Mas Final Preboard Batch 90 PDF
Mas Final Preboard Batch 90 PDF
Mas Final Preboard Batch 90 PDF
CPAR
CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
Instructions: Choose the BEST answer for each of the following items.
1. Incremental cost is
a. the difference in total costs that results from selecting one
choice instead of another.
b. the profit foregone by selecting one choice instead of another.
c. a cost that continues to be incurred in the absence of activity.
d. a cost common to all choices in question and not clearly or
feasibly allocable to any of them.
3. If the organization uses the full-cost system, the cost per unit for this
product for the coming year will be
a. P5.39
b. P5.55
c. P6.11
d. P6.95
The long term debt has an interest rate of 8%, and its fair value
equaled its book value at year-end. The fair value of equity capital is
P2 million greater than its book value. The income tax rate is 30%, and
its cost of equity capital is 12%.
10. What is the weighted average cost of capital to be used in the economic value added (EVA)
calculation?
a. 7.70% c. 11%
b. 17.6% d. 10.40%
14. An auto parts store must maintain inventory of a wide variety of parts
to satisfy its diverse customer base. As a result, the store’s inventory
has a high risk of obsolescence. Which of the following features
would be most desirable to the store’s creditors during a financial
review of the auto part store?
a. A high quick ratio
b. A high debt ratio
c. A high number of days sales outstanding in ending trade
receivable.
d. A low inventory turnover ratio.
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Atheena uses the net present value method to analyze investments and
will employ the following factors and rates:
Present Value Present Value of an Ordinary
Period of P1 at 10% Annuity of P1 at 10%
1 0.909 0.909
2 0.826 1.736
3 0.751 2.487
4 0.683 3.170
5 0.621 3.791
18. The overall discounted cash flow impact of Atheena’s working capital
investment for the new production machine would be
a. P(7,959)
b. P(10,080)
c. P(13,265)
d. P(35,000)
Product A Product B
Selling price P20 P15
Variable cost per unit 10 8
Annual fixed manufacturing costs (all cash) 50,000 40,000
Annual company non-manufacturing expenses
(all cash) 20,000 20,000
If the company uses the expected value approach, which product
should it manufacture?
a. Product B because its total profit will be P3,000 higher than that
of Product A.
b. Product B because the expected value of its sales in units is
1,850 higher than that of Product A.
c. Product A because the expected value of its contribution margin
is higher than that of Product A.
d. Product B because its expected value is higher than that of
Product A.
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25. A company recently completed and sold an order of 50 units that had
the following costs:
Direct materials P 1,500
Direct labor (1,000 hours @ P8.50) 8,500
Variable overhead (1,000 hours @ P4.00)* 4,000
Fixed overhead** 1,400
Total P15,400
* Applied on the basis of direct labor hours
** Applied at the rate of 10 percent of variable cost
The company has now been requested to prepare a bid for 150 units of
the same product.
If a 70 percent learning curve is applicable, the company’s total cost
on this order would be estimated at
a. P46,200
b. P27,126
c. P17,766
d. P18,150
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27. A company plans to tighten its credit policy. The new policy will decrease the average number of days in
The firm’s short term interest cost is 10%. Projected sales for the
coming year are P50million. Assume a 360-day year.
What is the peso impact on accounts receivable of this proposed
change in credit policy?
a. P3,819,445 decrease
b. P6,500,000 decrease
c. P3,333,334 decrease
d. P18,749,778 increase
Internal Purchased
Development Software
Systems analyst time in hours:
Development 1,000 N/A
Modifications and testing N/A 40
Computer charges P800 P250
Additional hardware purchases P3,200 N/A
Incidental supplies P500 P200
Based solely on the cost figures presented, the cost of developing the
computer application will be
a. P3,500 less than acquiring the purchased software package.
b. P500 less than acquiring the purchased software package.
c. P1,550 more than acquiring the purchased software package.
d. P3,550 more than acquiring the purchased software package.
29. If a firm is offered credit terms of 2/10, net 30 on its purchases, sound
cash management practices would mean that the firm would pay the
account on which of the following days?
a. Day 2 and 30
b. Day 2 and 10
c. Day 10
d. Day 30
30. A company has provided the following data from its activity-based
costing system:
Activity Cost Pool Total Cost Total Activity
Assembly P313,490 29,000 machine-hours
Processing orders P49,476 1,400 orders
Inspection P73,882 1,060 inspection-hours
The company makes 490 units of its product a year, requiring a total
of 1,080 machine-hours, 60 orders, and 20 inspection-hours per year.
The product's direct materials cost is P46.42 per unit and its direct
labor cost is P20.22 per unit.
31. Which of the following would probably be the most accurate measure
of activity to use for allocating the costs associated with a factory's
purchasing department?
a. Machine-hours
b. Direct labor-hours
c. Number of orders processed
d. Cost of materials purchased
34. In a cash budget for the month of April, the total cash receipts will be:
a. P74,000
b. P57,000
c. P114,000
d. P97,000
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35. Xander Corporation, which has no current debt, has a beta of 0.95 for
its current stock. Management is considering a change in the capital
structure to 30% debt and 70% equity. This change would increase the
beta on the stock to 1.05, and the after-tax cost of debt will be 7.5%.
The expected return on equity is 16%, and the risk-free rate is 6%.
Should Xander’s management proceed with the capital structure
change?
a. No, because the cost of equity capital will increase.
b. Yes, because the cost of equity capital will increase.
c. Yes, because the weighted average cost of capital will decrease.
d. No, because the weighted average cost of capital will increase.
36. The POLAND CORP. makes three products. The cost data for these
three products is as follows:
Product A Product B Product C
Selling price P10 P20 P40
Variable costs 7 12 16
Total annual fixed costs are P840,000. The firm's experience has been that about 20
percent of dollar sales come from product A, 60 percent from B, and 20 percent from C.
What is the units’ sale of Product C in order to break even?
A. 10,000 C. 40,000
B. 110,000 D. 16,471
38. Compute the volume of sales in units of DELUXE if the company plans to earn 10 percent
on sales revenue in before-tax income.
A. 27,778 units C. 50,000 units
B. 41,667 units D. 32,143 units
40. HELCURT CORP. is determining the cost behavior of several items in order to budget for
the upcoming year. Past trends have indicated the following dollars were spent at three
different levels of output:
Unit Levels
10,000 12,000 15,000
Cost A P25,000 P29,000 P35,000
Cost B 10,000 15,000 15,000
Cost C 15,000 18,000 22,500
In establishing a budget for 14,000 units, HELCURT should treat Costs A, B, and C,
respectively, as
A. Semivariable, fixed, and variable.
B. Variable, fixed, and variable.
C. Semivariable, semivariable, and semivariable.
D. Variable, semivariable, and semivariable.
41. FARAMIS CORP. uses a standard cost system. Direct materials statistics for the month of
May, 2021 are summarize below:
Standard unit price P90.00
Actual units purchased 40,000
Standard units allowed for actual production 36,250
Materials price variance- favorable
P6,000
What was the actual purchase price per unit
a. P75.00 c. P88.50
b. P85.89 d. P89.85
43. Which of the following factors should not be considered when deciding whether to
investigate a variance?
a. Magnitude of the variance and the cost of investigation.
b. Trend of the variances over time.
c. Likelihood than an investigation will eliminated future occurrences of the variance.
d. Whether the variance is favorable or unfavorable.
44. The flexible budget for the month of May 1993 was for 9,000 units at a direct materials
cost of P15 per unit. Direct labor was budgeted at 45 minutes per unit for a total of
P81,000. Actual output for the month was 8,500 units with P127,500 indirect materials
and P77,775 in direct labor expense. The direct labor standard of 45 minutes was
maintained throughout the month. Variance analysis of the performance for the month of
May would show a(n)
a. Favorable materials usage variance of P7,500.
b. Favorable direct labor efficiency variance of P1,275.
c. Unfavorable direct labor efficiency variance of P1,275.
d. Unfavorable direct labor price variance of P1,275.
47. A basic concept 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.
48. Endless Love Company had income of P65,000 using absorption costing for a given
period. Beginning and ending inventories for that period were 13,000 units and 18,000
respectively. Ignoring income taxes, if the fixed overhead application rate were P2.50 per
unit, what would the income have been using variable costing?
A. P 20,000 C. P 60,000
B. P 52,500 D. P 77,500
49. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
Selling price P85
Units in beginning inventory 0
Units produced 2,900
Units sold 2,700
Units in ending inventory 200
Variable costs per unit:
Direct materials P22
Direct labor P13
Variable manufacturing overhead P3
Variable selling and administrative P5
Fixed manufacturing overhead P46,400
Fixed selling and administrative P51,300
What is the net operating income for the month under variable costing?
A. P 3,200 C. P15,700
B. P 8,100 D. P18,900
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50. For internal uses, managers are more concerned with receiving information that is:
A. completely objective and verifiable.
B. completely accurate and precise.
C. relevant, flexible, and immediately available.
D. relevant, completely accurate, and precise.
51. Which of the following will cost the breakeven point to increase?
I. Decrease in variable cost per unit
II. Decrease in margin of safety
III. Increase in income tax rates.
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III
52. Quality Products, Inc. plans to increase its sales volume and make
bigger profits. Last year, the company sold 25,000 units of Product
101 at P10 per unit. The profits were modest because of the small
difference between the selling price and the variable cost per unit and
the relatively low sales volume. The fixed costs amount to P28,000 a
year. Cost per unit of product is P8. If the selling price is reduced to
P9.60, the company feels that sales can be increased to 30,000 units a
year and thereby increase, too, its profits. What profit before tax can
be generated with the reduced selling price and the increased sales
volume?
A. P20,000 C. P28,000
B. P22,000 D. P48,000
54. Supply costs at RAIGOR CORP.’s chain of gyms are listed below:
Client Visits Supply Cost
March 12,855 P23,598
April 12,283 23,278
May 13,104 23,742
June 12,850 23,607
July 12,493 23,415
August 12,794 23,562
September 12,686 23,496
October 12,765 23,541
November 13,018 23,687
Management believes that supply cost is a mixed cost that depends on client-visits. Using
the high-low method to estimate the variable and fixed components of this cost, those
estimates would be closest to:
A. P1.85 per client-visit; P23,547 per month
B. P1.77 per client-visit; P557 per month
C. P0.55 per client-visit; P16,579 per month
D. P0.57 per client-visit; P16,273 per month
55. VINCENT CORP., which has only one product, has provided the following data
concerning its most recent month of operations:
Units sold @ P120 per unit 1,500
Units produced 1,800
Beginning inventory 0
Costs Variable Cost Fixed Cost
Direct materials P40
Direct labor 42
Manufacturing overhead 2 P 7,200
Selling and administrative expenses 9 28,500
What is the total period cost for the month under the variable costing approach?
A. P7,200 C. P42,000
B. P35,700 D. P49,200
56. JULIA CORP. shows the following results of operation on Dec. 31, 2021.
Direct materials used P 512,500
Direct labor 575,000
Variable manufacturing overhead 400,000
Fixed manufacturing overhead 212,500
For the year 2021, JULIA produced 170,000 units and sold 150,000 units. No beginning
and ending inventory of work in process and no beginning inventory of finished goods.
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57. OREGON CORP. manufactures televisions. The following direct labor information relates
to the manufacture of televisions.
Number of workers 60
Number of productive hours per week, per worker 40
Hours required to make 1 unit 3
Weekly wages per worker P600
Employee benefits treated as direct labor costs 20% of wages
58. A recent fire devastated the records of MARYLAND CORP. In relation to its direct labor
for the current year, the following data were gathered:
Actual production 4,000 units
Standard hours per unit 3
Rate variance 500 F
Efficiency variance 2,000 UF
Standard direct labor cost per unit P15
How many hours were used by the company for the current year in producing the 4,000
units?
A. 11,600 hrs.
B. 12,400 hrs.
C. 12,800 hrs.
D. Cannot be computed; limited information
59. The company expected to sell 45,000 units next year with the following results:
Sales P900,000
Variable costs 540,000
Contribution margin 360,000
Fixed costs 150,000
Income before taxes 210,000
Income taxes 84,000
Net income P126,000
If the company wants an after-tax return on sales of 15% on its expected volume of 45,000
units, what price must it charge?
A. 19.96 C. 20.22
B. 20.44 D. 22.22
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60. SPAIN CORP. has fixed costs of P90,300. At a sales volume of P360,000, return on sales
is 10%; at a P600,000 volume, return on sales is 20%. What is the break-even volume?
A. P225,000 C. P258,000
B. P240,000 D. P301,000
61. PORTUGAL CORP. earns an after-tax profit of P2,400 on sales of P88,000. The average
tax rate of the company is 25%. The only product in this operation sells for P20, of which
P15 is in variable cost. You were asked to analyze the break-even point of this project and
its sensitivities to change in cost levels and of product price. A decrease in variable costs
of P1.00 per unit and an increase in fixed costs of P6,000 would bring the break-even point
to
A. no change at all. C. P82,660
B. a lower level. D. P45,000
63. Reducing reliance on human workers and instead investing heavily in computers and
online technology will
A. reduce fixed costs and increase variable costs.
B. reduce variable costs and increase fixed costs.
C. have no effect on the relative proportion of fixed and variable costs.
D. make the company less susceptible to economic swings.
64. Y = P575,000 + P8.50X represents the behavior of maintenance costs (Y) as a function of
machine hours (X). Thirty (30) monthly observations were used to develop the foregoing
regression equation. The related coefficient of determination was 0.90. If 2,500 machine
hours are worked in one month, the related point estimate of total variable maintenance
costs would be
A. P19,125 C. P23,000
B. P21,250 D. P25,250
67. Managerial performance can be measured in many different ways, including return on
investment (ROI) and residual income (RI). A good reason for using RI instead of ROI is
that
A. RI can be computed without regard to identifying an investment base.
B. goal congruence is more likely to be promoted by using RI.
C. RI is well understood and often used in the financial press.
D. ROI does not take into consideration both the investment turnover ratio and return-
on-sales percentage.
70. MARS COMPANY keeps careful track of the time required to fill orders. The times
recorded for a particular order appear below:
Hours
Move time 3.2
Wait time 10.9
Queue time 5.1
Process time 1.2
Inspection time 0.2
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