PRE-TEST

MANAGEMENT ACCOUNTING PART 1(BSA 3-10)

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Pre-Test
Directions: Answer the following MC questions in a one whole sheet of yellow paper.
After finishing the pre-test, pass your output to our Class Secretary for compilation
and checking.
Reward: Top 5 who will get the highest score will have a head start bonus of +5 for
quizzes / long tests.
1. Ordinarily, the most appropriate basis on which to evaluate the performance of a
division manager is the division's ______________.
A. Net revenue minus controllable division costs.
B. Contribution margin.
C. Gross profit.
D. Net income minus the division's fixed costs.

2. When budgets are used to evaluate performance and to set limits on spending,
the process will often result in departments adding something "extra" to ensure the
budgets will be met. This "extra" is _________________.
A. Continuous budgeting.
B. Budgetary slack.
C. Management by objectives.
D. Strategic planning.

3. The process of creating a formal plan and translating goals into a quantitative
format is
A. Budgeting.
B. Job-order costing.
C. Process costing.
D. Budget manual preparation.

4. Hannon Retailing Company prices its products by adding 30% to its cost. Hannon
anticipates sales of P715,000 in July, P728,000 in August, and P624,000 in
September. Hannon's policy is to have on hand enough inventory at the end of the
month to cover 25% of the next month's sales. What will be the cost of the
inventory that Hannon should budget for purchase in August?
A. P509,600
B. P540,000
C. P560,000
D. P680,000

5. Esplanade Company, which has the following historical pattern for its credit sales:
70% collected in month of sale
15% collected in the first month after sale
10% collected in the second month after sale
4% collected in the third month after sale
1% uncollectible
The sales on open account have been budgeted for the last 6 months of the year as
shown below.
July P 60,000
August

70,000

September 80,000
October 90,000
November 100,000
December 85,000
The estimated total cash collections during October from accounts receivable would
be
A. P21,400.
B. P84,400.

C. P86,700.
D. P63,000.

6. The foundation of a profit plan is the

A. Capital budget.
B. Sales forecast.
C. Cost and expense budget.
D. Production plan.

7. Superior Industries' sales budget shows quarterly sales for the next year as
follows:
Quarter

Units

10,000

8,000

12,000

14,000

Company policy is to have a finished goods inventory at the end of each quarter
equal to 20% of the next quarter's sales. Budgeted production for the second
quarter of the next year would be __________.
A. 8,800 units.
B. 8,400 units.
C. 8,000 units.
D. 7,200 units.

8. A budgeting approach that requires a manager to justify the entire budget for
each budget period is known as:
A. Incremental budgeting.
B. Zero-base budgeting.

C. Performance budgeting.
D. Program budgeting.

9. What would be the correct chronological order of preparation for the following
budgets?
I. Cost of goods sold budget.
II. Production budget.
III. Purchases budget.
IV. Administrative budget.
A. IV, II, III, I
B. II, III, I, IV
C. III, II, IV, I
D. I, II, III, IV

10. A distinction between forecasting and planning

A. Arises because forecasting covers the short-term and planning does not.
B. Is not valid because they are synonyms.
C. Is that forecasts are used in planning.
D. Is that forecasting is a management activity whereas planning is a technical
activity.

11. Decisions are frequently classified as those made under certainty and those
made under uncertainty. Certainty exists when
A. There is absolutely no doubt that an event will occur.
B. The standard deviation of an event is greater than zero.
C. There is more than one outcome for each possible action.
D. The probability of the event is less than 1.0.

12. A beverage stand can sell either soft drinks or coffee on any given day. If the
stand sells soft drinks and the weather is hot, it will make P2,500; if the weather is
cold, the profit will be P1,000. If the stand sells coffee and the weather is hot, it will
make P1,900; if the weather is cold, the profit will be P2,000. The probability of cold
weather on a given day at this time is 60%.
The expected payoff for selling coffee is
A. P1,360.
B. P3,900.
C. P2,200.
D. P1,960.

13. Which of the following factors should not be considered when deciding whether
to investigate a variance?
A. Magnitude of the variance.
B. Whether the variance is favorable or unfavorable.
C. Trend of the variances over time.
D. Likelihood that an investigation will eliminate future occurrences of the variance.

14. A manufacturer has the following direct materials standard for one of its
products.
Direct materials: 3 pounds @ P1.60/pound = P4.80
The company records all inventory at standard cost. Data for the current period
regarding the manufacturer's budgeted and actual production for the product as
well as direct materials purchases and issues to production for manufacture of the
product are presented as follows.
Budgeted production for the period: 8,000 units
Actual production for the period: 7,500 units
Direct materials purchases:
Pounds purchased: 25,000 pounds

Total cost: P 38,750

Direct materials issued in production: 23,000 pounds
The materials efficiency variance for the current period is
A. P800 unfavorable.
B. P1,600 favorable.
C. P775 unfavorable.
D. P3,200 favorable.

15. Under a standard cost system, the materials price variances are usually the
responsibility of the
A. Production manager.
B. Cost accounting manager.
C. Purchasing manager.
D. Sales manager.

16. Controllable costs are those that

A. Are governed mainly by past decisions that established the present levels of
operating and organizational capacity and that only change slowly in response to
small changes in capacity.
B. Are likely to respond to the amount of attention devoted to them by a specified
manager.
C. Management decides to incur in the current period to enable the company to
achieve objectives other than the filling of orders placed by customers.
D. Will be unaffected by current managerial decisions.

17. A cost that always can be physically traced to a cost object is _______________.
A. A variable cost.
B. A conversion cost.

C. An indirect cost.
D. A prime cost.

18. A cost incurred for the benefit of more than one cost object is
A. A variable cost.
B. A common cost.
C. A conversion cost.
D. A prime cost.

19. A fixed cost that would be considered a direct cost is

A. A cost accountant's salary when the cost object is a unit of product.
B. A production supervisor's salary when the cost object is the Production
Department.
C. Board of directors' fees when the cost object is the Marketing Department.
D. The rental cost of a warehouse to store inventory when the cost object is the
Purchasing Department.

20. An imputed cost is____________.

A. The difference in total costs which results from selecting one alternative instead
of another.
B. A cost that does not entail any dollar outlay but is relevant to the decisionmaking process.
C. A cost that continues to be incurred even though there is no activity.
D. A cost that cannot be avoided because it has already been incurred.

21. Which one of the following is correct regarding a relevant range?

A. Actual fixed costs usually fall outside the relevant range.
B. The relevant range cannot be changed after being established.

C. Total variable costs will not change.

D. Total fixed costs will not change.

22. The term prime costs refers to _____________.

A. All costs associated with manufacturing other than direct labor costs and raw
materials costs.
B. The sum of direct labor costs and all factory overhead costs.
C. The sum of raw materials costs and direct labor costs.
D. Costs that are predetermined and should be attained.

23. Joint costs are useful for ___________________.

A. Determining inventory cost for accounting purposes.
B. Determining whether to continue producing an item.
C. Evaluating management by means of a responsibility reporting system.
D. Setting the selling price of a product.

24. The appropriate method for the disposition of underapplied or overapplied

factory overhead
A. Depends on the significance of the amount.
B. Is to finished goods inventory only.
C. Is to cost of goods sold only.
D. Is apportioned to cost of goods sold and finished goods inventory.

25. Farber Company employs a normal (nonstandard) absorption cost system. The
following information is from the financial records of the company for the year.
Total manufacturing costs were P2,500,000.
Cost of goods manufactured was P2,425,000.

Applied factory overhead was 30% of total manufacturing costs.

Factory overhead was applied to production at a rate of 80% of direct labor cost.
Work-in-process inventory at January 1 was 75% of work-in-process inventory at
December 31.
Total cost of direct material
_______________________.

used

by

Farber

Company

for

the

year

is

A. P1,150,000
B. P812,500
C. P750,000
D. P937,500

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

27. Cost drivers are

A. Activities that cause costs to increase as the activity increases.
B. Accounting techniques used to control costs.
C. Accounting measurements used to evaluate whether or not performance is
proceeding according to plan.
D. A mechanical basis, such as machine hours, computer time, size of equipment, or
square footage of factory, used to assign costs to activities.

28. Which one of the following alternatives correctly classifies the business
application to the appropriate costing system?
Job Costing System / Process Costing System
A. Print shop / Beverage drink manufacturer
B. Wallpaper manufacturer / Oil refinery
C. Paint manufacturer / Retail banking
D. Aircraft assembly / Public accounting firm

29. The relevant range refers to the activity levels over which
A. Costs fluctuate.
B. Relevant costs are incurred.
C. Cost relationships hold constant.
D. Production varies.

30. Which one of the following statements regarding the difference between a
flexible budget and a static budget is true?
A. A flexible budget includes only variable costs, whereas a static budget includes
only fixed costs.
B. A flexible budget is established by operating management, while a static budget
is determined by top management.
C. A flexible budget primarily is prepared for planning purposes, while a static
budget is prepared for performance evaluation.
D. A flexible budget provides cost allowances for different levels of activity, whereas
a static budget provides costs for one level of activity.

31. When calculating variances from standard costs, the difference between
budgeted fixed overhead and the amount applied yields a _______________________.
A. Combined price-quantity variance.
B. Volume variance.

C. Mix variance.
D. Price variance.

32. The sum of the costs necessary to effect a one-unit increase in the activity level
is a(n)
A. Differential cost.
B. Marginal cost.
C. Incremental cost.
D. Opportunity cost.

33. If a manufacturing company uses variable costing to cost inventories, which of

the following costs are considered inventoriable costs?
A. Only raw material, direct labor, variable manufacturing overhead, and variable
selling A. and administrative costs.
B. Only raw material, direct labor, and variable manufacturing overhead costs.
C. Only raw material, direct labor, and variable and fixed manufacturing overhead
costs.
D. Only raw material and direct labor costs.
34. The costs of quality that are incurred in detecting units of product that do not
conform to product specifications are referred to as:
A. Appraisal costs.
B. Internal failure costs.
C. External failure costs.
D. Preventive costs.

35. The cost of scrap, rework, and tooling changes in a product quality cost system
is categorized as a(n):
A. Internal failure cost.
B. Prevention cost.

C. Training cost.
D. External failure cost.

36. Which one of the following refers to a cost that remains the same as the volume
of activity decreases within the relevant range?
A. Average cost per unit.
B. Unit fixed cost.
C. Total variable cost.
D. Variable cost per unit.

37. The expected monetary value of an event

A. Is the profit forgone by not choosing the best alternative.
B. Cannot be computed when there is uncertainty associated with the event.
C. Is the absolute profit from a particular event.
D. Is equal to the payoff of the event times the probability the event will occur.

38. In decision making under conditions of uncertainty, expected value refers to the
A. Present value of alternative actions.
B. Weighted average of probable outcomes of an action.
C. Likely outcome of a proposed action.
D. Probability of a given outcome from a proposed action.

39. For a company that produces more than one product, the sales volume variance
can be divided into which two of the following additional variances?
A. Sales quantity variance and sales mix variance.
B. Sales mix variance and sales price variance.
C. Sales mix variance and production volume variance.

D. Sales price variance and flexible budget variance.

40. In the standard regression equation y = a + bx, the letter b is best described as
a(n)
A. Dependent variable.
B. Independent variable.
C. Variable coefficient.
D. Constant coefficient.

41. The letter x in the standard regression equation is best described as a(n)
A. Independent variable.
B. Coefficient of determination.
C. Constant coefficient.
D. Dependent variable.

42. In assessing the financial prospects for a firm, financial analysts use various
techniques. An example of vertical, common-size analysis is
A. Advertising expense is 4% of sales.
B. A comparison in financial ratio form between two or more firms in the same
industry.
C. An assessment of the relative stability of a firm's level of vertical integration.
D. Advertising expense increased by 3% over the previous year.

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

C. Increase if the assets are purchased, and remain unchanged if the assets are
leased.
D. Increase whether the assets are purchased or leased.

44. Which of the following financial ratios is used to assess the liquidity of a
company?
A. Days' Sales Outstanding.
B. Profit Margin on Sales.
C. Total Debt to Total Assets Ratio.
D. Current Ratio.

45. Given an acid test ratio of 2.0, current assets of P5,000, and inventory of
P2,000, the value of current liabilities is
A. P1,500
B. P6,000
C. P2,500
D. P3,500

46. The degree of operating leverage (DOL) is

A. A measure of the change in earnings available to common stockholders
associated with a given change in operating earnings.
B. Lower if the degree of total leverage is higher, other things held constant.
C. Higher if the degree of total leverage is lower, other things held constant.
D. A measure of the change in operating income resulting from a given change in
sales.

47. Depoole Company is a manufacturer of industrial products and employs a

calendar year for financial reporting purposes. Assume that total quick assets
exceeded total current liabilities both before and after each transaction described.

Further assume that Depoole has positive profits during the year and a credit
balance throughout the year in its retained earnings account.
The collection of a current accounts receivable of P29,000 would
A. Decrease the current ratio and the quick ratio.
B. Increase the quick ratio.
C. Increase the current ratio.
D. Not affect the current or quick ratios.

48. If the ratio of total liabilities to equity increases, a ratio that must also increase
is
A. Times interest earned.
B. Return on equity.
C. The current ratio.
D. Total liabilities to total assets.

49. Return on investment may be calculated by multiplying total asset turnover by

A. Profit margin.
B. Fixed-charge coverage.
C. Average collection period.
D. Debt ratio.

50. When compared to a debt-to-assets ratio, a debt to equity ratio would

A. Have no relationship at all to the debt to assets ratio.
B. Be higher than the debt to assets ratio.
C. Be about the same as the debt to assets ratio.
D. Be lower than the debt to assets ratio.

-Thank you and God Bless!-