SAINT THERESA COLLEGE OF TANDAG, INC.

TANDAG CITY

STRATEGIC COST MANAGEMENT – SUMMER CLASS

DIT 1

1. Which of the following statements is correct?

a. A cost driver is an accounting technique used to control costs.
b. A cost driver is a measure of activity, such as direct labor hours, machine hours, beds occupied, computer time, etc.,
that is a casual factor in the incurrence of costs.
c. A cost driver is an accounting measurement used to evaluate whether or not performance is proceeding according to
plan.
d. A cost driver is a mechanical basis used to assign costs to activities.

2. Product costs or inventoriable costs

a. Are changed to expense when products become part of the finished goods inventory.
b. include only the prime costs of producing a product.
c. are treated as assets before the products are sold.
d. include only the conversion costs of producing the products.

3. Which of the following costs is not a product cost?

a. Wages paid to workers for rework on defective products.
b. Wages paid to truck loaders who load finished goods onto outgoing delivery trucks.
c. Fringe benefits paid to factory workers.
d. Wages paid to workers for idle time due to machine breakdown in a production department.

4. Product costs
a. are always expensed in the same period in which they are incurred.
b. are inventoriable costs
c. vary directly with changes in the cost driver.
d. are always charged to an asset account in the same period in which they are incurred.

Questions 5-6
Following are costs incurred by Abtina Manufacturing Corporation during the previous month:

Direct materials P5,000

Indirect materials 2,000
Direct labor 6,000
Indirect labor 1,000
Factory utilities 4,000
Advertising costs 8,000
Sales commissions 12,000
Depreciation on administration building 3,000
Salaries of administrative personnel 20,000
Depreciation – delivery equipment 2,000
Overtime pay – factory workers 1,500
Rework cost on defective products
Discovered during quality inspection 2,500

5. Total product costs:___________

6. Total period costs:____________

7. Manufacturing costs do not include

a. prime costs
b. conversion costs
c. indirect materials
d. salary of the company president, under whom is the vice president for production.

8. Direct labor cost is a

a. prime cost
b. conversion cost
c. product cost
d. all of the above

9-15
Data about Maritz Company’s production and inventories for the month of June are as follows:

Purchases – direct materials P143,440

Freight in 5,000
Purchase returns and allowances 2,440
Direct labor 175,000
Actual factory overhead 120,000

Inventories: June 1 June 30

Finished goods P68,000 P56,000
Work in process 110,000 135,000
Direct materials 52,000 44,000

Maritz Company applies factory overhead to production at 80% of direct labor cost. Over/underapplied overhead is
closed to cost of goods sold at year-end. The company’s accounting period is on the calendar year basis.

9. Maritz Company’s prime cost for June was

a. P154,000 c. P198,000
b. P329,000 d. P315,000

10. Maritz Company’s conversion cost for June was

a. P315,000 c. P329,000
b. P295,000 d. P444,000

11. For the month of June, Maritz Company’s total manufacturing cost was
a. P469,000 c. P644,000
b. P444,000 d. P449,000

12. For June, Maritz Company’s cost of goods transferred to the finished goods inventory account was
a. P579,000 c. P469,000
b. P461,000 d. P444,000

13. Maritz Company’s cost of goods sold for June was

a. P441,000 c. P456,000
b. P481,000 d. P444,000

14. The amount of over/underapplied overhead factory for the month of June was
a. P140,000 over c. P20,000 over
b. P120,000 under d. P20,000 under

15. The cost of goods for the month of June should be increased/decreased by the amount of over/underapplied factory
overhead of
a. P20,000 c. (P120,000)
b. (P20,000) d. P0

16. For product costing purposes, an indirect factory cost

a. is not directly chargeable to the company
b. is chargeable to prime costs
c. is chargeable to conversion costs
d. is never included in the computation of product cost

17. A fixed cost that would be considered a direct cost is

a. salary of the sales manager when the cost object is the sales department.
b. salary of the controller when the cost object is a unit of product.
c. fees of the Board of Directors when the cost object is the Production Department.
d. the rental cost of the finished goods warehouse when the cost object is the Accounting Department.

18. Which of the following is a direct product cost?

a. Wood in a furniture factory
b. Salary of the foreman in the assembly division of an automobile company.
c. Depreciation of factory equipment
d. Salesman’s commission

19. For decision-making purposes, relevant costs are

a. variable past costs
b. all fixed and variable costs
c. anticipated future costs that will differ among various alternatives.
d. costs incurred within the relevant range of production

20. Differential costs

a. are variable costs
b. are anticipated future costs that will differ among various alternatives.
c. are the differences in costs between any two alternative courses of action
d. are costs that differ under alternatives.

21. Sunk costs

a. are relevant costs
b. can be changed by a decision made now or to be made in the future
c. are irrelevant for decision-making purposes
d. are decreases in costs from one alternative to another.

22. Which of the following statements is true?

a. Depreciation expense is always a product cost
b. Depreciation expense Is always a period cost
c. Selling and administrative costs, whether variable or fixed, is always treated as period costs under both the absorption
and variable costing systems
d. Income under absorption costing is always greater than income under variable costing.

23. If a firm uses variable costing,

a. its product costs include variable selling and administrative costs.
b. its profits fluctuate with sales
c. it calculates an idle facility variation.
d. its product cost per unit changes because of changes in the number of units produced.

24. Which of the following statements regarding absorption and variable costing is correct?
a. Absorption costing results in higher income when finished goods inventory increases.
b. Variable manufacturing costs are lower under absorption costing.
c. Overhead costs are treated in the same manner under both variable and absorption costing methods.
d. Profits are always the same under the two costing methods.

25. What costs are treated as product cost under variable costing?
a. All variable costs c. All manufacturing costs
b. All direct costs only d. Only variable production costs

26. Which of the following would most likely decrease the product cost per unit under variable costing?
a. A decrease in the commission paid to salesmen for each unit sold
b. An increase in the number of units sold
c. A decrease in the remaining useful life of a factory equipment depreciated using the straight-line method
d. An increase in the remaining useful life of a factory equipment depreciated on the units-of-production method

Questions 27-35
DEDIOS Corporation uses an absorption costing system for internal reporting purposes. At present, however, it is
considering to use the variable costing system.

Following are some data regarding DEDIOS Corporation’s budgeted and actual operations for the calendar year 200B:

COSTS BUDGETED ACTUAL

Materials P25,200 P23,400
Labor 18,480 17,160
Variable factory overhead 8,400 7,800
Fixed factory overhead 10,640 10,000
Variable selling expenses 16,800 15,000
Fixed selling expenses 14,700 14,700
Variable administrative expenses 4,200 3,750
Fixed administrative expenses 6,300 6,375
P104,720 P98,185

Budgeted(units) Actual (units)

Finished goods beginning inventory 280 280

Production 1,120 1,040
Sales 1,120 1,000

The budgeted costs were computed based on the budgeted production and sales of 1,120 units, the company’s normal
capacity level. DEDIOS Corporation uses a predetermined factory overhead rate for applying manufacturing overhead
costs to its product. The denominator level used in developing the predetermined rate is the firm’s normal capacity. Any
over-underapplied factory overhead cost is closed to cost of goods sold at the end of the year.

There are no work-in-process inventories at either the beginning or end of the year. The actual selling price was the
same as the amount planned, P130.00 per unit.
The previous years planned per unit manufacturing costs were the same as the current planned unit manufacturing cost.
The beginning inventory or finished goods for absorption costing purposes was valued at such per-unit manufacturing
cost.

27. The standard product costs per unit are:

Absorption costing Variable costing
a. P56.00 P46.50
b. 46.50 56.00
c. 93.50 74.75
d. 93.50 94.40

28. The manufacturing cost variances are :

Manufacturing variable cost Fixed manufacturing cost
a. P0 P120 favorable
b. 0 120 unfavorable
c. 3,720 unfavorable 640 unfavorable
d. 3,720 favorable 640 favorable

29. DEDIOS Corporation’s operating income under both the absorption and variable costing methods were:
Absorption costing Variable costing
a. P33,675 P34,055
b. 73,880 64,750
c. 34, 175 33,675
d. 34,055 33,675

30. The values of DEDIOS Corporation’s actual ending finished goods inventory on the absorption and variable costing
methods were:
Absorption costing Variable costing
a. P320 P320
b. 14,880 17,920
c. 17,920 14,880
d. 56 46.50

31. DEDIOS Corporation’s total fixed costs expensed this year on both costing methods were:
Absorption costing Variable costing
a. P30,695 P31,075
b. 30,575 31,075
c. 30,575 30,575
d. 30,500 31,640

32. DEDIOS Corporation’s actual manufacturing contribution margin for the year calculated on the variable costing basis
was
a. P46,500 c. P83,500
b. P65,250 d. P64,750

33. DEDIOD Coproration’s actual contribution margin for the year calculated on the variable costing basis was
a. P46,500 c. P83,500
b. P65,250 d. P64,750

34. The total variable costs expensed currently by DEDIOS Corporation on both the absorption and variable costing bases
a. the same c. P65,550
b. P46,500 d. P73,080

35. The difference between DEDIOS Corporation’s operating income calculated on the absorption costing basis and that
on the variable costing basis was
a. P380 c. P500
b. P9,130 d. P14,880

Don’t watch the clock; do what it does. Keep going.”