Management Accounting

1. In order to be useful to managers, management accounting reports should possess all of the following characteristics
except:
a. provide objective measures of past operations and subjective estimates about future decisions
b. be prepared in accordance with generally accepted accounting principles
c. be provided at any time management needs information
d. be prepared to report information for any unit of the business to support decision making

2. What is the primary criterion for the preparation of managerial accounting reports?
a. Relevance of the reports
b. Meet the manager needs
c. Timing of the reports
d. Cost of the reports

3. Which of the following is most associated with managerial accounting?

a. Must follow GAAP
b. May rely on estimates and forecasts
c. Is prepared for users outside the organization.
d. Always reports on the entire entity

4. In most business organizations, the chief management accountant is called the:

a. chief accounting officer
b. controller
c. chairman of the board
d. chief executive officer

5. The controller's staff often consists of several management accountants. All of the following would most likely be on
the controller's staff except:
a. general accountants
b. budgets and budget analysts
c. investments and shareholder relations managers
d. cost accountants

6. Who are the individuals charged with the responsibility for directing the day-to-day operations of a business?
a. Investors
b. Managers
c. Employees
d. Customers

7. The plans of management are often expressed formally in:

a. financial statements.
b. performance reports.
c. budgets.
d. ledgers.

8. The phase of accounting concerned with providing information to managers for use in planning and controlling operations
and in decision making is called:
a. throughput time.
b. managerial accounting.
c. financial accounting.
d. controlling.

9. The Institute of Management Accountants' Standards of Ethical Conduct contains a policy regarding confidentiality that
requires that management accountants:
a. refrain from disclosing confidential information acquired in the course of their work except when authorized by
management.
b. refrain from disclosing confidential information acquired in the course of their work in all situations.
c. refrain from disclosing confidential information acquired in the course of their work except when authorized by
management, unless legally obligated to do so.
d. refrain from disclosing confidential information acquired in the course of their work in all cases since the law
requires them to do so.

10. Which of the following is not one of the Institute of Management Accountants' five Standards of Ethical Conduct?
a. Competence
b. Confidentiality
c. Independence
d. Integrity

Cost-Volume-Profit Analysis
 11. Most operating decisions of management focus on a narrow range of activity called the:
a. relevant range of production
b. strategic level of production
c. optimal level of production
d. tactical operating level of production

12. The systematic examination of the relationships among selling prices, volume of sales and production, costs, and profits is
termed:
a. contribution margin analysis
b. cost-volume-profit analysis
c. budgetary analysis
d. gross profit analysis

13. The contribution margin ratio is:

a. the same as the variable cost ratio
b. the same as profit
c. the portion of equity contributed by the stockholders
d. the same as the profit-volume ratio

14. Which of the following conditions would cause the break-even point to decrease?
a. Total fixed costs increase
b. Unit selling price decreases
c. Unit variable cost decreases
d. Unit variable cost increases

15. The point where the total costs line intersects the left-hand vertical axis on the cost-volume-profit chart represents:
a. the minimum possible operating loss
b. the maximum possible operating income
c. the total fixed costs
d. the break-even point

16. Assume that Crowley Co. sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit
contribution margins for Products A and B are P20 and P45 respectively. Crowley has fixed costs of P350,000. The break-
even point in units is:
a. 14,000 units
b. 25,278 units
c. 8,000 units
d. 10,769 units

17. If a business had a capacity of P10,000,000 of sales, actual sales of P6,000,000, break-even sales of P4,500,000, fixed costs
of P1,800,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales?
a. 25%
b. 18%
c. 33.3%
d. 15%

18. If a business had sales of P4,000,000, fixed costs of P1,200,000, a margin of safety of 25%, and a contribution margin ratio
of 40%, what was the break-even point?
a. P3,000,000
b. P2,800,000
c. P4,800,000
d. P1,000,000

19. Forde Co. has an operating leverage of 4. Sales are expected to increase by 8% next year. Operating income is:
a. unaffected
b. expected to increase by 2%
c. expected to increase by 32%
d. expected to increase by 4 times

20. If a business had a margin of safety ratio of 20%, variable costs of 75% of sales, fixed costs of P240,000, a break-even point
of P960,000, and operating income of P60,000 for the current year, what are the current year's sales?
a. P1,200,000
b. P1,040,000
c. P1,260,000
d. P1,020,000

Absorption and Variable Costing

21. On the variable costing income statement, the figure representing the difference between manufacturing margin and
contribution margin is the:
a. fixed manufacturing costs
b. variable cost of goods sold
c. fixed selling and administrative expenses
d. variable selling and administrative expenses

22. The amount of income under absorption costing will equal the amount of income under variable costing when units
manufactured:
a. exceed units sold
b. equal units sold
c. are less than units sold
d. are equal to or greater than units sold

23. Which of the following statements is correct using the direct costing concept?
a. All manufacturing costs are included in the calculation of cost of goods manufactured
b. Only fixed costs are included in the calculation of cost of goods manufactured while variable costs are considered
period costs.
c. Only variable costs are included in the calculation of cost of goods manufactured while fixed costs are considered
period costs.
d. All manufacturing costs are considered period costs.

24. Accountants prefer the variable costing method over absorption costing method for evaluating the performance of a
company because
a. by using the absorption costing method, income could appear to be higher by producing more inventory.
b. by using the absorption method, more sales will be generated.
c. by using the variable costing method, the cost of goods sold will be higher as more units are manufactured and
sales remain the same.
d. by using the variable costing method, all fixed and variable costs are included in the unit cost of the product
manufactured.

25. Under the variable costing method variable manufacturing costs are easier to identify and control because:
a. Variable and fixed costs are reported separately.
b. Variable costs can be controlled by the operating management.
c. Fixed costs, such as property insurance, are normally the responsibility of higher management not the operating
management.
d. All of the above are true.

26. Hirsch Company produces a single product. Variable manufacturing costs are P6 per unit, and fixed manufacturing costs are
P2 per unit based on 50,000 units produced each year. In the current year, 50,000 units were produced, and 40,000 units
were sold. Under absorption costing, the amount of manufacturing cost (variable and fixed) deducted from revenue in the
current year would be:
a. P320,000
b. P400,000
c. P240,000
d. P300,000

27. During its first year of operations, Carlos Manufacturing Company incurred the following costs to produce 8,000 units of its
product:

Direct materials....................... P7 per unit

Direct labor.............................. P3 per unit
Variable manufacturing
overhead............................. P18 per unit
Fixed manufacturing
overhead............................. P450,000 in total

The company also incurred the following costs in the sale of 7,500 units of product during its first year:

Variable selling and

administrative..................... P2 per unit
Fixed selling and
administrative..................... P60,000 in total

Assume that direct labor is a variable cost. What is the total cost that would be assigned to Carlos' finished goods inventory
at the end of the first year of operations under the variable costing method?
a. P15,000
b. P42,125
c. P44,000
d. P14,000

28.Pungent Corporation manufactures and sells a spice rack. Shown below are the actual operating results for the first two years
of operations:

Year 1 Year 2
Units (spice racks) produced............ 40,000 40,000
Units (spice racks) sold..................... 37,000 41,000
Absorption costing net operating P44,00 P52,00
income.......................................... 0 0
 Variable costing net operating P38,00
income.......................................... 0 ???

Pungent's cost structure and selling price were the same for both years. What is Pungent's variable costing net operating
income for Year 2?
a. P48,000
b. P50,000
c. P54,000
d. P56,000

29. Last year, Tinklenberg Corporation's variable costing net operating income was P52,400 and its ending inventory decreased
by 1,400 units. Fixed manufacturing overhead cost was P8 per unit. What was the absorption costing net operating income
last year?
a. P41,200
b. P11,200
c. P63,600
d. P52,400

29. Hurlex Company produces a single product. Last year, Hurlex manufactured 15,000 units and sold 12,000 units. Production
costs for the year were as follows:

Direct materials............................ P150,000

Direct labor................................... P180,000
Variable manufacturing overhead P135,000
Fixed manufacturing overhead.... P210,000

Sales totaled P840,000 for the year, variable selling expenses totaled P60,000, and fixed selling and administrative
expenses totaled P180,000. There were no units in the beginning inventory. Assume that direct labor is a variable cost.
Under variable costing, the company's net operating income for the year would be:
a. P42,000 higher than under absorption costing
b. P30,000 higher than under absorption costing
c. P30,000 lower than under absorption costing
d. P42,000 lower than under absorption costing

Decentralization, Responsibility Accounting and Segment Reporting

31. Which of the following would be most effective in a small owner/manager-operated business?
a. Profit centers
b. Centralization
c. Investment centers
d. Cost centers

32. Businesses that are separated into two or more manageable units in which managers have authority and responsibility for
operations are said to be:
a. decentralized
b. consolidated
c. diversified
d. centralized

33. Which is the best example of a decentralized operation?

a. One owner who prepares plans and makes decisions for the entire company.
b. Each unit is responsible for their own operations and decision making.
c. In a major company, operating decisions are made by top management.
d. None of the above. All are examples of a centralized management.

34. Which of the following is not a disadvantage of decentralized operation?

a. Competition among managers decreases profits
b. Duplication of operations
c. Price cutting by departments that are competing in the same product market
d. Top management freed from everyday tasks to do strategic planning

35. The following are advantages of decentralization except:

a. Managers make better decisions when closer to the operation of the company.
b. Expertise in all areas of the business is difficult, decentralization makes it better to delegate certain responsibilities.
c. Each decentralized operation purchases their own assets and pays for operating costs.
d. Decentralized managers can respond quickly to customer satisfaction and quality service.

36. Stevenson Corporation had P275,000 in invested assets, sales of P330,000, income from operations amounting to P49,500
and a desired minimum rate of return of 7.5%. The rate of return on investment for Stevenson is:
a. 8%
b. 10%
c. 18%
d. 7.5%

37. The Anderson Company has sales of P4,500,000. It also has invested assets of P2,000,000 and operating expenses of
P3,600,000. The company has established a minimum rate of return of 7%. What is Anderson Company's residual income?
 a. P252,000
b. P900,000
c. P1,400,000
d. P760,000
38. Division Q for Mott Company has a rate of return on investment of 28% and an investment turnover of 1.4. What is the profit
margin?
a. 28%
b. 20%
c. 14%
d. 39.2%

39.Toxemia Salsa Company manufactures five flavors of salsa. Last year, Toxemia generated net operating income of P40,000.
The following information was taken from last year's income statement segmented by flavor (brackets indicate a negative
amount):

Wimpy Mild Medium Hot Atomic

Contribution P50,00 P162,00
margin........ P(2,000) P45,000 P35,000 0 0
Segment P10,00
margin........ P(16,000) P(5,000) P7,000 0 P94,000
Segment
margin less
allocated
common
fixed P(3,000
expenses.... P(26,000) P(15,000) ) P0 P84,000

Toxemia expects similar operating results for the upcoming year. If Toxemia wants to maximize its profitability in the
upcoming year, which flavor or flavors should Toxemia discontinue?
a. no flavors should be discontinued
b. Wimpy
c. Wimpy and Mild
d. Wimpy, Mild, and Medium

40.Devlin Company has two divisions, C and D. The overall company contribution margin ratio is 30%, with sales in the two
divisions totaling P500,000. If variable expenses are P300,000 in Division C, and if Division C's contribution margin ratio is
25%, then sales in Division D must be:
a. P50,000
b. P100,000
c. P150,000
d. P200,000

Financial Statement Analysis

41. The percentage analysis of increases and decreases in individual items in comparative financial statements is called
a. vertical analysis
b. solvency analysis
c. profitability analysis
d. horizontal analysis

42. The relationship of P225,000 to P125,000, expressed as a ratio, is

a. 2.0 to 1
b. 1.8 to 1
c. 1.5 to 1
d. 0.56 to 1

43. The percent of fixed assets to total assets is an example of

a. vertical analysis
b. solvency analysis
c. profitability analysis
d. horizontal analysis

44. The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as
a. solvency and leverage
b. solvency and profitability
c. solvency and liquidity
d. solvency and equity

45. Which of the following is a measure of the liquid position of a corporation?

a. earnings per share
b. inventory turnover
c. current ratio
d. number of times interest charges earned
46. Assume the following sales data for a company:
2007 750,000
2006 600,000
What is the percentage increase in sales from 2006 to 2007?
a. 25%
b. 125%
c. 20%
d. 167%

47. Tanner Corporation had net income of P250,000 and paid dividends to common stockholders of P50,000 in 2007. The
weighted average number of shares outstanding in 2007 was 50,000 shares. Banner Corporation's common stock is selling
for P50 per share on the New York Stock Exchange. Tanner Corporation's price-earnings ratio is
a. 10 times.
b. 5 times.
c. 2 times.
d. 8 times.

48. An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to
a. decrease
b. remain the same
c. either increase or decrease
d. increase

49. At December 31, 2006 and 2005, Lapham Corp. had 200,000 shares of common stock and 20,000 shares of 5 percent, P100
par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in
2006 or 2005. Net income for 2006 was P1,000,000. For 2006, basic earnings per common share amounted to
a. P5.00.
b. P4.75.
c. P4.50.
d. P4.00.

50. Canada Company was organized on January 1, 2009 with the following capital structure
• 10% cumulative preference share, par value P10, liquidation value P12, authorized, issued and outstanding 100,000
shares, P1,000,000.
• Ordinary share capital, par value P100, authorized 40,000 shares, issued and outstanding 30,000 shares,
P3,000,000.
The net income for the year ended December 31, 2009 was P6,000,000 and no dividends were declared. What is the
December 31, 2009 book value per ordinary share?
a. P290
b. P293
c. P300
d. P333