MS Quiz 1 May 2025 PDF

ReSA -The Review School of Accountancy Management Services  May 2025 Batch MS Quiz 1 COVERAGE - Week 1 to Week 3 Lectures  MS-01: Management Accounting vs. Fina...

ReSA -The Review School of Accountancy Management Services  May 2025 Batch MS Quiz 1 COVERAGE - Week 1 to Week 3 Lectures  MS-01: Management Accounting vs. Financial Management  MS-02: Cost Behavior with Regression Analysis  MS-03: Cost-Volume-Profit (CVP) Analysis  MS-04: Absorption & Variable Costing with Pricing Decisions 1. All else constant, if the selling price increases, C a. Total variable costs will be higher than expected b. Total contribution margin will be lower than expected c. Per-unit contribution margin will be higher than expected d. Contribution margin percentage will be lower than expected 2. “Budgets” and “performance reports” respectively correspond to these management functions. A a. Planning and controlling c. Controlling and planning b. Planning and organizing d. Organizing and controlling 3. Which of the following is true regarding the regression equation Y = a + bX? C a. “b” represents fixed cost per unit c. “a” represents the amount of Y when X = 0 b. “X” represents the dependent variable d. “b” represents the amount of Y when X = 0 4. The distinction between absorption costing and variable costing is most important for which type of industry? A a. Manufacturing c. Retail b. Marketing d. Service 5. Which financial executive is primarily responsible for both management and financial accounting? B a. Treasurer c. Chief financial officer b. Controller d. Auditor 6. The annual insurance premium for a factory building would be a: D a. Fixed cost, period cost, and indirect cost in relation to units of product. b. Fixed cost, product cost, and direct cost in relation to units of product. c. Variable cost, product cost, direct cost in relation to units of product. d. Fixed cost, product cost, indirect cost in relation to units of product. 7. The cost function derived by the simple least-squares method is A a. Linear b. Curvilinear c. Parabolic d. Derived from the maximum and minimum points 8. Profit maximization as the goal of the firm is not ideal because B a. Profits are accounting measures of cash. b. Profit maximization does not consider risk. c. Cash flows are more representative of financial strength. d. Profits today are less desirable than profits earned in future years. 9. Simple regression provides the means to evaluate a line of regression that is fitted to a plot of data and represents A a. The way costs change in respect to the independent variable. b. The way costs change in respect to the dependent variable. c. The variability of expense with dollars of operations. d. The variability of expense with dollars of production. 10. Management accounting: D a. Provides information about the company as a whole b. Reports information that has occurred in the past that is verifiable and reliable c. Provides information that is generally available only on a quarterly or annual basis d. Focuses on estimating future revenues, costs, and other measures to forecast activities and their results 11. Which correlation coefficient indicates the strongest direct linear association between two variables? C a. -0.99 c. 0.88 b. -0.02 d. 1.02 Note: DIRECT linear relationship is based on POSITIVE correlation. Usual mistake is “A” as one may overlook the term ‘direct.’ Letter “D” is invalid since it is outside the range of -1 to +1. Page 1 of 4 pages ReSA - The Review School of Accountancy MS Quiz 1 Coverage: MS – 01 to 04 (ReSA Batch 49 – May 2025 Batch) 12. The long-run objective of financial management is to: D a. Maximize market share b. Maximize earnings per share c. Maximize return on investment d. Maximize the value of the firm’s common stock 13. If Company A has a higher degree of operating leverage than Company B, then D a. Company A is less risky b. Company B is less profitable c. Company A has higher fixed operating expenses d. Company A’s profits are more sensitive to percentage changes in sales 14. When monthly production volume is constant and sales volume is less than production, profit determined with variable costing procedures will: B a. Always be greater than profit determined using absorption costing b. Always be less than profit determined using absorption costing c. be equal to profit determined using absorption costing d. be equal to contribution margin per unit times units sold 15. A firm in which of the following industries is most likely to use a market-based as opposed to a cost-based approach to pricing decisions? A a. Competitive market players with similar products b. Competitive market players with dissimilar products c. Non-competitive market players with similar products d. Non-competitive market players with dissimilar products 16. A profitable company’s margin of safety decreases following a A a. Decrease in unit sales c. Increase in selling price b. Decrease in fixed costs d. Decrease in variable costs 17. Which of the following statements is true for a company that uses variable costing? B a. Income is greatest in periods when production is highest b. Net operating income moves in the same direction as sales c. Both variable selling costs & variable production costs are included in the unit product cost d. The unit product cost changes because of changes in the number of units manufactured Note: Variable costing profit fluctuates with sales and does not react to changes in production. 18. Management is considering replacing an existing fixed salary plan to sales commission compensation plan. If the change is adopted, the company’s D a. Profit must decrease c. Margin of safety must increase b. Breakeven point must decrease d. Operating leverage must decrease Note: Higher variable cost (commission) → lower CM; lower FC (salary) → higher profit. Based on the formula: DOL = CM ÷ profit, operating leverage must decrease given above circumstances. 19. How will a favorable volume variance affect profit under I) direct costing & II) full costing? A a. I) no effect II) increase c. I) increase II) no effect b. I) no effect II) decrease d. I) decrease II) no effect Note: A favorable volume variance, which is based on FFOH costs, is deducted from CGS (i.e., increases profit) under full or absorption costing but it is ignored under direct or variable costing, where the entire FFOH costs are simply expensed in period incurred. 20. Nayeon Company sells three chemicals: Petrol, Septine and Tridol. Petrol is the company’s most profitable product while Tridol is the least profitable. Which one of the following events will definitely decrease the firm’s overall breakeven point for the upcoming accounting period? D a. A decrease in Tridol’s selling price b. An increase in the overall market for Septine c. Installation of new machinery and subsequent layoff of workers d. An increase in anticipated sales of Petrol relative to sales of Septine and Tridol Note: Shifting the sales mix to more profitable products decreases break-even point due to higher over-all contribution margin. 21. When 20,000 units are produced, fixed costs are P 16 per unit. Therefore, when 40,000 units are produced, fixed costs will: B a. Increase to P 32 per unit c. Remain at P 16 per unit b. Decrease to P 8 per unit d. Total P 640,000 Solution: Total Fixed Costs = 20,000 (16) = P 320,000 Unit FC = 320,000  40,000 = P 8 Page 2 of 4 pages ReSA - The Review School of Accountancy MS Quiz 1 Coverage: MS – 01 to 04 (ReSA Batch 49 – May 2025 Batch) 22. Jihyo, Inc. sells a single product at P 20 per unit. The firm's most recent income statement revealed unit sales of 100,000, variable costs of P 800,000, and fixed costs of P 400,000. If a P 4 drop in selling price will boost unit sales volume by 20%, what will the company experience? B a. P 80,000 drop in profitability b. P 240,000 drop in profitability c. P 400,000 drop in profitability d. No change in profit because a 20% drop in sales price is balanced by a 20% increase in volume Solution: Profit (now) = 100,000 (20) – 100,000 (8*) – 400,000 = P 800,000 *8 = 800,000  100,000 Profit (new) = 120,000 (16) – 120,000 (8) – 400,000 = P 560,000 Decrease in profitability: 800,000 – 560,000 = P 240,000 23. Sana Company uses a quarterly cost formula for overhead of P 18,000 + P 1.60 for each direct labor hour worked. For the upcoming month, Sana plans to manufacture 96,000 units. Each unit required five minutes of direct labor. What is Sana’s budgeted overhead for the upcoming month? B a. P 14,300 c. P 30,800 b. P 18,800 d. P 171,600 Solution: Y = (18,000  3 months/quarter) + 1.60 (96,000 units x 5 minutes/60 minutes) = P 18,800 Items 24 and 25 are based on the following information Momo Manufacturing, Inc. presents the following cost and other pertinent information for its lone product: unit selling price, P 15; variable manufacturing costs per unit of production, P 8; total annual fixed manufacturing costs, P 25,000; variable administrative costs per unit of production, P 3; total annual fixed selling & administrative expenses, P 15,000. During Momo’s first year, 12,500 units were produced and 10,000 units were sold. 24. The ending inventory under variable costing would be: A a. P 20,000 c. P 27,500 b. P 25,000 d. P 32,500 Solution: (12,500 – 10,000) 8 = P 20,000 25. The total fixed costs charged against the first year of operations under full costing would be: C a. P 15,000 c. P 35,000 b. P 25,000 d. P 40,000 Solution: 25,000 x (10,000/12,500) + 15,000 = P 35,000 26. Mina Company has a monthly target operating income of P 30,000. Variable expenses are 40% of sales and monthly fixed expenses are P 7,500. Assuming that Mina Company reaches its target, by what percentage will its operating income fall if sales volume declines by 12%? B a. Decline by 10% c. Decline by 11% b. Decline by 15% d. Decline by 16% Solution: DOL = CM  Profit = (30,000 + 7,500)  30,000 = 1.25 times ∆ Sales x DOL = ∆ Profit = 12%  (1.25) = 15%  27. Tzuyu Company produces and sells only two products, Tai and Wan. 15 units of Tai are sold for every 10 units of Wan. Variable costs as a percentage of sales in pesos are 60% for Tai and 85% for Wan. Total fixed cost is P 150,000. If the total fixed cost increases by 30% next period, what amount of product Tai sales would be necessary to break-even? C a. P 111,429 c. P 390,000 b. P 260,000 d. P 650,000 Solution: Sales mix: Tai → 15 units or 3 units (60%) vs. Wan → 10 units or 2 units (40%) Weighted average CM ratio: 40% (60%) + 15% (40%) = 30%* Over-all break-even sales: (150,000) 1.30 ÷ 30%* = P 650,000 Break-even sales (for product Tai only): P 650,000 x 60% = P 390,000 Page 3 of 4 pages ReSA - The Review School of Accountancy MS Quiz 1 Coverage: MS – 01 to 04 (ReSA Batch 49 – May 2025 Batch) Items 28 to 29 are based on the following information Dahyun Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for P 7.50 each, and the variable cost to manufacture them was P 2.25 per unit. The company needed to sell 20,000 shirts to break even. The net after-tax income last year was P 5,040. Dahyun’s expectations for the coming year include the following:  The sales price of the T-shirts will be P 9.  Variable costs to manufacture will increase by one-third.  Fixed costs will increase by 10%.  The income tax rate of 40% will be unchanged. 28. What is the number of T-shirts Dahyun must sell to break even in the coming year? B a. 17,500 c. 20,000 b. 19,250 d. 22,000 Solution: Last year: @ BEP → CM = fixed costs (7.50 – 2.25) 20,000 = P 105,000 BEP = 105,000 (1.1) ÷ (9 – 3) = 19,250 units 29. If Dahyun Corporation wishes to earn P 22,500 in post-tax income for the coming year, the company’s sales volume in pesos must be C a. P 207,000 c. P 229,500 b. P 213,750 d. P 257,625 Solution: Unit sales: [105,000 (1.1) + (22,500 ÷ 60%)] ÷ (9 – 3) = 25,500 units Peso sales: 25,500 units x P 9 = P 229,500 30. For the first year of Chaeyoung Company’s operations, 20,000 units of its only product remained on hand: Manufacturing costs Fixed P 180,000 (Production: 100,000 units) Variable 160,000 Selling and administrative costs Fixed 90,000 (Sales: ??? units) Variable 40,000 How much lower would Chaeyoung’s profit be if it used variable costing instead of GAAP costing? A a. P 36,000 c. P 68,000 b. P 54,000 d. P 94,000 Solution: ∆ Income = ∆ Inventory x Unit FFOH = (20,000 units – 0) x (180,000 ÷ 100,000) = P 36,000 END Page 4 of 4 pages