Accountancy Department

Preliminary Examination in MANACO 1

Name:__________________________________
Schedule: ______________________________
______________________________________________________________________________
Multiple Choice Questions. Read each item carefully. Write your final answer on the space
provided before each number. No erasures allowed.
I. Multiple Choice
Choose the letter that corresponds to the right answer.

1. Which of the following statement is true?

a. Management accounting information focuses on external reporting.
b. The balance sheet, income statement and statement of cash flows are used for financial
accounting but not for management accounting.
c. Financial accounting is broader in scope than management accounting.
d. Modern cost accounting plays a significant role in management decision making.
2. Which of the following statement is false?
a. Cost accounting measures and reports short-term, long-term financial, and nonfinancial
information.
b. Cost management provides information that helps increase value for customers.
c. All strategies should be evaluated regarding the resources and capabilities of the company.
d. A good cost accounting system is narrowly focused on a continuous reduction of costs.
3. Which of the following statement is correct?
a. The best-designed strategies are valuable whether or not they are effectively implemented.
b. To take advantage of changing market opportunities, the annual budget should be strictly
enforced.
c. Linking rewards to performance is a major deterrent to good management performance.
d. An important strategic decision is making the correct investments in productive assets.
4. All of the following statements are true except
a. A budget is a tool used to plan and express strategy.
b. Financial accounting reports financial and nonfinancial information that helps managers
implement company strategies.
c. Feedback links planning and control.
d. Control includes deciding what feedback to provide that will help with future decision making.
5. All of the following statements are false except
a. Attention-directing should focus on cost-reduction opportunities, and not on value-adding
opportunities.
b. For strategic decisions, scorekeeping is the most prominent role played by management
accounting.
c. A budget may be used as a planning tool, but not as a control tool.
d. Management accountants often are simultaneously doing problem-solving, scorekeeping, and
attention-directing activities.
6. Which statement is true?
a. All variable costs are direct costs.
b. Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.
c. All fixed costs are indirect costs.
d. All direct costs are variable costs.
7. Indirect manufacturing costs
a. can be traced to the product that created the costs.
b. can be easily identified with the cost object.
c. generally include the cost of material and the cost of labor.
d. may include both variable and fixed costs.
8. Variable costs

GMORALLER
 a. are always indirect costs.
b. increase in total when the actual level of activity increase.
c. include most personnel costs and depreciation on machinery.
d. can always be traced directly to the cost object.
9. Fixed costs
a. may include either direct or indirect costs.
b. vary with production or sales volumes.
c. include parts and materials used to manufacture a product.
d. can be adjusted in the short run to meet actual demand.
10. Which one of the following is a variable cost in an insurance company?
a. Rent
b. President’s salary
c. Sales commissions
d. Property taxes
11. Service-sector companies report
a. only merchandise inventory.
b. only finished goods inventory.
c. direct materials inventory, work-in-process inventory, and finished goods inventory accounts.
d. no inventory accounts.
12. Manufacturing-sector companies report
a. only merchandise inventory
b. only finished goods inventory.
c. direct materials inventory, work-in-process inventory, and finished goods inventory accounts.
d. no inventory accounts.
13. For a manufacturing company, direct material costs may be included in
a. direct materials inventory only.
b. merchandise inventory only.
c. both work-in-process inventory and finished goods inventory.
d. direct materials inventory, work-in-process inventory, and finished goods inventory accounts.
14. For a manufacturing company, direct labor costs may be included in
a. direct materials inventory only.
b. merchandise only.
c. both work-in-process inventory and finished goods inventory.
d. direct materials inventor, work-in-process inventory, and finished goods inventory accounts.
15. For a manufacturing company, indirect manufacturing costs may be included in
a. direct materials inventory only.
b. merchandise inventory only.
c. both work-in-process inventory and finished goods inventory.
d. direct materials inventor, work-in-process inventory, and finished goods inventory accounts.

II. Poblem-Solving

Problem 1
Lily Company, a British merchandising firm, is the exclusive distributor of a product that is gaining rapid
market acceptance. The company’s revenues and expenses for the last three months are given below:

LILY COMPANY
Comparative Income Statement
For the Three Months Ended June 30
April May June
Sales in units 3,000 3,750 4,500
Sales revenue P420,000 P525,000 P630,000
Less cost of goods sold 168,000 210,000 252,000
Gross margin 252,000 315,000 378,000
Less operating expenses:
Shipping expense 44,000 50,000 56,000
Advertising expense 70,000 70,000 70,000

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 Salaries and commissions 107,000 125,000 143,000
Insurance expense 9,000 9,000 9,000
Depreciation expense 42,000 42,000 42,000
Total operating expenses 272,000 296,000 320,000
Net income (loss) P (20,000) P19,000 P58,000

1. Identify each of the company’s expenses (including cost of goods sold) as being either variable, fixed,
or mixed.
2. By use of the high-low method, separate each mixed expense into variable and fixed elements. State
the cost formula for each mixed expense.
3. Redo the company’s income statement at the 4,500-unit level of activity using the contribution
format.

Problem 2
The Income Statement for the Woodstock Company for the past year is:
Sales (150,000 units @ P30) P4,500,000
Cost of goods sold:
Materials P1,050,000
Labor 1,500,000
Variable factory overhead 450,000
Fixed factory overhead 500,000 3,500,000
Gross profit P1,000,000
Variable marketing expenses P135,000
Fixed marketing expenses 185,000
Fixed manufacturing expenses 180,000 500,000
Income before income tax P 500,000
Income tax 250,000
Net Income P 250,000

Woodstock is preparing its budget for the coming year and has made the following projections about
cost increases: materials, 5%, labor 8%, and all other costs (including fixed), 6%. Production capacity is
200,000 units.
The President has been offered various proposals by the division manager as follows:
a. Maintain the present volume and sales price.
b. Produce and sell at capacity and reduce the unit price to P28.
c. Raise the unit price to P32, spend an extra P300,000 on advertising, and produce and sell
180,000 units.

GMORALLER