GUAGUA NATIONAL COLLEGES

Guagua, Pampanga

Name: ______________________________ Date: ________________

Year & Section: _______________________

Instructions: Read each question carefully and put your answers in the space provided before the number.

1. Relevant costs are

A. All fixed and variable costs
B. All cost that will be incurred within the relevant range of production
C. Past costs that are expected to be different in the future
D. Anticipated future costs that will differ among various alternatives

2. Which of the following is an irrelevant cost?

A. An avoidable cost C. A sunk cost
B. An incremental cost D. An opportunity cost

3. Stranger Things Corporation’s Store No. 11 reported the following results of operations for the period just
ended:

Sales P2,500,000
Less: Variable expenses 1,000,000
Contribution Margin P1,500,000
Less: Fixed expenses
Salaries and wages P750,000
Insurance on inventories 50,000
Depreciation of equipment 325,000
Advertising 500,000 1,625,000
Net income (loss) P(125,000)

The management is contemplating the dropping of Store No. 11 due to the unfavorable operation results. If
this happened, one employee would have to be retained with an annual salary of P150,000. The equipment
has no resale value. Both the insurance and the advertising expense will be avoided if Store No. 11 is dropped.
Store No. 11 should:
A. Not be dropped due to foregone overall income of P350,000
B. Be dropped due to overall operational loss of P325,000
C. Not be dropped due to foregone overall income of P25,000
D. Be dropped due to overall operational loss of P25,000

4. Friends. Inc. has an annual capacity of 2,800 units of output. Projected data for the coming year’s operations
are as follows:

Sales (2,000 units at P760 each) P1,520,000

Manufacturing costs:
Variable P500 per unit
Fixed P360,000
Marketing and administrative costs:
Variable (sales commissions) P120 per unit
Fixed P40,000

Assume there would be no effect on regular sales at regular prices and that the usual sales commission will be
reduced to half. Should the company accept a one-time-only special order for 600 units at a selling price of
P640 each?
A. Yes, due to incremental income of P48,000.
B. Either one would do as the net effect would be the same.
C. Yes, due to incremental income of P30,000.
D. No, due to the resulting loss of P37,714.
5. Dark Company is operating at 70% capacity. The plant manager is considering making Part K01 which is
currently being purchased from outside suppliers for P110 each, a price that is projected to increase in the
near future. The plant has the equipment and labor force required to manufacture Part K01. The design
engineer estimates that each part requires P40 of direct materials and P30 of direct labor. The plant overhead
is 200% of direct labor peso cost, and 40% of the overhead is fixed cost. A decision to manufacture Part K01
will result in a gain or (loss) for each component of
A. P28 C. P(20)
B. P16 D. P4

6. Wednesday Co. has a limited number of machine hours that it can use for manufacturing two products, X
and Y. Each product has a selling price of P160 per unit but product X has a 40% contribution margin and
product Y has a 70% contribution margin. One unit of Y takes twice as many machine hours to make as a
unit of X. Assume either product can be sold in whatever quantity is produced. Which product or products
should the limited number of machine hours be used for?
A. X C. Either X or Y
B. Both X and Y D. Y

7. In deciding whether to manufacture a part or buy it from outside vendor, a cost that is relevant to the short-
run decision is:
A. Direct materials and direct labor
B. Variable overhead
C. Fixed overhead that will be avoided if the part is bought from an outside vendor
D. All of the above

8. The Walking Dead, Inc. has an opportunity to acquire new equipment to replace one of its existing equipment.
The new equipment would cost P900,000 and has a five-year useful life, with a zero terminal disposal price.
Variable operating costs would be P1 million per year. The present equipment has a book value of P500,000
and a remaining life of five years. Its disposal price now is P50,000 but would be zero after five years. Variable
operating costs would be P1,250,000 per year. Considering the five years in total but ignoring the time value
of money and income taxes, The Walking Dead should
A. Replace due to P400,000 advantage
B. Not replace due to P150,000 disadvantage
C. Replace due to P350,000 advantage
D. Not replace due to P100,000 disadvantage

9. The term relevant cost applies to all of the following decision situations, except the
A. Acceptance of a special order C. manufacture or purchase of a component part
B. Determination of product price D. replacement of equipment

10. Daphne Bridgerton has a stall along the highway which specializes in hand-crafted fruit baskets that sell for
P60 each. Daily fixed costs are P15,000 and variable costs are P30 per basket. An average of 750 baskets are
sold each day. Daphne has a capacity of 800 baskets per day. By closing time yesterday, a bus load stopped by
Daphne’s stall.

Collectively, they offered Daphne P1,500 for 40 baskets. Daphne should have:
A. Rejected the offer since she could have lost P500
B. Rejected the offer since she could have lost P900
C. Accepted the offer since she could have P300 contribution margin
D. Accepted the offer since she could have P700 contribution margin

11. For the year just ended, Ozark Corp. had direct costs of P1 million based on production set up for the period.
If the alternative set up were adopted, direct costs could have been P850,000. In addition, Ozark’s fixed costs
were P100,000. The incremental cost was
A. P250,000 C. P100,000
B. P150,000 D. P50,000

12. Sunk costs are

A. are substitutes for opportunity costs.
B. are relevant to long-term decisions but not to short-term decisions.
C. are relevant to decision making.
D. in and of themselves are not relevant to decision making.
13. The use of expected value in evaluating alternative courses of action attempts to deal with:
A. centralization C. goal congruence
B. uncertainty D. motivation

14. The measurable value of an alternative use of resources is referred to as:

A. opportunity cost C. differential cost
B. measurable cost D. sunk cost

15. An opportunity cost is usually:

A. relevant, but is not part of traditional accounting records
B. not relevant, but is part of traditional accounting records
C. relevant, and is part of traditional accounting records
D. not relevant, and is not part of traditional accounting records

16. Part XY is a component that Kingdom Co. uses in the assembly of motors. The cost to produce one XY is
presented as follows:

Direct Materials P4,000

Materials handling (20% of direct materials) 800
Direct labor 32,000
Overhead (150% of direct labor) 48,000
Total manufacturing cost P84,800

Materials’ handling which is not included in manufacturing overhead represents the direct variable costs of
the receiving department that are applied to direct materials and purchased components on the basis of their
cost.

The company’s annual overhead budget is one-third variable and two-thirds fixed. Squid Game Co. offers to
supply XY at a unit price of P60,000. Should the company buy or manufacture XY?
A. Buy, due to advantage of P24,800 per unit
B. Manufacture, due to advantage of P7,200
C. Manufacture, due to advantage of P19,200 per unit
D. Buy, due to advantage of P12,800 per unit.

17. Hill House Technology manufactures a particular computer component. Currently, the costs per unit are as
follows:

Direct materials P50

Direct labor 500
Variable overhead 250
Fixed overhead 400
Total P1,200

Bly Manor, Inc. has contacted Hill House with an offer to sell 10,000 units of the component for P1,100 per
unit. If Hill House accepts the proposal, P2,500,000 of the fixed overhead will be eliminated. Should Hill
House make or buy the component and why?
A. Make due to savings of P3,000,000. C. Buy due to savings of P1,000,000.
B. Buy due to savings of P2,500,000. D. Make due to savings of P500,000.

18. In equipment replacement decisions, which of the following costs are relevant?
I. Original fair market value of the old equipment
II. Current salvage value of the old equipment
III. Operating costs of the new equipment
IV. Cost of the new equipment

A. I, II, III, and IV C. I, III, and IV

B. II, and III D. II, III, and IV

19. A quantitative technique used for selecting the combination of resources that maximize profits or minimize
costs is:
A. Curvilinear analysis C. Linear programming
B. Dynamic programming D. Queuing theory
20. The constraints in a linear programming model are
A. Included in the objective function C. Scarce resources
B. Costs D. Dependent variables

21. Brooklyn Nine-Nine, Inc. manufactures Product C and Product A which are processed as follows:

Type D Machine Type B Machine

Product C 6 hours 4 hours
Product A 9 hours 5 hours

The contribution margin is P12 for Product C and P7 for Product A. The available time daily for processing
the two products is 120 hours for Machine Type D and 80 hours for Machine Type B. How would the
restriction (constraint) for Machine Type D expressed?
A. 4C + 5A C. 6C + 9A < 120
B. 4C + 5A < 80 D. 12C + 7A

22. Riverdale Company plans to expand its sales force by opening several new branch offices. Riverdale will
consider opening only two types of branches: 20-person branches (Type A) and 10-person branches (Type
B). Expected initial cash outlays are P1,300,000 for a Type A branch and P670,000 for a Type B branch.
Expected annual cash inflow, net of income taxes, is P92,000 for a Type A branch and P38,000 for a Type B
branch. Riverdale will hire no more than 200 employees for the new branch offices and will open no more
than 20 branch offices. Linear programming will be used to help decide how many branch offices should be
opened. Riverdale had P10,400,000 in capital available for the new branch offices.

In a system of equations for a linear programming model, which of the following equations would not
represent constraint?
A. A + B < 20 C. P92,000A + P38,000B < P128,000
B. 20A + 10B < 200 D. P1,300,000A + P670,000B < P10.4M

23. Which of the following statements does not apply to decision-tree analysis?
A. The sum of the probabilities of the events is less than one.
B. All of the events are mutually exclusive.
C. All of the events are included in the decision.
D. The branches emanate from a node from left to right.

Items 24&25 are based on the following information.

The local chapter of JPIA is planning to conduct a fund raising project by selling roses on Valentine’s Day.
The roses, which can be purchased from a nearby supplier at P5 each, will be sold to students for P15 each.
Any unsold roses at the end of the day will be discarded.

The estimated number of roses that can be sold on such day, as well as their probabilities, as follows:

Units of Roses Probability

600 0.20
800 0.30
1,000 0.40
1,200 0.10

24. What is the estimated sales of roses (in units) using an expected monetary value approach?
A. 880 C. 900
B. 1,000 D. 400

25. What is the conditional profit of purchasing 1,000 units of roses but selling only 800 units?
A. P7,000 C. P2,100
B. P8,000 D. P2,800