DIAGNOSTIC EXAMINATION (BATCH 2020)

1. Which one of the following terms best describes the rate of output which qualified workers
can achieve as an average over the working day or shift, without over-exertion, provided
they adhere to the specified method of working and are well motivated in their work?
a. Standard time c. Standard hours
b. Standard performance d. Standard unit
2. MNO Company applies overhead at P5 per direct labor hour. In March 2001, MNO incurred
overhead of P120,000. Under-applied overhead was P5,000. How many direct labor hours
did MNO work?
a. 25,000 c. 24,000
b. 22,000 d. 23,000
3. The Spade Company’s bonds have 4 years remaining to maturity. Interest is paid annually;
the bonds have a P1,000, face value; and the coupon interest rate is 9%. What is the
estimated yield to maturity of the bonds at their current market price of P829?
a. 8.2% c. 13.10%
b. 10.88% d. 14.80%
4. ABC Company uses the equation P300,000 + P1.75 per direct labor hour to budget
manufacturing overhead. ABC has budgeted 125,000 direct labor hours for the year. Actual
results were 110,000 direct labor hours, 297,000 fixed overhead, and P194,500 variable
overhead, what is the fixed overhead volume variance for the year?
a. 35,000 unfavorable c. 2,000 favorable
b. 36,000 unfavorable d. 3,000 favorable
5. If a firm had been extending trade credit on a 2/10, net/30 basis, what change would be
expected on the balance sheet of its customer if the firm went to a net cash 30 policy
a. Increased payable and increased bank loan c. decreased receivables
b. Increased receivables d. decrease in cash
6. ACE Company’s operations for the month just ended originally set up a 60,000 direct labor
hour level, with budgeted direct labor of P960,000 and budgeted variable overhead of
P240,000. The actual results revealed that direct labor incurred amounted to P1,148,000
and that the unfavorable variable overhead variance was P40,000. Labor trouble caused an
unfavorable labor efficiency variance of P120,000, and new employees hired at higher rates
resulted in an actual average wage rate of P16.40 per hour. The total number of standard
direct labor hours allowed for the actual units produced is
a. P52,500 c. P62,500
b. P60,000 d. P70,000
7. Software Center, Inc.’s new controller is reviewing the company’s cash management. Below
are relevant information regarding trade credits from the suppliers of the company:
Suppliers Average Monthly purchases Credit terms
Tech Co. P 100,000 Net 30
Computech 300,000 2/10, n/30
Compuwork 1,000,000 5/10, n/120
s 600,000 3/10, n/45
So-wares
The company uses a 360-day year. Assume that all of the suppliers can supply any and all
of the requirements of Software and can provide unlimited credit line to the company and
that the company can have only one supplier. With a cost of bank borrowing of 18% per
annum, which supplier should Software choose?
a. Compuworks due to the longest credit term of 120 days
b. Computech due to cost of trade credit of 36.7%
c. Compuworks due to the highest trade discount at 5%
d. Tech co. due to no discount policy
8. In cash management, which of the following is statement is false?
 a. Capital costs, delinquency costs, and default costs are costs associated with cash
management
b. Short costs, long costs and procurement costs are costs with optimal cash balance
method
c. Obtaining financing services and controlling cash flow are some of the major functions of
cash management
d. Funds sourcing and custodianship must be done in the lowest possible cost, where
excess funds must be invested for a return that is best in the market
9. APJ, Inc. is planning to purchase a new machine that will take six years to recover the cost,
the new machine us expected to produce cash flow from operations, net of income taxes, of
P4,500 a year for the first three years of the payback period and P3,500 a year of the last
three years of the payback period. Depreciation of P3,000 a year shall be charged to
income of the six years of the payback period. How much shall the machine cost?
a. P12,000 c. P24,000
b. P18,000 d. none of these
10. The accounting area in which the only objective of depreciation accounting relates to the
effect of depreciation charges upon tax payments is
a. Income determination c. cost/volume/profit analysis
b. Financial reporting d. capital budgeting
11. Mclndon Corporation bought a major equipment which is depreciable over 7 years on a
straight-line basis without any salvage value. It is estimated that it would generate cash flow
from operations, net of income taxes, of P800,000 in each of the seven years. The
company's expected rate of return is 12%. Based on estimates, the project has a net
present value of P127,200. What is the cost of the equipment?
To facilitate computations, below are present value factors:
Present value of P1 at 12% for seven years is 0.452
Present value of an ordinary annuity of P1 at 12% for seven years is 4.564.
a. P3,651,200 c. P 2,404,000
b. P3,524,000 d. P3,778,400
12. "Net present value" is an example of which concept?
a. Capital budgeting c. Managerial control
b. Project feasibility d. Management by exception
13. Mr. S. Mart assumed the presidency of Riches Corp. He instituted new policies and with
respect to credit policy below is a summary of relevant information:
Old Credit Policy New Credit Policy
Sales P1,800,00o P1,980,000
Average collection period 30 days 36 days
The company requires a rate of return of 10% and a variable cost ratio of 60%. Using a 360-
day year, the pre-tax cost of carrying the additional investment in receivables under the new
policy would be
a. P4,800 c. P3,000
b. P2,880 d. P4,080
14. ABC Company outstanding common stocks sells for P42 a share, earning P4.80 per share
and is expected to pay P2.10 dividend. The firm's earnings, dividends, and stock price have
been growing at 8% a year and are expected to continue to grow at this rate indefinitely.

If the firm's addition to retained earnings was re-invested at an 8% rate rather than the cost
of capital, what would be the price of the stock at the end of the year, assuming that this
new growth rate is the same rate as it has in previous years on its original capital?
a. P31.20 c. P24.71
b. P22.80 d. P33.20
15. Which of the following transactions causes an increase in working capital?
a. Sale of merchandise on credit at a price above cost.
b. Sale of marketable securities at a price below cost.
c. Collection of an account receivable.
d. Return to supplier of defective merchandise purchased on credit. Full credit allowed by
supplier.
16. Red Turkey Company will pay a dividend of P1.50 per share at the end of next 12 months.
This required rate of return for Red Fin’s share is 10% and the constant growth rate is 5%.
The approximate current market price per common share of Red Turkey stock is
a. P30.00 b. P10.00 c. P15.00 d. P26.63
 17. Slippers Mart has sales of P3 million. Its credit period and average collection period are
both 30 days and 1% of its sales end as bed debts. The general manager intends to extend
the credit period to 45 days which will increase sales by P300,000. However, bad debts
losses on the incremental sales would be 3%. Costs of products and related expenses
amount to 40% exclusive of the cost of carrying receivables of 15% and bad debts
expenses. Assuming 360 days a year, the change in policy would result to incremental
investment in receivables of
a. P24,704 c. P701,573
b. P65,000 d. P9,750
18. In capital budgeting these techniques are applied: payback (PB) method, net present value
(NPV) method and time-adjusted rate of return (TARR) method. PB method has this in
common with NPV and TARR methods.
a. Use of cash flows.
b. Consideration of the time value of money.
c. Use of discounting.
d. Use of accrual method of accounting.

Questions 19 and 20 are based on the following information.

Gardner Company's stock is currently selling for P120 a share. The firm is expected to earn
P10.80 per share and to pay a year-end dividend of P7.20. Investors require a 9% return.

19. If Gardner reinvests retained earnings in projects whose aggregate return is equal to the
stock's expected rate of return, what will be next year's Earnings per Share?
a. P11.12 c. P7.42
b. P10.80 d. P11.77
20. If Gardner reinvests retained earnings in projects whose aggregate return is equal to the
stock's expected rate of return and it will continue the constant dividend growth rate, how
much is the year-end dividend next year?
a. P7.42 c. P7.20
b. P7.35 d. P9.00
21. During the past five years, Alen Company had consistently paid 50% of earnings available
to common as dividends. Next year, the Alen Company projects its net income, before the
P1.2 million preferred dividends, at P6 million.

The capital structure for the Company is maintained at.

Debt 25.0%
Preferred Stock 15.0%
Common Equity 60.0%
What is the retained earnings breakpoint next year
a. P5,760,000 c. P4,000,000
b. P4,800,000 d. P6,000,000
22. Great Value Company is planning to purchase a new machine costing P50,000 with freight
and installation costs amounting to P1,500. The old unit is to be traded-in will be given a
trade-in allowance of P7,500. Other assets that are to be retired as a result of the
acquisition of the new machine can be salvaged and sold for P3,000. The loss on retirement
of these other assets is P1,000 which will reduce income taxes of P400. If the new
equipment is not purchased, repair of the old unit will have to be made at an estimated cost
of P4,000. This cost can be avoided by purchasing the new equipment. Additional gross
working capital of P12,000 will be needed to support operation planned with the new
equipment.
The net investment assigned to the new machine for decision analysis is
a. P50,200 c. P53,600
b. P52,600 d. P57,600
23. The inflation element refers to the
a. Impact that future price increases will have on the original cost of a capital expenditure.
b. Fact that the real purchasing power of a monetary unit usually increases over time.
c. Future deterioration of the general purchasing power of the monetary unit.
d. Future increases in the general purchasing power of the monetary unit.DD
24. A company is considering putting up P50,000 in a three-year project. The company's
expected rate of return is 12%. The present value of P1.00 at 12% for one year is 0.893, for
two years is 0.797, and for three years is 0.712. The cash flow, net of income taxes will be
P18,000 (present value of P16,074) for the first year and P22,000 (present value of
 P17,534) for the second year. Assuming that the rate of return is exactly 12%, the cash
flow, net of income taxes, for the third year would be
a. P7,120 c. P16,392
b. P10,000 d. P23,022
25. Your company is purchasing transport equipment as part of its territorial expansion strategy.
The technical services department indicated that this equipment needs overhauling-in year
4 or year 5 of its useful life. The (overhauling cost will be expected during the year the
overhauling is done. The finance officer insists that the overhauling-be done in year 4) not in
year 5. The most likely reason is
a. There is lower tax rate-in year 5 c. There is higher tax rate in year 5
b. There is higher tax rate in year 5 d. Due statements A and C above
26. TAMARAW, Inc. has a maintenance shop where repairs to its motor vehicles are done.
During last month's labor strike, certain records were lost. The actual input of direct labor
hours was 1,000, and the resulting direct labor budget variance was a favorable P3,400.
The standard direct labor rate was P28.00 per hour, but an unexpected labor shortage
necessitated the hiring of higher-paid workers for some jobs and had resulted in a rate
variance of P800. The actual direct labor rate was
a. P27.20 per hour c. P30.25 per hour
b. P28.80 per hour d. P31.40 per hour
27. Which of the following actions would not be consistent with good management?
a. Increased synchronization of cash flows.
b. Minimize the use of float.
c. Maintaining an average cash balance equal to that required as a compensating balance
or that which minimizes total cost.
d. Use of checks and drafts in disbursing funds.
28. Which is an accepted purpose of standard costing?
a. Determine profits.
b. Determine "break-even" production level.
c. Control costs.
d. Allocate costs with more accuracy
e. Assume standard level of performance.
29. You are the treasurer of the Hibang Corp. The company is considering a proposed project
which has an expected economic life of seven years. Net present value is the capital
budgeting technique the president wants you to use. Salvage value of the project would be
a. Treated as cash inflow at estimated salvage value.
b. Treated as cash flow at its present value
c. Irrelevant cash flow item.
d. Treated as cash inflow at the future value.
30. A firm following an aggressive working capital strategy would
a. Hold substantial amount of fixed assets.
b. Minimize the amount of short-term borrowing.
c. Finance fluctuating assets with long-term financing.
d. Minimize the amount of funds held in very liquid assets.
31. The following data are related to ABC stock:
Required return on ABC common 15%
Beta coefficient 1.5
Risk-free rate 9%
The required market return is
a. 13.0% b. 18.0% c. 25.0% d. 16.0%
32. All of the following statements are correct excep
a. The matching of asset and liability maturities is considered desirable because this
strategy minimizes interest rate risk.
b. Default risk refers to the inability of the firm to pay off its maturing obligations.
c. The matching of assets and liability maturities lowers default risk.
d. An increase in the payables deferral period will lead to a reduction in the need to non-
spontaneous funding
33. An inventory method which is particularly useful in connection with the valuation of the
overhead element of Work-in-process is
a. Physical count
b. Specific identification.
c. Market price of product less cost of disposition.
d. Standard cost.
 34. If a company uses a predetermined rate for absorption of manufacturing overhead, the
volume variance is
a. The under- or over-applied fixed cost element of overhead.
b. The under- or over-applied variable cost element of overhead.
c. The difference between budgeted cost and actual cost of fixed overhead items.
d. The difference between budgeted cost and actual cost of variable overhead items.
35. Compared to other firms in the industry, a company that maintains a conservative working
capital policy will tend to have a
a. Greater percentage of short-term financing.
b. Greater risk of needing to sell current assets to repay debt
c. Higher ratio of current assets to fixed assets.
d. Higher total asset turnover.
36. Holland Company is in the process of projecting its cash position at the end of the second
quarter. Shown below is pertinent information from Holland's records.
Cash balance at end of 1st quarter P 36,000
Cash collections from customers for 2nd quarter 1,300,000
Accounts payable at end of 1st quarter 100,000
Accounts payable at end of 2nd quarter 75,000
All 2nd quarter costs and expenses (accrual basis) 1,200,000
Depreciation (accrued expense included above) 60,000
Purchases of equipment (for cash) 50,000
Gain on sale of asset (for cash) 5,000
Net book value of asset sold 35,000
Repayment of notes payable 66,000
From the data above, determine Holland's projected cash balance at the end of the second
quarter.
a. Zero b. P25,000 c. P60,000 d. P95,000
37. The budgeting process should be one that motivates managers and employees to work
toward organizational goals. Which one of the following(s) least likely to motivate
managers?
a. Participation by subordinates in the budgetary process.
b. Having top management set budget levels
c. Use of management by exception
d. Holding subordinates accountable for the items they control.
38. In January, Harris Ventures, Ltd. began using exponential smoothing to forecast the
monthly sales level. Using an a of 0.1, the forecasts Harris calculated are as follows (in
thousands)
Month Actual Forecast
January P920.0 1,035.0
February 890.0 1,023.5
March 900.0 1,010.2
April ? 999.2
May 875.0 991.8
June 850.0 980.1
What was Harris's actual sales revenue during April?
a. 1,065.8 b. 991.0 c. 925.2 d. 999.2
39. The average labor cost per unit for the first batch produced by a new process is P120. The
cumulative average labor cost after the second batch is P72 per product. Using a batch size
of 100 and assuming the learning curve continues, the total labor cost of four batches will
be:
a. P4,320 b. P10,368 c. P2,592 d. P17,280
40. The major feature of zero-based budgeting is that it:
a. Takes the previous year's budget and adjusts for inflation
b. Questions each activity and determines whether it should be maintained as is, reduced
or eliminated.
c. Assumes all activities worthy of receiving budget increases to cover increased costs
d. Focuses on planned capital outlays for property, plant and equipment.

FIRST PREBOARD EXAMINATION (BATCH 2020)

2. Which one of the following statements about the price-earnings ( P-E) ratio is true?
a. A company with high growth opportunities ordinarily has a high P-E ratio
b. A P-E ratio has more meaning when a firm has losses than when it has profits.
c. A P-E ratio has more meaning when a firm has abnormally low profits in relation to its
asset base.
d. A P-E ratio expresses the relationship between a firm's market price and its net sales.2
3. An increase in the market price of a company's common stock will immediately affect its
a. Dividend yield.
b. Debt-to-equity ratio
c. Earnings per share
d. Dividend payout ratio
4. A company issued long-term bonds and used the proceeds to repurchase 40% of the
outstanding shares of its stocks. This financial transaction will likely cause the:
a. Total assets turnover ratio to increase
b. Current ratio to decrease
c. Times-interest-earned ratio to decrease
d. Fixed charge coverage ratio to increase
5. A firm earning a profit can increase its return on investment by:
a. Increasing sales revenue and operating expenses by the same dollar amount.
b. Decreasing sales revenues and operating expenses by the same percentage
c. Increasing investment and operating expenses by the same dollar amount
d. Increasing sales revenues and operating expenses by the same percentage.
6. Rice, Inc. uses the allowance method to account for uncollectible accounts. An account
receivable that was previously determined uncollectible and written off was collected during
May. The effect of the collection on Rice's current ratio and total working capital is:
Current ratio Working Capital
a. None None
b. Increase Increase
c. Decrease Decrease
d. None Increase
7. When a balance sheet amount is related to an income statement amount in computing a
ratio:
a. The balance sheet amount should be converted to an average for the year.
b. The income statement amount should be converted to an average for the year
c. Both amounts should be converted to market value.
d. Comparisons with industry ratios are not meaningful
8. Which one of the following factors might cause a firm to increase the debt in its financial
structure?
a. An increase in the corporate income tax rate.
b. Increased economic uncertainty.
c. An increase in the government funds rate
d. An increase in the price-earnings ratio
9. The relationship of the total debt to the total equity of a corporation is a measure of
a. Liquidity c. creditor risk
b. Profitability d. solvency
10. The difference between variable costs and fixed costs is
a. Variable costs per unit fluctuate and fixed costs per unit remain constant.
b. Variable costs per unit are fixed over the short run, and fixed costs per unit are variable
c. Total variable costs are variable over the short run and fixed in the long term, while fixed
costs never change.
d. Variable cost per unit change in varying increments, while fixed costs per unit change in
equal increments.
11. The breakeven point in units increases when unit costs:
a. Increase and sales price remains unchanged.
b. Decrease and sales price remains unchanged.
c. Remain unchanged and sales price increases
d. Decrease and sales price increases
12. Which of the following is a characteristic of a contribution income statement?
a. Fixed and variable expenses are combined as one line.
b. Fixed expenses are listed separately from variable expenses.
 c. Fixed and variable manufacturing costs are combined as one line item, but fixed
operating expenses are shown separately from variable operating expenses
d. Fixed and variable operating expenses are combined as one line item, but fixed
manufacturing expenses are shown separately from variable manufacturing expenses.
13. Associated Supply, Inc. is considering introducing a new product that will require a
P250,000 investment of capital. The necessary funds would be raised through a bank loan
at an interest rate of 8%. The fixed operating costs associated with the product would be
P122,500 while the contribution margin percentage would be 42%. Assuming a selling price
of P15 per unit, determine the number of units (rounded to the nearest whole unit)
associated would have to sell to generate earnings before interest and taxes (EBIT) of 32%
of the amount of capital invested in the new product.
a. 35,318 units c. 25,575 units
b. 32,143 units d. 23,276 units
14. Inventoriable costs
a. Include only the prime costs of manufacturing a product.
b. Include only the conversion costs of manufacturing a product.
c. Are expensed when products become part of finished goods inventory
d. Are regarded as assets before the products are sold
15. Using absorption costing, fixed manufacturing overhead costs are best described as
a. Direct period costs
b. Indirect period costs.
c. Direct production costs.
d. Indirect product costs.
16. Parker Company pays each member of its sales staff a salary as well as a commission on
each unit sold. For the coming year, Parker plans to increase all salaries by 5% and to keep
unchanged the commission paid on each unit sold. Because of increased demand, Parker
expects the volume of sales to increase by 10%. How will the total cost of sales salaries and
commission change for the coming year?
a. Increase by 5% or less.
b. Increase by more than 5% but less than 10%.
c. Increase by 10%
d. Increase by more than 10%.
17. A fixed cost that would be considered a direct cost is
a. A cost accountant's salary when the cost objective is a unit of product.
b. The rental cost of a warehouse to store inventory when the cost objective is the
Purchasing Department.
c. A production supervisor's salary when the cost objective is the Production Department.
d. Board of Directors fees when the cost objective is the Marketing Department
18. "Controllable costs' are costs that:
a. Management decides to incur in the current period to enable the company to achieve
objectives other than the filling of orders placed by customers.
b. Are likely to respond to the amount of attention devoted to them by a specified manger.
c. Fluctuate in total in response to small changes in the rate of utilization of capacity.
d. Will be unaffected by current managerial decisions.
19. The schedule of cost of goods manufactured of Gruber Fittings, Inc. Shows the following
balances for its fiscal year-end:
Direct manufacturing labor P 280,000
Manufacturing overhead 375,000
Ending work-in-process inventory 30,000
Raw materials used in production 450,000
Cost of goods manufactured 1,125,000

The value of the work-in-process inventory at the beginning of the fiscal year was:
a. P625,000 c. P210,000
b. P250,000 d. P20,000
20. In target costing
a. The market price of the product is taken as a given.
b. Only raw materials, labor, and variable overhead cannot exceed a threshold target.
c. Only raw materials cannot exceed a threshold target.
d. Raw materials are recorded directly to cost of goods sold
21. Life-cycle costing:
a. Is sometimes used as a basis for cost planning and product pricing
 b. Includes only manufacturing costs incurred over the life of the product.
c. Includes only manufacturing cost, selling expense, and distribution expense
d. Emphasizes cost savings opportunities during the manufacturing cycle.
22. Just-in-time manufacturing practices are based in part on the belief that:
a. High inventory levels provide greater flexibility in production scheduling.
b. Attempting to reduce inventory to a consistently low level can lead to "panic" situations.
c. Goods should be "pulled" through the production process not "pushed"
d. Beefed-up internal control in the central warehouse can greatly enhance productivity in
the production areas.
23. Which of the following terms is not connected with the employment of just-in-time (JIT)
manufacturing?
a. Cells c. Lean Production
b. Kanban d. Safety Stock
24. Just-in-time production is also called
a. Kaizen.
b. Lean manufacturing
c. Activity based management.
d. Backflush costing
25. Three of the basic measurements used by the theory of constraints (TOC) are:
a. Gross margin (or gross profit), return on assets, and total sales.
b. Number of constraints (or subordinates), number of non-constraints, and operating
leverage
c. Throughput (or throughput contribution), inventory (or investments), and operational
expense
d. Fixed manufacturing overhead per unit, fixed general overhead peer unit, and unit gross
margin (or gross profit)
26. The cost of statistical quality control in a product quality cost system iis categorized as a(n
a. Internal failure cost
b. Training cost
c. External failure cost
d. Appraisal cost
27. Listed below are selected line items from the Cost of Quality Report for Watson Products for
last month.
Category Amount
Rework P P725
Equipment maintenance 1,154
Product testing 786
Product repair 695

What is Watson's total prevention and appraisal cost for last month?
a. P 786
b. P1,154
c. P1.940
d. P2,665
28. Cost that remain the same over a wide range of activity, but jump to a different amount
outside that range, are termed_______
a. Step-variable costs c. Semi-variable cost
b. Step-fixed costs d. curvilinear costs
29. An organization offers its customer’s credit terms of 5/10 net 20. One-third of the customer
takes the cash discount and the remaining pay on one day. On average 20 units are sold
per day, priced at P10,000 each. The rate of sales is uniform throughout the year. Using a
360-day year. The organization has days sales outstanding in accounts receivable, to the
nearest full day of,
a. 13 days c. 15 days
b. 20 days d. 17 days
30. The contribution margin ratio is
a. The difference between the selling price and the variable cost per unit
b. Unit contribution margin divided by the selling price
c. Fixed cost per unit divided by variable cost per unit
d. Variable cost per unit divided by the selling price
31. The comparison of a company's practices and performance level against those of other
organizations is most commonly known as______
 a. Benchmarking c. continuous improvement
b. Re-engineering d. comparative analysis
32. lt uses terms of front-line workers to identify and solve operational problems as an
approach to continuous improvement.
a. Just-In-Time c. Theory of Constraints
b. Process Re-engineering d. Total Quality Management

33. Which of the following describes the appropriate formula for days sales outstanding?
a. Sales
Accounts Receivable

b. Receivable balance
Total sales

c. Receivable balance
Sales per day

d. Average Receivable
Sales per day
34. Feedback regarding previous actions may affect_____
a. Implementation of the decision c. Future decisions
b. The decision model d. all of the choices
35. The break-even point is that level of activity where_____
a. Total revenue equals total cost
b. Total contribution margin equals the sum of variable cost plus fixed cost
c. Sales revenue equals total variable cost
d. Variable cost equals fixed cost
36. The following data are taken from the record of Dora Corporation for the year ended
December 31,2020:
Net credit sales P576,000
Average materials inventory 8,000
Average finished goods inventory 12,000
Average accounts receivable 80,000
Average accounts payable 5,000
Net credit purchases 120,000
Raw materials used 96,000
Gross profit rate 25%%
Number of days in year 360 days
What is the average number of days in the company's operating cash conversion cycle?
a. 75 days c. 50 days
b. 45 days d. 105 days
37. Which ethical standard of conduct requires a managerial accountant to prepare clear and
complete reports and recommendations based on analysis of relevant and reliable
information?
a. Competence c. confidentiality
b. Objectivity d. Integrity
38. When 40 units are produced, fixed costs are P16 per unit. Therefore, when 80,000 units are
produced, fixed costs will ____
a. Decrease to P8 per unit.
b. Increase to P32 per unit
c. Remain at P16 per unit
d. None of the choices
39. Last year Cruz Corp. had P305,000 of assets, P403,000 of sales, P28,250 of net income,
and a debt-to-total-assets ratio of 30%. The new CFO believes the firm has excessive fixed
assets and inventory that could be sold, enabling it to reduce its total assets to P252,500.
Sales, costs, and net income would not-be affected, and the firm would maintain the same
debt ratio (but with less total debt). By how much would the reduction in assets improve the
ROE?
a. 3.00% c. 3.31%
b. 2.85% d. 3.16%
40. A firm with a cash conversion cycle of 175 days can stretch its average payment period
from 30 days to 45 days. This will result in a/an____
 a. Decrease of 15 days in the cash conversion cycle.
b. Decrease of 30 days in the cash conversion cycle.
c. Increase of 30 days in the cash conversion cycle
d. Increase of 15 days in the cash conversion cycle
41. Reliable Repair Shop has a monthly target operating income of P 30,000. Variable
expenses are 40% of sales and monthly fixed expenses are P7,500. Assume the repair
shop reaches its target. By what percentage will the its operating income fall if sales volume
declines by 12%
a. Decline by 10% c. Decline by 11%
b. Decline by 15% d. Decline by 16%
42. Star Corporation manufactures and sells two products. A and B. The operating results of the
company are as follows
Product A Product B
Sales in units 2,000 3,000
Sales price per unit P100 P50
Variable costs per unit 70 30
In addition, the company incurred total fixed costs in the amount of
P90,000.

lf the company would have sold a total of 6,000 units, how many of those units would you
expect to be Product B?
a. 3,000 c. 4,000
b. 3,500 d. 3,600
43. What is "strategy mapping" in the balanced scorecard?
a. Setting the mission.
b. identifying causal links between the four perspective
c. Agreeing the strategy with the director of the business.
d. Mapping the business process.
44. Luther Corporation had net income of P160,000 and paid dividends to common
stockholders ofP40,000 in 2018. The weighted average number of shares outstanding in
2018 was 50,000 shares. Luther Corporation's common stock is selling for P50 per share on
Philippine Stock Exchange. Luther Corporation's payout ratio for 2018 is_______.
a. 25% c. 12.5%
b. 20% d. 5 per share

Items 44 to 47 are based on the following information:

Vallet Corporation employs an absorption costing system for internal reporting purposes;
however, the company is considering using variable costing. Data regarding Vallet's
planned and actual operations for the calendar year are presented below.
Planned Activity Actual Activity
Beginning finished goods inventory 35,000 35,000
Sales 140,000 125,000
Production 140,000 130,000

Planned Planned Actual

Costs Costs Incurred
Per Unit Total Cost
Direct materials P12.00 P1,680,000 P1,560,000
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
Variable selling expenses 8.00 1,120,000 1,000,000
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
Total P50.00 P7,000,000 P6,620,000

The planned per unit cost figures shown in the above schedule were based on Vallet producing
and selling 140,000 units. Vallet 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 underapplied
manufacturing overhead is closed to the Cost of Goods Sold account at the end of the reporting
 year. 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.

45. The total variable cost currently expensed currently by Vallet Corporation on the variable
costing basis was
a. P4,375,000 b. P4,325,000 c. P4,550,000 d. P4,500,000
46. The value of Valyn Corporation's actual ending finished goods inventory on the absorption
costing basis was
a. P1,350,000 b. P900,000 c. P1,220,000 d. P1,200,000

47. Valyn Corporation's total fixed costs expensed this year on the absorption costing basis
were
a. P2,055,000 b. P2,120,000 c. P2,095,000 d. P2,030,000
48. The difference between Valyn Corporation's operating income calculated on the absorption
costing basis and calculated on the variable costing basis was
a. P90,000 b. P25,000 c. P40,000 d. P65,000

Item 48 to 50 are based on the following information:

Moorehead Manufacturing Company produces two products for which the following data
have been tabulated. Fixed manufacturing cost is applied at a rate of P1.00 per machine
hour. The sales manager has had a P160,000 increase in the budget ailotment for
advertising and wants to apply the money to the most profitable product. The products are
not substitutes for one another in the eyes of the company's customers.
Per Unit XY-7 BD-4
Selling price P4.00 P3.00
Variable manufacturing cost P2.00 P1.50
Fixed manufacturing cost P 75 P 20
Variable selling cost P1.00 P1.00

49. Suppose the sales manager chooses to devote the entire P160,000 to increased advertising
for XY-7. The minimum increase in sales units of XY-7 required offset the increased
advertising is:
a. 640,000 units
b. 160,000 units
c. 128,000 units
d. 80,000 units
50. Suppose the sales manager chooses to devote the entire P160,000 to increased advertising
for BD-4. The minimum increase in sales dollars of BD-4 required to offset the increased
advertising would be.
a. P160,000
b. P320,000
c. P960,000
d. P1,600,000
51. Suppose Moorehead has only 100,000 machine hours that can be made available to
produce additional units of XY-7 and BD-4 If the potential increase in sales units for either
product resulting from advertising is far in excess of this production capacity, which product
should be advertised and what is the estimated increase in contribution margin earned?
a. Product XY-7-shotild-be produced, yielding a contribution margin of P75,000
b. Product XY-7 should be produced, yielding a contribution margin of P133,333
c. Product BD-4 should be produced, yielding a contribution margin of P187,500
d. Product BD-4 should be produced, yielding a contribution margin of P250,000.

Items 51 to 55 are based on the following information. Alex Company had the following inventories
at the beginning and end of the month of January
January 1 January 31
Finished goods P125,000 P117,000
Work-in-process 235,000 251,000
Direct materials 134,000 124,000
The following additional manufacturing data were available for the month of January
Direct materials purchased P189,000
Purchase returns and allowances 1,000
Transportation-in 3,000
Direct labor 300,000
Actual factory overhead 175,000

Alex Company applies factory overhead at a rate of 60% of direct labor cost, and any overapplied
or underapplied factory overhead is deferred until the end of the year, December 31
52. Alex Company's prime costs for January was
a. P199,000
b. P501,000
c. P489,000
d. P201,000
53. Alex Company's total manufacturing cost for January was:
a. P681,000
b. P665,000
c. P489,000
d. P673,000
54. Alex Company's cost of goods manufactured for January was:
a. P665,000
b. P681,000
c. P673,000
d. P657,000
55. Alex Company's cost of goods sold for January was:
a. P697,000
b. P681,000
c. P673,000
d. P657,000
56. Alex Company's balance in factory overhead çontrol for January was:
a. P5,000 debit – Overapplied.
b. P5,000 credit – underapplied.
c. P5,000 debit – underapplied.
d. P5,000 credit – overappiled.\

Item 56 to 59 are based on the following information. CORINTH Enterprises paid a P2.50 per
share dividend on P200,000 ordinary shares and P4.00 per share dividend on P50.000 preferred
shares. Net income for the year was P1,700,000. The current market price of the ordinary shares
is P52.50 Par value is P50

57. Calculate the earnings per ordinary shares?

a. P2.50 c. P7.50
b. P8.50 d. P6.50
58. Calculate the company's price/earnings ratio.
a. 7x c. 8.08x
b. 6.18x d. 21x
59. What is the dividend payout ratio of ordinary shares:
a. 38% c. 29%
b. 33.33% d. 100%
60. What is the dividend yield of ordinary shares:
a. 5% c. 4.76%
b. 8% d. 7.6%

Item 60 to 63 are based on the following information has been taken from the accounting records
of ERUDITE Corp. for 1st year.
Selling expenses P560,000
Raw materials inventory, January 1 360,000
Raw materials inventory, December 31 240,000
Direct labor cost 600,000
Purchases of raw materials 3,000,000
Sales 10,000,000
Administrative expenses 1,080,000
 Manufacturing overhead 2,560,000
Work in process inventory, January 1 720,000
Work in process inventory, December 31 400,000
Finished goods inventory, January 1 1,040,000
Finished goods inventory, December 31 840,000

61. How much is the raw material used in production?

a. P3,240,000 c. P2,760,000
b. P3,120,000 d. P3,360,000
62. What is the total manufacturing cost?
a. P7,000,000 c. P3,720,000
b. P6,280,000 d. P4,520,000
63. What is the total cost of goods sold?
a. P6,600,000 c. P7,640,000
b. P6,800,000 d. P7,000,000
64. What is the net operating income?
a. P2,120,000 c. P1,560,000
b. P3,200,000 d. P2,640,000

Items 64 to 67 are based on the following information. Darak Company manufactures furniture,
including tables. Selling costs are given below
A. The tables are made of wood that costs P10 per table.
B. The tables are assembled by workers at a wage cost of P4 per table.
C. Workers making the tables are supervised by a factory supervisor who is paid P3,800 per
year.
D. Electrical costs are P0.20 per machine hour. Four machine hours are required to produce a
table.
E. The depreciation on the machine used to make the tables total P1,000 per year. The
machine have no resale value and do not wear out through use.
F. The salary of the president of the company is P10,000 per year.
G. The company spends P25,000 per year to advertise its products
H. Salespersons are paid a commission of P3 for each table sold
I. Instead of producing the tables, the company could rent its factory space for P5,000 per
year.
Assume that 10,000 tables are produced in a year
65. What is the variable cost to produce one table?
a. P14.00 c. P14.80
b. P14.20 d. P39,800
66. What is the amount of total fixed costs?
a. P35,000 c. P4,800
b. P5,800 d. P39,800
67. How much is the total selling and administrative costs?
a. P60,000 c. P55,000
b. P35,000 d. P65,000
68. How much manufacturing overhead for the year?
a. P12,800 c. P7,800
b. P11,800 d. P4,800

ltem 68 to 70 are based on the following information. Selected data from White Corporation's
financial statements for the year ended November 30, Year 2 are as follows:
Current ratio 1.4
Quick ratio 0.86
Current liabilities P450,000
Accounts receivable turnover 3.65
Merchandise inventory turnover 3.30
Rate of return on assets 6.5%

Selected account balances at November 30 Year 1

Accounts receivable P335,000
Merchandise inventory 237,000

Year 2 Operations
 Sales P1,241,000
Cost of goods sold 792,000

69. Assuming that the prepaid expenses are immaterial, ending merchandise inventory is
a. P180,000 c. P387,000
b. P243,000 d. P630,000
70. The balance in accounts receivable at November 30, Year 2 is
a. P325,000 c. P78,973
b. P216,986 d. P355,000
71. The approximate number of days in the operating cycle is
a. 100.0 c. 110.6
b. 105.3 d. 210.6

MANAGEMENT ADVISORY SERVICES MAY 2020 BATCH

1. It is the practice of helping organizations to improve their performance, primarily through the
analysis of existing organizational problems and development of plans for improvement.
A. Accounting
B. Management Consulting
C. Total Quality Management
D. Auditing
2. Some reasons for hiring management consultants are as follows, except
A. To help define specific problems and implement solutions.
B. To provide specialized skills and experience
C. To provide confidential service in which the identity of the client is concealed.
D. To render an independent opinion.
3. Following are possible end-products of an MAS engagement, except
A. A management information system.
B. A sales reporting system.
C. A cost accounting system.
D. None of the above.
4. Following are possible end-products of an MAS engagement, except
A. An organization plan with statements of duties and responsibilities.
B. Blue print of a construction project.
C. An electronic data processing system.
D. Sales reporting system.
5. An MAS/CPA practitioner may be engaged by a client to design and install an accounting system.
This engagement is under the practitioner’s
A. Usual services.
B. Somewhat specialized services.
C. Highly specialized services.
D. Exclusive services.
6. MAS classified as somewhat specialized services include
A. Design and installation of accounting systems.
B. Suggestions for improvements in internal control system.
C. Assistance in the preparation of forecasts and budgets.
D. Assisting in bankruptcy and receivership proceedings.
7. This principle imposes the obligation on all professional accountants to be impartial,
intellectually honest, and free of conflicts of interests.
A. Integrity
B. Objectivity
C. Maturity
D. Independence in mental attitude
8. A CPA engaged in MS practice may not
A. Disclosed confidential information unless authorized or legally obligated.
B. Act as independent auditor of the same client-firm.
C. Accept other employment while serving as management consultant.
D. Be independent in mental attitude.
9. A CPA should reject an MAS engagement if
A. He audits the financial statements of a subsidiary of the prospective client.
B. The proposed engagement is not accounting related.
C. His recommendations are to be subjected to a review by the client.
D. It would require him to make management decisions for the prospective client.
10. Which of the following will not impair the independence of a CPA in the rendition of MAS?
A. The CPA performs decision-making functions for his client.
 B. The CPA does not extend his services beyond the presentation of recommendations or giving
of advice.
C. The CPA loses his objectivity and acts in a manner as if he is advocating for the interest of his
client.
D. The CPA performs services wherein he is in effect acting as an employee of the client.
11. Financial leverage or trading on equity is advantageous when
A. All of the corporation’s authorized capital stocks have already been issued.
B. A firm has an available credit line with its depository bank.
C. Earnings from borrowed funds exceed borrowing costs.
D. A firm is in financial distress.
12. Through financial statements analysis, interested parties – such as managers, investors, and
creditors – can identify the company’s financial strengths and weaknesses and know about
following, except
A. Profitability of the business firm.
B. The firm’s ability to meet its obligations.
C. Safety of the investment running the firm.

(BONUS)

13. Which of the following is not a limitation of ratio analysis affecting comparability among firms?
A. Provision of useful information regarding the efficiency of operations and the stability of
financial conditions
B. Different sources of information
C. Different accounting periods
D. Different accounting policies

Net sales, P1.8M; Cost of goods sold, P1.08M; Operating expenses, P315,000; Earnings before
interest and tax, P405,000; Net income, P195; Total stockholders’ equity, P0.75M; Total assets,
P1M; Cash flow operating activities, P25,000.

14. The return on investment is

A. 22.5%
B. 26.5%
C. 19.5%
D. 40.5%
15. The cash flow margin is
A. 1.4%
B. 2.5%
C. 10.8%
D. 12.8%
16. In 2020, Sweet Company paid out 50% of its earnings in dividends. In 2021, Its earnings
decreased by 20% and its dividends decreased by 10%. What is the company’s dividend payout
ratio in 2021?
A. 62.50%
B. 56.25%
C. 50%
D. 178%
17. What is the company’s dividend yield on common stock if its asset turnover is 0.9, payout ratio is
0.60, and price earnings ratio is 12?
A. 7.2%
B. 10.8%
C. 5%
D. 7.5%
18. At the end of 2020, Gabbuat Company’s total assets was P500,000. In 2021, it earned net
income of P30,000 and paid dividends of P10,000. What is the company’s internal growth rate?
A. 1%
B. 4%
C. 5%
D. 9%
19. Financial and managerial accounting is similar in that
A. both record the financial history of an organization.
B. both rely on the concept of responsibility or stewardship.
C. both have a strong future orientation.
D. both rely on generally accepted accounting principles.
20. During the past five years, Alen Company had consistently paid 50% of earnings available to
common as dividends. Next year, the Alen Company projects its net income, before the P1.2
million preferred dividends, at P6 million.
 The capital structure for the company is maintained at:
Debt 25.0%
Preferred Stock 15.0%
Common Equity 60.0%
What is the retained earnings breakpoint next year
A. P5,760,000 C. P4,000,000
B. P4,800,000 D. P6,000,000
21. A company is considering putting up P50,000 in a three-year project. The company’s expected
rate of return is 12%. The present value of P1.00 at 12% for one year is 0.893, for two years is
0.797, and for three years is 0.712. The cash flow, net of income taxes will be P18,000 (present
value of P16,074) for the first year and P22,000 (present value of P17,534) for the second year.
Assuming that the rate of return is exactly 12%, the cash flow, net of income taxes, for the third
year would be
A. P7,120 C. P16,392
B. P10,000 D. P23,022
22. The following data are related to ABC stock:
Required return on ABC common 15%
Beta coefficient 1.5
Risk-free rate 9%
The required market return is
A. 13.0% B. 18.0% C. 25.0% D. 16.0%
23. You have recently been hired to improve the performance of Multiplex Corporation, which has
been experiencing a severe cash shortage. As one part of your analysis, you want to determine
the firm’s cash conversion cycle. Using the following information and a 360-day year, what is
your estimate of the firm’s current cash conversion cycle?
Current inventory = P120,000. Annual sales = P600,000.
Total annual purchases = P360,000 Purchases credit terms: net 30 days.
Accounts receivable = P160,000. Receivables credit terms: net 50 days.
Accounts payable = P25,000
a. 49 days
b. 193 days
c. 100 days
d. 143 days
Following are selected financial and operating data taken from the financial statements of Antiporda
Corporation:
As of December 31
2020 2019
Cash 80,000 640,000
Notes and accounts receivable, net 400,000 1,200,000
Merchandise inventory 720,000 1,200,000
Marketable securities – short-term 240,000 80,000
Land and buildings (net) 2,720,000 2,880,000
Bonds payable – long-term 2,160,000 2,240,000
Accounts payable – trade 560,000 880,000
Notes payable – short-term 160,000 320,000

For the Year Ended December 31

2020 2019
Sales (20% cash, 80% credit P18,400,000 P19,200,000
sales) 8,000,000 11,200,000
Cost of goods sold

Compute the following ratios:

24. Current ratio as of December 31, 2020:

A. 0.5:1
B. 2.0:1
C. 2.6:1
D. 1:2.6
25. Quick ratio as of December 31, 2020:
A. 2.0 to 1
B. 0.5 to 1
C. 1 to 1
D. 0.7 to 1
26. Accounts receivable turnover for 2020:
A. 23.0 times
B. 18.4 times
C. 36.8 times
 D. 4.6 times
27. Merchandise inventory turnover for 2020:
A. 13.33 times
B. 11.10 times
C. 10.0 times
D. 8.33 times
28. The gross margin rate for 2019:
A. 41.67%
B. 71.43%
C. 58.33%
D. 56.52%
29. The average age of accounts receivable for 2020 (use 360 days):
A. 19.57 days
B. 19.57 months
C. 0.05 day
D. 18.40 days
30. For the year 2020, Lim Company’s return on common stockholders’ equity was 12.5%. its
average stockholders’ equity for the same period was P500,000, inclusive of P50,000 par value
of preferred stock with a dividend rate of 8%.
How much was the company’s net income for 2020?
A. P60,250
B. P56,250
C. P58,500
D. 62,500

FIRST MONTHLY EXAM FINANCIAL ACCOUNTING & REPORTING

INTEG REVIEW MAY 2020 BATCH

MANAGEMENT ADVISORY SERVICES

1. Managerial accounting differs from financial accounting in that financial accounting is:
a. Not subject to GAAP
b. Primarily concerned with external financial reporting
c. Concerned with non-quantitative information
d. More oriented toward the future

2. The following characteristics refer to financial accounting, except;

a. Provides information to external users
b. Emphasizes on objective data
c. Has no externally imposed standards
d. Generates general purpose financial statements

3. Which of the following characteristics does not relate to managerial accounting?

a. Accounting reports may include non-monetary information
b. It is subject to restrictions imposed by GAAP
c. Reports are often based on estimates and are seldom useful for anything other than the purpose for
which they are prepared.
d. It provides data for internal users within the business organization.

4. Which of the following characteristics relate to financial accounting?

a. Reports are promptly prepared and submitted to preserve its usefulness
b. Data may be both historical and estimates
c. It must adhere to the generally accepted accounting principles
d. It provides information needed by management in making decisions.

5. Which of the following does not apply to the content of managerial reports?
a. Reporting standard is relevance to the decision being made.
b. May extend beyond double-entry accounting system.
c. Pertains to subunits of the business and may be very detailed.
d. Pertains to the business as a whole and is highly aggregated.

6. Managerial accounting is similar to financial accounting in that

a. both are governed by generally accepted accounting principles.
b. both deal with economic events.
 c. both concentrate on historical costs.
d. both classify reported information in the same way.

7. Managerial accounting differs from financial accounting in that it is

a. more concerned with the future.
b. more concerned with segments of a company.
c. less constrained by rules and regulations.
d. all of the above.

8. One of the ways managerial accounting differs from financial accounting is that managerial accounting
a. is bound by generally accepted accounting principles.
b. classifies information in different ways.
c. does not use financial statements.
d. deals only with economic events.
9. Which of the following is not an ethical standard of managerial accounting? 
a. Competence. c. Efficiency.
b. Confidentiality. d. Integrity.

10.Which of the following statements represents a similarity between financial and managerial accounting? 
a. Both are useful in providing information for external users.
b. Both are governed by GAAP.
c. Both draw upon data from an organization's accounting system.
d. Both rely heavily on published financial statements.

11.One area that becomes controversial when included under the responsibility of the company’s controller
and viewed that such inclusion violates internal control is:
a. Credit collection
b. Internal Auditing
c. Long range financial planning
d. Taxation and reporting to government agencies

12.The chief management accountant called controller traditionally performs these functions except:
a. The establishment and implementation of the financial planning process.
b. Financial and management reporting and interpretation.
c. Protection of the company resources and economic evaluation.
d. Preparation of proposals for product promotions.

13.The IMA Code of Ethics includes a confidentiality standard, which requires management accountant to
keep information confidential except when:
a. Authorized
b. Legally Required
c. Professional duties
d. All of the above

14.Which of the following is not an element of competency?

a. To refrain from engaging in an activity that would discredit the accounting profession.
b. To develop appropriate knowledge and expertise about a particular subject
c. To perform duties in accordance with relevant laws and technical standards.
d. To prepare clear reports after an analysis of relevant and reliable information.

15.Assume that a managerial accountant regularly communicates with business associates to avoid
conflicts of interest and advises relevant parties of potential conflicts. In so doing, the accountant will
have applied the ethical standard of: 
a. objectivity. c. integrity.
b. confidentiality. d. redibility.

16.Horizontal analysis is a technique for evaluating a series of financial statement data over a period of
time
a. that has been arranged from the highest number to the lowest number.

b. that has been arranged from the lowest number to the highest number.

c. to determine which items are in error.

d. to determine the amount and/or percentage increase or decrease that has taken place.
17.The percentage change in any individual item shown on comparative financial statements is calculated by
dividing the dollar amount of the change from the base-period to the current period by:
a. the amount shown for the current period.
b. the sum of the current period amount and the base-period amount.
c. the average of the amounts shown for the base period and the current period.
d. the base-period amount.

18.Which of the following statements about managerial accountants is false? 

a. Managerial accountants more and more are considered "business partners."
b. Managerial accountants often are part of cross-functional teams.
c. An increasing number of organizations are segregating managerial accountants in separate
managerial- accounting departments.
d. In a number of companies, managerial accountants make significant business decisions and resolve
operating problems.

19.Information concerning the common stock of Morris Company as of the end of the company's fiscal year
is presented below.
Number of shares outstanding 460,000
Par value per share 5.00
Dividends paid per share 6.00
Market price per share 54.00
Earnings per share 1 8.00
The dividend yield ratio is closest to:
a. 50.0%. c. 120.0%.
b. 33.3%. d. 11.1%.

20.Selected financial data for Irvington Company appear below:

Account Balances_
Beginning End of
of year year
Preferred stock 125,000 125,000
Common stock 300,000 400,000
Retained earnings 75,000 185,000
During the year, the company paid dividends of $10,000 on its preferred stock. The company's net
income for the year was $120,000. The company's return on common stockholders' equity for the
year is closest to:
a. 17%. c. 23%.
b. 19%. d. 25%.

21.Selected data from Sheridan Corporation’s year-end financial statements are presented below. The
difference between average and ending inventory is immaterial.
Current ratio 2.0
Acid-test ratio 1.5
Current liabilities 120,000
Inventory turnover 8 times
Gross profit margin 40%
Sheridan's sales for the year was:
a. 800,000. c. 1,200,000
b. 480,000. d. 240,000.

22.Which of the following statements represents a similarity between financial and managerial accounting? 
a. Both are useful in providing information for external users.
b.  Both are governed by GAAP.
c. Both draw upon data from an organization's accounting system.
d.  Both rely heavily on published financial statements.
e.  Both are solely concerned with historical transactions.

23.Selected information from the accounting records of Petals Company is as follows:

Net sales for 2020 P 900,000
 Cost of goods sold for 2020 600,000
Inventory at December 31, 2019 180,000
Inventory at December 31, 2020 156,000
Petals’ inventory turnover for 2020 is
A. 5.77 times C. 3.67 times
B. 3.85 times D. 3.57 times

24.Milward Corporation’s books disclosed the following information for the year ended December 31, 2020:
Net credit sales P1,500,000
Net cash sales 240,000
Accounts receivable at beginning of year 200,000
Accounts receivable at end of year 400,000
Milward’s accounts receivable turnover is
A. 3.75 times C. 5.00 times
B. 4.35 times D. 5.80 times

25.Selected information for Ivano Company as of December 31 is as follows:

2019 2020

Preferred stock, 8%, par P100, nonconvertible, P250,000 P250,000

noncumulative
Common stock 600,000 800,000
Retained earnings 150,000 370,000
Dividends paid on preferred stock for the year 20,000 20,000
Net income for the year 120,000 240,000

Ivano’s return on common stockholders’ equity, rounded to the nearest percentage point, for 2020 is
A. 17% C. 21%
B. 19% D. 23%

26.The balance sheets of Magdangal Company at the end of each of the first two years of operations
indicate the following:
2020   2019  

Total current assets P600,000 P560,000

Total investments 60,000 40,000
Total property, plant, and equipment 900,000 700,000
Total current liabilities 150,000 80,000
Total long-term liabilities 350,000 250,000
Preferred 9% stock, P100 par 100,000 100,000
Common stock, P10 par 600,000 600,000
Paid-in capital in excess of par-common stock 60,000 60,000
Retained earnings 300,000 210,000

Net income is P115,000 and interest expense is P30,000 for 2020.

What is the rate earned on total assets for 2020 (round percent to one decimal point)?
 A. 9.3 percent C. 8.9 percent
B. 10.1 percent D. 7.4 percent

Use the following information for question Nos. 27 and 28:

Terry Corporation had net income of P200,000 and paid dividends to common stockholders of P40,000 in
2020. The weighted-average number of shares outstanding in 2020 was 50,000 shares. Terry
Corporation’s common stock is selling for P60 per share in the local stock exchange.
27.Terry Corporation’s price-earnings ratio is
A. 3.8 times C. 18.8 times
B. 15 times D. 6 times

28.Terry Corporation’s payout ratio for 2020 is

A. P4 per share C. 20.0 percent
B. 12.5 percent D. 25.0 percent

29.Internal reports are generally

A. aggregated C. regulated
B. detailed D. unreliable

30.The following data were obtained from the records of Salacot Company:
Current ratio (at year end) 1.5 to 1
Inventory turnover based on sales and ending inventory 15 times
Inventory turnover based on cost of goods
sold and ending inventory 10.5 times
Gross margin for 2007 P360,000
What was Salacot Company’s December 31, 2007 balance in the Inventory account?
A. P120,000 C. P 80,000
B. P 54,000 D. P 95,000

31.Which of the following statements about internal reports is not true?

A. The content of internal reports may extend beyond the double-entry accounting system.
B. Internal reports may show all amounts at market values.
C. Internal reports may discuss prospective events.
D. Most internal reports are summarized rather than detailed.

32.Management accountants help develop and maintain reporting systems that are aligned with
organizational structures and that provide useful information on an organization’s performance.
Management decision processes fall into three categories that consist of
A. Nonrepetitive, nonprogrammed, and nonstrategic.
B. Repetitive, nonprogrammed, and strategic.
C. Repetitive, programmed, and strategic.
D. Nonrepetitive, nonprogrammed, and strategic.

33.Which of the following is an incorrect statement?

A. There is no overlap between financial and managerial accounting.
B. Managerial accounting sometimes relies on past information.
 C. Managerial accounting does not need to conform to generally accepted accounting principles.
D. Financial accounting must conform to generally accepted accounting principles.

34.Which of the following would best indicate that the firm is carrying excess inventory?
A. a decline in the current ratio
B. stable current ratio with declining quick ratios
C. a rise in total asset turnover
D. a decline in days' sales in inventory

35.Jones Company has long-term debt of P1,000,000, while Smith Company, Jones' competitor, has long-
term debt of P200,000. Which of the following statements best represents an analysis of the long-term
debt position of these two firms?
a. Jones obviously has too much debt when compared to its competitor.
b. Smith Company's times interest earned should be lower than Jones.
c. Smith has five times better long-term borrowing ability than Jones.
d. Not enough information to determine if any of the answers are correct.

MANAGEMENT ADVISORY SERVICES MAY 2019 BATCH

FIRST PRE-BOARD EXAMINATION FEB 9, 2018; 3:00-6:00PM
1. As projected net income increases the
A. degree of operating leverage declines.
B. margin of safety stays constant
C. break-even point goes down.
D. contribution margin ratio goes up.

2. If a firm's net income (loss) does not change as its volume changes, the firm('s)
A. must be in the service industry. C. sales price must equal P0.
B. must have no fixed costs. D. sales price must equal its variable costs.

3. Which of the following will increase a company’s break-even point?

A. Increasing variable cost per unit
B. Increasing its contribution margin per unit
C. Reducing its total fixed costs
D. Increasing the selling price per unit

4. In a company with low operating leverage?

A. Fixed costs are high and variable costs are low
B. Large changes in sale volume result in small changes in net income
C. There is a higher possibility of net loss than a higher-leveraged firm
D. Less risk is assumed than in a highly leveraged firm

5. Gapan Corporation produces a product that has a variable cost of P3.00 per unit. The company’s
fixed costs are P 30,000. The product is sold for P6.00 per unit and the company desires to earn a
target profit of P15,000. What amount of sales will be necessary to earn the desired profit?
A. P 60,000 B. P 90,000 C. P 200,000 D. P 100,000

6. For 2018, Fatima Corp. sold 100,000 units of its product for P20.00 each. The variable cost per unit
was P14.00 and Fatima’s margin of safety was 40,000 units. What was the amount of Fatima’s fixed
costs?
A. P 240,000 B. P 560,000 C. P 840,000 D. P 360,000

7. Parker Company has not reported a profit in five years. This year, the company would like to narrow
its losses to P 15,000. Assuming its selling price is P 36.50 per unit and its variable costs per unit are
P 24.00, how many units must be sold to achieve its target given that total fixed costs are
P 60,000?
A. 3,600 B. 4,800 C. 4,000 D. 3,200

8. Guimaras Corporation’s variable expenses are 75% of sales. At sales level of P 400,000, the
company’s degree of operating leverage is 8. At this sales level, fixed expenses are?
A. P 87,500 B. P 100,000 C. P 50,000 D. P 75,000
9. Jolo Corp. has provided the following data regarding the two products that it sells:
Jet Ski
Selling Price per unit P 8,000 P 20,000
Variable Cost per unit P 4,800 P 14,000
Annual fixed costs amounted to P 280,000. How many units must be sold in order for Jolo to break-
even, assuming that Jolo sells five jet for every two ski sold?
A. 70 jets and 28 ski C. 20 jets and 50 ski
B. 50 jets and 20 ski D. 45 jets and 28 ski

10. Which one of the following costs is considered an external failure cost?
A. Repairing the machine used in manufacturing.
B. Customer service staff responding to customer complaints.
C. Product testing.
D. Designing products that are easy to manufacture.

11. Just-in-time inventory systems have been increasingly popular over the last twenty years. Which one
of the following is the most critical component of just-in-time systems?
A. The parts delivered by vendors must be received on time and meet quality specifications.
B. Actual sales to end users must be consistently close to forecasted sales.
C. The production facility must completely fill the space available.
D. Management must disclose major corporate decisions to workers.

12. Smithtown Corporation expects to sell 5,000 units of its product at a target price of P100 per unit. The
current full cost of the product is P75 per unit. If Smithtown wants to earn an operating profit margin
of 20%, the target cost per unit is
A. P20. B. P75. C. P80. D. P100.

13. All of the following are examples of benchmarking standards except

A. the performance of the unit during the previous year.
B. the best performance of the unit in comparable past periods.
C. a comparison with a similar unit within the same company.
D. the best performance of a competitor with a similar operation.

14. Troughton Company manufactures radio-controlled toy dogs. Summary budget financial data for
Troughton for the current year are as follows.
Sales (5,000 units at P150 each) P 750,000
Variable manufacturing cost 400,000
Fixed manufacturing cost 100,000
Variable selling and administrative cost 80,000
Fixed selling and administrative cost 150,000

Troughton uses an absorption costing system with overhead applied based on the number of units
produced, with a denominator level of activity of 5,000 units. Underapplied or overapplied
manufacturing overhead is written off to cost of goods sold in the year incurred. The P20,000
budgeted operating income from producing and selling 5,000 toy dogs planned for this year is of
concern to Trudy George, Troughton’s president. She believes she could increase operating income
to P50,000 (her bonus threshold) if Troughton produces more units than it sells, thus building up the
finished goods inventory. How much of an increase in the number of units in the finished goods
inventory would be needed to generate the P50,000 budgeted operating income?
A. 556 units. B. 600 units. C. 1,500 units. D. 7,500 units.

15. A review of Plunkett Corporation’s accounting records for last year disclosed the following selected
information.
Variable costs
Direct materials used P 56,000
Direct labor 179,100
Manufacturing overhead 154,000
Selling costs 108,400
Fixed costs
Manufacturing overhead 267,000
Selling costs 121,000
Administrative costs 235,900
In addition, the company suffered a P27,700 uninsured factory fire loss during the year. What were
Plunkett’s product costs and period costs for last year?
A. Product : P235,100; Period P 914,000
B. Product : P497,500; Period P 651,600
 C. Product : P656,100; Period P 493,000
D. Product : P683,800; Period P 465,300

16. Which of the following would be considered a line function?

A. production C. public relations
B. maintenance D. administrative service

17. Finley Painters Co., a painting contractor, maintains a job-order cost system. Job costs are
accumulated by tracking the actual cost of paint and other materials used on each job, as well as the
actual cost of wages earned by the painters on each job. In addition, overhead is applied to each job
by using a predetermined rate based on the actual painters’ wages. Leonard Wayne, painter, earned
P168 today by working on Job 97-45. In computing prime cost and conversion cost for Job 97-45,
how would the wages earned today by Wayne be classified?
A. As a component of both prime and conversion cost.
B. As a component of prime cost but not as a component of conversion cost.
C. As a component of conversion cost, but not as a component of prime cost.
D. As a component of neither prime cost nor conversion cost.

18. Which of the following activities is NOT associated with the management accounting information
system?
A. preparing a cost of quality report
B. preparing a performance report that compares actual costs to budgeted costs
C. determining the cost of a customer
D. using future expected earnings to estimate the price of a share of common stock

19. In resolving an ethical conflict, which of the following would NEVER be appropriate?
A. discussing the matter with the chief executive officer
B. discussing the matter with an external member of the board of directors
C. taking the matter to the press where there is no legal requirement
D. resigning from the position because of a conflict

20. Disclosing all information, unfavorable as well as favorable, that could influence an intended user’s
understanding of reports, would relate to what section of the IMA Code of Conduct?
A. Competence B. Confidentiality C. Credibility D. None of the above

Items 21 and 22 are based on the following information: Management accountants are frequently
asked to analyze various decision situations including the following:
A. Alternative uses of plant space to be considered in a make or buy decisions
B. Joint production costs incurred, to be considered in a sell at split versus a process further
decisions.
C. Research and development costs incurred in the prior months, to be considered in a product-
introduction decisions.
D. The cost of a special device that is necessary if a special order is accepted.
E. The cost of obsolete inventory acquired several years ago, to be considered in a keep-
versus-disposal decisions.

21. The costs describe in situations A and D above are

A. Opportunity costs C. Discretionary Costs
B. Sunk Costs D. Relevant Costs

22. The costs describe in situations B, C, and E, above are:

A. Prime costs C. Discretionary Costs
B. Sunk Costs D. Relevant Cost

23. A company has income after tax of P5.4 million, interest expense of P1 million for the year,
depreciation expense of P1 million, and a 40% tax rate. What is the company’s times interest-earned
ratio?
A. 5.4 B. 6.4 C. 7.4 D. 10.0

24. Savard Corporation purchases raw materials totaling P100,000. The company paid P 232,000 in
salaries of which P 7,000 is considered as indirect and P 75,000 are sales commission. Total factory
overhead amounted to P 225,000. Raw materials, work in process and finished goods inventory
increased by P 5,000, P 20,000 and P 40,000, respectively. How much was Savard’s cost of goods
manufactured?
A. P450,000 B. P490,000 C. P457,000 D. P497,000
25. Day Mail Order Co. applied the high-low method of cost estimation to customer order data for the first
four months of 2018. What is the estimated variable order filling cost component per order?
Month Orders Cost
January 1,200 P 3,120
February 1,300 3,185
March 1,800 4,320
April 1,700 3,895
6,000 P14,520
A. P2.00
B. P2.42
C. P2.48
D. P2.50

26. Robinson Company has provided the following information:

 Raw materials inventory increased P15,000.
 Work in process inventory decreased P29,000.
 Finished goods inventory decreased P47,000.
 Sales were P500,000.
 The gross profit ratio was 52.2%.
How much was Robinson’s cost of goods manufactured?
A. P268,000
B. P192,000
C. P286,000
D. P239,000

27. Harrison Company reports the following cost information for August:
Cost of goods manufactured P 135,800
Finished goods inventory, Aug. 1 30,200
Finished goods inventory, Aug. 31 35,300
Work in process inventory, Aug. 1 22,500
Work in process inventory, Aug. 31 18,500
Direct materials used 25,300

Direct labor incurred in August amounted to 150% of manufacturing overhead in August. What is the
amount of direct labor incurred by Harrison Company in August?
A. P 131,800
B. P 61,944
C. P 49,556
D. P 63,900

28. A hospital’s records show that the cost of carrying out health checks in the last five accounting
periods have been as follows:
Period Number of patients seen Total cost (Peso)
1 650 17,125
2 940 17,800
3 1260 18,650
4 990 17,980
5 1150 18,360

Using the high-low method and ignoring inflation, the estimated cost of carrying out health checks on
850 patients in period 6 is:
A. P17,515
B. P17,570
C. P17,625
D. P17,680

29. The Intelinet Corporation and Comp Inc. have assets of P100,000 each and a return on common
equity of 17%. Intelinet has twice the debt of Comp Inc., while Comp has half the sales of Intelinet. If
Intelinet has net income of P10,000 and a total assets turnover ratio of 3.5, what is Comp Inc.'s profit
margin?
A. 3.31%
B. 7.71%
C. 10.00%
D. 13.50%
30. Romblon Inc. has P2 million in current assets, its current ratio is 1.6, and its quick ratio is 1.2. The
company plans to raise funds as additional notes payable and to use these funds to increase
 inventory. By how much can Romblon’s short-term debt (notes payable) increase without pushing its
quick ratio below 0.8?
A. P625,000
B. P556,000
C. P333,000
D. P278,000

31. Sorsogon Enterprises has an ROE of 15 percent, a debt ratio of 40 percent, and a profit margin of 5
percent. The company’s total assets equal P800 million. What are the company’s sales? (Assume
that the company has no preferred stock.)
A. P 1,440,000,000
B. P 2,400,000,000
C. P 360,000,000
D. P 960,000,000

32. A fire has destroyed many of the financial records of Palo Co. You are assigned to put together a
financial report. You have found the return on equity to be 12% and the debt ratio was 0.40. What
was the return on assets?
A. 5.35%
B. 8.40%
C. 6.60%
D. 7.20%

33. The working capital of Rizal Co. is P600,000 and its current ratio is 3 to 1. The amount of current
assets is
A. P 900,000
B. P 1,200,000
C. P 600,000
D. P 1,800,000

34. Bataan Co. has total debt of P420,000 and shareholders’ equity of P700,000. Bataan is seeking
capital to fund an expansion. Bataan is planning to issue an additional P300,000 in common stock,
and is negotiating with a bank to borrow additional funds. The bank is requiring a debt-to-equity rate
of 0.75. What is the maximum additional amount Bataan will be able to borrow?
A. P225,000
B. P 330,000
C. P 525,000
D. P 750,000

35. Which of the following highlights a major difference between management accounting and financial
accounting?
A. Both use accounting information
B. Both focus on future costs and revenues
C. Both provide information relevant to an organization’s stakeholder
D. Both require attention to detail

36. Consider a single hard copy of this study guide as a cost object. What would be the best three labels
to classify the relation between this cost object and the following two costs of producing the cost
object respectively: (1) the paper and (2) the one-time fee paid to the authors (i.e. not royalties)?
A. Direct cost; (2) Variable cost
B. Variable cost; (2) Unavoidable cost
C. Fixed cost; (2) Variable cost
D. Direct cost; (2) Fixed cost

37. Given that a cost has been identified as a variable cost, which of the following additional descriptions
of that cost is incompatible with that identification?
A. The cost, in total, does not change with changes in the volume of the cost driver.
B. The cost can be traced directly to the cost object.
C. The cost, in total, does change with changes in the volume of the cost driver.
D. The cost cannot be traced directly to the cost object.
38. The total direct labour cost of producing 100 units of Product X is P50. The direct material cost of
producing 100 units is perfectly variable and the cost driver is the number of units produced. The cost
of the direct material traced to each unit is P1.25. Indirect costs are completely fixed at P75 for the
production of 100 units. What are the total conversion costs for 100 units of Product X?
A. P275
B. P250
C. P200
 D. P125

39. Which of the following statements is true about the high low method of estimating cost behavior?
A. Uses all the historical data available
B. Can be affected by extreme points
C. Requires a good knowledge of the production process
D. Requires a good knowledge of product specifications

40. Which of the following statements is true about the account analysis method of estimating cost
behavior?
A. Uses all the historical data available
B. Can be affected by extreme points
C. Requires a good knowledge of product specifications
D. None of the above

41. Which of the following statements is/are true about the engineering method of estimating cost
behavior?
A. Uses all the historical data available
B. Requires detailed knowledge of the production process
C. Requires a good knowledge of product specifications
D. both b and c is correct

42. Which of the following statements is/are true about the visual inspection method of estimating cost
behavior?
A. Uses all the historical data available
B. Can be affected by extreme points
C. Requires detailed knowledge of the production process
D. Requires a good knowledge of product specifications

43. Which of the following statements is/are true about the proper method of handling data outliers when
doing cost estimation?
A. Outliers should always be eliminated
B. Outliers should never be eliminated
C. Outliers should not be eliminated if their cause is known
D. None of the above

44. Which of the following statements is incorrect?

A. The primary users of management accounting are the company’s managers.
B. Management accounting information is used to help managers plan and control their operations.
C. Management accounting information does not require an external audit.
D. Management accounting’s financial reports are restricted by generally accepted accounting
principles.

45. Which statement is correct?

A. Management accounting uses the cash basis and financial accounting uses the accrual basis to
record transactions.
B. Management accounting uses the cash basis to record transactions.
C. Financial accounting uses the cash basis to record transactions.
D. Both management accounting and financial accounting use the accrual basis to record
transactions.

46. Which of the following are period costs?

A. Current assets on the balance sheet
B. Costs incurred and expensed during the accounting period
C. Costs related to the manufacture of products
D. Current liabilities on the balance sheet
47. Which of the following statements is correct?
A. A decrease in finished goods means that cost of goods manufactured is greater than cost of
goods sold.
B. A decrease in work in process means that cost of goods sold is greater than cost of goods
manufactured.
C. A decrease in raw materials implies that the cost of materials used in production exceeds the
cost of the materials purchased.
D. A decrease in work in process means that cost of goods manufactured was less than the
manufacturing costs incurred.

48. Period costs do NOT include which of the following?

A. Sales commissions
 B. Factory janitorial costs
C. Insurance on delivery vehicles
D. Product Advertising costs

49. All of the following are examples of manufacturing overhead except for which of the following?
A. Utilities incurred in the factory
B. Insurance expired on factory equipment
C. Wages of assembly line workers
D. Indirect materials

50. Pateros Technologies Inc. had the following financial information for the past year:
Sales P 1,075,000 Inventory turnover 8x
Quick ratio 1.5 Current ratio 1.75
Gross Profit Rate 20%

What were Pateros’ current liabilities?

A. P 430,000
B. P 500,000
C. P 107,500
D. P 61,429

Items 51 to 53 are based on the following information: Westburg, Inc. manufactures a single product.
Assume the following data for 2019:
Variable costs per unit:
Selling and administrative P14
Production 38
Fixed costs in total:
Production P140,000
Selling and administration P 84,000
During 2019, 7,000 units were produced and 6,800 units were sold.
51. Under variable costing, the cost of one unit of product would be:
A. P38
B. P52
C. P58
D. P70

52. The inventory carrying value of finished goods at December 31, 2019, under variable costing would
be:
A. The same as absorption costing.
B. P6,800 greater than under absorption costing.
C. P6,800 less than under absorption costing.
D. P4,000 less than under absorption costing.

53. Under absorption costing, the cost of goods sold for 2000 would be:
A. P 258,400
B. P 394,400
C. P 353,600
D. P 398,400

54. During 2018, RonCo's income under absorption costing was P2,000 lower than its income under
variable costing. The company sold 8,000 units during the year and its variable costs were P8 per
unit, of which P2 was variable selling expense.

If production cost was P10 per unit under absorption costing, then how many units did the company
produce during the year?
A. 7,500 units.
B. 7,000 units.
C. 9,000 units.
D. 8,500 units.

55. Jack's Personal Devices makes and sells hand-held computers. Each computer regularly sells for
P200. The following cost data per computer are based on a full capacity of 12,000 computers
produced each period: Direct materials. P75; Direct labour, P55; Factory Overhead (75% variable,
25% unavoidable fixed), P48. A special order has been received by Jack's for a sale of 2,500
computers to an overseas customer. The only selling costs that would be incurred on this order would
 be P10 per computer for shipping. Jack's is now selling 7,200 computers through regular distributors
each period.

What should be the minimum selling price per computer in negotiating a price for this special order?
A. P 200.
B. P 166.
C. P178.
D. P176

Items 56 and 57 are based on the following information: Welter, Inc. is considering the addition of a new line
of product to its current product lines. The expected cost and revenue data for the new product are as
follows: Annual sales, 2,500 units. Selling price per unit, P304. Variable costs per unit: Production, P125
and Selling, P49. Avoidable traceable fixed costs per year: Production, P50,000 and Selling, P75,000.
Unavoidable allocated corporate costs per year, P55,000. If the new product is added to the existing
product line, the contribution margin of the other existing product lines is expected to drop P65,000 per
year.

56. If the new product line is added next year, the increase in net income resulting from this decision
would be:
A. P325,000
B. P 200,000
C. P 145,000
D. P 135,000

57. What is the lowest selling price per unit that could be charged for the new product line and still make
it economically desirable to add the new product line?
A. P246.
B. P 224
C. P 232.
D. P 282

58. Sago Co. uses regression analysis to develop a model for predicting overhead costs. Two different
cost drivers (machine hours and direct materials weight) are under consideration as the independent
variable. Relevant data were run on a computer using one of the standard regression programs, with
the following results:
Machine hours
Y Intercept 2,500
b 5.0
R2 0.70
Direct materials weight
Y Intercept 4,600
b 2.6
R2 0.50
What regression equation should be used?
A. Y = 2,500 + 5.0X
B. Y = 2,500 + 3.5X
C. Y = 4,600 + 2.6X
D. Y = 4,600 + 1.3X
59. The following extract is taken from the overhead budget of X:
Budgeted activity 50% 75%
Budgeted overhead P100,000 P112,500
The overhead budget for an activity level of 80% would be
A. P115,000
B. P120,000
C. P136,000
D. P160,000

60. In decision making, managers use

A. financial accounting information exclusively since it is more objective and precise due to well-
established principles and conventions.
B. information regarding the organization as a whole rather than segments of the organization in
order to capture a broader perspective of the company's operations.
C. non-monetary information most frequently since monetary information ignores the effects of
inflation and changes in technology.
D. whatever information is relevant to the decision even though the information does not conform
to generally accepted accounting principles.
*** Three new companies (R, S, and T) began operations on January 1 of the current year. Consider
the following operating costs that were incurred by these companies during the compete calendar
year:

Company R Company S Company T

Production in units 10,000 10,000 10,000
Sales price per unit P10 P10 P10
Fixed production cost P10,000 P20,000 P30,000
Variable production P30,000 P20,000 P10,000
costs
Variable SG&A P10,000 P20,000 P30,000
Fixed SG&A P30,000 P20,000 P10,000

61. Refer to the Companies R, S and T. Based on sales of 7,000 units, which company will report the
greater income before income taxes if absorption costing is used?
A. Company R
B. Company S
C. Company T
D. All the company will report the same income.

62. Refer to Companies R, S and T. Based on sales of 7,000 units, which company will report the
greater income before income taxes if variable costing is used?
A. Company R
B. Company S
C. Company T
D. All of the companies will report the same income.

63. Refer to Companies R, S and T. Based on sales of 10,000 units, which company will report the
greater income before income taxes if variable costing is used?
A. Company R
B. Company S
C. Company T
D. All of the companies will report the same income before income taxes.

Items 64 and 65 are based on the following information:

The Dawson Corporation projects the following for the year 2016:
Earnings before interest and taxes P 35 million
Interest expense 5 million
Preferred stock dividends 4 million
Common stock dividend payout ratio 30%
Common shares outstanding 2 million
Effective corporate income tax rate 40%

64. The expected common stock dividend per share for Dawson Corporation for 2016 is:
A. P2.34
B. P2.70
C. P3.90
D. P2.10

65. If Dawson Corporation’s common stock is expected to trade at a price/earnings ratio of eight, the
market price per share (to the nearest peso) would be
A. P125
B. 56
C. 72
D. 68

66. Which of the following definitions best characterizes benchmarking?

A. A technique that examines product and process attributes to identify areas for improvements.
B. The comparisons of existing activities with the best levels of performance in other, similar
organizations.
C. The development of the most effective methods of completing tasks in a particular industry.
D. The complete redesign of a process within an organization.
67. The product strategy in which companies first determine the price at which they can sell a new
product and then design a product that can be produced at a low enough cost to provide adequate
operating income is referred to as:
A. Full
B. Cost – plus pricing
C. Target costing
D. Kaizen costing

68. Lockhart Products produces a single product. During 2014 the company incurred the following costs:
Variable product costs P8.00 per unit
Variable period costs P2.00 per unit
Total fixed product costs P21,000
Total fixed period costs P10,000

Lockhart had no units in beginning inventory. During 2014, 6,000 units were produced and 5,000
units were sold.
Which of the following statements is true when comparing net income using absorption versus
variable costing?
A. Net income will be P3,500 higher using absorption costing than using variable costing.
B. Net income will be P3,500 lower using absorption costing than using variable costing.
C. Net income will be P4,200 higher using absorption costing than using variable costing.
D. Net income will be P4,200 lower using absorption costing than using variable costing.

69. Paulson Company has only 25,000 hours of machine time each month to manufacture its two
products. Product X has a contribution margin of P50, and Product Y has a contribution margin of
P64. Product X requires 5 hours of machine time, and Product Y requires 8 hours of machine time. If
Paulson Company wants to dedicate 80 percent of its machine time to the product that will provide
the most income, the company will have a total contribution margin of
A. P 250,000
B. P 240,000
C. P 210,000
D. P 200,000

70. The early liquidation of long – term note with cash effects 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.

DRILL – MANAGEMENT ADVISORY SERVICES MAY 2019 BATCH

1. Standard costs are least useful for

a. Measuring production efficiency c. Job order production systems
b. Simplifying costing procedures d. Determining minimum inventory levels
2. A company using very tight standards in a standard cost system should expect that…
a. Most variances will be unfavorable
b. No incentive bonus will be paid
c. Costs will be controlled better if lower standards were used
d. Employees will be strongly motivated to attain the standard

3. If a company wishes to establish factory overhead budget system in which estimated costs
can be derived directly from estimates of activity levels, it should prepare a
a. Flexible budget. b. Fixed budget. c. Capital budget. d. Discretionary
budget.

4. The primary difference between a fixed (static) budget and a variable (flexible) budget is
that a fixed budget:
 a. cannot be changed after the period begins; while a variable budget can be changed
after the period begins
b. is a plan for a single level of sales (or other measure of activity); while a variable
budget consists of several plans, one for each of several levels of sales (or other
measure of activity)
c. includes only fixed costs; while variable budget includes only variable costs
d. is concerned only with future acquisitions of fixed assets; while a variable budget is
concerned with expenses that vary with sales

5. Which of the following term is best identified with a system of standard cost?
a. Contribution approach. c. Marginal costing.
b. Management by exception. d. Standard accounting system.

6. Under a standard cost system, the materials efficiency variance are the responsibility of
a. Production and industrial engineering. c. Purchasing and sales.
b. Purchasing and industrial engineering. d. Sales and industrial
engineering.

7. Which variance is LEAST likely to be affected by hiring workers with less skill than those
already working?
a. Material use variance. c. Material price variance.
b. Labor rate variance. d. Variable overhead efficiency variance.

8. For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000 bags
of flour with a quality rating two grades below that which the company normally
purchased. This purchase covered about 90% of the flour requirement for the period. As
to the material variances, what will be the likely effect?
a. b. c. d.
Price variance Unfavorable Favorable No effect Favorable
Usage variance Favorable Unfavorable Unfavorable Favorable

9. Using the two-variance method for analyzing overhead, which of the following variances
contains only fixed overhead elements?
a. b. c. d.
Controllable (Budget) Variance Yes Yes Yes No
Volume Variance Yes Yes No Yes
Efficiency Variance Yes No No No

10.A manager prepared the following table by which to analyze labor costs for the month:
Actual Hours at Actual Hours at Standard Hours at
Actual Rate Standard Rate Standard Rate
P10,000 P9,800. P8,820
What variance was P980?
a. Labor efficiency variance. c. Volume variance.
b. Labor rate variance. d. Labor spending variance.

11.A credit balance in the labor efficiency variance indicates that:

a. standard hours exceed actual hours
b. actual hours exceed standard hours
 c. standard rate and standard hours exceed actual rate and actual hours
d. actual rate and actual hours exceed standard rate and standard hours

12.If the actual labor rate exceeds the standard labor rate and the actual labor hours exceed
the number of hours allowed, the labor rate variance and labor efficiency variance will be
a. b. c. d.
Labor Rate Variance Favorable Favorable Unfavorable Unfavorable
Labor Efficiency Variance Favorable Unfavorable Favorable
Unfavorable

13.In the analysis of standard cost variances, the item which receives the most diverse
treatment in accounting is
a. Direct labor cost b. Factory overhead cost c. Direct material costd.
Variable cost.

14.The total overhead variance is

a. The difference between actual overhead costs and budgeted overhead.
b. Based on actual hours worked for the units produced.
c. The difference between actual overhead costs and applied overhead.
d. The difference between budgeted overhead and applied overhead.

15.Management scrutinizes variances because

a. Management desires to detect such variances to be able to plan for promotions.
b. Management needs to determine the benefits foregone by such variances.
c. It is desirable under conventional knowledge on good management.
d. Management recognizes the need to know why variances happen to be able to make
corrective actions and fairly reward good performers.

16.The variable factory overhead rate under the normal volume, practical capacity, and
expected activity levels would be the
a. Same except for practical capacity c. Same except for normal
volume
b. Same except for expected capacity d. Same for all three activity
levels

17.A company reported a significant materials efficiency variance for the month of January.
All of the following are possible explanations for this variance except
a. Cutting back preventive maintenance.
b. Inadequately training and supervising the labor force.
c. Processing a large number of rush orders.
d. Producing more units than planned for in the master budget.

18.A debit balance in the labor efficiency variance indicates that

a. Standard hours exceed actual hours. c. Standard rate exceeds actual rate.
b. Actual hours exceed standard hours. d. Actual rate exceeds standard rate.
19.What type of direct material variances for price and usage will arise if the actual number
of pounds of materials used was less than standard pounds allowed but actual cost
exceeds standard cost?
a. b. c. d.
Usage Unfavorable Favorable Favorable Unfavorable
Price Favorable Favorable Unfavorable Unfavorable

20.Which one of the following would not explain an adverse direct labor efficiency variance?
a. Poor scheduling of direct labor hours c. Unusually lengthy machine
breakdowns
b. Setting standard efficiency at a level that is too low d. A reduction in direct
labor training

21.During 1990, a department's three-variance factory O/H standard costing system reported
unfavorable spending and volume variances. The activity level selected for allocating
factory O/H to the product was based on 80% of practical capacity. If 100% of practical
capacity had been selected instead, how would the reported unfavorable spending and
volume variances have been affected?
a. b. c. d.
Spending Variance Increased Increased Unchanged Unchanged
Volume Variance Unchanged Increased Increased Unchanged

22.The journal entry to record the direct materials quantity variance may be recorded
a. Only when direct materials are purchased c. Either (a) or (b)
b. Only when direct materials are issued to production d. When inventory is taken
at the end of the year.

23.Over-applied factory overhead results when

a. A plant is operated at less than its normal capacity.
b. Factory overhead costs incurred are greater than the costs charged to production.
c. Factory overhead costs incurred are less than the costs charged to production.
d. Factory overhead costs incurred are unreasonably large in relation to the number of
units produced.

24.Standard costing will produce the same results as actual or conventional costing when
standard cost variances are distributed to
a. Cost of goods sold and inventories c. An income or expense account
b. A balance sheet account d. Cost of goods sold

25.Y Co. recently sold a used machine for P40,000. The machine had a book value of P60,000
at the time of the sale. What is the after tax cash flow from the sale, assuming the
company’s marginal tax rate is 20%?
a. P40,000 b. P60,000 c. P44,000 d. 32,000

Questions 26 and 27 are based on the following information. V Co. is considering

an investment in a new cheese-cutting machine to replace its existing cheese cutter.
Information on the existing machine and the replacement machine follow:
Cost of the new machine P40,000
Net annual savings in operating costs 9,000
Salvage value now of the old machine 6,000
 Salvage value of the old machine in 8 0
years
Salvage value of the new machine in 8 5,000
years
Estimated life of the new machine 8 years

26.What is the expected payback period for the new machine?

a. 4.44 years b. 2.67 years c. 8.50 years d. 3.78 years

27.What is the profitability index of the proposed machine if V Co. uses a discount rate of
14% on projects of this type (PVF of single payment is 0.351 and PVFA is 4.639)?
a. 1.46 b. P0.10 c. 1.09 d. 1.28

28.W Corp. faces a marginal tax rate of 35%. One project which is currently under evaluation
has a cash flow in the fourth year of its life that has a present value of P10,000(after-tax).
W Corp. assumes that all cash flows occur at the end of the year and the company uses
11% as its discount rate. What is the pre-tax amount of the cash flow in year 4? (Round to
the nearest peso)
a. P15,181 b. P23,356 c. P9,868 d. P43,375

29.Z Co. is considering an investment in a machine that would reduce annual labor costs by
P30,000. The machine has an expected life of 10 years with no salvage value. The
machine would be depreciated according to the straight-line method over its useful life.
The company’s marginal tax rate is 30%. Assume that the company will invest in the
machine if it generates a pre-tax internal rate of return of 16%. What is the maximum
amount the company can pay for the machine and still meet the internal rate of return
criterion (PVFA is 4.833)?
a. P180,000 b. P118,704 c. P187,500 d. P144,996

30.A project under consideration by the W Corp. would require a working capital investment
of P200,000. The working capital would be liquidated at the end of the project’s 10-year
life. If W Corp. has an after-tax cost of capital of 10% and a marginal tax rate of 30%,
what is the present value of the working capital cash flow expected to be received in year
10 (PVF of single payment is 0.386 and the PVFA is 6.145)?
a. P36,868 b. P77,200 c. P53,970 d. P23,130

31.L Waterworks is considering a proposal to sell an existing lathe and purchase a new
computer machine. Information on the existing lathe and the computer operated lathe
follow:
Existing machine Computer-operated
machine
Cost P100,000
P300,000
Accumulated 60,000
depreciation 0
20,000
Salvage value now
0
Salvage in 4 years 60,000
10,000
Annual depreciation 60,000
200,000
Annual cash operating 50,000
4 years
costs
4 years
Remaining useful life
What is the pre-tax payback period for the computer-operated lathe?
a. 1.87 years b. 2.00 years c. 3.53 years d. 3.29 years
32.Cool Armored Car Co is considering the acquisition of a new armored truck. The truck is
expected to cost P300,000. The company’s discount rate is 12%. The firm has determined
that the truck generates a positive net present value of P17,022. However, the firm is
uncertain as to whether it has determined a reasonable estimate of the salvage value of
the truck. In computing the net present value, the company assumed that the truck would
be salvaged at the end of the fifth year for P60,000. What expected salvage value for the
truck would cause the investment to generate a net present value of P0? Ignore taxes
(PVF of P1 is 0.5674 and the PVFA is 3.6048)..
a. P30,000 b. P0 c. P55,278 d. P42,978

33.T Company is considering to acquire a machine in order to reduce its direct labor costs.
The machine shall last for 4 years with no salvage value. Currently, the cash expenses
amounted to P120,000 per year. The initial analysis indicated that the time-adjusted rate
of return is 15 percent. At 12 percent (cost of capital to finance the purchase of the
machine), the company expects a net present value of P5,470,000. The present value of 1
for four periods at 12 percent is 3.03735 and at 15 percent is 2.85499. Ignoring income
tax considerations, the profitability index is
a. 1.064 b. 1.183 c. 1.047 d. 1.250

34.How are the following used in the calculation of the internal rate of return of a proposed
project? Ignore income tax considerations.
Residual sales Depreciation
value of project expense
A. Exclude Include
B. Include Include
C. Exclude Exclude
D. Include Exclude

35.Mark Corporation is evaluating a capital investment that would result in a P30,000 higher
contribution margin benefit and increased annual personnel costs of P20,000. The effects
of income taxes on the net present value computation on these benefits and costs for the
project are to
A. Decrease both benefits and costs.
B. Have no net effect on either benefits or costs.
C. Decrease benefits but increase costs.
D. Increase benefits but decrease costs.

MANAGEMENT ADVISORY SERVICES MAY 2019 BATCH

1. 1st- Management accounting provides data for internal uses.

2nd- The chief accounting executive in an organization is often called the controller.
a. First statement is True; second statement is False
b. First statement is False; second statement is True
c. Both statements are False
d. Both statements are True

2. A firm will produce either Product A or B. The total costs (TC) for both products can be estimated by the
equations.
Product A: TC = P300,000 + (P23 x Sales volume)
Product B: TC = P100,000 + (P29 x Sales volume)
The firm believes there is a 20% chance for the sales volume of each product to equal 10,000 units and an
80% chance they will both equal 20,000 units. The selling price of Product A is P42, and the selling price of
Product B is P40. The expected profit from producing Product B equals
a. P98,000 b. P120,000 c. P390,000 d. P680,000
3. 1st- Management carries out four broad functions in an organization namely, planning, coordinating,
controlling, and decision-making.
2nd- Financial accounting is mainly concerned with providing information for external users such as
stockholders and creditors.
a. First statement is true; second statement is false
b. First statement is false; second statement is true
c. Both statements are true
d. Both statements are false

4. The controller of Masikap Inventions has just received the following results from the company’s statistics
officer about the monthly energy cost:
y= P 108,796.33 + 2.875 x
Standard of determination (r2) = 71.2%
The statistician included in his report that this data is true for the range of 10,000 to 20,000 machine hours.
Which of the following is false?
a. If the machine hours is equal to 30,000, the monthly energy cost can be predicted to be at
P195,046.33.
b. Y is equal to the monthly energy cost composed of both variable and fixed component.
c. If the machine hours equal to 12,000, the variable cost is P 34,500.
d. If the machine hours 18,000, the fixed cost per hour is P 6.04.

5. The industrial engineering approach to cost analysis.

a. is the inspection of historical cost data recorded at different volumes
b. is scientific conjecture concerning what cost behavior patterns should be based on studies of the
physical aspects of operations.
c. makes a separation of components by comparing costs incurred at two different volumes, one high
level volume and one low level volume.
d. none of the above

6. The treasurer will most likely be responsible for the following, except
a. Planning and controlling the Cash Position
b. Planning the company’s capital expenditures
c. Evaluating the effectiveness of the firm’s credit and collection policy
d. None of the above

7. Opportunity Costs are:

a. Costs irrevocably incurred by past actions
b. The difference between actual and standard costs
c. Not recorded in the accounting records
d. Partly fixed costs and partly variable costs

8. When management assess points of the operation that they can or cannot influence and try to evaluate the
sensitivity of such point, it is performing what type of activity?
a. Planning b. Executing c. Controlling d. Decision Making

9. Water bills consumed in the factory comfort rooms will most likely be classified as:
a. Product Costs, Direct Costs, and Variable Costs
b. Product Costs, Indirect Costs, and Fixed Costs
c. Period Costs, Direct Costs, and Variable Costs
d. Period Costs, Indirect Costs, and Fixed Costs

10. An example of a product costs that will also be classified as indirect costs is:
a. Indirect materials c. Product Packaging
b. Main Ingredients of Food d. All of the above

11. If Contribution Margin will increase, which of the following will most likely to decrease?
a. Sales b. Profit c. Variable Costs d. Fixed Costs

12. As sales increases, all other things remaining constant, the degree of operating will:
a. Increase b. Decrease d. Remains the Same d. None of the above
 13. As sales increases, all other things remaining constant, the margin of safety will:
a. Increase b. Decrease d. Remains the Same d. None of the above

14. If work in process beginning is greater than its ending balance, which of the following is true?
a. Cost of Goods Manufactured is greater than Cost of Goods Sold
b. Total Manufacturing Costs is greater than Cost of Goods Manufactured
c. Total Manufacturing Costs is less than Cost of Goods Manufactured
d. Cost of Goods Manufactured is less than Cost of Goods Sold

15. Within a relevant range, with direct labor hours being the cost driver, if such cost driver increases fixed costs
will
a. Decrease per unit c. Increase per unit
b. Stay Constant per unit d. None of the above

16. In a CVP graph, profit is shown when

a. Cost line is higher than the Revenue Line
b. Cost line intersects with the Revenue Line
c. Cost line is lower than the Revenue Line
d. Cost line is Parallel with the Revenue Line

17. In a cost graph, when the y-intercept is P 50,000 and one of the coordinates of the cost line include a y value
of 75,000 and x value of 10,000, how much is the expected total cost at 14,000 activity level?
a. P 50,000 b. P 75,000 c. P 85,000 d. P 95,000

18. Under the least square method, which of the following is not true?
a. ∑xy is computed by multiplying each data of x to their respective data of y and adding all the
products.
b. N represents the number of data sets
c. ∑x2 is computed by multiplying ∑x by ∑x
d. None of the above

19. If total fixed costs amounted to P 100,000 while margin of safety is 10,000 units representing 20% of total
sales, what is the contribution margin per unit?
a. P10.00 b. P 2.00 c. P 2.50 d. P 50.00

20. If work in process inventory increased by P 20,000 while finished goods inventory decreased by P 10,000,
how much is the total manufacturing costs, if cost of goods sold is 10% higher than cost of goods
manufactured?
a. P 120,000 b. P 100,000 c. P 110,000 d. P 80,000

21. The following were taken from the records of Laguna Corporation
Month Maintenance Expense No. of Machine Hours
January P 20,000 5,000
February P 21,000 5,500
March P 18,000 4,000
April P 14,000 2,000
Using the least square method, what will be the total annual fixed costs?
a. P 10,000 b. P 120,000 c. P 20,000 d. None of the above
22. A company has a contribution margin per unit of P 2.00 while having a profit of P 8,000. If units sold totaled
10,000 units, what is the break-even point in units?
a. 10,000 units b. 6,000 units c. 4,000 units d. None of the above

23. Batangas Corporation has total fixed costs amounting to P 40,000 while break-even sales amounted to P
100,000, if the company wants a profit equal to 20% of sales, how much should be the total sales?
a. P 200,000 b. P 100,000 c. P 120,000 d. P 150,000

24. Total manufacturing costs amounted to P 100,000 while direct materials used amounted to P40,000, if
overhead is applied at 150% of direct labor cost, how much is the overhead applied?
a. P 60,000 b. P 20,000 c. P 40,000 d. P 30,000

Items 25 to 29 are based on the following information: The data below were taken from the records of Batangas
Corporation:
Increase in Raw Materials 20%
 Decrease in Work in Process 10%
Decrease in Finished Goods 20%
Gross Purchases P 500,000
Purchase Returns and Allowances P 5,000
Purchase Discounts P 7,000
Freight-In P 22,000
Direct Labor (@P50 per hour) P 400,000
Cost of Goods Manufactured P 1,220,000
Total Sales P 2,500,000
Gross Profit Rate 48.8%
Total manufacturing costs amounted to P 1,200,000 and is assumed to be composed of 40% in Direct materials used.
25. How much is the ending balance of Finished Goods Inventory?
a. P 300,000 b. P 360,000 c. P 240,000 d. None of the above
26. How much is the ending balance of Work in Process Inventory?
a. P 180,000 b. P 200,000 c. P 220,000 d. None of the above
27. How much is the overhead rate per direct labor hour?
a. P 40.00 b. P 50.00 c. P 150.00 d. None of the above
28. How much is the total direct materials available for use?
a. P 660,000 b. P 510,000 c. P 480,000 d. P 330,000
29. How much is the beginning balance of direct materials Inventory?
a. P 180,000 b. P 30,000 c. P 150,000 d. P 165,000
Items 30 to 34 are independent from each other but based on the following: Quezon Corporation’s utilities expense
totaled P 50,000 when total machine hours are 10,000.
30. If total utilities expense amounted to P 30,000 when total machine hours is 6,000, how much is the total
fixed costs?
a. P 50,000 b. P 30,000 c. P 0 d. P 10,000
31. If total utilities expense amounted to P 30,000 when total machine hours is 5,000, how much is the total fixed
costs?
a. P 50,000 b. P 30,000 c. P 0 d. P 10,000
32. If total utilities expense amounted to P 35,000 when total machine hours is 5,000, however, total fixed costs
increase by P 5,000 when machine hours reach 10,000, how much is the expected utilities expense when
machine hours is 12,000?
a. P 49,000 b. P 54,000 c. P 56,000 d. P 61,000
33. If total utilities expense amounted to P 25,000 when total machine hours is 5,000, however, variable rate per
hour increase by P1.00 when machine hours reached 10,000, how much is the expected utilities expense
when machine hours is 8,000?
a. P 34,000 b. P 42,000 c. P 40,0000 d. P 48,000

34. If total utilities expense amounted to P 27,500 when total machine hours is 5,000, however, total fixed costs
increased by 25% when machine hours reached 10,000, how much is the expected utilities expense when
machine hours is 12,000?
a. P 58,333 b. P 56,900 c. P 58,525 d. None of the above
Items 35 to 37 are based on the following information: Mindoro Corporation has 25% contribution margin and it was
determined that degree of operating leverage is 4 times when total fixed costs amounted to P 60,000.
35. How much is the total peso sales?
a. P 240,000 b. P 320,000 c. P 60,000 d. None of the above
36. What is the margin of safety percentage?
a. 18.75% b. 25% c. 6.25% d. None of the above
37. If sales will increase by 10%, what will be the expected profit of Mindoro?
a. P 20,000 b. P 28,000 c. P 21,000 d. None of the above

Items 38 to 40 are based on the following information: Marinduque Company has a margin of safety of 20% while
having a profit of P 10,000. Contribution Margin is 25%.

38. How much is total fixed costs?

a. P 50,000 b. P 40,000 c. P 0 d. None of the above
39. How much is actual total peso sales?
a. P 200,000 b. P 160,000 c. P 40,000 d. None of the above
40. If the company wants a profit equal to 10% of sales, how much should be total peso sales?
a. P 200,000 b. P 333,333 c. P 266,667 d. None of the above
 41. Simple regression analysis provides the means to evaluate a line of regression which is fitted to a plot of data
and represents:
a. The way costs change in respect to the dependent variable.
b. The way costs change in respect to both independent and dependent variables.
c. The variability of expense with pesos of production.
d. The way costs change in respect to the independent variable.

42. Mine and Yours Corporation uses a regression equation to analyze the behavior of its transportation costs (t)
as a function of travel time (h). They developed the following equation using two years’ observations with a
related coefficient of determination of .85:
T = 100,000 + P50H
If 500 hours of travel time were logged in one period, the related point estimate of total transportation costs
would be:
a. P110,000 b. P121,250 c. P106,250 d. P125,000

43. The following data were taken from the balance sheet of Calhoun Gears Company:
Current Year Preceding Year
Cash P280,000 P265,000
Marketable Securities 131,000 121,000
Accounts and Notes Receivable (net) 395,000 384,000
Inventories 570,000 555,000
Prepaid Expenses 19,000 40,000
Accounts and notes payable (short-term) 250,000 225,700
Accrued Liabilities 60,000 34,300
Determine the current year net working capital
a. P1,085,000 b. P1,395,000 c. P1,075,000 d. P1,145,000

44. Integrity is an ethical requirement for all management accountants. One aspect of integrity requires
a. Performance of professional duties in accordance with applicable laws.
b. Avoidance of conflict of interest.
c. Refraining from improper use of inside information.
d. Maintenance of an appropriate level of professional competence.

45. You have recently been hired to improve the performance of Multiplex Corporation, which has been
experiencing a severe cash shortage. As one part of your analysis, you want to determine the firm’s cash
conversion cycle. Using the following information and a 360-day year, what is your estimate of the firm’s
current cash conversion cycle?
Current inventory = P120,000. Annual sales = P600,000.
Total annual purchases = P360,000 Purchases credit terms: net 30 days.
Accounts receivable = P160,000. Receivables credit terms: net 50 days.
Accounts payable = P25,000
e. 49 days g. 100 days
f. 193 days h. 143 days

46. The process of evaluating a firm's financial performance over time is called: 
a. Benchmarking c. Cross-section analysis
b. Time-series analysis d. Division segmentation

47. The slope of the line of regression is

a. The rate at which the independent variable varies
b. The rate at which the dependent variable varies
c. The level of the fixed costs.
d. The level of total variable costs

48. A firm will produce either Product A or B. The total costs (TC) for both products can be estimated by the
equations.
Product A: TC = P300,000 + (P23 x Sales volume)

Product B: TC = P100,000 + (P29 x Sales volume)

The firm believes there is a 20% chance for the sales volume of each product to equal 10,000 units and an
80% chance they will both equal 20,000 units. The selling price of Product A is P42, and the selling price of
Product B is P40. The expected profit from producing Product B equals
a. P98,000 b. P120,000 c. P390,000 d. P680,000
49. 1st- Management carries out four broad functions in an organization namely, planning, coordinating,
controlling, and decision-making.
2nd- Financial accounting is mainly concerned with providing information for external users such as
stockholders and creditors.
a.First statement is true; second statement is false
b.First statement is false; second statement is true
c. Both statements are true
d.Both statements are false

50. La Crosse Shoe & Boot, Inc., has earnings before interest and taxes of P500,000, lease payments of P200,000,
dividend payments of P75,000, and interest expenses of P150,000. The company has not made principal
payments back to its shareholders during the past year and there are not preferred shareholders. What is its
fixed-payment coverage ratio? 
 a.3.33
b.1.79
c. 2.00 
d.1.65

INTEGRATED REVIEW MANAGEMENT ACCOUNTING SERVICES

VALIDATING EXAMINATION AUGUST 6, 2018; 10:15-12:15

1. Deming Corporation utilizes the capital asset pricing model (CAPM) to estimate the cost of its
common stockholder equity. Calculate CAPM given the following: the risk-free rate of return is
5%, the expected rate of return is 10%, and firm’s beta is 1.
a. 11% b. 10% c. 5% d. 15%

2. A company produces and sells two products. The first product accounts for 75% of sales and the
second product accounts for the remaining 25% of sales. The first product has a selling price of
P10 per unit, variable costs of P6 per unit, and allocated fixed costs of P100,000. The second
product has a selling price of P25 per unit, variable costs of P13 per unit, and allocated fixed
costs of P212,000. At the breakeven point, what number of units of the first product will have
been sold?
a. 52,000 b. 39,000 c. 25,000 d. 14,625

3. The New Wave Co. is considering a new method for allocating overhead to its two products,
regular and premium coffee beans. Currently New Wave is using the traditional method to
allocate overhead, in which the cost driver is direct labor costs. However, it is interested in
using two different drivers: machine hours (MH) for separating and roasting beans, and pounds
of coffee for packing and shipping. Machine hours for the current month are 700 hours, direct
labor cost per pound of coffee is P1.25, and direct materials cost per pound of coffee is P1.50.
There are 1,000 pounds of coffee packed and shipped for the current month. The following
data are also available:
Regular Premium
Overhead for the current month P5,000.00
Cost pool for separating and roasting beans 3,500.00 150 MH 550 MH
Cost pool for packing and shipping 1,500.00 500 pounds 500 pounds

What is the total cost per pound for the premium coffee using the new activity-based costing
method?
a. P5.00 b. P5.75 c. P7.75 d. P9.75

4. To distinguish between management accounting and financial accounting, the following

statements are correct except:
a. Management accounting in view of its various integrated recipients should have a
separate data recording and retrieval system from financial accounting.
b. Financial accounting is bound by Generally Accepted Accounting Principles (GAAP), and
management accounting need not be in conformity with GAAP.
c. Financial accounting can be regarded as the process while management accounting can
be regarded as the product of that process.
d. Management accounting output must be released on time so as not to erode its
usefulness; Financial accounting output can still be useful even when delayed.

5. A corporation is considering purchasing a machine that costs P100,000 and has a P20,000
salvage value. The machine will provide net annual cash inflows of P25,000 per year and has a
six-year life. The corporation uses a discount rate of 10%. The discount factor for the present
value of a single sum six years in the future is 0.564. The discount factor for the present value
of an annuity for six years is 4.355. What is the net present value of the machine?
a. P (2,405) b. P 8,875 c. P 20,155 d. P28,875

6. The Manila Commercial Bank and Rap Corp. signed a loan agreement subject to the following
terms.
 Stated interest rate of 18% on a one-year discounted loan; and
PAGE 43

 15% compensating non-interest bearing checking account balance to be maintained

by Rap with Manila Commercial Bank.
The net proceeds of the loan was P1 million. The principal amount of the loan was
a. P1, 176, 471 b. P1, 000, 000 c. P1, 492, 537 d. P1, 219, 512

7. Three suppliers of East Corporation offer different credit terms. West Co. offers terms of 1 ½ /
15, net 30. North Corp. offers terms of 1/10. Net 30. South Inc. offers terms of 2/10, net 60.
East Corp. would have to borrow from a bank at an annual rate of 12% in order to take any cash
discounts. Which one of the following would be the most attractive for East Corp.? (Assume 360
days a year).
a. Purchase from West Co., pay in 15 days and borrow any money needed from the bank.
b. Purchase from West Co., pay in 30 days and borrow any money needed from the bank.
c. Purchase from South Inc., pay in 60 days and borrow any money needed from the bank.
d. Purchase from North Corp. and pay in 30 days.

8. Ken Lumber Company obtained short term bank loan for P1, 000, 000.00 at an annual interest
rate of 12%. As a condition of the loan Ken is required to maintain a compensating balance of
P200, 000.00 in its checking account. The checking account earns interest at an annual rate of
6%. Ken would otherwise maintain only P100, 000.00 in its checking account for transactional
purposes. Ken’s effective interest cost of the loan is
a. 12% b. 14% c. 13.50% d. 12.67%

9. The following information regarding inventory policy was assembled by the JRJ Corporation.
The company uses a 50-week year in all calculations.
Sales 10,000 units per year
Order Quantity 2,000 units
Safety Stocks 1,300 units
Lead Time 4 weeks
The reorder point is
a. 3, 300 units b. 2, 100 units c. 100 units d. 1, 300 units

10. An organization has an opportunity to establish a zero balance account system using four
different regional banks. The total amount of the maintenance and transfer fees is estimated
to be P8,000 per annum. The organization believes that it will increase the float on its
operating disbursements by an average of two days, and its cost of short-term funds is 4%.
Assuming the organization estimates its average daily operating disbursements to be P80,000,
what decision should the organization make regarding this opportunity?
a. Do not open the zero balance accounts due to the additional cost of P8,000.
b. Do not open the zero balance accounts due to an excess of costs over benefits of P1,600.
c. Open the zero balance accounts due to an estimated savings of P1,200.
d. Open the zero balance accounts due to an estimated savings of P6,200.

11. The following information is available for Lopinsky, Inc.:

Balance Sheet
Current assets P 500,000
Property, plant, & equipment 4,000,000
Total assets P4,500,000

Current liabilities P 30,000

Long-term debt 2,500,000
Common stock 200,000
Retained earnings 1,770,000
Total liabilities and stockholders’ equity P4,500,000

Cost of debt before tax 7%

Cost of equity 12%
Tax rate 25%

What is Lopinsky’s weighted-average cost of capital?

a. 9.50% b. 8.75% c. 8.22% d. 6.10%
PAGE 44

12. A company forecast first quarter sales of 10,000 units, second quarter sales of 15,000 units,
third quarter sales of 12,000 units and fourth quarter sales of 9,000 units at P2 per unit. Past
experience has shown that 60% of the sales will be in cash and 40% will be on credit. All credit
sales are collected in the following quarter, and none are uncollectible. What amount of cash
is forecasted to be collected in the second quarter?
a. P8,000 b. P18,000 c. P26,000 d. P 30,000

13. Total production costs of prior periods for a company are listed below. Assume that the same
cost behavior patterns can be extended linearly over the range of 3,000 to 35,000 units and
that the cost driver for each cost is the number of units produced.
Production in units per month 3,000 9,000 16,000 35,000
Cost X P23,700 P52,680 P86,490 P178,260
Cost Y 47,280 141,840 252,160 551,600
What is the average cost per unit at a production level of 8,000 units for cost X?
a. P5.98 b. P5.85 c. P7.90 d. P 4.83

Questions 14 and 15 are based on the following information:

14. Lara Company produces a single product. It sold 25, 000 units last year with the following
results:
Sales P625,000
Variable Costs P375,000
Fixed Costs 150,000 525,000
Net Income before taxes 100,000
Income Taxes (45%) 45, 000
Net Income P55, 000

In an attempt to improve its product, Lara is considering replacing a component part in its
product that has a cost of P2.50 with a new and better part costing P4.50 per unit in the
coming year. A new machine would also be needed to increase plant capacity. The machine
would cost P18, 000 with a useful life of 6 years and no salvage value. The company uses
straight line depreciation on all plant assets. If Lara Company holds the sales price constant
and makes the suggested changes, how many units of product must be sold in the coming year
to break-even?
a. 15, 300 b. 18, 750 c. 19, 125 d. 21, 000

15. If Lara Company holds the sales price constant and makes the suggested changes, how many
units of the product will the company have to sell to make the same net income after taxes as
last year?
a. 31, 625 b. 31, 250 c. 33, 500 d. 25, 300

16. Managers of the Doggie Food Co. want to add a bonus component to their compensation plan.
They are trying to decide between return on investment (ROI) and residual income (RI) as the
performance measure they will use. If Doggie adopts the RI performance measure, the relevant
required rate of return would be 18%. One segment of Doggie is the Good Treats division,
where the manager has invested in new equipment. The operating results from this equipment
are as follows:
Revenues P80,000
Cost of goods sold 45,000
General and administrative expenses 15,000
Assuming that there are no income taxes, what would be the ROI and RI, respectively, for this
equipment, which has an average value of P100,000?
a. P2,000, 20% b. 35%, P3,600 c. P3,600, 35% d. 20%, P2,000

17. The following information pertains to ABC Corporation:

Total Cost Unit Cost
Sales (40,000 units) P1,000,000 P25
Raw materials 160,000 4
Direct labor 280,000 7
Factory overhead:
Variable 80,000 2
Fixed 360,000
Selling and general expenses:
PAGE 45

Variable 120,000 3
Fixed 225,000
How many units does the company need to produce and sell to make a before-tax profit of 10%
of sales?
a. 65,000 units b. 36,562 units c. 90,000 units d. 29,250 units.

18. Picnic Items, Inc. manufactures coolers that contain a freezable ice bag. For an annual volume
of 10,000 units, fixed manufacturing costs of P500, 000 are incurred. Variable costs per unit
amounts are:
Direct materials P80
Direct Labor 15
Variable Factory Overhead 20
Bags Corporation offered to supply the assembled ice bag for P40 with a minimum order of 5,
000 units. If picnic accepts the offer it will be able to reduce variable labor and overhead
costs by 50%. The direct materials for the freezable ice bag will cost Picnic P20 if it will
produce it. Considering Bags Corporation offer, Picnic should
a. Buy the freezable ice bag due to P150, 000 advantaged.
b. Produce the freezable ice bag due to P225, 000 advantaged.
c. Produce the freezable ice bag due to P25, 000 advantaged.
d. Buy the freezable ice bag due to P50, 000 advantaged.

19. A company is considering outsourcing one of the component parts for its product. The company
currently makes 10,000 parts per month. Current costs are as follows:
Per unit Total
Direct materials P4 P40,000
Direct labor 3 30,000
Fixed plant facility cost 2 20,000
The company decides to purchase the part for P8 per unit from another supplier and rents its
idle capacity for P5,000/month. How will the company’s monthly costs change?
a. Decrease P15,000
b. Decrease P10,000
c. Increase P5,000
d. Increase P10,000.

20. Jones Corp. had an opportunity to use its capacity to produce an extra 5,000 units with a
contribution margin of P5 per unit, or to rent out the space for P10,000. What was the
opportunity cost of using the capacity?
a. P35,000 b. P25,000 c. P15,000 d. P10,000

21. Limitations of an activity based costing system include which of the following?
a. Control of overhead costs is enhanced.
b. Activity-based costing systems are less reliable.
c. The expense of obtaining cost data is relatively high.
d. It eliminates arbitrary assignment of overhead costs.

22. For May 2012, Young Company has budgeted its cash receipts at P125, 000 and its cash
disbursements at P138, 000. The company’s cash balance on May 1 is P17, 000. If the desired
May 31 cash balance is P20, 000, then how much cash must the company borrow during the
month (before considering any interest payments)?
a. P4, 000 b. P8, 000 c. P12, 000 d. P16, 000

23. A company has gathered the following information from a recent production run:
Standard variable overhead rate P10
Actual variable overhead rate 8
Standard process hours 20
Actual process hours 25

What is the company’s variable overhead spending variance?

a. P50 unfavorable
b. P50 favorable
c. P40 unfavorable
d. P40 favorable.
PAGE 46

24. Fabella Company budgeted sales on account of P120, 000 for July, P211, 000 for August and
P198,000 for September. Collection experience indicates that 60% of the budgeted sales will be
collected the amount after the sale, 36% the second month, and 4% will be uncollectible. The
cash receipts from accounts receivable that should be budgeted for September would be
a. P169, 800 b. P147, 960 c. P197, 880 d. P194, 760

25. The following are selected data for Lenley Manufacturing Company for the year ended 20X1.
Sales P30,000,000
Average invested capital (total assets) 10,000,000
Total fixed assets 6,000,000
Net income 3,000,000
Net cash flow 5,000,000
Imputed interest rate 10%

Which of the following measures residual income for Lenley Manufacturing Company for the
year?
a. P1,000,000 b. P2,000,000 c. P3,000,000 d. P6,000,000

Questions 26 and 27 are based on the following information:

The standard direct labor cost to produce one pound of output for a company is presented
below. Related data regarding the planned and actual production activities for the current
month for the company are also given below.
Direct Labor Standard: .4 DLH @ P12.00 per DLH = P4.80
Planned production 15,000 pounds
Actual production 15,500 pounds
Actual direct labor costs (6,250 DLH) P75,250

26. The company’s direct labor rate variance for the current month would be
a. P10 unfavorable b. P240 unfavorable c. P248 unfavorable d. P250 unfavorable

27. The company’s direct labor efficiency variance for the current month would be
a. P600 unfavorable
b. P602 unfavorable
c. P2,400 unfavorable
d. P3,000 unfavorable.

28. At the end of its fiscal year, Krist, Inc. had the following account balances:
Cash P5,000
Accounts receivable 10,000
Inventory 20,000
Accounts payable 15,000
Short-term note payable 5,000
Long-term note payable 35,000
What is Krist’s quick (acid-test) ratio?
a. 0.273 b. 0.636 c. 0.750 d. 1.750

29. A company has income after tax of P5.4 million, interest expense of P1 million for the year,
depreciation expense of P1 million, and a 40% tax rate. What is the company’s times interest-
earned ratio?
a. 5.4 b. 6.4 c. 7.4 d. 10.0

30. A corporation manages inventory performance by monitoring its inventory turnover. Selected
financial records for the corporation are as follows:
Year 1 Year 2 Year 3
Annual sales P1,262,500 P1,062,500 P1,459,000
Gross annual profit percentage 45% 30% 40%
The beginning finished goods inventory for year 2 was 20% of year 2 sales. The ending finished
goods inventory for year 2 was 18% of year 3 sales. What was the corporation’s inventory
turnover for year 2?
PAGE 47

a. 1.34 b. 2.83 c. 3.03 d. 3.13

31. Farrow Co. is applying for a loan in which the bank requires a quick ratio of at least 1. Farrow’s
quick ratio is 0.8. Which of the following actions would increase Farrow’s quick ratio?
a. Purchasing inventory through the issuance of a long-term note.
b. Implementing stronger procedures to collect accounts receivable at a faster rate.
c. Paying an existing account payable.
d. Selling obsolete inventory at a loss.

32. LY & Company completed its first year of operations during which time the following
information were generated:
Total units produced 100,000
Total units sold 80,000 at P100 per unit
Work in process ending inventory -0-
Costs:
Fixed costs
Factory overhead P1.2 million
Selling and administrative P0.7 million
Per unit variable costs
Raw materials P20.00
Direct labor 12.50
Factory overhead 7.50
Selling and administrative 10.00
If the company used the variable (direct) costing method, the operating income would be
a. P2,100,000 b. P 4,000,000 c. P2,480,000. d. P3,040,000.

33. The Table Top Model Corp. produces three products, “Tic”, “Tac”, and “Toc”. The owner
desires to reduce production load to only one product line due to prolonged absence of the
production manager. Depreciation expense amounts to Php 600,000 annually. Other fixed
operating expenses amount to P660,000 per year. The sales and variable cost data of the three
products are (000’s omitted):
Tic Tac Toc
Sales (P) 6,000 5,300 10,800
Variable Costs (P) 3,900 1,700 8,900

Which product must be retained and what is the opportunity cost of selecting such product
line?
a. Retain product “Tac”; opportunity cost is P4.6 million
b. Retain product “Tac”; opportunity cost is P3.14 million
c. Retain product “Tic”’ opportunity cost is P4.04 million
d. Retain product “Toc”; opportunity cost is P4.84 million

34. Taft Technologies has the following relationships:

Annual sales P1,200,000 Inventory turnover ratio 4.8
Current liabilities P 375,000 Current ratio 1.2
Days sales outstanding (DSO) 40 (360-day year)

The company’s current assets consist of cash, inventories, and accounts receivable. How
much cash does Taft have on its balance sheet?
a. -P 8,333 b. P 66,667 c. P125,000 d. P200,000

35. The following information is available for Armstrong Enterprises for 2012:
Net operating profit (income) after taxes P36,000,000
Depreciation expense 15,000,000
Change in net working capital 10,000,000
Capital expenditures 12,000,000
Invested capital (total assets – current liabilities) 100,000,000
Weighted-average cost of capital 10%

What is the amount of the economic value added (EVA)?

PAGE 48

a. P20,000,000 b. P26,000,000 c. P15,000,000 d. P36,000,000

36. A firm has daily cash receipts of P300,000 and is interested in acquiring a lockbox service in
order to reduce collection time.
 Bank 1's lockbox service costs P3,000 per month and will reduce collection time by 3
days.
 Bank 2's lockbox service costs P5,000 per month and will reduce collection time by 4
days.
 Bank 3's lockbox service costs P500 per month and will reduce collection time by 1 day.
 Bank 4's lockbox service costs P1,000 per month and will reduce collection time by 2
days.
If money market rates are expected to average 6% during the year, and the firm wishes to
maximize income, which bank should the firm choose?
A. Bank 1. C. Bank 3.
B. Bank 2. D. Bank 4.

37. India Corporation has P200,000 of joint processing costs and is studying whether to process J
and K beyond the split-off point. Information about J and K follows.
Product K
Product J
Tons produced 25,000 15,000
Separable variable processing costs P64,000 P100,000
beyond split-off
Selling price per ton at split-off 15 52
Selling price per ton after additional 21 58
processing

If India desires to maximize total company income, what should the firm do with regard to
Products J and K?
Product J Product K
A. Sell at split-off Sell at split-off
B. Sell at split-off Process beyond split-off
C. Process beyond split-off Sell at split-off
D. Process beyond split-off Process beyond split-off

38. When using a balanced scorecard, a company's market share is typically classified as an
element of the firm's:
A. financial performance measures.
B. customer performance measures.
C. learning and growth performance measures.
D. internal-operations performance measures.

39. Honey Electronics currently sells a camera for P240. An aggressive competitor has announced
plans for a similar product that will be sold for P205. Honey’s marketing department believes
that if the price is dropped to meet competition, unit sales will increase by 10%. The current
cost to manufacture and distribute the camera is P175, and Darling has a profit goal of 20% of
sales. If Honey meets competitive selling prices, what is the company's target cost?
A. P41. C. P164.
B. P48. D. P175.

40. JJ Corp. produces 50,000 units of Product Q and 6,000 units of Product Z during a period. In
that period, four set-ups were required for color changes. All units of Product Q are black,
which is the color in the process at the beginning of the period. A set-up was made for 1,000
blue units of Product Z; a set-up was made for 4,500 red units of Product Z; a set-up was made
for 500 green units of Product Z. A set-up was then made to return the process to its standard
black coloration and the units of Product Q were run. Each set-up costs P500.
PAGE 49

Assume that JJ Corp. has decided to allocate overhead costs using levels of cost drivers. What
would be the approximate per-unit set-up cost for the blue units of Product Z?
A. P.04.
B. P.25.
C. P.50.
D. none of the above.

41. Glendale Corporation uses time and material pricing. The repair department expects 20,000
direct labor hours of activity and has the following selected data:

Labor and fringe benefit costs P800,000

Overhead costs (excludes material
handling and storage) 480,000
Target profit 220,000

The company's time charge per hour is:

A. P24. C. P64.
B. P40. D. P75.

42. Which one of the following would increase the working capital of a company?
A. Cash payment of payroll taxes payable.
B. Refinancing a short-term note payable with a two year note payable.
C. Cash collection of accounts receivable.
D. Payment of a 20-year mortgage payable with cash.

43. Perlman Company had 100,000 shares of common stock and 20,000 shares of preference shares
at the end of the year just completed. Preference shareholders received dividends totaling
P140,000. Ordinary stockholders received dividends totaling P210,000. If the dividend payout
ratio for the year was 70%, then the profit for the year was:
A. P300,000. C. P440,000.
B. P287,000. D. P147,000.

44. Cameron Company had 50,000 shares of ordinary shares issued and outstanding during the
year just ended. The following information pertains to these shares:
Price originally issued P40
Fair value at end of current year P70
Market value, beginning of current year P85
Market value, end of current year P90

The total dividend on ordinary share for the year was P400,000. Cameron Company's
dividend yield ratio for the year was:
A. 20.00% C. 9.41%.
B. 11.43%. D. 8.89%.

45. Which of the following would increase risk? (M)

A. Increase the level of working capital.
B. Change the composition of working capital to include more liquid assets.
C. Increase the amount of short-term borrowing.
D. Increase the amount of equity financing.

46. The betas and expected returns for three investments being considered by Sky Inc. are given
below.
Investment Beta Expected Return
A 1.4 12%
B 0.8 11%
C 1.5 13%
The return on the market is 11% and the risk-free rate is 6%. If the Capital Asset Pricing
Model (CAPM) is used for calculating the required rate of return, which investments should
the management of Sky make? (M)
PAGE 50

A. B only. C. B and C only.

B. A and C only. D. A, B, and C.

47. David Company is considering the use of accelerated depreciation rather than straight-line
depreciation for a new asset acquisition. Which of the following choices correctly shows when
the majority of depreciation would be taken (early or late in the asset's life), when most of the
tax savings occur (early or late in the asset's life), and which depreciation method would have
the higher present value?
When Majority When Majority Depreciation Method
of Depreciation of Tax Savings With Higher Present
is Taken Occur Value
A. Early in life Early in life Accelerated
B. Early in life Early in life Straight-line
C. Early in life Late in life Straight-line
D. Late in life Late in life Straight-line

48. Cinzano Inc. wants to use discounted cash flow techniques when analyzing its capital
investment projects. The company is aware of the uncertainty involved in estimating future
cash flows. A simple method some companies employ to adjust for the uncertainty inherent in
their estimates is to:
A. ignore salvage values
B. average the expectations of several different managers
C. use accelerated depreciation
D. adjust the minimum desired rate of return

49. MENUDO CORP. is evaluating an investment of P480,000 in equipment with a useful life of 3
years and no salvage value. An estimate indicates that the cash flow before income tax from
the investment will amount to P240,000 a year and is expected to yield a discounted rate of
return of 12%. Normally, straight-line method of depreciation is used, but the President was
informed that investment would be more favorable if the sum-of-the-years digit method of
depreciation is used. You were using the two methods of depreciation for purposes of
comparison. Income tax rate is 35%.
The present value of P1.00 at 12% for
1 year 0.893
2 years 0.797
3 years 0.712
The present value of an annuity for 3 years at 12% is 2.402.
The net present value of the investment using the sum-of-years digit method is
A. P34,292 C. P36,480
B. P38,032 D. P43,116

50. A project has the following cash flows: C0 = -100,000; C1 = 50,000; C2 = 150,000; C3 = 100,000.
If the discount rate changes from 12% to 15%, what is the change in the NPV of the project
(approximately)?
A. 12,750 decrease B. 12,750 increase
C. 122,650 increase D. 135,400 decrease

51. The following table gives the available projects for a firm.
A B C D E F
G
90 20 60 50 150 40 20 Initial investment
140 70 65 -10 30 32 10 NPV
1 2 3 5 4 6

If the firm has a limit of 200 million to invest, what is the maximum NPV the company can
obtain?
A. 200 B. 243
PAGE 51

C. 283 D. None of the above

52. Agusan evaluates future projects by using the profitability index. The company is currently
reviewing five similar projects and must choose one of the following:
Initial Present Value
Project Investment of Cash Inflows
1 P100,000 P 97,000
2 50,000 80,000
3 75,000 110,000
4 60,000 100,000
5 150,000 200,000

Which project should Agusan select if the decision is based entirely on the profitability index?
A. Project 1. C. Project 3.
B. Project 2. D. Project 4.

53. Lolong is considering the acquisition of new machinery that will produce uniform benefits over
the next eight years. The following information is available:
Annual savings in cash operating costs: P350,000
Annual depreciation expense: P250,000

If the company is subject to a 30% tax rate, what denominator should be used to compute the
machinery's payback period?
A. P70,000. C. P245,000.
B. P170,000. D. P320,000.

54. All of the following statements are correct except:

A. Default risk refers to the inability of the firm to pay off its maturing obligations.
B. The matching of assets and liability maturities lowers default risk.
C. The matching of asset and liability maturities is considered desirable because this
strategy minimizes interest rate risk.
D. An increase in the payables deferral period will lead to a reduction in the need to non-
spontaneous funding.

55. When a company is evaluating whether the ratio of cash and marketable securities to total
assets should be high or low, its decision will be based upon
A. Financial leverage considerations.
B. Operating leverage considerations.
C. Flotation cost considerations.
D. Risk-profitability trade-off considerations.

56. Suppose that the interest rate on Treasury bills is 6%, and every sale of bills costs P20. You pay
out cash at a rate of P400,000 a month. According to Baumol's model of cash balances, what is
optimal cash transfer?
A. P16,000 C. P24,000
B. P43,000 D. P57,000

57. The company sells 10,000 units at a unit selling price of 66 annually. Assume that the average
collection period is 25 days. After the credit policy is well established, what is the expected
average accounts receivable balance for the company at any moment in time, assuming a 365-
day year?
A. 684.93 C. 27,123.30
B. 1,808.22 D. 45,205.48

58. A company obtained a short-term bank loan of P500,000 at an annual interest rate of 8%. As a
condition of the loan, the company is required to maintain a compensating balance of P100,000
in its checking account. The checking account earns interest at an annual rate of 3%.
PAGE 52

Ordinarily, the company maintains a balance of P50,000 in its account for transaction purposes.
What is the effective interest rate of the loan?
A. 7.77% C. 9.25%
B. 8.22% D. 8.56%

59. ABC Corporation provides the following information regarding Materials AFER12:
Annual demand 300,000 unit
Purchase price P100 per unit
Cost per order P500
Carrying cost rate 3%
Normal lead time 10 days
Normal working days per year 300 days
Maximum lead time 16 days
Maximum daily usage 1,250 units

Which statement is correct?

A. The optimal order size is 1,000 units.
B. The average inventory is 5,000 units.
C. The reorder point is 8,500 units.
D. The total ordering costs at optimal order size is P15,000.

60. If the price elasticity of demand for a normal good is estimated to be 1.75, a 5% reduction in
its price causes
A. Total revenue to fall by 5%.
B. Total revenue to fall by 12.5%.
C. Quantity demanded to rise by 12.5%.
D. Quantity demanded to increase by 8.75%

61. A company operating in a perfectly competitive market has been paying P10 per hour for labor
and P20 per hour to rent a piec of capital equipment. The firm can use labor and capital in any
desired proportions to produce its product. If wages rise to P20 per hour and capita equipment
rentals rise to P22 per hour, in the long run the firm will
A. Use relatively more equipment and relatively less labor in its production
B. Use relatively more labor and relatively less equipment in its production
C. Use less of both and equipment in its production, but in the same proportions as
before
D. Lower its average equipment-output ration and raise its average labor-output
ratio.

62. Which of the following is not a valid way to adapt standard cost systems to today's
manufacturing environment?
A. Emphasize material and overhead costs.
B. Use more non-traditional cost drivers such as number of setups or number of engineering
change orders.
C. Update standards more frequently to adjust for the elimination of non-value-added
costs.
D. Devote more resources to the tracking of direct labor cost.

63. Lucky Corporation's purchasing manager obtained a special price on an aluminum alloy from a
new supplier, resulting in a direct-material price variance of P9,500F. The alloy produced
more waste than normal, as evidenced by a direct-material quantity variance of P2,000U, and
was also difficult to use. This slowed worker efficiency, generating a P2,500U labor efficiency
variance. To help remedy the situation, the production manager used senior line employees,
which gave rise to a P900U labor rate variance. If overall product quality did not suffer, what
variance amount is best used in judging the appropriateness of the purchasing manager's
decision to acquire substandard material?
A. P4,100F. C. P7,000F.
B. P5,000F. D. P7,500F.

64. Rowe Corporation reported the following variances for the period just ended:
Variable-overhead spending variance: P50,000U
PAGE 53

Variable-overhead efficiency variance: P28,000U

Fixed-overhead budget variance: P70,000U
Fixed-overhead volume variance: P30,000U

If Rowe desires to analyze variances that arose primarily from managers' expenditures in
excess of anticipated amounts, the company should focus on variances that total:
A. P50,000U. C. P120,000U.
B. P70,000U. D. P178,000U.

65. Luke, Inc., has a standard variable overhead rate of P5 per machine hour, with each completed
unit expected to take three machine hours to produce. A review of the company's accounting
records found the following:
Actual production: 19,500 units
Variable-overhead efficiency variance: P9,000U
Variable-overhead spending variance: P21,000F
What was Luke's actual variable overhead during the period?
 PAGE 54

A. P262,500.
B. P280,500.
C. P304,500.
D. P322,500.

MANAGEMENT ADVISORY SERVICES OCTOBER 2018 BATCH

QUIZ

1.If a firm's net income (loss) does not change as its volume changes, the firm('s)
A. must be in the service industry.
B. must have no fixed costs.
C. sales price must equal P0.
D. sales price must equal its variable costs.

2.As projected net income increases the

A. degree of operating leverage declines.
B. margin of safety stays constant.
C. break-even point goes down.
D. contribution margin ratio goes up.

3.A basic tenet of variable costing is that period costs should be currently expensed. What is the rationale
behind this procedure?
A. Period costs are uncontrollable and should not be charged to a specific product.
B. Period costs are generally immaterial in amount and the cost of assigning the amounts to specific products
would outweigh the benefits.
C. Allocation of period costs is arbitrary at best and could lead to erroneous decision by management.
D. Because period costs will occur whether production occurs, it is improper to allocate these costs to
production and defer a current cost of doing business.

4.The following information regarding fixed production costs from a manufacturing firm is available for the
current year:
Fixed costs in the beginning inventory P16,000
Fixed costs incurred this period 100,000

Which of the following statements is not true?

a. The maximum amount of fixed production costs that this firm could deduct using absorption costs in the
current year is P116,000.
b. The maximum difference between this firm's the current year income based on absorption costing and its
income based on variable costing is P16,000.
c. Using variable costing, this firm will deduct no more than P16,000 for fixed production costs.
d. If this firm produced substantially more units than it sold in the current year, variable costing will probably
yield a lower income than absorption costing.

5.Absorption costing differs from variable costing in all of the following except
a. treatment of fixed manufacturing overhead.
b. treatment of variable production costs.
c. acceptability for external reporting.
d. arrangement of the income statement

6.If a firm produces more units than it sells, absorption costing, relative to variable costing, will result in
A. higher income and assets C. lower income but higher assets
B. higher income but lower assets D. lower income and assets

7.How will a favorable volume variance affect net income under each of the following methods?
Absorption Variable
A. reduce no effect
B. reduce increase
C. increase no effect
D. increase reduce
8.Which of the following is an advantage of using variable costing?
A. Variable costing complies with Generally Accepted Accounting Principles.
B. Variable costing complies with the National Internal Revenue Code.
C. Variable costing is most relevant to long-run pricing strategies.
D. Variable costing makes cost-volume-profit relationships more easily apparent.
 PAGE 55

9.The primary reason for adopting Total Quality Management (TQM) is to achieve
A. Greater customer satisfaction.
B. Reduced delivery time.
C. Reduced delivery charges.
D. Greater employee participation.

10.Consulting services differ fundamentally from CPA’s function of attesting to the assertions of other
parties. In a consulting service,
A. the practitioner expresses a conclusion about the reliability of a written assertion that is the responsibility of
the assertor.
B. the work is generally performed only for the use and benefit of the client.
C. the client develops findings, conclusions, and recommendations.
D. the nature and scope of work is determined solely by the consulting services practitioner.

11.As a consultant the CPA/MAS practitioner should

A. conduct his engagement as if he is a member of the client’s organization.
B. exercise administrative control over the client’s staff to avoid unnecessary delays in implementation.
C. encourage dependence of client on the consultant’s staff so as to pinpoint clear responsibility in
implementing systems.
D. not take responsibility for making decisions and policy judgments in MAS engagements.

12.Which of the following statements is correct?

A. MAS is confined only to such areas as financial accounting, auditing, and tax services.
B. Because the MAS practitioner must be independent, he must not allow the client to participate in any
phase of his engagement.
C. Although MAS extends beyond the traditional accounting services, CPAs in the MS practice are still bound
by the rules of professional ethics in the practice of accounting in general.
D. CPAs provide management services to go around the ethical constraints as mandated by the Accountancy
Act.

13.It is a systematic gathering and analysis of data concerning a proposed project and the formulation of
conclusion therefrom for the purpose of determining whether or not the project is viable, and if so,
its degree of profitability.
A. Budgeting C. Viable Costing
B. Feasibility Study D. Profit Planning

14.The term cost driver refers to

A. any activity that can be used to predict cost changes.
B. the attempt to control expenditures at a reasonable level.
C. the person who gathers and transfers cost data to the management accountant.
D. any activity that causes costs to be incurred.

15.A company produces and sells bottled fruit juices. The processes involved in producing the product
are done in the following departments:
Department Capacity per week
Juice extraction 8,000 bottles
Mixing 5,000 bottles
Bottling 10,000 bottles

Demand for the company’s product is about 6,000 bottles per week.
If the company wants to improve its contribution margin and applies the Theory of Constraints,
improvement efforts should be focused on
A. juice extraction department. C. bottling department.
B. mixing department. D. sales department.

16.It describes how an organization matches its own capabilities with the opportunities in the marketplace
to accomplish its overall objectives.
A. Planning C. Learning and growth perspective
B. Strategy D. Customer perspective

17.Management accounting and cost accounting

A. are required for recordkeeping as are financial accounting and tax accounting.
B. provide cost information about products and services, as well as information for internal decision making.
C. require an entirely separate group of accounts than financial accounting.
D. focus solely on the determination of costs to produce a product or provide a service.
 PAGE 56

18.Which of the following changes would cause a company’s break-even point in sales to increase?
A. The company’s contribution margin rate increases.
B. The company’s variable cost per unit decreases.
C. The company’s total fixed costs increases.
D. The company’s selling price per unit increases.

19.Frank Co.’s total costs of operating five sales offices last year were P500,000, of which P70,000
represented fixed costs. Frank has determined that total costs are significantly influenced by the
number of sales offices operated. Last year’s costs and number of sales offices can be used as the
bases for predicting annual costs. What would be the budgeted costs for the coming year if Frank
were to operate seven sales offices?
A. 700,000 C. 614,000
B. 672,000 D. 586,000

Numbers 20 and 21

Castelo, Villasin and Barrera is a large, local accounting firm located in Cebu. Belle Castelo, one of
the Firm’s founders, appreciates the success her firm has enjoyed and wants to give something back
to her community. She believes that an inexpensive accounting services clinic could provide basic
accounting services for small businesses located in the province. She wants to price the services at
cost.

Since the clinic is brand new, it has no experience to go on. Belle decided to operate the clinic for
two months before determining how much to charge per hour on an ongoing basis. As a temporary
measure, the clinic adopted an hourly charge of P50, half the amount charged by Castelo, Villasin
and Barrera for professional services.

The accounting services clinic opened on January 1. During January, the clinic had 120 hours of
professional service. During February, the activity was 150 hours. Costs for these two level of activity
usage are as follows:
Professional hours 120 hours 150 hours
Salaries:
Senior accountant P2,500 P2,500
Office assistant 1,200 1,200
Internet and software subscriptions 700 850
Consulting by senior partner 1,200 1,500
Depreciation (equipment) 2,400 2,400
Supplies 905 1,100
Administration 500 500
Rent (offices) 2,000 2,000
Utilities 332 365
Total P11,737 P12,415

20.The clinic’s monthly fixed costs amount to

A. 8,600 C. 425
B. 9,025 D. 12,189

21.Apple Baby, the chief paraprofessional of the clinic, has estimated that the clinic will average 140
professional hours per month. If the clinic is to be operated as a nonprofit organization, how much
will it need to charge per professional hour?
A. 97.81 C. 82.77
B. 87.06 D. 22.60

22.HSR Computer System designs and develops specialized software for companies and use a normal
costing system. The following data are available for 2018:
Budgeted
Overhead P600,000
Machine hours 24,000
Direct labor hours 75,000
Actual
Units produced 100,000
 PAGE 57

Overhead P603,500
Prime costs P900,000
Machine hours 25,050
Direct labor hours 75,700
Overhead is applied on the basis of direct labor hours.
What is the unit cost for the year?
A. 15.03 C. 15.09
B. 15.06 D. 15.00

23.Harry Manufacturing 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 P75,000 is desired by management. The
company projects its income tax rate at 40 percent. What is the maximum amount that Harry can
expend for variable costs per unit and still meet its profit objective if the sales price per unit is
estimated at P6?
A. 3.37 C. 3.00
B. 3.59 D. 3.70

24.For its most recent fiscal year, a firm reported that its contribution margin was equal to 40 percent of
sales and that its net income amounted to 10 percent of sales. If its fixed costs for the year were
P60,000, how much was the margin of safety?
A. 150,000 C. 600,000
B. 200,000 D. 50,000

25.Sam Company manufactures a single product. In the prior year, the company had sales of P90,000,
variable costs of P50,000, and fixed costs of P30,000. Sam expects its cost structure and sales price
per unit to remain the same in the current year, however total sales are expected to increase by 20
percent. If the current year projections are realized, net income should exceed the prior year’s net
income by:
A. 100 percent C. 20 percent
B. 80 percent D. 50 percent

26.Antiporda, Inc. sells three products, A, B, and C. The company sells three (3) units of C for each unit of
A and two (2) units of B for each unit of C. Total fixed costs amount to P760,000. Product A’s
contribution margin per unit is P2, Product B’s is 150% of A’s, and Product C’s is twice as much as
B’s. How many units of each product must be sold to break-even?
Product A Product B Product C
A. 2,000 12,000 6,000
B. 20,000 120,000 60,000
C. 29,231 58,462 87,692
D. 69,091 414,546 207,273

Numbers 27, 28 and 29

A company is making plans for next year, using cost-volume-profit analysis as its planning tool.
Next year’s sales data about its product are as follows:
Selling price P60.00
Variable manufacturing costs per unit 22.50
Variable selling and administrative costs 4.50
Fixed operating costs (60% is manufacturing cost) P148,500
Income tax rate 32%
27.How much should sales be next year if the company wants to earn profit after tax of P22,440, the same
amount that it earned last year?
A. 310,800 C. 330,000
B. 397,500 D. 222,000

28.Assume that the company’s management learned that a new technology that will increase the quality of
its product is available. If implemented, its projections for next year will be
 PAGE 58

changed:
1. The selling price of the product will increase to P75 per unit.
2. Fixed manufacturing costs will increase by 20%.
3. Additional advertising costs will be incurred to promote the higher-quality product. This
will increase fixed non-manufacturing cost by 10%.
4. The improved product will require a new material that will increase direct materials cost by
P4.50
If the new technology is adapted, how much sales should the company make to earn a pre-tax profit
of 10% on sales?
A. 366,130 C. 253,324
B. 358,875 D. 353,897
29.If the sales required in Item #35 is realized, the company will have an operating leverage
factor of
A. 8.53 C. 7.24%
B. 5.80 D. 5.50
30.Yamyam Company is considering introducing a new product that will require a P250,000 investment of
capital. The necessary funds would be raised through a bank loan at an interest rate of 8%. The
fixed operating costs associated with the product would be P122,500 while the variable cost ratio
would be 58%. Assuming a selling price of P15 per unit, determine the number of units (rounded to
the nearest whole unit) Yamyam would have to sell to generate earnings before interest and taxes
(EBIT) of 32% of the amount of capital invested in the new product.
A. 35,318 units C. 32,143 units
B. 25,575 units D. 23,276 units

Numbers 31 and 32
Total Cost Unit Cost
Sales (40,000 units) P1,000,000 P25
Raw materials 160,000 4
Direct labor 280,000 7
Factory overhead:
Variable 80,000 2
Fixed 360,000
Selling and general expenses:
Variable 120,000 3
Fixed 225,000
31.How many units does the company need to produce and sell to make a before-tax profit of 10% of
sales? B. 36,562 units
A. 65,000 units C. 90,000 units
D. 29,250 units

32.Assuming that the company sells 80,000 units, what is the maximum that can be paid for an advertising
campaign while still breaking even?
A. 135,000 C. 535,000
B. 1,015,000 D. 695,000

33.In its first year of operations, Nasty Company had the following costs when it produced 100,000 units
and sold 80,000 units of its only product:
Manufacturing costs:
Fixed P180,000
Variable 160,000
Selling and administrative costs:
Fixed 90,000
Variable 40,000
How much higher would Nasty’s net income be if it used full absorption costing instead of variable
costing?
A. 94,000 C. 36,000
B. 68,000 D. 54,000

34.At the end of Luke Co.’s first year of operations, 1,000 units of inventory remained on hand. Variable
and fixed manufacturing costs per unit were P90 and P20, respectively. If Luke uses absorption
costing rather than variable (direct) costing, the result would be a higher pretax income of
 PAGE 59

A. 0 C. 70,000
B. 20,000 D. 90,000

35.At the end of 2017, Gabbuat Company’s total assets was P500,000. In 2018, it earned net income of
P30,000 and paid dividends of P10,000. What is the company’s internal growth rate?
A. 1 B. 4% C. 5% D. 9%

36.A division of Lockman Corporation reported a return on investment of 20% for a recent period. If the
division's asset turnover was 5, its profit margin must have been
A. 100% B. 25% C. 4% D. 2%

37.As of the end of 2017, Ice Company had total assets of P375,000 and equity of P206,250. For 2018,
its budget for capital investment projects is P62,500. To finance a portion of the capital budget, the
company may borrow from a bank which set a condition that the loan would be approved, provided
that the 2018’s debt-to-equity ratio should be the same as the debt-to-equity ratio in 2017.
How much debt should be incurred to satisfy the bank’s condition?
A. 28,125 C. 34,375
B. 62,500 D. 51,138

38.Last year’s asset turnover of Johvic Company was 3.0. This year, the company’s sales increased by
25% and average total assets decreased by 5%. What is this year’s asset turnover?
A. 3.9 B. 3.6 C. 3.4 D. 3.1

39.Failure Corporation is a manufacturer of a versatile statistical calculator. The following information is a

summary of defective and returned units for the previous year.
Total defective units 1,000
Number of units reworked 750
Number of customer units returned 150
Profit for a good unit P40
Profit for a defective unit P25
Cost to rework a defective unit P10
Cost of a returned unit P15
Total prevention cost P10,000
Total appraisal cost P5,000
The total quality cost is
A. 15,000
B. 15,750
C. 28,500
D. 11,250
 PAGE 60

40. The projected sales price for a new product (which is still in the development stage of the product life
cycle) is P100. The company has estimated the life-cycle cost to be P60 and the first-year cost to be
P120. On this type of product, the company requires a P24 per unit profit. What is the target cost of the
new product?
A. 60 B.76 C. 842 D. 120

1. Hazelnut Company uses activity-based costing. The company produces two products: coats and hats. The annual
production and sales volume of coats is 8,000 units and of hats is 6,000 units. There are three activity cost pools with
the following expected activities and estimated total costs:

Activity Estimated Expected Expected

Activity Activity
Cost Pool Cost
Coats Hats
Total

Activity 1 P20,000 100 400 500

Activity 2 P37,000 800 200 1,000
Activity 3 P91,200 800 3,000 3,800

Using ABC, the cost per unit of coats is approximately:

a. P2.40 c. P 6.60
b. P3.90 d. P10.59

2. Elaine Hospital plans to use the activity-based costing to assign hospital indirect costs to the care of patients. The
hospital has identified the following activities and activity rates for the hospital indirect costs:
Activity Activity Rate

Room and meals P150 per day

Radiology P95 per image

Pharmacy P28 per physician order

Chemistry lab P85 per test

Operating room P550 per operating room hour

The records of two representative patients were analyzed, using the activity rates. The activity information
associated with the two patients are as follows:

Patient 1 Patient 2
Number of days 7 3

Number of images 4 2

Number of physician orders 5 1

Number of tests 6 2

Number of operating room hours 4.5 1

Determine the activity cost associated with Patient 2.

 PAGE 61

a. P1,388 c. P1,816

b. P 908 d. P4,555

3. Balat Leather Works, which manufactures saddles and other leather goods, has three departments. The Assembly
Department manufactures various leather products, such as belts, purses, and saddle bags, using automated
production process. The Saddle Department produces handmade saddles and uses very little machinery. The
Tanning Department produces leather. The tanning process requires little in the way of labor or machinery, but it
does require space and process time. Due to the different production processes in the three departments, the
company uses three different cost drivers for the application of manufacturing overhead. The cost drivers and
overhead rates are as follows:
Cost Driver Predetermined Overhead Rate
Tanning Department Square-feet of leather P3 per square-foot
Assembly Department Machine time P9 per machine hour
Saddle Department Direct-labor time P4 per direct labor hour

The company’s deluxe saddle and accessory set consists of handmade saddle, two saddlebags, a
belt, and a vest, all coordinated to match. The entire set uses 100 square-feet of leather from the
Tanning Department, 3 machine hours in the Assembly Department, and 40 direct-labor hours in the
Saddle Department. The company is processing Job No. 20 consisting of 20 deluxe saddle and
accessory sets.

How much is the applied manufacturing overhead in Assembly Department for Job No. 20?
a. P3,200 c. P6,000
b. P 540 d. P3,000

4. If activity-based costing is implemented in an organization without any other changes being effected, total overhead
costs will
a. be reduced because of the elimination of non-value-added activities.

b. be reduced because organizational costs will not be assigned to products or services.

c. be increased because of the need for additional people to gather information on cost drivers and cost
pools.

d. remain constant and simply be spread over products differently.

5. The materials mix variance for a product is P450 unfavorable and the materials yield variance is P150 unfavorable.
This means that
a. the materials price variance is P600 unfavorable.
b. the materials quantity variance is P600 unfavorable
c. the total materials cost variance is definitely P600 unfavorable.
d. the materials price variance is also unfavorable, but the amount cannot be determined from the
given information.

6. Samson Company uses a standard costing system in the production of its only product. The 84,000 units of raw
materials inventory were purchased for P126,000 and 4 units of raw materials are required to produce one unit of final
product. In October, the company produced 14,400 units of product. The standard cost allowed for materials was
P72,000, and there was an unfavorable usage variance of P3,000.

The materials price variance for the units used in October was
a. P15,000 unfavorable. c. P3,000 unfavorable.
b. P15,000 favorable. d. P3,000 favorable.

7. The standard direct materials cost to produce a unit of a product is four meters of materials at P2.50 per meter. During
June, 2015, 4,200 meters of materials costing P10,080 were purchased and used to produce 1,000 units of the
product. What was the materials price variance for June, 2015?
a. P480 unfavorable c. P400 favorable
b. P 80 unfavorable d. P420 favorable

8. Buchoy Company manufactures one product with a standard direct manufacturing labor cost of four hours at P12.00
per hour. During June, 1,000 units were produced using 4,100 hours at P12.20 per hour. The unfavorable direct labor
efficiency variance was:
a. P820 c. P1,200
b. P400 d. P1,220
 PAGE 62

ITEMS 9 TO 11 ARE BASED ON THE FOLLOWING:

Vhong, Inc. evaluates manufacturing overhead in its factory by using variance analysis. The following information
applies to the month of July:

ACTUAL BUDGETED

Number of units produced 19,000 20,000

Variable overhead costs P4,100 P2 per direct labor hour

Fixed overhead costs P22,000 P20,000

Direct labor hours 2,100 0.1 hour per unit

9. The controllable variance amounts to

a. P2,500 unfavorable c. P2,300 unfavorable

b. P1,000 unfavorable d. P2,000 unfavorable

10. Using the three-way variance analysis, the spending variance amounts to
a. P100 favorable c. P2,000 unfavorable
b. P1,900 unfavorable d. P2,100 unfavorable

11. The efficiency variance amounts to

a. P400 unfavorable c. P400 favorable

b. P1,900 unfavorable d. P1,000 unfavorable

12. The non-controllable variance is

a. P2,300 unfavorable c. P2,000 unfavorable

b. P400 unfavorable d. P1,000 unfavorable

13. The fixed overhead efficiency variance is:

a. P400 unfavorable c. P400 favorable
b. PP2,000 unfavorable d. 0

14. A basic tenet of variable costing is that period costs should be currently expensed. What is the rationale behind this
procedure?
a. Period costs are uncontrollable and should not be charged to a specific product.
b. Period costs are generally immaterial in amount and the cost of assigning the amounts to
specific products would outweigh the benefits.
c. Allocation of period costs is arbitrary at best and could lead to erroneous decision by
management.
d. Because period costs will occur whether production occurs, it is improper to allocate these costs to
production and defer a current cost of doing business.

15. The following information regarding fixed production costs from a manufacturing firm is available for the current year:

Fixed costs in the beginning inventory P16,000

Fixed costs incurred this period 100,000

Which of the following statements is not true?

 PAGE 63

a. The maximum amount of fixed production costs that this firm could deduct using absorption
costs in the current year is P116,000.
b. The maximum difference between this firm's the current year income based on absorption
costing and its income based on variable costing is P16,000.
c. Using variable costing, this firm will deduct no more than P16,000 for fixed production costs.
d. If this firm produced substantially more units than it sold in the current year, variable costing will
probably yield a lower income than absorption costing.

16. If a firm produces more units than it sells, absorption costing, relative to variable costing, will result in
a. higher income and assets. c. lower income but higher assets.
b. higher income but lower assets. d. lower income and assets.

ITEMS 17 TO 19 ARE BASED ON THE FOLLOWING:

The following information is available for X Co. for its first year of operations:

Sales in units 5,000

Production in units 8,000

Manufacturing costs:

Direct labor P3 per unit

Direct material 5 per unit

Variable overhead 1 per unit

Fixed overhead P100,000

Net income (absorption method) P30,000

Sales price per unit P40

17. What would X Co. have reported as its income before income taxes if it had used variable costing?
a. P30,000 c. P67,500

b. (P7,500) d. can’t be determined from the given

information
18. What was the total amount of SG&A expense incurred by X Co.?
a. P30,000 c. P6,000

b. P62,500 d. can’t be determined from the given

information
19. Based on variable costing, what would X Co. show as the value of its ending inventory?
a. P120,000 c. P27,000

b. P 64,500 d. P24,000

20. Which of the following is an advantage of using variable costing?

a. Variable costing complies with Generally Accepted Accounting Principles.
b. Variable costing complies with the National Internal Revenue Code.
c. Variable costing is most relevant to long-run pricing strategies.
d. Variable costing makes cost-volume-profit relationships more easily apparent.

21. In its first year of operations, Nasty Company had the following costs when it produced 100,000 units and sold 80,000
units of its only product:
Manufacturing costs:

Fixed P180,000
 PAGE 64

Variable 160,000

Selling and administrative costs:

Fixed 90,000

Variable 40,000

How much higher would Nasty’s net income be if it used full absorption costing instead of variable costing?

a. P94,000 c. P36,000
b. P68,000 d. P54,000

22. Ning Company has only 25,000 hours of machine time each month to manufacture its two products. Product X has a
contribution margin of P50, and Product Y has a contribution margin of P64. Product X requires 5 hours of machine
time, and Product Y requires 8 hours of machine time. If Ning Company wants to dedicate 80 percent of its machine
time to the product that will provide the most income, the company will have a total contribution margin of
a. P250,000. c. P210,000.
b. P240,000. d. P200,000.

23. Mangit Company is currently operating at a loss of P15,000. The sales manager has received a special order for
5,000 units of product, which normally sells for P35 per unit. Costs associated with the product are: direct material,
P6; direct labor, P10; variable overhead, P3; applied fixed overhead, P4; and variable selling expenses, P2. The
special order would allow the use of a slightly lower grade of direct material, thereby lowering the price per unit by
P1.50 and selling expenses would be decreased by P1. If Mangit wants this special order to increase the total net
income for the firm to P10,000, what sales price must be quoted for each of the 5,000 units?
a. P23.50 c. P27.50
b. P24.50 d. P34.00

24. Dolly Company has 3 divisions: R, S, and T. Division R's income statement shows the following for the year ended
December 31:
Sales P1,000,000 
Cost of goods sold   (800,000)
Gross profit P 200,000 
Selling expenses P100,000
Administrative expenses  250,000   (350,000)
Net loss P (150,000)

Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60 percent are avoidable if the
division is closed. All of the selling expenses relate to the division and would be eliminated if Division R were
eliminated. Of the administrative expenses, 90 percent are applied from corporate costs. If Division R were
eliminated, Dolly’s income would
a. increase by P150,000. c. decrease by P155,000.
b. decrease by P 75,000. d. decrease by P215,000.

25. The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use
is
a. the total manufacturing cost of the component.
b. the total variable cost of the component.
c. the fixed manufacturing cost of the component.
d. zero.

ITEMS 26 TO 29 ARE BASED ON THE FOLLOWING:

Schundel Hair Care Company produces shampoo with conditioner. This is the company’s only product, which it
sells under the name “Shamcon.”

The manufacturing cost data for Shamcon are as follows:

Quantity required Current market price
Materials: per 1,000-ml bottle per ml
 PAGE 65

Chem 1 4 ml P0.54
Chem 2 3 ml 0.36
Chem 3 2 ml 0.20

Direct labor: 2 hours per bottle @ P3 per hour

Factory overhead:
Variable overhead – P2.00 per direct labor hour
Fixed overhead – 4.00 per direct labor hour

Clever Company, owner and operator of a chain of hotels, asked Schundel Hair Care Company to submit a bid for
500 boxes of Shamcon. Each box will contain 24 bottles. Per Clever’s specifications, its order should be different
in chemical composition from the regular Shamcon. According to Schundel Company’s production manager,
Clever’s specifications can be met if an additional chemical, Chem 4 would be used. Schundel Company has
60,000 ml of this chemical. Chem 4 was used by the company in one of its brands that it decided to eliminate.
The remaining inventory of Chem 4 was not sold or discarded because it does not deteriorate and the company
has adequate space for its storage. Schundel Company can sell Chem 4 at the prevailing market price of P0.40
per ml less P0.10/ml selling and handling costs. Clever’s order would require 5 ml of Chem 4 per bottle.

The company has a stock of Chem 5. This was used by Schundel Hair Care for its manufacture of another
product that is no longer being produced. Chem. 5, which cannot be used in Shamcon, can be substituted for
Chem 1 on a one-for-one basis without affecting the quality of the Clever order. There is no problem about the
supply of Chem 1. At present, the company has 20,000 ml of Chem 5 in its inventory, which has a salvage value
of P6,000.

The production of the Clever’s order would require the same direct labor hours per bottle as in the regular
Shamcon. However, at present, the company has only 20,000 direct labor hours available. The Clever order can
be produced if the workers would work overtime, although an overtime premium of 30% of the regular rate should
be paid.

Schundel Hair Care Company’s policy is to price new products at 130% of full manufacturing cost.

26. If Schundel Company bids this month for the special one-time order of 500 boxes of the product, the special order’s
total direct materials cost will be
a. P73,944. c. P68,880.
b. P61,680. d. P56,880.

27. If Schundel Hair Care Company bids this month for the special one-time order of 500 boxes of the product, the
special order’s total relevant conversion cost will be
a. P123,600. c. P120,000.
b. P219,600. d. P216,000.

28. If the company’s policy is to price new products at 130% of full manufacturing cost, what is the bid price per unit for this
one-time special order of Clever Company?
a. P19.55 c. P29.95
b. P 6.91 d. P23.80

29. What will be the total variable manufacturing costs for the subsequent, recurring 500-box orders?
a. P180,480 c. P287,280
b. P373,464 d. P191,280

ITEMS 30 and 31 ARE BASED ON THE FOLLOWING INFORMATION:

Jane Corporation produces wood glue that is used by furniture manufacturers. The company normally
produces and sells 10,000 gallons of the glue each month. White Glue is sold for P280 per gallon,
variable costs is P168 per gallon, fixed factory overhead cost totals P460,000 per month, and the fixed
selling costs totals P620,000 per month.

Labor strikes in the furniture manufacturers that buy the bulk of White Glue have caused the monthly sales of
Jane Corporation to temporarily decrease to only 15% of its normal monthly volume. Jane Corporation’s
management expects that the strikes will last for about 2 months, after which, sales of White Glue should
 PAGE 66

return to normal. However, due to the dramatic drop in the sales level, Jane Corporation’s management is
considering to close down its plant during the two-moth period that the strikes are on.

If Jane Corporation will temporarily shut down its operations, it is expected that the fixed factory overhead
costs can be reduced to P340,000 per month and that the fixed selling costs can be reduced by P62,000 per
month. Start-up costs at the end of the shut-down period would total P56,000. Jane Corporation uses the JIT
system, so no inventories are on hand.

30. The shut down point in units is

a. 2,750.00. c. 3,250.00.
b. 9,642.86. d. 1,100.00.

31. At the sales level of only 30% of the normal volume, should the company continue operating or shut down temporarily
for two months?
a. Continue, because the expected sales is above the shutdown point.
b. Shut down, because the expected sales is above the shutdown point.
c. Continue, so that the shutdown costs may be avoided.
d. Shut down, because the shutdown costs is less than the contribution margin under continued
operations.

32. Spikey Company produces two products: Pat and Chin. The projected income for the coming year, segmented by
product line, follow:
Pat Chin Total

Sales P300,000 P2,500,000 P2,800,000

Less variable expenses 100,000 500,000 600,000

Contribution margin P200,000 P2,000,000 P2,200,000

Less direct fixed expenses 28,000 1,500,000 1,528,000

Product margin P172,000 P 500,000 P 672,000

Less common fixed cost 100,000

Operating income P 572,000

The selling prices are P30 for Pat and P50 for Chin.

Spikey company can increase the sales of Pat with increased advertising. The extra advertising would cost an
additional P245,000, and some of the potential purchasers of Chin would switch to Pat. In total, sales of Pat
would increase by 25,000 units, and sales of Chin would decrease by 5,000 units. This strategy would

a. increase Spikey’s total sales by P750,000.

b. decrease Spikey’s total contribution margin by P300,000.

c. increase Spikey’s total income by P55,000.

d. not affect Spikey’s total fixed costs.

33. After careful planning, Change Style, Inc. has decided to switch to a just-in-time inventory system effective on July 1 of
the current year. As of July 1, the corporation has 70 units of product in inventory. It has 1,000 labor hours available
for the month of July. These hours could produce 250 units of product. Customer demand for July is 200 units. If
just-in-time principles are correctly followed, how many units should Change Style Inc. plan to produce in July?
a. 200 c. 180
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b. 130 d. 250

34. Ideally, the number of units that should be produced in a just-in-time manufacturing system is equal to
a. the maximum productive capacity for the current period.
b. actual customer demand for the current period.
c. budgeted customer demand for the current period.
d. budgeted customer demand for the following period

35. Ivory Company has the following expected pattern of collections on credit sales: 70 percent collected in the month of
sale, 15 percent in the month after the month of sale, and 14 percent in the second month after the month of sale.
The remaining 1 percent is never collected. At the end of May, Ivory Company has the following accounts receivable
balances:
From April sales P21,000
From May sales 48,000

Ivory's expected sales for June are P150,000. What were total sales for April?
a. P150,000 c. P 70,000
b. P 72,414 d. P140,000

36. Bali Company has a policy of maintaining an inventory of finished goods equal to 30 percent of the following month's
sales. For the forthcoming month of March, Bali has budgeted the beginning inventory at 30,000 units and the ending
inventory at 33,000 units. This suggests that
a. February sales are budgeted at 10,000 units less than March sales.
b. March sales are budgeted at 10,000 units less than April sales.
c. February sales are budgeted at 3,000 units less than March sales.
d. March sales are budgeted at 3,000 units less than April sales.

ITEMS 37 to 40 ARE BASED ON THE FOLLOWING INFORMATION:

The cost of goods sold section of Dale Corporation’s operating budget for 2015 is presented below:
Materials: Inventory, January 1 (16,000 units) P 960,000
Purchases 9,120,000
Available for use P10,080,000
Inventory, December 31 (18,500 units) 1,184,000 P 8,896,000
Labor 784,000
Factory overhead: Variable P 2,009,600
Fixed 1,120,000 3,129,600
Cost of goods manufactured (140,000 units) P12,809,600
Add finished goods inventory, January 1 (9,300 units) 744,000
Cost of goods available for sale P13,553,600
Less finished goods inventory, December 31 (3,300 units) 301,600
Budgeted cost of goods sold P13,255,000

The actual results for the first quarter of 2015 require the following changes in the budget assumptions:
 The budgeted production for the year is expected to increase by 5,000 units. During the first quarter,
the company has already produced 25,000 units. The balance of production will be scheduled in equal
segments over the last 3 quarters of the budget year.
 The expected finished goods inventory on January 1 dropped to only 9,000 units, but its total value will
not be revised anymore. The ending inventory value is computed using the average manufacturing
cost for the year.
 A new Labor Bill passed by Congress is expected to be signed into a law by the President. The new law
will take effect beginning the last quarter of the budget year, including a provision for an increase of
8% in wage rates.
 PAGE 68

 The company uses the FIFO method in valuing its materials inventory. During the first quarter, the
company purchased 27,500 units of direct materials for P1,760,000. The remaining direct materials
requirement will be purchased evenly for the last 9 months of the budget year. Effective July 1, 2015, the
beginning of the third quarter, direct materials cost is expected to increase by 5%. The assumptions
regarding the quantity of materials inventories at the beginning and end of the year will remain
unchanged.
 The variable factory overhead of P2,009,600 includes indirect materials and factory supplies amounting
to P889,600. It is computed at 10% of the cost of materials used. The balance of the variable factory
overhead varies directly with production.
 There will be no change in the budgeted fixed factory overhead cost.

Based on actual data for the first quarter, as well as the changes in assumptions and estimates in the budgeted
data for the year, the company’s accountant prepared a revised budgeted cost of goods sold statement. This
revised statement should show:

37. budgeted cost of materials inventory at December 31, 2015 of

a. P1,024,000. c. P1,184,000.
b. P1,243,200. d. P1,216,100.

38. the budgeted direct labor cost of

a. P846,720. c. P876,960.
b. P784,000. d. P829,920.

39. the budgeted cost of goods manufactured of

a. P12,809,600. c. P14,208,000.
b. P13,464,000. d. P12,344,000.

40. the budgeted cost of goods sold of

a. P13,901,578. c. P13,553,600.
b. P13,252,000. d. P14,208,000.

MANAGEMENT ACCOUNTING SERVICES

AVERAGE
1. Ram Corp. has a 2 to 1 current ratio. This ratio would increase more than 2 to 1if
a. The company wrote off an uncollectible receivable.
b. The company purchased inventory on open account.
c. The company sold merchandise on open account that earned a normal gross margin
d. A previously declared stock dividend were distributed.

2. Associated Co. paid out one-half of its 2012 earnings by dividends. Its earnings increased by 20% and
the amounts of its dividends increased by 15% in 2013. Associated’s dividend pay-out ratio for 2013
was
a. 51.5% b. 52.3% c. 75.00% d. 47.90%

3. A measure of the company’s long-term debt paying ability is

a. Return on assets b. Dividend Pay-out c. Times interest earned d. Operating cycle

4. Data pertaining to Classics Corp.’s common stock are presented for the fiscal year ending May 31,
2018:
Common stock outstanding 750,000
Stated value per share P15.00
Market Price Per share 45.00
2012 dividends paid per share 4.50
2013 dividends paid per share 7.50
Primary earnings per share 11.25
Fully diluted earnings per share 9.00
The price-earning ratio of common stock of Classics Corp. is
a. 3.0 times b. 7.0 times c. 6.0 times d. 5.0 times
 PAGE 69

5. The following information pertains to AL Corporation as of and for the year ended December 31, 2018:
Liabilities 60,000
Stockholders’ Equity 500,000
Shares in common stock issued and outstanding 10,000
Net Income P 30,000
During 2018, AL’s officers exercised stock option for 1,000 shares of stock at an option price of P8 per
share. What was the effect of exercising the stock option?
a. No ratios were affected c. Debt to equity ratio decreased to 12%
b. Asset turnover increased to 5.4% d. Earnings per share increased by P0.33.

6. A fire destroyed many of the financial records of R. Son & Co. You are assigned to put together a
financial report. You have ground the return on equity to be 12% and the debt ratio was 0.40. What was
the return on assets?
a. 5.35% b. 8.4% c. 6.60% d. 7.20%

7. Division A of Decision Experts Corporation is being evaluated for elimination. It has contribution margin
of P 400,000. It receives an allocated overhead of P1 million, 10% of which cannot be eliminated. The
elimination of Division A would affect pre-tax income by
a. P 400,000 decrease c. P 400,000 increase
b. P 500,000 decrease d. P 500,000 increase

8. Karen Company is considering replacing an old machine with a new machine. Which of the following
items is economically relevant to Karen’s decisions?
a. Carrying amount of old machine-yes; Disposable value of new machine-yes
b. Carrying amount of old machine-yes; Disposal value of new machine-no
c. Carrying amount of old machine-no; Disposal value of new machine-yes
d. Carrying amount of old machine-no; Disposal value of new machine-no

9. Para Co. is reviewing the following data relating to an energy saving investment proposal:
Cost P 50,000
Residual value at the end of 5 years 10,000
Present value of an annuity of 1 at 12% for 5 years 3.6
Present value of 1 due in 5 years at 12% 0.57
What would be the annual savings needed to make the investment realize a 12% yield?
a. P 8,189 c. P 12,306
b. P 11,111 d. P 13,889

10. Womack Company purchased a new machine on January 1, 2018 for P 90,000 with an estimated useful
life of 5 years arid a salvage value of P 10,000. The machine will be depreciated using the straight-line
method. The machine is expected to produce cash flow from operations, net of income taxes, of P
36,000 a year in each of the next 5 years. The payback period would be
a. 2.2 years b. 2.5 years c. 4.0 years d. 4.5 years

11. The accountant for Champion Brake applies overhead based on machine hours. The budgeted
overhead and machine hours for the year P 260,000 and 16,000, respectively. The actual overhead and
machine hours incurred were P 275,000 and 20,000. The cost of goods sold and inventory data
compiled for the year is as follows:
Direct materials P 50,000
COGS 450,000
WIP (units) 100,000
Finished Goods (units) 150,000
What is the amount of over/underapplied overhead for the year?
A. P 15,000 B. P 50,000 C. P 65,000 D. P 67,000

12. When estimating cash flow for use in capital budgeting, depreciation is:
A. Included as a cash or other cost
B. Excluded for all purposes in the computation
C. Utilized to estimate the salvage value of an investment
D. Utilized in determining the tax costs or benefit.

13. Selected costs associated with a product are as follows:

Total standard hours for units produced 5,000,000
 PAGE 70

Total actual direct labor cost P111,625.00

Actual per hour labor rate P 23.50
Standard per hour labor rate P 24.00
What amount is the total direct labor price variance?
A. P 2,375 unfavorable C. P 2,500 unfavorable
B. P 2,375 favorable D. P 2,500 favorable

14. A company produces and sells two products. The first product accounts for 75% of sales and the
second product accounts for the remaining 25% of sales. The first product has a selling price of P 10
per unit variable costs of P 6 per unit, and allocated fixed costs of P 100,000. The second product has a
selling price of P 25 per unit, variable costs of P 13 per unit, and allocated fixed costs of P 212,000. At
the breakeven point, what number of units of the firsts product will have been sold?
A. 52,000 B. 39,000 C. 25,000 D. 14,625

15. Tanduay Co. Produced and sold 30,000 backpacks during the last year at an average price of P 25 per
unit. Unit variable costs were the following:
Variable manufacturing costs P 9
Variable selling and administrative costs 6
Total P 15
Total fixed costs were P 250,000. There was no year-end work-in process inventory. If Tanduay had
spent an additional P 15,000 on advertising, Then sales would have increased by P 30,000. If
Tanduay had made this investment, what change would have occurred in Tanduay’s pretax profit?
A. P 3,000 increase C. P 3,000 decrease
B. P 4,200 increase D. P 4,200 decrease

END OF EXAMINATIONS
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