PANPACIFIC UNIVERSITY

McArthur Highway, San Vicente, Urdaneta City, Pangasinan

FINAL EXAMINATION – 1st Semester S.Y. 2018-2017

Subject: Cost Accounting and Cost Management

General Instructions: (1) Use only black or blue pen. No friction pen. (2)
Erasures/Superimposition/Alterations is considered wrong. (3) Do not tear or fold of any
page/s of your test booklet it will invalidate all your answers. (4) mind your own business
and use only your own calculator when needed. Anybody caught is considered cheating
and will be dealt with accordingly. (5) No permit, no exams.

Multiple Choice: Write the letter of your choice in CAPITAL LETTERS.(40 points)

1. A basic concept of variable costing is that period costs should be currently expensed. What is the
rationale behind this procedure?
a. Period costs are uncontrollable and should not be charged to a specific product.
b. Period costs are generally immaterial in amount and the cost of assigning the
amounts to specific products would outweigh the benefits.
c. Allocation of period costs is arbitrary at best and could lead to erroneous decision
by management.
d. Because period costs will occur whether production occurs, it is improper to
allocate these costs to production and defer a current cost of doing business.
2. Which of the following is a term more descriptive of the term "direct costing"?
a. out-of-pocket costing
b. variable costing
c. relevant costing
d. prime costing
3. What costs are treated as product costs under variable (direct) costing?
a. only direct costs
b. only variable production costs
c. all variable costs
d. all variable and fixed manufacturing costs
4. Which of the following must be known about a production process in order to institute a variable
costing system?
a. the variable and fixed components of all costs related to production
b. the controllable and non-controllable components of all costs related to production
c. standard production rates and times for all elements of production
d. contribution margin and break-even point for all goods in production
5. Why is variable costing not in accordance with generally accepted accounting principles?
a. Fixed manufacturing costs are treated as period costs under variable costing.
b. Variable costing procedures are not well known in industry.
c. Net earnings are always overstated when using variable costing procedures.
d. Variable costing ignores the concept of lower of cost or market when valuing
inventory.
6. Which of the following is an argument against the use of direct (variable) costing?
a. Absorption costing overstates the balance sheet value of inventories.
b. Variable factory overhead is a period cost.
c. Fixed manufacturing overhead is difficult to allocate properly.

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 d. Fixed manufacturing overhead is necessary for the production of a product.
7. Which of the following statements is true for a firm that uses variable costing?
a. The cost of a unit of product changes because of changes in the number of units
manufactured.
b. Profits fluctuate with sales.
c. An idle facility variation is calculated.
d. None of the above.
8. An income statement is prepared as an internal report. Under which of the following methods
would the term contribution margin appear?
Absorption costing Variable costing
a. no no
b. no yes
c. yes no
d. yes yes

9. In an income statement prepared as an internal report using the variable costing method, fixed
manufacturing overhead would
a. not be used.
b. be used in the computation of operating income but not in the computation of the
contribution margin.
c. be used in the computation of the contribution margin.
d. be treated the same as variable manufacturing overhead.
10. Variable costing has an advantage over absorption costing for which of the following purposes?
a. analysis of profitability of products, territories, and other segments of a business
b. determining the CVP relationship among the major factors of selling price, sales
mix, and sales volume
c. minimizing the effects of inventory changes on net income
d. all of the above
11. In the variable costing income statement, which line separates the variable and fixed costs?
a. selling expenses
b. general and administrative expense
c. product contribution margin
d. total contribution margin
12. A firm presently has total sales of $100,000. If its sales rise, its
a. net income based on variable costing will go up more than its net income based on
absorption costing.
b. net income based on absorption costing will go up more than its net income based
on variable costing.
c. fixed costs will also rise.
d. per unit variable costs will rise.

Wyatt Corporation
Wyatt Corporation has the following standard costs associated with the manufacture and sale of
one of its products:
Direct material $3.00 per unit
Direct labor 2.50 per unit
Variable manufacturing overhead 1.80 per unit
Fixed manufacturing overhead 4.00 per unit (based on an estimate
of 50,000 units per year)
Variable selling expenses .25 per unit
Fixed SG&A expense $75,000 per year

During its first year of operations Wyatt manufactured 51,000 units and sold 48,000. The
selling price per unit was $25. All costs were equal to standard.

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13. Refer to Wyatt Corporation. Under absorption costing, the standard production cost per unit for
the current year was
a. $ 7.30.
b. $11.30.
c. $11.55.
d. $13.05.

14. Refer to Wyatt Corporation. The volume variance under absorption costing is
a. $8,000 F.
b. $4,000 F.
c. $4,000 U.
d. $8,000 U.

15. Refer to Wyatt Corporation. Under variable costing, the standard production cost per unit for the
current year was
a. $11.30.
b. $7.30.
c. $7.55.
d. $11.55.

16. Refer to Wyatt Corporation. Based on variable costing, the income before income taxes for the
year was
a. $570,600.
b. $560,000.
c. $562,600.
d. $547,500.
Richardson Company
The following information is available for Richardson Company for its first year of operations:
Sales in units 5,000
Production in units 8,000
Manufacturing costs:
Direct labor $3 per unit
Direct material $5 per unit
Variable overhead $1 per unit
Fixed overhead $100,000
Net income (absorption method) $30,000
Sales price per unit $40

17. Refer to Richardson Company. If Richardson Company had used variable costing, what amount
of income before income taxes would it have reported?
a. $30,000
b. ($7,500)
c. $67,500
d. cannot be determined from the information given

18. Refer to Richardson Company. What was the total amount of Selling,General and Administrative
expense incurred by Richardson Company?
a. $30,000
b. $62,500
c. $6,000
d. can't be determined from the information given

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19. Refer to Richardson Company. If Richardson Company were using variable costing, what would
it show as the value of ending inventory?
a. $120,000
b. $64,500
c. $27,000
d. $24,000

Truman Corporation
The following information has been extracted from the financial records of Truman Corporation
for its first year of operations:
Units produced 10,000
Units sold 7,000
Variable costs per unit:
Direct material $8
Direct labor 9
Manufacturing overhead 3
SG&A 4
Fixed costs:
Manufacturing overhead $70,000
SG&A 30,000

20. Refer to Truman Corporation. Based on absorption costing, Truman Corporation's income in its
first year of operations will be
a. $21,000 higher than it would be under variable costing.
b. $70,000 higher than it would be under variable costing.
c. $30,000 higher than it would be under variable costing.
d. higher than it would be under variable costing, but the exact difference cannot be
determined from the information given.
21. Refer to Truman Corporation. Based on absorption costing, the Cost of Goods Manufactured for
Truman Corporation's first year would be
a. $200,000.
b. $270,000.
c. $300,000.
d. $210,000.

22. Refer to Truman Corporation. Based on absorption costing, what amount of period costs will
Truman Corporation deduct?
a. $70,000
b. $79,000
c. $30,000
d. $58,000

23. For its most recent fiscal year, a firm reported that its contribution margin was equal to 40
percent of sales and that its net income amounted to 10 percent of sales. If its fixed costs for the
year were $60,000, how much were sales?
a. $150,000
b. $200,000
c. $600,000
d. can't be determined from the information given

24. At its present level of operations, a small manufacturing firm has total variable costs equal to 75
percent of sales and total fixed costs equal to 15 percent of sales. Based on variable costing, if
sales change by $1.00, income will change by
a. $0.25.
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 b. $0.10.
c. $0.75.
d. can't be determined from the information given.

25. The following information regarding fixed production costs from a manufacturing firm is
available for the current year:

Fixed costs in the beginning inventory $ 16,000

Fixed costs incurred this period 100,000

Which of the following statements is not true?

a. The maximum amount of fixed production costs that this firm could deduct using
absorption costs in the current year is $116,000.
b. The maximum difference between this firm's the current year income based on
absorption costing and its income based on variable costing is $16,000.
c. Using variable costing, this firm will deduct no more than $16,000 for fixed
production costs.
d. If this firm produced substantially more units than it sold in the current year,
variable costing will probably yield a lower income than absorption costing.
Ellis Corporation
The following information was extracted from the first year absorption-based accounting records
of Ellis Corporation
Total fixed costs incurred $100,000
Total variable costs incurred 50,000
Total period costs incurred 70,000
Total variable period costs incurred 30,000
Units produced 20,000
Units sold 12,000
Unit sales price $12

26. Refer to Ellis Corporation. What is Cost of Goods Sold for Ellis Corporation's first year?
a. $80,000
b. $90,000
c. $48,000
d. can't be determined from the information given

27. Refer to Ellis Corporation. If Ellis Corporation had used variable costing in its first year of
operations, how much income (loss) before income taxes would it have reported?
a. ($6,000)
b. $54,000
c. $26,000
d. $ 2,000

28. Refer to Ellis Corporation. Based on variable costing, if Ellis had sold 12,001 units instead of
12,000, its income before income taxes would have been
a. $9.50 higher.
b. $11.00 higher.
c. $8.50 higher.
d. $8.33 higher.

Rosewood Corporation
Rosewood Corporation produces a single product. The following cost structure applied to its first
year of operations:

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 Variable costs:
SG&A $2 per unit
Production $4 per unit
Fixed costs (total cost incurred for the year):
SG&A $14,000
Production $20,000

29. Refer to Rosewood Corporation. Assume for this question only that during the current year
Rosewood Corporation manufactured 5,000 units and sold 3,800. There was no beginning or
ending work-in-process inventory. How much larger or smaller would Rosewood Corporation's
income be if it uses absorption rather than variable costing?
a. The absorption costing income would be $6,000 larger.
b. The absorption costing income would be $6,000 smaller.
c. The absorption costing income would be $4,800 larger.
d. The absorption costing income would be $4,000 smaller.

30. Refer to Rosewood Corporation. Assume for this question only that Rosewood Corporation
manufactured and sold 5,000 units in the current year. At this level of activity it had an income
of $30,000 using variable costing. What was the sales price per unit?
a. $16.00
b. $18.80
c. $12.80
d. $14.80

31. Refer to Rosewood Corporation. Assume for this question only that Rosewood Corporation
produced 5,000 units and sold 4,500 units in the current year. If Rosewood uses absorption
costing, it would deduct period costs of
a. $24,000.
b. $34,000.
c. $27,000.
d. $23,000.

32. Refer to Rosewood Corporation. Assume for this question only that Rosewood Corporation
manufactured 5,000 units and sold 4,000 in the current year. If Rosewood employs a costing
system based on variable costs, the company would end the current year with a finished goods
inventory of
a. $4,000.
b. $8,000.
c. $6,000.
d. $5,000.

Delta, Epilson, and Sigma Companies

Three new companies (Delta, Epilson, and Sigma) began operations on January 1 of the current
year. Consider the following operating costs that were incurred by these companies during the
complete calendar year:
Delta Epsilon Sigma
Company Company Company
Production in units 10,000 10,000 10,000
Sales price per unit $10 $10 $10
Fixed production costs $10,000 $20,000 $30,000
Variable production costs $30,000 $20,000 $10,000
Variable SG&A $1/unit $2/unit $3/unit
Fixed SG&A $30,000 $20,000 $10,000

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33. Refer to Delta, Epilson, and Sigma Companies. Based on sales of 7,000 units, which company
will report the greater income before income taxes if absorption costing is used?
a. Delta Company
b. Epsilon Company
c. Sigma Company
d. All of the companies will report the same income.
Sigma has the highest amount of fixed cost per unit ($3) that will be treated as inventory until the
units are sold. Since there are 3,000 units, the total difference between income under variable and
absorption costing is $9,000.

34. Refer to Delta, Epilson, and Sigma Companies. Based on sales of 7,000 units, which company
will report the greater income before income taxes if variable costing is used?
a. Delta Company
b. Epsilon Company
c. Sigma Company
d. All of the companies will report the same income.

Total contribution margin is the same for all three companies; additionally total fixed costs are
the same for all three companies.

35. Refer to Delta, Epilson, and Sigma Companies. Based on sales of 10,000 units, which company
will report the greater income before income taxes if variable costing is used?
a. Delta Company
b. Epsilon Company
c. Sigma Company
d. All of the companies will report the same income before income taxes.

36. A firm has fixed costs of $200,000 and variable costs per unit of $6. It plans on selling 40,000
units in the coming year. To realize a profit of $20,000, the firm must have a sales price per unit
of at least
a. $11.00.
b. $11.50.
c. $10.00.
d. $10.50.

Hahn Corporation
Hahn Corporation produces a single product that sells for $7.00 per unit. Standard capacity is
100,000 units per year; 100,000 units were produced and 80,000 units were sold during the year.
Manufacturing costs and selling and administrative expenses are presented below.

There were no variances from the standard variable costs. Any under- or overapplied overhead is
written off directly at year-end as an adjustment to cost of goods sold.
Fixed costs Variable costs
Direct material $0 $1.50 per unit produced
Direct labor 0 1.00 per unit produced
Manufacturing overhead $150,000 0.50 per unit produced
Selling & Administration expense 80,000 0.50 per unit sold

Hahn Corporation had no inventory at the beginning of the year.

37. Refer to Hahn Corporation. In presenting inventory on the balance sheet at December 31, the
unit cost under absorption costing is
a. $2.50.
b. $3.00.

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 c. $3.50.
d. $4.50.

38. Refer to Hahn Corporation. What is the net income under variable costing?
a. $50,000
b. $80,000
c. $90,000
d. $120,000

39. Refer to Hahn Corporation. What is the net income under absorption costing?
a. $50,000
b. $80,000
c. $90,000
d. $120,000

“Every Person is different and has a different contribution to make.

NO ONE IS DESTINED TO FAIL.”
- (President Henry B. Eyering, 1st Counselor, General Presidency, The Church of Jesus
Christ of Latter-day Saints)

Prepared by: Approved by:

Dino Soriano Dizon Candido Perez, CPA,Ph.D.

Instructor Dean, School of Business and Management Education

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