BAC 317 - MANANGERIAL ACCOUNTING, PART 1

MIDTERM DEPARTMENTAL EXAM REVIEWER

1. Which of the following statements about managerial accountants is false?

A. Managerial accountants more and more are considered “business partners.”
B. Managerial accountants often are part of cross-functional terms.
C. An increasing number of organizations are segregating managerial accountants
in separate managerial-accounting departments.
D. In a number of companies, managerial accountants make significant business
decisions and resolve operating problems.
E. The role of managerial accountants has changed constantly over the past
decade.

2. The two dimensions of managerial accounting are:

A. A decision-facilitating dimension and a financial-influencing dimension.
B. A decision-influencing dimension and a cost-minimizing dimension.
C. A decision-influencing dimension and a profit-maximizing dimension.
D. A decision-facilitating dimension and a decision-influencing dimension.
E. A cost-minimizing dimension and a profit-maximizing dimension.

3. Much of managerial accounting information is based on:

A. A cost-benefit theme.
B. Profit maximization
C. Cost minimization.
D. The generation of external information.
E. Effectiveness but not efficiency

4. Which of the following is not an element of competency?

A. To develop appropriate knowledge about a particular subject.
B. To refrain from engaging in an activity that would discredit the accounting
profession.
C. To perform duties in accordance with relevant laws.
D. To perform duties in accordance with relevant technical standards.
E. To prepare clear reports after an analysis of relevant and reliable information.
5. Other things held constant, the higher a firm’s debt ratio, the higher its time interest
earned (TIE) ratio will be.

A. True B. False

6. Which one of the following is primarily interested in the liquidity of a company?

A. National government
B. Equity shareholders
C. Long-term creditors- Bondholders
D. Short term – Suppliers and service providers

7. EVERLASTING CORPORATION has Php13, 000 in cash, Php7, 000 in marketable

securities, Php27, 000 in accounts receivable, Php20,000 in inventories, and
Php30,000 in current liabilities. The company’s current assets consist of cash,
marketable securities, accounts receivable, and inventory. The company’s test ratio
is closest to:
A. 1.57
B. 0.90
C. 1.33
D. 2.23

8. Equity Stockholders are most interested in evaluating

A. Liquidity and solvency.
B. Profitability and solvency.
C. Liquidity and profitability.
D. Marketability and solvency

9. GERANIUM Corporation’s most recent income statement appears below:

Sales (all on account) Php824,000

Cost of goods sold 477,000
Gross margin 347,000
Selling and administrative expense 208,000
Net operating income 139,000
Interest expense 37,000
Net income before taxes 102,000
Income taxes 30,000
Net income Php72,000

The gross margin percentage is closest to:

A. 20.7%
B. 72.7%
 C. 42.1%
D. 481.9%

10. If a company is profitable and is effectively using leverage, which one of the
following ratios is likely to be the largest?
A. Return on total assets
B. Return on total liabilities
C. Return on common stockholders’ equity
D. Cannot be determined

11. Richmond Company has 100,000 shares of Php10 par value common stock issued
and outstanding. Total stockholders’ equity is Php2, 800,000 and net income for the
year is Php800,000. During the year Richmond paid Php3.00 per share in dividends
on its common stock. The market value of Richmond’s common stock is Php24.
What are the company’s earnings per share and price-earnings ratio?
Earnings per Share Price Earnings Ratio
A. Php4.80 3
B. Php3.00 8
C. Php8.00 3
D. Php3.50 8

12. Long-term creditors are usually most interested in evaluating

A. Liquidity and solvency.
B. Solvency and marketability.
C. Liquidity and profitability.
D. Profitability and solvency.

13. Last year JUSTIN Company had a net income of Php290,000, income tax expense
of Php60,000, and interest expense of 20,000. The company’s interest earned was
closest to:
A. 18.80
B. 10.20
C. 14.50
D. 15.50

14. BEST Company’s debt-to-equity ratio is 0.8. Current liabilities total Php100,000 and
long term liabilities total Php200,000. BEST Company’s total assets must be:
A. Php375,000
B. Php450,000
C. Php550,000
D. Php675,000
15. Which combination of object of cost and classification of cost is most reasonable?
OBJECT OF COST CLASSIFICATION OF COST
A. Materials used to make products Discretionary fixed cost
B. Advertising cost Discretionary fixed cost
C. Straight-line Depreciation Variable cost
D. President’s salary Avoidable fixed cost

16. The accounting records of HELENA Corporation revealed the following selected
costs: Sales commissions, Php40,000; Plant supervision, Php94,000; and
administrative expenses, Php185,000. HELENA’s period costs total:
A. Php40,000 C. Php185,000
B. Php94,000 D. Php225,000

17. As volume increases,

A. Total fixed costs remain constant and per-unit fixed costs remain constant.
B. Total fixed costs increase and per-unit fixed costs increase.
C. Total fixed costs remain constant and per-unit costs increase
D. Total fixed costs remain constant and per-unit costs decrease

18. The fixed costs per unit are Php10 when a company produces 10,000 units of
product. What are the fixed costs per unit when 12,500 units are produced?
A. Php8.00 C. Php4.00
B. Php6.00 D. Php10.00

19. Larson Brothers, Inc., used the high-low method to derive its cost formula for
electrical power cost. According to cost formula, the variable cost per unit of activity
is Php3 per machine-hour. Total electrical power cost at the high level of activity was
1,200 machine hours, then the low level of activity was:
A. 800 machine hours C. 1,000 machine hours
B. 900 machine hours D. 1,100 machine hours

20. Looking at the following scatter diagrams we can conclude that

Php Php
l l
l l
l l
l l
l l
l l
 l l
l l
l l
Activity Activity
Cost A Cost B
A. Cost A will be easier to predict than Cost B
B. Cost B will be easier to predict than Cost A
C. Cost A is out-of-control
D. Cost B has no fixed components

21. Discretionary costs

A. Are usually unavoidable
B. Are not necessary for successful operations.
C. Can be either direct or indirect.
D. Should be the first ones cut in a cost-reduction program`

22. The following relationships pertain to a year’s budgeted activity for Buckeye
Company:
LOW HIGH
DIRECT LABOR 300,000 400,000
HOURS
TOTAL COST Php129,000 Php154,000
What are the budgeted fixed costs for the year?
A. Php100,000 C. Php54,000
B. Php25,000 D. Php75,000

23. R-squared is a measure of

A. The spurious relationship between cost and activity.
B. The fixed cost component.
C. The variable cost per unit of activity
D. How well the regression line for the changes in the dependent variable.

24. For a simple regression-analysis model that is used to allocate factory overhead, an
internal auditor finds that intersection n of the line of best fit for the overhead
allocation on the y-axis is Php50,000. The slope of the trend is 0.20. The
independent variable, factory wages, amounts to Php900,000 for the month

What is the estimated amount of factory overhead to be allocated for the month?
A. Php910,000 C. Php230,000
B. Php950,000 D. Php50,000
25. Which of the following is true regarding the contribution margin ratio of a single
product company?
A. The contribution margin ratio will decline as unit sales decline.
B. The contribution margin equals the selling price per unit less the variable
expense ratio.
C. As fixed expense decrease, the contribution margin ratio also increases.
D. The contribution margin ratio multiplied by the selling price per unit equals the
contribution margin per unit.

26. GAYLY Corporation’s contribution margin ratio is 125 and its fixed monthly expenses
are Php84,000. If the company’s sales for a month are Php738,000, what is the best
estimate of the company’s net operating income? Assume that the fixed monthly
expenses do not change.
A. Php88,560 C. Php565,440
B. Php4,560 D. Php,654,000

27. If the fixed cost attendant to a product increases while the variable cost and sales
price remain constant, the contribution margin and break-even point will:

Contribution Margin Break-even Point

A. Increase Increase
B. Not change Increase
C. Not change Not change
D. Increase Decrease

28. JOSHUA Company’s variable expenses are 70% of sales. At a Php300,000 sales
level, the degree of operating leverage is 10. If sales increase by Php60,000, the
degree of operating leverage will be:
A. 12 C. 6
B. 10 D. 4

29. Refer to #28 information, the current net operating income is closest to:
A. Php9,000 C. Php81,000
B. Php27,000 D. Php90,000

30. Refer to #28 information, the current fixed expenses is closest to:
A. Php9,000 C. Php81,000
B. Php27,000 D. Php90,000
31. Refer to #28 information, with the target incremental sales if Php60,000, the net
operating net income would be:
A. Php9,000 C. Php81,000
B. Php27,000 D. Php90,000

32. Refer to #28 information, What is the firm’s breakeven point in terms of peso value?
A. Php270,000 C. Php360,000
B. Php300,000 D. NONE OF THE CHOICES

33. Which of the following decreases per-unit contribution margin?

A. A 10% decrease in selling price
B. A 10% increase in variable cost per unit
C. A 10% increase in fixed costs
D. A 10% increase in fixed cost per unit

34. HANZ Corporation expects the following operating results for the next year:
Sales Php400,000
Margin of Safety Php100,000
Contribution margin ratio 75%
Degree of operating leverage 4

What is HANZ expecting total fixed expenses to be next year

A. Php75,000 C. Php200,000
B. Php100,000 D. Php225,000

35. If the degree of operating leverage is 4, then a seven percent change in quantity
sold should result in a twenty-eight percent change in:
A. Unit contribution margin
B. Revenue
C. Variable expenses
D. Net operating income

36. A multiproduct company

A. Cannot use CVP analysis
B. Must use a separate CVP graph for each of its products.
C. Can use CVP analysis only if the contribution margin percentages on each
product are the same
D. Could earn a higher-than-expected profit even though the total number of units
sold was less than expected.

37. Target profit analysis is used to answer which of the following questions?
 A. What sales volume is needed to cover all expenses?
B. What sales volume is needed to cover fixed expenses?
C. What sales volume is needed to earn a specific amount of net operating income?
D. What sales volume is needed to avoid a loss

38. A valid assumption for cost-volume-profit analysis is:

A. An increase in fixed costs will cause the break-even point to rise
B. Demand is constant regardless of price
C. A decrease in variable cost per unit will lower the break-even point
D. Variable costs per-unit are assumed to remain constant within the range of
activity analyzed

39. How would the following costs be classified (product or period) under variable
costing at a retail clothing store?

Cost of purchasing clothing Sales Commissions

A. Product Product
B. Product Period
C. Period Product
D. Period Period

40. FLYHIGH Corporation produces a single product. The company manufactured 700
units last year. The ending inventory consisted of 100 units. There was no beginning
inventory. Variable manufacturing costs were Php6.00 per unit and manufacturing
costs were Php2.00 per unit.

What would be the change in the dollar amount of ending inventory if variable
costing was used instead of absorption costing?
A. Php800 decrease
B. Php200 decrease
C. Php0
D. Php200 increase
ANSWER KEY:

1. C 11. C 21. D 31. B

2. D 12. D 22. C 32. A
3. A 13. A 23. D 33. A
4. B 14. D 24. C 34. D
5. B 15. B 25. D 35. D
6. D 16. D 26. B 36. D
7. A 17. D 27. B 37. C
8. B 18. A 28. D 38. B
9. C 19. D 29. A 39. B
10 A 20. B 30. C 40. B