Final Exam 8 May 2018, questions and answers PDF

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POLYTECHNIC UNIVERSITY OF THE PHILIPPINES COLLEGE OF ACCOUNTANCY ACCO 4113 Management Services FINAL REMOVAL EXAMINATION Second Semester, May 8, 2018 Instruction: Choose the BEST answer for each of the following items. For all questions requiring solutions, show your computations in a separate works...

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POLYTECHNIC UNIVERSITY OF THE PHILIPPINES COLLEGE OF ACCOUNTANCY ACCO 4113 – Management Services FINAL REMOVAL EXAMINATION Second Semester, AY2017-2018 May 8, 2018 Instruction: Choose the BEST answer for each of the following items. For all questions requiring solutions, show your computations in a separate worksheet provided. Theory Questions 1-30: 1 point each Problem Solving Questions 31-65: 2 points each 1. A company with three products classifies its costs as belonging to five functions: design, production, marketing, distribution, and customer services. For pricing purposes, all company costs are assigned to the three products. The direct costs of each of the five functions are traced directly to the three products. The indirect costs of each of the five business functions are collected into five separate cost pools and then assigned to the three products using appropriate allocation bases. The allocation base that would most likely be the best for allocating the indirect costs of the distribution function is a. Number of customer phone calls. b. Number of sales persons. c. Peso sales volume. d. Number of shipments. 2. Which of the following statements about activity-based costing is not true? a. Activity-based costing is useful for allocating marketing and distribution costs. b. Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products. c. In activity-based costing, cost drivers are what cause costs to be incurred. d. Activity-based costing differs from traditional costing systems in that products are not crosssubsidized. 3. The inventory control supervisor at Iron Man Manufacturing Corporation reported that a large quantity of a part purchased for a special order that was never completed remains in stock. The order was not completed because the customer defaulted on the order. The part is not used in any of Iron Man’s regular products. After consulting with Iron Man’s engineers, the vice president of production approved the substitution of the purchased part for a regular part in a new product. Iron Man’s engineers indicated that the purchased part could be substituted providing it was modified. The units manufactured using the substituted part required additional direct labor hours resulting in an unfavorable direct labor efficiency variance in the Production Department. The unfavorable direct labor efficiency variance resulting from the substitution of the purchased part in inventory is best assigned to the a. Sales manager. b. Inventory supervisor. c. Production manager. d. Vice president of production. 4. Which one of the following statements concerning approaches for the budget development process is correct? a. Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget. b. With the information technology available, the role of budgets as an organizational communication device has declined. c. To prevent ambiguity, once departmental budgeted goals have been developed, they should remain fixed even if the sales forecast upon which they are based proves to be wrong in the middle of the fiscal year. d. The top-down approach to budgeting will not ensure adherence to strategic organizational goals. 5. Activity-based costing (ABC) is increasingly more feasible because of technological advances that allow managers to obtain better and more timely information at relatively low cost. For this reason, a manufacturer is considering using bar-code identification for recording information on parts used by the manufacturer. A reason to use bar codes rather than other means of identification is to ensure that a. The movement of parts is easily and quickly recorded. b. The movement of all parts is recorded. c. Vendors use the same identification methods. d. Vendors use the same part numbers.

6. Captain America Co. is a manufacturer whose cost assignment and product costing procedures follow activity-based costing principles. Activities have been identified and classified as being either value-adding or nonvalue-adding as to each product. Which of the following activities, used in Captain America's production process, is nonvalue-adding? a. Heat treatment activity. b. Raw materials storage activity. c. Drill press activity. d. Design engineering activity. 7. Which one of the following items would have to be included for a company preparing a schedule of cash receipts and disbursements for Calendar Year 1? a. A purchase order issued in December Year 1 for items to be delivered in February Year 2. b. The amount of uncollectible customer accounts for Year 1. c. The borrowing of funds from a bank on a note payable taken out in June Year 1 with an agreement to pay the principal and interest in June Year 2. d. Dividends declared in November Year 1 to be paid in January Year 2 to shareholders of record as of December Year 1. 8. Warsaw Corporation has long-term debt of P1, 200, 000 and equity of P1, 000, 000. The board of directors has set a goal of 1:1 for the company’s debt-equity ratio. Which of the following could the company employ to achieve this goal? a. Paying a stock dividend to the existing shareholders. b. Issuing rights to purchase new common stock. c. Issuing new bonds. d. Paying a dividend on its common stock. 9. Which one of the following factors would likely cause a firm to increase its use of debt financing as measured by the debt-to-total-capitalization ratio? a. An increase in the degree of operating leverage. b. Increased economic uncertainty. c. An increase in the corporate income tax rate. d. An increase in the price-earnings ratio. 10. Spiderman Company is a manufacturer of industrial products and employs a calendar year for financial reporting purposes. Assume that total quick assets exceeded total current liabilities both before and after each transaction described. Further assume that Spiderman has positive profits during the year and a credit balance throughout the year in its retained earnings account. The early liquidation of a long-term note with cash affects the a. Current ratio to a greater degree than the quick ratio. b. Quick ratio to a greater degree than the current ratio. c. Current and quick ratio to the same degree. d. Current ratio but not the quick ratio. 11. Assume that a company's total debt to total assets (debt-to-assets) ratio is currently 50%. It plans to purchase fixed assets either by using borrowed funds for the purchase or by entering into an operating lease. The company's debt-to-assets ratio as measured by the balance sheet will a. Increase if the assets are purchased, and decrease if the assets are leased. b. Remain unchanged whether the assets are purchased or leased. c. Increase if the assets are purchased, and remain unchanged if the assets are leased. d. Increase whether the assets are purchased or leased. 12. All of the following statements concerning standard costs are correct except that a. Standard costs are usually set for one year. b. Time and motion studies are often used to determine standard costs. c. Standard costs are usually stated in total, while budgeted costs are usually stated on a per-unit basis. d. Standard costs can be used in costing inventory accounts. 13. A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. The manufacturer has identified various cost pools, one of which consists of materials handling costs. This cost pool includes the wages and employee benefits of the workers involved in

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receiving materials, inspecting materials, storing materials in inventory, and moving materials to the workstations; depreciation and maintenance of materials handling equipment (e.g., forklift trucks); and costs of supplies used as well as other related costs. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products most likely is a. Number of parts used. b. Direct labor hours. c. Number of units produced. d. Number of vendors involved. 14. The opportunity cost of an alternate course of action that is relevant to a make or buy decision is a. subtracted from the "Make" costs. b. added to the "Make" costs. c. added to the "Buy" costs. d. not considered in the analysis. 15. Which of the following stages of the management decision-making process is improperly sequenced? a. Evaluate possible courses of action  Make decision b. Assign responsibility for decision  Identify the problem c. Identify the problem  Determine possible courses of action d. Assign responsibility for decision  Determine possible courses of action 16. The management of a company computes net income using both the absorption and variable costing approaches to product costing. This year, the net income under the variable costing approach was greater than the net income under the absorption costing approach. This difference is most likely the result of a. A decrease in the variable marketing expenses. b. An increase in the finished goods inventory. c. Sales volume exceeding production volume. d. Inflationary effects on overhead costs. 17. Thor, Inc. pays bonuses to its managers based on operating income. The company uses absorption costing, and overhead is applied on the basis of direct labor hours. To increase bonuses, Thor's managers may do all of the following except a. Increase production schedules independent of customer demands. b. Defer expenses such as maintenance to a future period. c. Decrease production of those items requiring the most direct labor. a. Produce those products requiring the most direct labor. 18. Maria Hill, Avenger Corporation's vice president of planning, has seen and heard it all. She has told the corporate controller that she is "....very upset with the degree of slack that veteran managers use when preparing their budgets." Thomas has considered implementing some of the following activities during the budgeting process. 1. Develop the budgets by top management and issue them to lower-level operating units. 2. Study the actual revenues and expenses of previous periods in detail. 3. Have the budgets developed by operating units and accept them as submitted by a company-wide budget committee. 4. Share the budgets with all employees as a means to reach company goals and objectives. 5. Use an iterative budgeting process that has several "rounds" of changes initiated by operating units and/or senior managers. Which one of these activities should Avenger implement in order to best remedy Thomas's concerns, help eliminate the problems experienced by Avenger, and motivate personnel? a. 2 and 3. b. 1 only. c. 2 and 4. d. 2, 4 and 5. 19. The following sequence of steps are employed by a company to develop its annual profit plan.  Planning guidelines are disseminated downward by top management after receiving input from all levels of management.  A sales budget is prepared by individual sales units reflecting the sales targets of the various segments. This provides the basis for departmental production budgets and other related

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components by the various operating units. Communication is primarily lateral with some upward communication possible.  A profit plan is submitted to top management for coordination and review. Top management's recommendations and revisions are acted upon by middle management. A revised profit plan is resubmitted for further review to top management.  Top management grants final approval and distributes the formal plan downward to the various operating units. This outline of steps best describes which one of the following approaches to budget development? a. Total justification of all activities by operating units. b. Bottom-up approach. c. Imposed budgeting by top management. d. Top-down approach. 20. Three concepts relate to most differential decisions, except a. The only relevant costs or revenues are those expected future costs and revenues that differ across alternatives. b. All costs incurred in the past (sunk costs) are irrelevant, unless they have future tax ramifications. c. Opportunity cost, the income obtainable from an alternative use of a resource, must be considered. d. Accountants are mainly involved in developing nonfinancial information for management's consideration in choosing among alternatives. 21. Which one of the following variances is of least significance from a behavioral control perspective? a. Fixed overhead volume variance resulting from management's decision midway through the fiscal year to reduce its budgeted output by 20%. b. Favorable labor rate variance resulting from an inability to hire experienced workers to replace retiring workers. c. Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours for the output attained. d. Unfavorable material quantity variance amounting to 20% of the quantity allowed for the output attained. 22. For cost estimation simple regression differs from multiple regression in that simple regression uses only a. One dependent variable, while multiple regression uses more than one dependent variable. b. Dependent variables, while multiple regression can use both dependent and independent variables. c. One independent variable, while multiple regression uses more than one independent variable. d. One dependent variable, while multiple regression uses all available data to estimate the cost function. 23. In regression analysis, which of the following correlation coefficients represents the strongest relationship between the independent and dependent variables? a. – 0.02 b. 0.75 c. – 0.89 d. 1.03 24. The correlation coefficient that indicates the weakest linear association between two variables is a. – 0.11 b. 0.35 c. 0.12 d. – 0.73 25. You have determined the profitability of a planned project by finding the present value of all the cash flows from that project. Which of the following would cause the project to look less appealing, that is, have a lower present value? a. The cash flows are extended over a longer period of time. b. The discount rate increases. c. The investment cost decreases without affecting the expected income and life of the project. d. The cash flows are accelerated and the project life is correspondingly shortened. 26. An organization is said to have a "competitive advantage" over its industry rivals when:

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a. The profitability of the company is greater than that of the average profitability for all other organizations in its industry. b. Its distribution channels are wider than others in its industry. c. It spends more money on advertising than its competitors do. d. It can distribute its product more quickly than other industry competitors. 27. Consider the following manufacturing-related activities. I. Conducting the final assembly of wooden furniture. II. Moving completed production to the finished goods warehouse. III. Painting newly-manufactured automobiles. IV. Setting up a machine related to a new production run. V. Reworking defective goods to bring them up to quality standards. The activities that would be classified as value-added activities are a. II, III, IV, and V only. b. I and III only. c. I, IV, and V only. d. I, III, and V only. 28. Which of the following is not a function of a management accounting system? a. Financial reporting b. Strategic planning c. Operational control d. Product costing 29. Which of the following statements regarding security of electronic mail is correct? a. All messages on the Internet are encrypted thereby providing enhanced security. b. Passwords are effective in preventing casual access to another's electronic mail. c. Supervisory-level access to the file server containing electronic messages would not give access to the file containing electronic mail messages without first decrypting the security control log. d. Passwords are not needed with discretionary access control. 30. The difference between the reported income under absorption and variable costing is attributable to the difference in the a. income statement formats. b. treatment of variable manufacturing overhead. c. treatment of variable selling, general, and administrative expenses. d. treatment of fixed manufacturing overhead. Items 31 to 33 are based on the following information: 31. Hulk Inc. employs an absorption costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding Hulk’s planned and actual operations for the calendar year are presented below Planned Activity 35,000 140,000 140,000

Beginning finished goods inventory in units Sales in units Production in units

Actual Activity 35,000 125,000 130,000

The planned per-unit cost figures shown in the next schedule were based on the estimated production and sale of 140,000 units for the year. Hulk uses a predetermined manufacturing overhead rate for applying manufacturing overhead to its product; thus, a combined manufacturing overhead rate of P9.00 per unit was employed for absorption costing purposes. Any over- or under-applied manufacturing overhead is closed to the cost of goods sold account at the end of the reporting year. Planned Cost Per Unit Direct materials

Incurred Total

Costs

12.00

1,680,000

1,560,000

Direct labor

9.00

1,260,000

1,170,000

Variable manufacturing overhead

4.00

560,000

520,000

Fixed manufacturing overhead

5.00

700,000

715,000

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Variable selling expenses

8.00

1,120,000

Fixed selling expenses

7.00

980,000

980,000

Variable administrative expenses

2.00

280,000

250,000

Fixed administrative expenses

3.00

420,000

425,000

50.00

7,000,000

Total (P)

1,000,000

6,620,000

The beginning finished goods inventory for absorption costing purposes was valued at the previous year’s planned unit manufacturing cost, which was the same as the current year’s planned unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for the current year was P70.00 per unit. The difference between Hulk Inc.’s operating income calculated on the absorption costing basis and calculated on the variable costing basis was c. P40, 000 a. P25, 000 b. P65, 000 d. P90, 000 32. Hulk Inc.’s actual manufacturing contribution margin calculated on the variable costing basis was a. P4, 375, 000 c. P5, 625, 000 b. P4, 910, 000 d. P4, 935, 000 33. The value of Hulk Inc.’s actual ending finished goods inventory on the absorption costing basis was a. P1, 220, 000 c. P1, 200, 000 b. P900, 000 d. P1, 350, 000 Items 34 to 36 are based on the following information: 34. Black Widow, Inc. manufactures video game machines. Market saturation and technological innovations have caused pricing pressures, which have resulted in declining profits. To stem the slide in profits until new products can be introduced, an incentive program has been developed to reward production managers who contribute to an increase in the number of units produced and effect cost reductions. The managers have responded to the pressure of improving manufacturing in several ways. The video game machines are put together by the Assembly Group which requires parts from both the Printed Circuit Boards (PCB) and the Reading Heads (RH) groups. To attain increased production levels, the PCB and RH groups commenced rejecting parts that previously would have been tested and modified to meet manufacturing standards. Preventive maintenance on machines used in the production of these parts has been postponed with only emergency repair work being performed to keep production lines moving. The more aggressive Assembly Group production supervisors have pressured maintenance personnel to at...