BASTRCSX-STRATEGIC COST MANAGEMENT

MIDTERM QUIZ NO. 2

2 nd
term, A.Y. 2024-2025

Name: ________________________________________ Section: _______________ SET C

INSTRUCTIONS
Choose the best answer from the choices. Shade the letter of your answers and test set on the answer sheet
provided. Cheating, in any form possible, will result to a nil score

1. A reason why absorption costing income statements are sometimes difficult for the manager to interpret is
that:
a. they omit variable expenses entirely in computing net operating income.
b. they ignore inventory levels in computing income charges.
c. they include all fixed manufacturing overhead on the income statement each year as a
period cost.
d. they shift portions of fixed manufacturing overhead from period to period according to
changing levels of inventories.
2. A manager can increase income under absorption costing by
a. increasing fixed costs c. increasing production.
b. increasing leased assets. d. increasing variable costs
3. Which of the following statements is/are true?
I. The margin of safety in dollars equals the excess of budgeted (or actual) sales over the break-even
volume of sales.
II. A company with high operating leverage will experience a lower reduction in net operating income in a
period of declining sales than will a company with low operating leverage.
a. I only b. II only c. I and II d. None
4. The following diagram is a cost-volume-profit graph for a manufacturing company:

The formula to determine the Y-axis value (Php) at point D on the graph is
a. Fixed costs + (Variable costs per unit ´ Number of units).
b. XY – bX.
c. Fixed costs/Unit contribution margin.
d. Fixed costs/Contribution margin ratio.
5. Which of the following statements is/are true?
I. When lean production is introduced, the difference in net operating income computed under the
absorption and variable costing methods is reduced.
II. Net operating income computed using absorption costing will always be greater than net operating
income computed using variable costing.
a. I only b. II only c. I and II d. None
6. As projected net income increases the
a. break-even point goes down. c. degree of operating leverage declines.
b. contribution margin ratio goes up. d. margin of safety stays constant.
 7. Which of the following is an advantage of using variable costing?
a. Variable costing is most relevant to long-run pricing strategies.
b. Variable costing complies with the National Internal Revenue Code.
c. Variable costing complies with Generally Accepted Accounting Principles.
d. Variable costing makes cost-volume-profit relationships more easily apparent.
8. What factor, related to manufacturing costs, causes the difference in net earnings computed using
absorption costing and net earnings computed using variable costing?
a. Absorption costing “inventories” all direct costs, but variable costing considers direct costs
to be period costs.
b. Absorption costing “inventories” all fixed costs for the period in ending finished goods
inventory, but variable costing expenses all fixed costs.
c. Absorption costing considers all costs in the determination of net earnings, whereas
variable costing considers fixed costs to be period costs.
d. Absorption costing allocates fixed overhead costs between cost of goods sold and
inventories, and variable costing considers all fixed costs to be period costs.
9. If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four
percent change in:
a. unit contribution margin. c. variable expense.
b. net operating income. d. revenue.
10. Which of the following statements is/are true?
I. Under variable costing, variable selling and administrative costs are included in product costs.
II. When the number of units in work in process and finished goods inventories increase, absorption
costing net operating income will typically be greater than variable costing net operating income.
a. I only b. II only c. I and II d. None
11. The most likely strategy to reduce the break-even point would be
a. increase both the fixed costs and the contribution margin
b. decrease both the fixed costs and the contribution margin
c. decrease the fixed costs and increase the contribution margin
d. increase the fixed costs and decrease the contribution margin
12. When production exceeds sales, net operating income reported under variable costing generally will be:
a. greater than net operating income reported under absorption costing.
b. less than net operating income reported under absorption costing
c. equal to net operating income reported under absorption costing.
d. higher or lower because no generalization can be made.
13. Product 1 has a contribution margin of P6.00 per unit, and Product 2 has a contribution margin of P7.50
per unit. Total fixed costs are P300,000. Sales mix and total volume varies from one period to another.
Which of the following is TRUE?
a. At a sales volume in excess of 25,000 units of 1 and 25,000 units of 2, operations will be
profitable.
b. The ratio of net profit to total sales for 2 will be larger than the ratio of net profit to total
sales for 1.
c. The contribution margin per unit of direct materials is lower for 1 than for 2.
d. The ratio of contribution to total sales always will be larger for 1 than for 2.
14. Which of the following items is NOT an assumption of CVP analysis?
a. When graphed, total costs curve upward.
b. The unit-selling price is known and constant.
c. All revenues and costs can be added and compared without taking into account the time
value of money.
d. Total costs can be divided into a fixed component and a component that is variable with
respect to the level of output.
15. Which of the following statements is/are true?
I. Under variable costing, only variable production costs are treated as product costs.
II. Absorption costing treats all manufacturing costs as product costs.

BASTRCSX 2TAY2425 AJA 2

 a. I only b. II only c. I and II d. None
16. The principal difference between variable costing and absorption costing centers on:
a. whether variable manufacturing costs should be included as product costs.
b. whether fixed manufacturing costs and fixed selling and administrative costs should be
included as product costs.
c. whether fixed manufacturing costs should be included as product costs.
d. none of these.
17. When sales are constant, but the production level fluctuates, net operating income determined by the
variable costing method will:
a. remain constant.
b. fluctuate in direct proportion to changes in production.
c. fluctuate inversely with changes in production.
d. be greater than net operating income under absorption costing.
18. Which of the following statements is/are true?
I. In two companies making the same product and with the same total sales and total expenses, the
contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost
structure.
II. If the variable expense per unit increases, and all other factors remain constant, the contribution margin
ratio will increase.
a. I only b. II only c. I and II d. None
19. Which of the following is a TRUE statement about sales mix?
a. Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell
more of the high contribution margin product.
b. Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell
more of the lower contribution margin product.
c. Profits will remain constant with an increase in total dollars of sales if the total sales in
units remains constant.
d. Profits will remain constant with a decrease in total dollars of sales if the sales mix also
remains constant.
20. In a profit-volume graph, the slope of the profit line represents
a. the selling price per unit. c. the variable cost per unit.
b. the contribution margin per unit. d. total contribution margin.
21. AJA 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
P6.00 per unit and fixed manufacturing costs were P2.00 per unit. What would be the change in the peso
amount of ending inventory if variable costing was used instead of absorption costing?
a. P800 decrease b. P200 decrease c. P0 d. P200 increase
22. AJA Company produces a single product. Last year, AJA's net operating income under absorption costing
was P3,600 lower than under variable costing. The company sold 10,000 units during the year, and its
variable costs were P9 per unit, of which P1 was variable selling expense. If production cost was P11 per
unit under absorption costing, then how many units did the company produce during the year?
a. 8,800 units b. 8,200 units c. 11,200 units d. 11,800 units
23. AJA Co.. sells three products with the following results:

A B C
------ ------ ------
Sales P50,000 P20,000 P30,000
Variable costs 40,000 12,000 15,000

The total fixed cost is 15,000.

What is the total break-even point in terms of peso sales? Use 5-decimal places in your computations.
a. P45,454.55 b. P100,000.00 c. P33,000.00 d. P40,000.00

BASTRCSX 2TAY2425 AJA 3

24. Below is an income statement for AJA Company:

Sales P400,000
Variable costs (125,000)
Contribution margin P275,000
Fixed costs (200,000)
Profit before taxes P 75,000

What is AJA’s degree of operating leverage?

a. 3.67 b. 5.33 c. 1.45 d. 2.67
25. Data concerning AJA Corporation's single product appear below:

Per Unit Percent of Sales

Selling price ........................... P100 100%
Variable expenses ................. 20 20%
Contribution margin ............... P 80 80%

Fixed expenses are P384,000 per month. The company is currently selling 6,000 units per month. The
marketing manager would like to introduce sales commissions as an incentive for the sales staff. The
marketing manager has proposed a commission of P9 per unit. In exchange, the sales staff would accept
a decrease in their salaries of P46,000 per month. (This is the company's savings for the entire sales
staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales
by 500 units. What should be the overall effect on the company's monthly net operating income of this
change?
a. increase of P27,500 c. increase of P41,500
b. decrease of P64,500 d. increase of P507,500
26. AJA Co. developed the following information for the year ended December 31, 2025:
Product A Product B Total
Units sold 4,000 6,000 10,000

Sales P12,000 P27,000 P39,000

Variable costs (6,000) (15,000) ( 21,000)
Contribution margin P6,000 P12,000 18,000
Fixed costs (12,600)
Profit before tax 5,400
Income tax (1,350)
Net income P4,050

If the sales mix changes to 5,000 units of Product A and 5,000 units of Product B, the effect on the
company’s break-even point will ____ units. Use 5-decimal places in your computations.
a. increase by 200 c. increase by 1,200
b. decrease by 200 d. no change
27. AJA Incorporated had the following information:

Activity Driver Unit Variable Cost Level of Activity Driver

Units sold P 20 --
Setups 1,200 60
Engineering hours 52 1,500

Other data:
Total fixed costs (traditional) P600,000
Total fixed costs (ABC) P300,000
Unit selling price P60

BASTRCSX 2TAY2425 AJA 4

 Suppose AJA could reduce setup costs by P300 per setup and could reduce the number of engineering
hours needed to 1,400 hours. How many units must be sold to break even in this case?
a. 10,670 units b. 21,340 units c. 6,350 units d. 7,500 units
28. AJA Co. produces and sells a single product. Information on its costs follow:

Variable costs:
Selling & Administrative Costs P20 per unit
Production P40 per unit
Fixed costs:
Selling & Administrative Costs P10,000 per year
Production P25,000 per year

Assume AJA Co. produced and sold 5,000 units. What was AJA Co.'s sales price per unit if it wants to
have a 10% return on sales? Use 5-decimal places in your computations.
a. P16.00 b. P74.44 c. P75.00 d. P73.33
29. A company developed its business plan based on the assumption that units would sell at a price of P400
each. The variable costs for each unit were projected at P200, and the annual fixed costs were budgeted
at P80,000. The company’s after-tax profit objective was P160,000; the company’s effective tax rate is
30%. If no changes are made to the selling price or cost structure, how many units must the company sell
to break even?
a. 250 b. 350 c. 367 d. 400
30. AJA Corporation expects the following operating results for next year:

Sales ............................................................... P400,000

Margin of safety ............................................... P100,000
Contribution margin ratio ................................. 75%
Degree of operating leverage .......................... 4

What is AJA expecting total fixed expenses to be next year?

a. P75,000 b. P100,000 c. P200,000 d. P225,000
31. A company incurs annual fixed costs of P250,000 in producing its product. Estimated unit sales for 2025
are 125,000. An after-tax income of P75,000 is desired by management. The company projects its income
tax rate at 25 percent. What is the maximum amount that the company can expend for variable costs per
unit and still meet its profit objective if the sales price per unit is estimated at P6?
a. P1.60 b. P3.20 c. P3.40 d. P3.70
32. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (20,000 units):
Direct materials P180,000
Direct labor 240,000
Variable factory overhead 280,000
Fixed factory overhead 100,000 P800,000
Operating expenses:
Variable operating expenses P130,000
Fixed operating expenses 50,000 180,000

If 1,500 units remain unsold at the end of the month, what is the amount of inventory that would be
reported on the variable costing balance sheet?
a. P52,500 b. P60,000 c. P62,500 d. P73,500
33. AJA Co. incurs annual fixed costs of P250,000 in producing and selling a single product. Estimated unit
sales are 125,000. An after-tax income of P60,000 is desired by management. The company projects its
income tax rate at 25 percent. What is the maximum amount that AJA Co. can spend for variable costs
per unit and still meet its profit objective if the sales price per unit is estimated at P5? Use 5-decimal
places in your computations.
a. P3.59 b. P2.36 c. P2.52 d. P4.20
BASTRCSX 2TAY2425 AJA 5
34. Below is an income statement for AJA Company:

Sales P500,000
Variable costs (180,000)
Contribution margin P320,000
Fixed costs (120,000)
Profit before taxes P200,000
Income tax (50,000)
Net income P150,000

What was AJA Co.’s margin of safety in pesos? Use 5-decimal places in your computations.
a. P200,000 b. P112,000 c. P312,500 d. P109,091
35. AJA Company produces a single product. Last year, AJA manufactured 15,000 units and sold 12,000
units. Production costs for the year were as follows:

Direct materials ............................................................ P150,000

Direct labor ................................................................... P180,000
Variable manufacturing overhead ................................ P135,000
Fixed manufacturing overhead ..................................... P210,000

Sales totaled P840,000 for the year, variable selling expenses totaled P60,000, and fixed selling and
administrative expenses totaled P180,000. There were no units in the beginning inventory. Assume that
direct labor is a variable cost.

Under absorption costing, the carrying value on the balance sheet of the ending inventory for the year
would be:
a. P135,000 b. P93,000 c. P105,000 d. P0
36. The following data pertain to last year's operations at AJA Incorporated, a company that produces a single
product:

Units in beginning inventory............................. 0

Units produced ................................................ 100,000
Units sold ......................................................... 98,000

Selling price per unit ........................................ P10.00

Variable costs per unit:

Direct materials ............................................ P1.50
Direct labor ................................................... P2.50
Variable manufacturing overhead................. P1.00
Variable selling and administrative ............... P2.00

Fixed costs per year:

Fixed manufacturing overhead ..................... P200,000
Fixed selling and administrative ................... P50,000

What was the absorption costing net operating income last year?
a. P44,000 b. P50,000 c. P48,000 d. P49,000
37. AJA Corporation manufactures and sells a spice rack. Shown below are the actual operating results for
the first two years of operations:

Year 1 Year 2
Units (spice racks) produced........................................ 40,000 40,000
Units (spice racks) sold ................................................ 37,000 41,000

BASTRCSX 2TAY2425 AJA 6

 Absorption costing net operating income ..................... P44,000 52,000
Variable costing net operating income ......................... P38,000 ?

AJA's cost structure and selling price were the same for both years. What is AJA's variable costing net
operating income for Year 2?
a. P48,000 b. P50,000 c. P56,000 d. P54,000
38. AJA Company prepared the following preliminary budget assuming no advertising expenditures:

Selling price .......................... P10 per unit

Unit sales .............................. 100,000
Variable expenses ................ P600,000
Fixed expenses ..................... P300,000

Based on a market study, the company estimated that it could increase the unit selling price by 15% and
increase the unit sales volume by 10% if P100,000 were spent on advertising. Assuming that these
changes are incorporated in its budget, what should be the budgeted net operating income?
a. P175,000 b. P190,000 c. P205,000 d. P365,000

Use the following information for the next 2 items:

AJA Corporation has the following standard costs associated with the manufacture and sale of one of its
products:

Direct material P3.00 per unit

Direct labor P2.50 per unit
Variable manufacturing overhead P2.00 per unit
Fixed manufacturing overhead P4.00 per unit (based on an estimate of 50,000
units per year)
Variable selling expenses P0.25 per unit
Fixed SG&A expense P75,000 per year

During 2025, its first year of operations, AJA Corp. manufactured 51,000 units and sold 48,000. The
selling price per unit was P25. All costs were equal to standard.

39. Based on variable costing, the income before income taxes for the year was
a. P570,600. b. P562,600. c. P553,000 d. P560,000.
40. The volume variance under absorption costing is
a. P8,000 F. b. P4,000 F. c. P4,000 U. d. P8,000 U.

BASTRCSX 2TAY2425 AJA 7

 BASTRCSX-STRATEGIC COST MANAGEMENT
MIDTERM QUIZ NO. 2
2 nd
term, A.Y. 2024-2025

Name: ________________________________________ Section: _______________ SET C

INSTRUCTIONS
Choose the best answer from the choices. Shade the letter of your answers and test set on the answer sheet
provided. Cheating, in any form possible, will result to a nil score
STRATEGIC COST MANAGEMENT
Answer Section

MULTIPLE CHOICE

1. ANS: D PTS: 1
2. ANS: C PTS: 1
3. ANS: A PTS: 1
4. ANS: D PTS: 1
5. ANS: A PTS: 1
6. ANS: C PTS: 1
7. ANS: D PTS: 1
8. ANS: D PTS: 1
9. ANS: B PTS: 1
10. ANS: B PTS: 1
11. ANS: C PTS: 1
12. ANS: B PTS: 1
13. ANS: A PTS: 1
14. ANS: A PTS: 1
15. ANS: C PTS: 1
16. ANS: C PTS: 1
17. ANS: A PTS: 1
18. ANS: D PTS: 1
19. ANS: B PTS: 1
20. ANS: B PTS: 1
21. ANS: B
Change in inventory × Fixed manufacturing costs per unit
= 100 × 2 = 200 decrease
PTS: 1
22. ANS: A
Direct material + Direct labor + Variable manufacturing overhead
= Variable unit product cost = $9 – $1 = $8
Unit fixed manufacturing overhead = $11 – $8 = $3
Difference in net income between methods ÷ Unit fixed manufacturing overhead =
($3,600) ÷ $3 per unit = (1,200) units
Units produced = Units sold + Change in inventory = 10,000 + (1,200) = 8,800
PTS: 1
23. ANS: A
[(50,000-40,000)/50,0000 x 50/100]+[(20,000-12,000)/20,000 x
20/100]+[(30,000-15,000)/30,000 x 30/100] = 0.33
 A 0.2 x 5/10 + B 0.4 x 2/10 + C 0.5 x 3/10

BEP = 15,000/0.33 = 45,454.55

PTS: 1
24. ANS: A
(275,000/75,000) = 3.67

PTS: 1
25. ANS: A

PTS: 1
26. ANS: A
12,600 / [(6,000/4,000 x 5/10)+(12,000/6,000 x 5/10)] = 7,200
12,600 / [(6,000/4,000 x 4/10)+(12,000/6,000 x 6/10)] = 7,000; 200 increase

PTS: 1
27. ANS: A
[300,000 + (900  60) + (52  1,400)]/40 = 10,670 units

PTS: 1
28. ANS: B
5,000P - 5,000(20+40) -10,000 -25,000 = 0.1(5,000)P
5,000P -300,000 -10,000 -25,000 = 500P
5,000P -500P = 335,000
P = 74.444444

PTS: 1
29. ANS: D
BEPQ = 80,000/(400-200) = 400

PTS: 1
30. ANS: D

BASTRCSX 2TAY2425 AJA 9

 PTS: 1
31. ANS: B
VCU = 6-(250,000+(75,000/0.75))/125,000) = 3.20

PTS: 1
32. ANS: A
(180,000+240,000+280,000)/20,000 * 1,500 = 52,500

PTS: 1
33. ANS: B
5 - [(60,000/(1-0.25)) + 250,000]/125,000 = 2.36

PTS: 1
34. ANS: C
500,000-(120,000/(320,000/500,000)) = 312,500

PTS: 1
35. ANS: A

PTS: 1
36. ANS: C
Unit fixed manufacturing overhead = $200,000 ÷ 100,000 = 2
Unit product cost = 1.50 + 2.50 + 1 + 2 = 7
Absorption costing income statement
Sales (10 × 98,000) ............................................... 980,000
Cost of goods sold (7 × 98,000) ............................ 686,000
Gross margin ......................................................... 294,000
Selling and administrative expenses:
Variable selling and administrative .................... 196,000
Fixed selling and administrative ........................ 50,000 246,000
Net operating income ............................................ 48,000

PTS: 1
37. ANS: D

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 PTS: 1
38. ANS: C

PTS: 1
39. ANS: C
CMU = SP - DMu - DLu - VMOHu - VSAu
NOI = CM - FMOH - FSA
((25-3-2.5-2-0.25) x48,000) - (4x50,000) - 75,000=553,000

PTS: 1
40. ANS: B
Volume variance = (Capacity - Units produced) x FMOH/unit
Units produce > Capacity
VV=(50,000-51,000) x 4= 4,000F

PTS: 1

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