ACCTG.

120
PRELIM EXAM
MAY 2021. MA. CRISTINA P. OBESO, CPA, MBA

THEORY. WRITE THE LETTER OF THE CORRECT ANSWER ON THE FIRST PAGE OF YOUR TEST
BOOKLET

1. A type of employee whose wages are not a component of indirect labor is a(n):
A. inspector B. supervisor
C. assembler D. maintenance worker E. shop clerk

2. The quantitative method that will separate a semivariable cost into its fixed and
variable components with the highest degree of precision is:
A. simplex method B. least squares method
C. scattergraph method D. account analysis
E. high-low method

3. An industry that would most likely use job order costing procedures is:
A. road building B. fertilizer manufacturing
C. flour milling D. petroleum refining

4. In determining cost behavior in business, the cost function is often expressed as y=a
+bx. Which one of the following cost estimation methods should not be used in
estimating fixed and variable costs for the equation?
a. Graphic method
b. Simple regression
c. High and low point method
d. Multiple regression

5. The manager of the assembly department of a company would like to estimate the
fixed and variable components of the department’s cost. To do so, the manager has
collected information on total cost and output for the past 24 months. To estimate
the fixed and variable components of total cost, the manager should use
a. Regression analysis
b. Game theory
c. Sensitivity analysis
d. Queuing theory

6. Costs that remain the same over a wide range of activity, but jump to a different
amount outside that range, are termed: 
A. step-fixed costs.
B. step-variable costs.
C. semivariable costs.
D. curvilinear costs.
E. mixed costs.

7. Each of Davidson's production managers (annual salary cost, $45,000) can oversee
60,000 machine hours of manufacturing activity. Thus, if the company has 50,000
hours of manufacturing activity, one manager is needed; for 75,000 hours, two
managers are needed; for 125,000 hours, three managers are needed; and so forth.
Davidson's salary cost can best be described as a: 
A. variable cost.
B. semivariable cost.
C. step-variable cost.
D. fixed cost.
E. step-fixed cost
8. .  Richard Hamilton has a fast-food franchise and must pay a franchise fee of $35,000
plus 3% of gross sales. In terms of cost behavior, the fee is a: 
 A. variable cost.
B. fixed cost.
C. step-fixed cost.
D. semivariable cost.
E. curvilinear cost.

9. Which of the following statements about the visual-fit method is (are) true?

I. The method results in the creation of a scatter diagram.

II. The method is not totally objective because of the manner in which the cost line is
determined.
III. The method is especially helpful in the determination of outliers. 
A. I only.
B. II only.
C. I and II.
D. I and III.
E. I, II, and III.

10.  Song, Inc., uses the high-low method to analyze cost behavior. The company
observed that at 22,000 machine hours of activity, total maintenance costs averaged
$33.40 per hour. When activity jumped to 25,000 machine hours, which was still
within the relevant range, the average total cost per machine hour was $30.40. On
the basis of this information, the variable cost per machine hour was: 
A. $8.40.
B. $22.00.
C. $25.00.
D. $30.40.
E. $33.40.

11.  Northridge, Inc., uses the high-low method to analyze cost behavior. The company
observed that at 20,000 machine hours of activity, total maintenance costs averaged
$10.50 per hour. When activity jumped to 24,000 machine hours, which was still
within the relevant range, the average total cost per machine hour was $9.75. On
the basis of this information, the company's fixed maintenance costs were: 
A. $24,000.
B. $90,000.
C. $210,00.
D. $234,000.
E. an amount other than those listed above.

12.  In regression analysis, the variable that is being predicted is known as the: 
A. independent variable.
B. dependent variable.
C. explanatory variable.
D. interdependent variable.
E. functional variable.

13.  Around Town, Inc., operates a small package delivery service in the Chicago
suburbs. If the company uses a regression equation to forecast total operating costs,
the equation's intercept would correspond to the: 
A. variable operating cost per delivery.
B. fixed operating costs.
C. number of deliveries.
D. total variable operating costs.
E. total operating costs.
 14. Package Express, Inc., operates a small package delivery service in the Jacksonville
suburbs. If the company uses a regression equation to forecast total operating costs,
the coefficient of the equation's independent variable would correspond to the: 
A. variable operating cost per delivery.
B. fixed operating costs.
C. number of deliveries.
D. total variable operating costs.
E. total operating costs.

15. Which of the following is an equation of a variable cost function?

a. y=b
b. y = a + bX
c. y = bX
d. y = a

16. The industrial engineering method estimates cost functions

a. based on analysis and opinions gathered from various departments.
b. quickly while incurring little cost.
c. using qualitative rather than quantitative analysis.
d. by analyzing the relationship between inputs and outputs in physical terms.

17. The conference method estimates cost functions

a. using quantitative methods that can be very time consuming and costly.
b. based on analysis and opinions gathered from various departments.
c. using time-and-motion studies.
d. by mathematically analyzing the relationship between inputs and outputs in physical
terms.

18. The account analysis method estimates cost functions

a. by classifying cost accounts as variable, fixed, or mixed based on qualitative analysis.
b. using time-and-motion studies.
c. at a high cost, which is therefore seldom used.
d. in a manner that cannot be usefully combined with any other cost estimation
methods

19. Gathering cost information through observations and interviews from departments within
an organization is known as
a. the account analysis method.
b. the conference method.
c. the industrial engineering method.
d. the quantitative analysis method.

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 20 THROUGH 23

Penny’s TV and Appliance Store is a small company that has hired you to perform some
management advisory services. The following information pertains to 20x3 operations.

Sales (2,000 televisions) $ 900,000

Cost of goods sold 400,000
Store manager's salary per year 70,000
Operating costs per year 157,000
Advertising and promotion per year 15,000
Commissions (4% of sales) 36,000

20. What was the variable cost per unit sold for 20x3?
 a. $18
b. $218
c. $339
d. $200

21. What were total fixed costs for 20x3?

a. $678,000
b. $436,000
c. $242,000
d. $227,000

22. What are the estimated total costs if Penny’s expects to sell 3,000 units next year?
a. $896,000
b. $678,000
c. $1,017,000
d. $799,000

23 . Which cost estimation method is being used by Penny’s TV and Appliance Store?
a. The industrial engineering method
b. The conference method
c. The account analysis method
d. The quantitative analysis method

24. A plot of data that results in one extreme observation MOST likely indicates that
a. more than one cost pool should be used.
b. an unusual event such as a plant shutdown occurred during that month.
c. the cost-allocation base has been incorrectly identified.
d. individual cost items do not have the same cost driver.

. THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 25 THROUGH 27

The Hunter Company uses the high-low method to estimate the cost function. The information
for 20x3 is provided below:

Machine-hours Labor Costs

Highest observation of cost driver 400 $10,000
Lowest observation of cost driver 240 $ 6,800

25. What is the slope coefficient per machine-hour?

a. $28.33
b. $00.05
c. $20.00
d. $25.00
26. What is the constant for the estimating cost equation?
a. $2,000
b. $6,800
c. $8,000
d. $10,000

27. What is the estimate of the total cost when 300 machine-hours are used?
a. $2,000
b. $4,000
c. $6,000
d. $8,000

28. Which of the following does NOT represent a cause-and-effect relationship?

a. Material costs increase as the number of units produced increases.
b. A company is charged 40 cents for each brochure printed and mailed.
c. Utility costs increase at the same time that insurance costs increase.
 d. It makes sense that if a complex product has a large number of parts it will take
longer to assemble than a simple product with fewer parts.

29. A selling cost is a(n)

product cost period cost inventoriable cost

a. yes yes no
b. yes no no
c. no yes no
d. no yes yes

30. Period costs include

distribution costs outside processing costs sales commissions

a. yes no yes
b. no yes yes
c. no no no
d. yes yes yes
31. Plastic used to manufacture dolls is a

prime cost product cost direct cost fixed cost

a. no yes yes yes
b. yes no yes no
c. yes yes no yes
d. yes yes yes no
32. In a perpetual inventory system, the sale of items for cash consists of two entries. One entry
is a debit to Cash and a credit to Sales. The other entry is a debit to

a. Work in Process Inventory and a credit to Finished Goods Inventory.

b. Finished Goods Inventory and a credit to Cost of Goods Sold.
c. Cost of Goods Sold and a credit to Finished Goods Inventory.
d. Finished Goods Inventory and a credit to Work in Process Inventory.

33. Use the following information for questions 33–36.

BCW Co. manufactures wood file cabinets. The following information is available for June 2001:

Beginning Ending
Raw Material Inventory $ 6,000 $ 7,500
Work in Process Inventory 17,300 11,700
Finished Goods Inventory 21,000 16,300

33. Direct labor is $9.60 per hour and overhead for the month was $9,600. Compute total
manufacturing costs for June, if there were 1,500 direct labor hours and $21,000 of raw
material was purchased.
a. $58,500
b. $46,500
c. $43,500
d. $43,100

34. Direct labor is paid $9.60 per hour and overhead for the month was $9,600. What are
prime costs and conversion costs, respectively if there were 1,500 direct labor hours and
$21,000 of raw material was purchased?
a. $29,100 and $33,900
b. $33,900 and $24,000
c. $33,900 and $29,100
d. $24,000 and $33,900
35. Direct labor is paid $9.60 per hour and overhead for the month was $9,600. Cost of
Goods Manufactured, if there were 1,500 direct labor hours and $21,000 of raw
material was purchased is

a. $49,100.
b. $45,000.
c. $51,000.
d. $49,500.

36. Direct labor is paid $9.60 per hour and overhead for the month was $9,600. Cost of
Goods Sold, if there were 1,500 direct labor hours and $21,000 of raw material was purchased
is
a. $64,500.
b. $59,800.
c. $38,800.
d. $53,800.

37. When a manufacturing company has a highly automated manufacturing plant producing
many different products, which of the following is the more appropriate basis of applying
manufacturing overhead costs to work in process?

a. direct labor hours

b. direct labor dollars
c. machine hours
d. cost of materials used

38. Use the following information pertaining to Arp Co.’s manufacturing operations for
questions 38–40.
Inventories: March 1 March 31
Raw material $18,000 $15,000
Work in process 9,000 6,000
Finished goods 27,000 36,000

Additional information for March:

Raw material purchased $42,000
Direct labor payroll 30,000
Direct labor rate per hour 7.50
Overhead rate per direct labor hour 10.00

38. For March, prime cost incurred was

a. $75,000.
b. $69,000.
c. $45,000.
d. $39,000.

39. For March, conversion cost incurred was

a. $30,000.
b. $40,000.
c. $70,000.
d. $72,000

40. For March, Cost of Goods Manufactured was

a. $118,000.
b. $115,000.
c. $112,000.
d. $109,000.
41. A manufacturing plant produces two product lines: football equipment and hockey
equipment. Direct costs for the football equipment line are the
a. beverages provided daily in the plant break room.
b. monthly lease payments for a specialized piece of equipment needed to
manufacture the football helmet.
c. salaries of the clerical staff that work in the company administrative offices.
d. utilities paid for the manufacturing plant.

42. A manufacturing plant produces two product lines: football equipment and hockey
equipment. An indirect cost for the hockey equipment line is the
a. material used to make the hockey sticks.
b. labor to bind the shaft to the blade of the hockey stick.
c. shift supervisor for the hockey line.
d. plant supervisor.

43. The MOST likely cost driver of distribution costs is

a. the number of parts within the product.
b. the number of miles driven.
c. the number of products manufactured.
d. the number of production hours.

44. When 10,000 units are produced, fixed costs are $14 per unit. Therefore, when 20,000 units
are produced fixed costs
a. will increase to $28 per unit.
b. will remain at $14 per unit.
c. will decrease to $7 per unit.
d. will total $280,000.

45. Wheel and Tire Manufacturing currently produces 1,000 tires per month. The following per
unit data apply for sales to regular customers:
Direct materials $20
Direct manufacturing labor 3
Variable manufacturing overhead 6
Fixed manufacturing overhead 10
Total manufacturing costs $39

The plant has capacity for 3,000 tires and is considering expanding production to 2,000
tires. What is the total cost of producing 2,000 tires?
a. $39,000
b. $78,000
c. $68,000
d. $62,000

46. Tire and Spoke Manufacturing currently produces 1,000 bicycles per month. The following
per unit data apply for sales to regular customers:

Direct materials $50

Direct manufacturing labor 5
Variable manufacturing overhead 14
Fixed manufacturing overhead 10
Total manufacturing costs $79
The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000
bicycles. What is the per unit cost of producing 2,000 bicycles?
a. $79 per unit
b. $158 per unit
c. $74 per unit
d. $134 per unit
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 47 AND 48.

Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per
unit data apply for sales to regular customers:

Direct materials $30

Direct manufacturing labor 5
Variable manufacturing overhead 10
Fixed manufacturing overhead 40
Total manufacturing costs $85

47. The plant has capacity for 2,000 axles and is considering expanding production to 1,500
axles. What is the total cost of producing 1,500 axles?
a. $85,000
b. $170,000
c. $107,500
d. $102,500

48. What is the per unit cost when producing 1,500 axles?
a. $71.67
b. $107.50
c. $85.00
d. $170.00

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 49 THROUGH 51

The following information pertains to Alleigh’s Mannequins:

Manufacturing costs $1,500,000
Units manufactured 30,000
Units sold 29,500 units sold for $85 per unit
Beginning inventory 0 units

49. What is the average manufacturing cost per unit?

a. $50.00
b. $50.85
c. $17.65
d. $85.00

50. What is the amount of ending finished goods inventory?

a. $42,500
b. $25,424
c. $25,000
d. $1,475,000
51. What is the amount of gross margin?
a. $1,475,000
b. $1,500,000
c. $2,507,500
d. $1,032,500
52. Costs that are initially recorded as assets and expensed when sold are referred to as
a. period costs.
b. inventoriable costs.
c. variable costs.
d. fixed costs.
53. For manufacturing firms, inventoriable costs include
a. plant supervisor salaries.
b. research and development costs.
c. costs of dealing with customers after the sale.
 d. distribution costs.

54. The cost of inventory reported on the balance sheet may include all of the following EXCEPT
a. customer-service costs.
b. wages of the plant supervisor.
c. depreciation of the factory equipment.
d. the cost of parts used in the manufacturing process.
55.Manufacturing overhead costs may include all EXCEPT
a. salaries of the plant janitorial staff.
b. labor that can be traced to individual products.
c. wages paid for unproductive time due to machine breakdowns.
d. overtime premiums paid to plant workers.
56. Brenda Hicks is paid $10 an hour for straight-time and $15 an hour for overtime. One week
she worked 42 hours, which included 2 hours of overtime. Compensation would be
reported as
a. $400 of direct labor and $30 of manufacturing overhead.
b. $400 of direct labor and $zero of manufacturing overhead.
c. $420 of direct labor and $10 of manufacturing overhead.
d. $430 of direct labor and $zero of manufacturing overhead.

57. Rodney Worsham is paid $10 an hour for straight-time and $15 an hour for overtime. One
week he worked 45 hours, which included 5 hours of overtime, and 3 hours of idle time
caused by material shortages. Compensation would be reported as
a. $370 of direct labor and $105 of manufacturing overhead.
b. $420 of direct labor and $55 of manufacturing overhead.
c. $450 of direct labor and $25 of manufacturing overhead.
d. $445 of direct labor and $30 of manufacturing overhead.
58.  Summit Corporation recently used $75,000 of direct materials and $9,000 of indirect
materials in production activities. The journal entries reflecting these transactions would
include: 
A. a debit to Manufacturing Overhead for $9,000.
B. a debit to Manufacturing Overhead for $84,000.
C. a debit to Raw-Material Inventory for $75,000.
D. a debit to Work-in-Process Inventory for $84,000.
E. a credit to Manufacturing Overhead for $9,000.
59.  Oregon Manufacturing incurred $106,000 of direct labor and $11,000 of indirect labor. The
proper journal entry to record these events would include a debit to Work in Process for: 
A. $0 because Work in Process should be credited.
B. $0 because Work in Process is not affected.
C. $11,000.
D. $106,000.
E. $117,000
.60.  Regency Company incurred $90,000 of depreciation for the year. Eighty percent relates to
the firm's production facilities, and 20% relates to sales and administrative offices. If all
items are handled in the proper manner, a review of the company's accounting records
should reveal a: 
A. debit to Depreciation Expense for $90,000.
B. debit to Manufacturing Overhead for $90,000.
C. debit to Manufacturing Overhead for $72,000.
D. debit to Work-in-Process Inventory for $18,000.
E. credit to Cash for $90,000.
61.  An accountant recently debited Work-in-Process Inventory and credited Manufacturing
Overhead. The accountant was: 
A. applying a predetermined overhead amount to production.
B. recognizing receipt of the factory utilities bill.
C. recording a year-end adjustment for an insignificant amount of underapplied overhead.
D. recognizing actual overhead incurred during the period.
E. recognizing the completion of production
62. Supplies needed for use in the factory are issued on the basis of:
A. materials requisitions B. time tickets
C. factory overhead analysis sheets D. clock cards
E. purchase invoices

63. Under a job order cost system, the dollar amount of the entry to transfer the inventory
from Finished Goods to Cost of Goods Sold is the sum of the costs charged to all jobs:
A. completed during the period B.started in process during the period
C. in process during the period D.completed and sold during the period
E. sold during the period

64. Job order cost accounting systems and process accounting systems differ in the way:
A. costs are traced to cost objects
B. orders are taken and in the number of units in the orders
C. product profitability is determined and compared with planned costs
D. manufacturing processes can be accomplished and in the number of production
runs that may be performed in a year
E. none of the above

65. The industry most likely to use process costing in accounting for costs is:
A. road builder B. electrical contractor
C. airlines D. automobile repair shop
E. none of the above

66. Under job order cost accumulation, the factory overhead control account controls:
A. factory overhead analysis sheets B. all general ledger subsidiary accounts
C. job order cost sheets D. cost reports by processes
E. materials inventories

67. Factory Overhead Control is debited and Payroll is credited for:

A. the recording of payroll
B. the distribution of indirect labor costs
C. the distribution of direct labor costs
D. the distribution of withholding taxes
E. none of the above
68. The purchase requisition is a document used to:
A. initiate the return of merchandise to the vendor
B. inform the purchasing agent of a need for a materials item
C. initiate payment for merchandise received
D. inform the Purchasing Department of a receipt of goods

69. Howell Corporation has a job order cost system. The following debits (credits) appeared in
Work in Process for the month of July:

July 1, balance $ 12,000

July 31, direct materials 40,000
July 31, direct labor 30,000
July 31, factory overhead 27,000
July 31, to finished goods (100,000)

Howell applies overhead to production at a predetermined rate of 90% based on the

direct labor cost. Job 1040, the only job still in process at the end of July, has been charged
with factory overhead of $2,250. What was the amount of direct materials charged to Job
1040?
A. $6,750 B. $2,250
C. $2,500 D. $4,250 E. $9,000

70. The Red Lions Brotherhood is planning its annual Riverboat Extravaganza. The Extravaganza
committee has assembled the following expected costs for the event:
 Dinner per person P 70
Programs and souvenir per person 30
Orchestra 15,000
Tickets and advertising 7,000
Riverboat rental 48,000
Floor show and strolling entertainment 10,000
The committee members would like to charge P300 per person for the evening’s
activities.

Assume that only 250 persons are expected to attend the extravaganza, what ticket price
must be charged to breakeven?

A. P420 C. P320
B. P350 D. P390

71. Bulusan Company has sales of P400,000 with variable costs of P300,000, fixed costs of
P120,000, and an operating loss of P20,000. How much increase in sales would Bulusan need to
make in order to achieve a target operating income of 10% of sales?
A. P400,000 C. P500,000
B. P462,000 D. P800,000

72. Regal, Inc. sells Product M for P5 per unit. The fixed costs are P210,000 and the variable costs are
60% of the selling price. What would be the amount of sales if Regal is to realize a profit of 10% of
sales?
A. P700,000 C. P525,000
B. P472,500 D. P420,000

73. The following economic data were provided by the corporate planning staff of Heaven, Inc.:
Sales volume 30,000 units
Sales price per unit P30
Unit variable costs:
Variable manufacturing P13
Other variable costs 8
Unit variable costs P21
Unit contribution margin P 8

Fixed costs:
Manufacturing P150,000
Other fixed costs P 50,000
Total fixed costs P200,000
The management is considering installing a new, automated manufacturing process that will increase
fixed costs by P50,000 and reduce variable manufacturing cost by P3 per unit. The management set a
target a profit of P70,000 before and after the acquisition of the automated machine. After installation
of the automated machine, what will be the change in the units required to achieve the target profit?
A. 6,667 unit increase C. 3,333 unit decrease
B. 5,667 unit decrease D. 4,333 unit decrease

74. In planning its operations for next year based on a sales forecast of P6,000,000, Herran, Inc. prepared the
following estimated costs and expenses:

Variable Fixed

Direct materials 1,600,000

Direct labor 1,400,000

Factory overhead 600,000 P 900,000

Selling expenses 240,000 360,000

Administrative expenses 60,000 140,000

 P3,900,000 P1,400,000

What would be the amount of peso sales at the breakeven point?

A. P2,250,000. C. P4,000,000.
B. P3,500,000. D. P5,300,000.

75. Mercado, Inc. had the following economic data for 2007:
Net sales P400,000
Contribution margin 160,000
Margin of safety 40,000
What is Mercado’s breakeven point in 2007?
A. P360,000 C. P320,000
B. P288,000 D. P 80,000

Good Luck!!!