STRATEGIC COST MANAGEMENT - QUIZ NO.

1 MIDTERM

2nd Term., A.Y. 2019-2020

BASTRCSX

NAME: (surname first)________________________________ SCORE: __________________

YR./ SEC.: _________________ DATE: ___________________

GENERAL DIRECTION: You are given two part examination, Part I – Theories (1pt each) and Part II Problem
Solving – (2pts each). Read and analyze the following questions and choose the best answer by shading the
letter of your choice in your answer sheet. STRICTLY NO ERASURES ARE ALLOWED.

PART I - THEORIES (1PT EACH)

____ 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 term is used to describe the process of monitoring operating results and comparing actual
results with the expected results?
a. Improving c. Directing
b. Controlling d. Planning
____ 3. The Institute of Management Accountants' Statement of Ethical Professional Practice states that
when faced with significant ethical issues, management accountants should first:
a. discuss such problems with the immediate superior except when it appears that
the superior is involved.
b. clarify relevant concepts by confidential discussion with an objective advisor to
obtain an understanding of possible courses of action.
c. follow the established policies of the organization bearing on the resolution of
such conflict.
d. submit an informative memorandum describing the ethical issue to an appropriate
representative of the organization and resign if no action is taken as a result of
the memorandum.
____ 4. Decentralization refers to:
a. reporting for the company as a whole.
b. focusing reporting on parts of the company.
c. the delegation of decision-making authority throughout an organization.
d. differences in organizations.
____ 5. Indirect costs incurred in a manufacturing environment that cannot be traced directly to a product
are treated as:
a. period costs and expensed when incurred
b. product costs and expensed when the goods are sold
 c. product costs and expenses when incurred
d. period costs and expensed when the goods are sold
____ 6. Which of the following is NOT one of the five steps in the lean thinking model discussed in the text?
a. Create a pull system that responds to customer orders.
b. Automate the business process.
c. Identify the business process that delivers value.
d. Organize work arrangements around the flow of the business process.
____ 7. The plans of management are expressed formally in:
a. the annual report to shareholders.
b. Form 10-Q submitted to the Securities and Exchange Commission.
c. performance reports.
d. budgets.
____ 8. Which of the following statements is TRUE concerning the CMA?
a. To earn the CMA, an examination must be passed.
b. Experience in the accounting field is not necessary to earn the CMA.
c. Compliance with the Institute of Management Accountants' Statement of Ethical
Professional Practice is not necessary to earn the CMA.
d. Both B and C above.
____ 9. Cost of goods manufactured will usually include:
a. only costs incurred during the current period.
b. only direct labor and direct materials costs.
c. some costs incurred during the prior period as well as costs incurred during the
current period.
d. some period costs as well as some product costs.
____ 10. All of the following employees hold line positions in Anthea Electric EXCEPT:
a. vice president of production c. manager of the Valhalla Plant
b. vice president of finance d. vice president of sales
____ 11. The Sarbanes-Oxley Act of 2002 contains all of the following provisions EXCEPT:
a. A CFO must be a CPA or CMA.
b. The audit committee of the board of directors of a company must hire,
compensate, and terminate the public accounting firm that audits the company's
financial reports.
c. Severe penalties are established for altering or destroying documents that may
eventually be used in an official proceeding.
d. Both the CEO and CFO must certify in writing that their company's financial
statements and accompanying disclosures fairly represent the results of
operations.
____ 12. Which of the following is not a factory overhead cost?
a. materials used directly in the manufacturing process of the product
b. insurance on factory equipment
c. salaries of production supervisors
d. property tax on factory building
____ 13. Which of the graphs in Figure 20-1 illustrates the behavior of a total fixed cost?
a. Graph 2 c. Graph 4
b. Graph 3 d. Graph 1
____ 14. Which of the following costs is a mixed cost?
a. Salary of a factory supervisor
b. Electricity costs of P2 per kilowatt-hour
c. Rental costs of P5,000 per month plus P0.30 per machine hour of use
d. Straight-line depreciation on factory equipment
____ 15. Which of the following would be classified as a prevention cost on a quality cost report?
a. Cost of field servicing and handling complaints.
b. Quality engineering.
c. Lost sales arising from a reputation for poor quality.
d. Supervision of testing and inspection activities.
____ 16. Which of the following activity bases would be the most appropriate for food costs of a hospital?
a. Number of cooks scheduled to work
b. Number of x-rays taken
c. Number of patients who stay in the hospital
d. Number of scheduled surgeries
____ 17. An increase in the activity level within the relevant range results in:
a. a decrease in fixed cost per unit.
b. an unchanged fixed cost per unit.
c. a proportionate increase in total fixed costs.
d. an increase in fixed cost per unit.
____ 18. Cost behavior refers to the manner in which:
a. a cost changes as the related activity changes
 b. a cost is allocated to products
c. a cost is used in setting selling prices
d. a cost is estimated
____ 19. Which of the following would be classified as an external failure cost on a quality cost report?
a. Debugging software errors.
b. Final product testing and inspection.
c. Depreciation of test equipment.
d. Liability arising from defective products.
____ 20. The three most common cost behavior classifications are:
a. variable costs, product costs, and sunk costs
b. fixed costs, variable costs, and mixed costs
c. variable costs, period costs, and differential costs
d. variable costs, sunk costs, and opportunity costs
____ 21. _________________ is a method of separating a mixed cost into its fixed and variable elements by
fitting a regression line that minimizes the sum of the squared errors.
a. least-square regression method c. scattergraph method
b. high-low method d. quick and dirty method
____ 22. Which of the following activity bases would be the most appropriate for gasoline costs of a delivery
service, such as United Postal Service?
a. Number of trucks employed c. Number of trucks in service
b. Number of miles driven d. Number of packages delivered
____ 23. A cost driver is:
a. an indirect cost that is essential to the business.
b. a fixed cost that cannot be avoided.
c. the largest single category of cost in a company.
d. a factor that causes variations in a cost.
____ 24. The cost associated with idle time should be:
a. included as part of direct labor cost.
b. treated as part of manufacturing overhead.
c. added directly to cost of goods sold for the period.
d. included as part of selling and administrative expenses.
____ 25. Which of the following is NOT an example of a cost that varies in total as the number of units
produced changes?
a. Electricity per KWH to operate factory equipment
b. Direct materials cost
c. Insurance premiums on factory building
d. Wages of assembly worker
____ 26. The linear equation Y = a + bX is often used to express cost formulas. In this equation:
a. the a term represents variable cost in total.
b. the Y term represents total fixed cost.
c. the b term represents variable cost per unit of activity.
d. the X term represents total cost.
____ 27. Which of the following would be classified as an appraisal cost on a quality cost report?
a. Systems development.
 b. Plant utilities in the inspection area.
c. Lost sales arising from a reputation for poor quality.
d. Audits of the effectiveness of the quality system.
____ 28. 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
____ 29. An example of a discretionary fixed cost is:
a. management training.
b. taxes on real estate.
c. insurance.
d. depreciation of buildings and equipment.
____ 30. The contribution approach to the income statement:
a. is useful to managers in planning and decision making.
b. shows a contribution margin rather than a net operating income figure at the
bottom of the statement.
c. organizes costs on a functional basis.
d. can be used only by manufacturing companies.

PART II - PROBLEM SOLVING (2PTS EACH)

____ 31. Cost of Materials Used P40,000

Direct Labor costs P55,000
Factory Overhead P32,000
Work in Process, beg. P28,000
Work in Process, end. P18,000
Finished Goods,beg. P28,000
Finished Goods, end. P18,000

What is Cost of Goods Sold?

a. P147,000 c. P10,000
b. P137,000 d. P128,000
____ 32. A company manufactured 50,000 units of a product at a cost of P250,000. They sold 40,000 units
for P10 each. What is the gross margin?
a. P150,000 c. P400,000
b. P200,000 d. P250,000
____ 33. At the beginning of 2019, the Gilbert Company’s work in process inventory account had a balance
of P30,000. During 2019, P68,000 of direct materials were used in production, and P66,000 of
direct labor costs were incurred. Factory overhead in 2019 amounted to P90,000. Cost of goods
manufactured is P220,000 in 2019. The balance in work in process inventory on December 31,
2019, is:
a. P34,000 c. P66,000
b. P24,000 d. P6,000
____ 34. Given the following costs and activities for Downing Company electrical costs, use the high-low
method to calculate Downing’s variable electrical costs per machine hour.
 Costs Machine Hours
April P11,700 15,000
May P13,200 17,500
June P11,400 14,500

a. P2.08 c. P0.60
b. P6.00 d. P1.20
____ 35. Bill Harris works on the assembly line of the Boothe Company and earns P10 per hour. He is paid
time-and-a-half for work in excess of 40 hours per week. During a given week he worked 43 hours
and had no idle time. How much of his week's wages would be charged to manufacturing
overhead?
a. P45 c. P15
b. P0 d. P30

Use the following information for questions 36 to 37:

ELIAS Company's quality cost report is to be based on the following data:

____ 36. What would be the total prevention cost appearing on the quality cost report?
a. P76,000 c. P145,000
b. P93,000 d. P75,000

____ 37. What would be the total internal failure cost appearing on the quality cost report?
a. P150,000 c. P26,000
b. P84,000 d. P127,000
____ 38. Cost of goods manufactured during 2011 is P240, work in process inventory on December 31, 2011,
is P50. Work in process inventory during 2011 decreased 60%. Total manufacturing costs incurred
during 2011 amount to:
a. P190 c. P290
b. P165 d. P315
____ 39. An analysis of past maintenance costs indicates that maintenance cost is an average of P0.20 per
machine-hour at an activity level of 10,000 machine-hours and P0.25 per machine-hour at an
activity level of 8,000 machine-hours. Assuming that this activity is within the relevant range, what is
the total expected maintenance cost if the activity level is 8,700 machine-hours?
a. P2,000 c. P2,250
b. P400 d. P1,740
____ 40. Given the cost formula Y = P17,500 + P4X, at what level of activity will total cost be P42,500?
a. 6,250 units c. 4,375 units
b. 5,250 units d. 10,625 units
____ 41. MIKAS, Inc. sells and installs furnaces for P3,000 per furnace. The following cost formula relates to
last year's operations at MIKAS:
Y = P125,000 + P1,800X

If MIKAS sold and installed 500 furnaces last year, what was its total contribution margin last year?
a. P600,000 c. P900,000
b. P1,025,000 d. P475,000
____ 42. You are applying the scattergraph method and find that the regression line you have drawn passes
through a data point with the following coordinates: 1,000 units and P9,600. The regression line
passes through the Y axis at the P600 point. Which of the following is the cost formula that
represents the slope of this line?
a. Y=P600+P9.60X c. Y=P9,600+P.06X
b. Y=P600+P9.00X d. None of these is true.
____ 43. NAHUM Co. manufactures office furniture. During the most productive month of the year, 4,500
desks were manufactured at a total cost of P86,625. In its slowest month, the company made 1,800
desks at a cost of P49,500. Using the high-low method of cost estimation, total fixed costs are:
a. P61,875
b. P33,875
c. P24,750
d. cannot be determined from the data given
____ 44. The following data pertain to activity and costs for two recent months:

Assuming that these activity levels are within the relevant range, the mixed costs for November
were:
a. P20,000 c. P35,000
b. P25,000 d. P40,000
____ 45. At an activity level of 4,500 machine-hours in a month, JOB Corporation's total variable
maintenance and repair cost is P394,830 and its total fixed maintenance and repair cost is
P105,570. What would be the total maintenance and repair cost, both fixed and variable, at an
activity level of 4,600 units in a month? Assume that this level of activity is within the relevant
range.
a. P500,400 c. P511,520
b. P509,174 d. P505,960
____ 46. Isaiah 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' observation
with a related coefficient of 85:
T = 100,000 + P50H
If 500 hours of travel time were logged in one period, the related point estimate of total
transportation costs would be __________
a. 110,000 c. 106,250
b. 121,250 d. 125,000
____ 47. The total production costs for 20,000 units was P21,000 and the total production cost for making
50,000 units was P34,000. Once the production exceeds 25,000 units additional fixed costs of
P4,000 were incurred. The full production cost per unit for making 30,000 units is:
a. P0.30 c. P0.84
b. P0.68 d. P0.93
STRATEGIC COST MANAGEMENT - QUIZ NO. 1 MIDTERM
Answer Section

MULTIPLE CHOICE

1. ANS: B PTS: 1
2. ANS: B PTS: 1
3. ANS: C PTS: 1
4. ANS: C PTS: 1
5. ANS: B PTS: 1
6. ANS: B PTS: 1
7. ANS: D PTS: 1
8. ANS: A PTS: 1
9. ANS: C PTS: 1
10. ANS: B PTS: 1
11. ANS: A PTS: 1
12. ANS: A PTS: 1
13. ANS: D PTS: 1
14. ANS: C PTS: 1
15. ANS: B PTS: 1
16. ANS: C PTS: 1
17. ANS: A PTS: 1
18. ANS: A PTS: 1
19. ANS: D PTS: 1
20. ANS: B PTS: 1
21. ANS: A PTS: 1
22. ANS: B PTS: 1
23. ANS: D PTS: 1
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25. ANS: C PTS: 1
26. ANS: C PTS: 1
27. ANS: B PTS: 1
28. ANS: A PTS: 1
29. ANS: A PTS: 1
30. ANS: A PTS: 1
31. ANS: A PTS: 2
32. ANS: B PTS: 2
33. ANS: A PTS: 2
34. ANS: C PTS: 2
35. ANS: C PTS: 2
36. ANS: A PTS: 2
37. ANS: B PTS: 2
38. ANS: B PTS: 2
39. ANS: A PTS: 2
40. ANS: A PTS: 2
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43. ANS: C PTS: 2
44. ANS: B PTS: 2
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46. ANS: D PTS: 2
47. ANS: D PTS: 2