed manufacturing costs.
c. deferring maintenance to accelerate production.
d. all of the above.
14. To discourage producing for inventory, management can

a. evaluate nonfinancial measures such as units in ending inventory compared to units in
sales.
b. evaluate performance over a three to five year period rather than a single year.
c. incorporate a carrying charge for inventory in the internal accounting system.
d. all of the above.

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Multiple Choice Questions

1. Which of the following statements is false?

30. Which of the following statements about inventory is most appropriate?

39. Little Mermaid's debt ratio at 12/31/07 is:

45. Little Mermaid’s price/earnings ratio at 12/31/07 is

47. Which of the following will cause a decrease in a company's accounts

52. When a balance sheet amount is related to an income statement amount in

54. The ratio that measures a firm's ability to generate earnings is

This analytical technique is termed:

65. A high quality of earnings is indicated by:

66. Dividend yield on ordinary shares owned by an investor is computed by:

68. Extensive use of leverage is usually associated with

69. The times interest earned ratio is computed by dividing:

70. The yield of investors in bonds:

71. From the viewpoint of short-term creditors, which of the follwring

82. Karen Company's net accounts receivable were P430,000 on December

A. return on ordinary shareholders’ equity.

Multiple Choice Questions

2. How much is Deadwood’s operating income for 2007?

5. The term ―conversion costs‖ refers to

6. The term ―prime costs‖ refers to

7. Costs which are ―inventoriable‖ are

8. The term ―variable costs‖ refers to

9. The term ―committed costs‖ refers to those

10. The term ―discretionary costs‖ refers to those

11. Those costs referred to as ―controllable costs‖ are

12. The term ―differential costs‖ refers to

13. A ―sunk‖ cost is

14. An ―opportunity cost‖ is

15. Those costs referred to as ―capacity costs‖ are

16. The term ―factory overhead‖ refers to

17. The term ―standard costs‖ refers to

18. ―Distribution costs‖ are

19. The term ―fixed costs‖ refers to

22. The cost of goods manufactured during the year was

23. The cost of goods sold during the year was

The following data apply to items 24 and 25.

24. The costs described in situations 1 and 4 above are

25. The costs described in situations 2, 3, and 5 above are

27. The slop of the regression is

a. fixed cost. C. mixed cost.

31. Using the method of least squares, the fixed cost is

32. Which costs will change with a decrease in volume?

What are the expected fixed costs for a year?

Use the following information to answer questions 51 through 53:

51. Which of the following classifications describes Cost T?

52. Which of the following classifications describes Cost V?

Multiple Choice Questions

Budget for Actual Results

3. What is the budgeted indirect-cost rate?

4. What is the actual indirect-cost rate?

5. What is the job cost of the L Model using normal costing?

6. What is the job cost of the M Model using actual costing?

13. The budgeted manufacturing overhead rate is

Machining Department Finishing

Machining Department Finishing

What is the total manufacturing overhead allocated to Job 143?

19. Amounts at the end of 2006 are as follows:

Direct manufacturing labor P420,000

22. The under or overallocated manufacturing overhead for 2006 is

● Manufacturing overhead has been allocated as a percentage of direct manufacturing

September 1, 2006, inventories:

26. What is the total cost of Job A?