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GARCIA COLLEGE OF TECHNOLOGY

MID-TERM EXAMINATION
ACCTG 7

NAME: __________________________________________

I. THEORY (2 POINTS EACH).

1. The absorption costing method includes in inventory
Fixed Factory Overhead Variable Factory Overhead
a. No No
b. No Yes
c. Yes Yes
d. Yes No
2. Budgeting is
a. the process of creating a formal plan and translating goals into quantitative format.
b. a technique for comparing actual costs with standard costs.
c. a technique for determining the cost of manufactured products.
d. a means of product costing that emphasizes activities as basic cost objects.
3. In an income statement prepared as an internal report using the direct costing method, fixed selling
and administrative expenses would
a. not be used
b. be used in the computation of the contribution margin
c. be used in the computation of operating income but not in the computation of the contribution
margin
d. be treated the same as variable selling and administrative expense
4. Following are parts of the operating budget, except
a. sales budget
b. materials cost budget
c. capital budget
d. production budget
5. President X of WZY Corporation requested you to explain the difference in net income between the
variable costing income statement presentation and the absorption method. You would say that the
difference
a. is none if there is no change in the fixed costs in the beginning and ending inventories
b. is equal to the fixed cost per unit times the number of units sold
c. is attributable to the variable costs in the inventory
d. is attributable to the fixed cost in ending inventory
6. Which of the following will result in raising the breakeven point?
a. a decrease in the variable cost per unit
b. an increase in the semi-variable cost per unit
c. an increase in the contribution margin per unit
d. a decrease in income tax rates
7. The concept of “management by exception” refers to management’s
a. consideration of only those items which vary materially from plans
b. consideration of only rare events
c. consideration of items selected on random
d. events that involve material amount
8. Among the components of the operating budget is the selling and administrative expenses budget,
which
a. is usually optional.
b. is composed only of fixed costs.
c. is difficult to allocate by month and therefore presented as a lump sum figure for the whole year.
d. should be detailed so that the key assumptions can be better understood.
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9. Cost-volume-profit analysis is a key factor in many decisions, including choice of production lines,
pricing of products, marketing strategy, and use of production facilities. A calculation used in a CVP
analysis is the breakeven point. Once the breakeven point has been reached, operating income will
increase by the
a. gross margin per unit for each additional unit sold
b. contribution margin per unit for each additional unit sold
c. variable cost per unit for each additional unit sold
d. sales price per unit for each additional unit sold
10. The amount of variable cost per unit and total fixed cost within a relevant range behave this way in
relation to production level:
a. production increases, unit variable cost increases, total fixed cost increases
b. production decreases, unit variable cost decreases, total fixed cost decreases
c. production increases, unit variable cost remains constant, total fixed cost remains the same
d. production increases, unit variable cost decreases, total fixed cost remains the same
11. Identify the following statements as true or false:
Statement 1: In direct costing, fixed factory overhead forms part of the inventory value.
Statement 2: The difference in net income between variable costing and absorption costing is due
entirely to the treatment of fixed manufacturing overhead.
a. Statement 1 is true; Statement 2 is true
b. Statement 1 is true; Statement 2 is false
c. Statement 1 is false; Statement 2 is true
d. Statement 1 is false; Statement 2 is false
12. In developing an annual master budget, individual budget schedules are prepared. The budget
schedule that would provide the necessary input data for the direct labor budget would be the
a. schedule of cash receipts and disbursements
b. sales forecast
c. production budget
d. raw materials purchases budget
13. At the break-even point, the contribution margin equals total
a. variable costs
b. sales revenues
c. selling and administrative costs
d. fixed costs
14. If production is greater than sales (units), then absorption costing net income will generally be:
a. greater than direct costing net income
b. less than direct costing net income
c. equal to direct costing net income
d. additional data needed to be able to answer
15. The budget element/s included in the financial budget process are following, except the
a. budgeted balance sheet
b. capital budget
c. cash budget and budgeted statement of cash flows
d. budget variance
16. When all manufacturing costs used in production are attached to the products, whether direct, or
indirect, variable or fixed, this is called:
a. process costing
b. absorption costing
c. variable costing
d. job order costing
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17. Which of the following characteristics does not relate to managerial accounting?
a. Accounting reports may include non-monetary information.
b. It is subject to restrictions imposed by GAAP.
c. Reports are often based on estimates and are seldom useful for anything other than the purpose
for which they are prepared.
d. It provides data for internal users within the business organization.
18. To reduce the breakeven point, the company may
a. decrease both the fixed costs and contribution margin
b. increase both the fixed costs and contribution margin
c. decrease the fixed costs and increase the contribution margin
d. increase the fixed costs and decrease the contribution margin
19. Budgets are related to the following management functions, except
a. planning
b. control
c. performance evaluation
d. none
20. A company’s BEP in pesos of revenue may be affected by equal percentage increase in both selling
price and variable cost per unit (assume all other factors are constant within the relevant range). The
equal percentage change in selling price and variable cost per unit will cause the breakeven point in
pesos to
a. decrease by less than the percentage increase in selling price
b. decrease by more than the percentage increase in the selling price
c. increase by the percentage change in variable cost per unit
d. remain unchanged

II. SHORT PROBLEMS (3 POINTS EACH).

21. Sara Company a manufacturer of slippers, uses absorption costing. Sara’s manufacturing costs were as
follows:
Direct materials and direct labor P 800,000
Depreciation of machines 100,000
Rent for factory building 60,000
Electricity to run machines 35,000
How much of these costs should be inventoried?
a. P800,000
b. P835,000
c. P935,000
d. P995,000

22. A company manufactures a single product. Estimated cost data regarding this product and other
information for the product and the companies are as follows:
Sales price per unit P 40
Total variable production cost per unit P 22
Sales commission (on sales) 5%
Fixed costs and expenses:
Manufacturing overhead P 5,598,720
General and administrative P 3,732,480
The number of units the company must sell in the coming year in order to reach its breakeven point is
a. 388,800 units
b. 518,400 units
c. 583,200 units
d. 972,000 units
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23. Merchandiser, Inc. sells Product O to retailers for P200. The unit variable cost is P40 with a selling
commission of 10%. Fixed manufacturing costs total P1,000,000 per month while fixed selling and
administrative costs total P420,000. The income tax rate is 30%. The target sales if net operating
income is P176,000 would be
a. 10,950 units
b. 15,640 units
c. 13,750 units
d. 11,400 units

24. A company is concerned about its operating performance, as summarized below:

Revenue (P12.50 per unit) P 300,000
Variable costs 180,000
Operating loss (40,000)
How many additional units should have been sold in order for the company to breakeven?
a. 32,000
b. 24,000
c. 16,000
d. 8,000

25. For P1,000 per box, the Majestic Producers, Inc., produces and sells delicacies. Direct materials are
P400 per box and direct manufacturing labor average P75 per box. Variable overhead is P25 per box
and fixed overhead is P12,500,000 per year. Administrative expenses, all fixed, run P4,500,000 per
year, with sales commissions of P100 per box. Production is expected to be 100,000 boxes, which is
met every year. For the year just ended, 75,000 boxes were sold. What is the inventoriable cost per
box using absorption costing?
a. P 625
b. P 500
c. P 770
d. P 670

26. Video King Company sells video tapes. The sales volume for the year is 200,000 units. It sells the tapes
at P64 each. The variable cost consists of P40 purchase price (bulk orders) and a handling cost of P8
per unit. Annual fixed cost are P2,400,000 and the company’s income tax rate is 35%. An increase of
10 percent in projected unit sales volume for the year would result in an increased after tax income for
the year of
a. P120,000
b. P48,000
c. P208,000
d. P40,000
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27. The Kabayan Company manufactures and sells Batik handbags to assorted prints. Data for the previous
year were as follows:
Selling price per piece P 8.00
Variable cost per piece P 2.00
No. of pieces to breakeven 25,000
Income before tax last year P 9,000
For the coming year, the company estimates that the selling price will be P9.50 per piece. Variable cost
to manufacture will increase by 25%, and fixed costs will increase by 10%. Income tax rate of 35% will
not change.
i. What is the selling price per piece that would give the same contribution margin rate as previous
year?
a. P10.00
b. P9.50
c. P8.00
d. P 10.50
ii. If sales for the coming year are expected to exceed last year’s by 1,800 pieces, what would be the
expected sales volume for the coming year?
a. 28,300
b. 27,775
c. 26,800
d. 26,500

28. Nicely Wyn Corporation has the following budgeted production for four months:
April 50,000
May 40,000
June 45,000
July 60,000
Each unit of product requires 2 pieces of raw materials. The desired ending raw materials inventory for
each month is 130% of the following month’s production needs, plus 2,000 pieces. (The April inventory
meets this requirement.)
The product is processed in two departments (Department A and Department B) and the direct labor
standards are as follows:
Hours per unit Rate per hour Labor cost per unit
Department A 6 P 30 P 180
Department B 2 P 40 P 80
i. What is the budgeted purchases of raw materials in June?
a. 51,000
b. 84,000
c. 120,000
d. 129,000
ii. What is the budgeted direct labor cost for the month of May?
a. P13,000,000
b. P11,700,000
c. P10,400,000
d. P7,200,000

29. The Hero Company produced 100,000 units of product and sold 75,000 units at P3.00 per unit in 2016.
Variable unit costs are: manufacturing – P1.60; selling – P0.15. Fixed costs for 2016 include P30,000 of
fixed manufacturing costs and P41,250 of fixed selling and administrative expenses.
i. What would be the net income for 2016, using the absorption costing?
a. P22,500
b. P25,000
c. P27,500
d. P30,000
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ii. What would be the net income for 2016, using the variable costing?
a. P22,500
b. P30,000
c. P25,000
d. P17,500

30. A company has revenues of P500,000, variable costs of P300,000, and pretax profit of P150,000. If the
company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left variable cost
per unit unchanged, what would be the new breakeven point in pesos?
a. P88,000
b. P100,000
c. P110,000
d. P125,000

31. PF Company’s records for the year ended December 31 show that no finished goods inventory existed
at January 1 and no work was in process at the beginning or end of the year. Other data are as follows:
Net sales P 1,400,000
Cost of goods manufactured: Variable 630,000
Fixed 315,000
Operating expenses: Variable 98,000
Fixed 140,000
Units manufactured 70,000 units
Units sold 60,000 units
i. What is Pf’s finished goods inventory cost at December 31 under the variable costing method?
a. P90,000
b. P104,000
c. P105,000
d. P135,000
ii. What is Pf’s finished goods inventory cost at December 31 under the absorption costing method?
a. P90,000
b. P104,000
c. P105,000
d. P135,000
iii. Under the variable costing method, Pf’s operating income for the year is:
a. P217,000
b. P307,000
c. P352,000
d. P762,000
iv. Under the absorption costing method, Pf’s operating income for the year is:
a. P217,000
b. P307,000
c. P352,000
d. P762,000

32. Mela Corporation has a contribution margin ratio of 0.26. It aims to have a net income of P320,000
with a sales of P2,000,000. Its total fixed costs amount to
a. P200,000
b. P83,200
c. P230,777
d. P520,000
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33. D Company is preparing its cash budget for the coming quarter. Following information is available:
Budgeted credit sales P 640,000
Cash disbursements 624,000
Depreciation 20,000
Cash balance, beginning 40,000
Accounts receivable, beginning 144,000
Accounts receivable, ending 168,000
What is the budgeted cash balance at the end of the coming quarter?
a. P36,000
b. P12,000
c. P32,000
d. P56,000

34. The books of Mariposa Company pertaining to the year ended December 31, 2016 operations, showed
the following figures relating to Product A:
Beginning inventory – finished goods and work in process None
No. of units produced 40,000 units
No. of units sold at P15 32,500 units
Direct materials used P 177,500
Direct labor used 85,000
Manufacturing costs:
Fixed P 110,000
Variable 61,500 171,500
Fixed administrative expenses 30,000
Under variable costing, what would be the finished goods inventory as at December 31, 2016?
a. P81,375
b. P60,750
c. P87,000
d. P49,218.75

35. C Company’s only product has a contribution margin per unit of P55. Non-variable costs associated
with the production and sale of this product amounts to P742,500.
To improve the quality of this product, the company’s management will:
 replace a component that costs P5 higher than the one presently being used; and
 acquire an equipment that costs P200,000. If acquired, it will be depreciated over a 10-year period
with no estimated salvage value. The straight line method of depreciation will be used.
The company pays corporate income tax of 32% on net taxable income.
If the company desires to earn after-tax profit of P170,000 from the improved product, it must sell
a. 20,250 units
b. 18,650 units
c. 16,875 units
d. 19,850 units