1. Bellue Inc. manufactures a variety of products.

Variable costi ng net operati ng income was

P96,300 last year and ending inventory decreased by 2,600 units. Fixed manufacturing
overhead cost was P1 per unit. What was the absorpti on costi ng net operati ng income last
year?
a. P2,600
b. P93,700
c. P96,300
d. P98,900

2. Mulligan Corporati on, which is subject to a 30% income tax rate, is considering a P150,000
asset that will result in the following over its seven-year life:

Total revenue: P1,190,000

Total operati ng expenses (excluding depreciati on): P770,000
Total depreciati on: P150,000
The accounti ng rate of return on the initi al investment is:
a. 16%
b. 18%.
c. 26%.
d. 28%

3. Buchanan Company currently sells 4,000 units of product Q for P1 each. Capacity is 5,000
units. Variable costs are P0.40 and avoidable fi xed costs are P400. A chain store has offered
P0.80 per unit for 400 units of Q. If Buchanan accepts the order, the change in income will be
a
a. P60 decrease.
b. P80 decrease.
c. P160 increase.
d. P480 increase.
4. Arnstrong, Inc. uses a fl exible budget. Armstrong produced 16,000 units in May incurring
direct materials cost of P20,480. Its master budget for the year projected direct materials cost
of P362,500, at a producti on volume of 290,000 units. A fl exible budget for May should reflect
direct materials cost of:
a. P20,480.
b. P20,000.
c. P21,000.
d. P19,750.

5. Pinecrest is considering a P600,000 investment in new equipment that is anti cipated to

produce the following net cash infl ows:

Year Net Cash

Infl ows
1 P120,000
2 250,000
3 110,000
4 80,000
5 160,000

If cash fl ows occur evenly throughout a year, the equipment's payback period is:

a. 4 years, 2 months.
b. b. 4 years, 3 months.
c. c. 4 years, 4 months.
d. d. 5 years.

6. Tyler Company currently sells 1,000 units of product M for P1 each. Variable costs are P0.40
and avoidable fi xed costs are P400. A discount store has off ered P0.80 per unit for 400 units
 of product M. The managers believe that if they accept the special order, they will lose some
sales at the regular price. Determine the number of units they could lose before the order
became unprofi table.
a. 267 units
b. 500 units
c. 600 units
d. Some other number.

Ross Corporati on makes all sales on account. The June 30th balance sheet balance in its
accounts receivable is P400,000, of which P240,000 pertain to sales that were made during
June. Budgeted sales for July are P1,250,000. Ross collects 70% of sales in the month of sale;
20% in the following month; and the fi nal 10% in the second month aft er the sale.

7. Refer to the informati on above. What are Ross's budgeted collecti ons for July?
a. P800,000.
b. P939,000.
c. P1,083,000.
d. P915,000.

8. Portland is considering the acquisiti on of new machinery that will produce uniform benefi ts
over the next eight years. The following informati on is available:

Annual savings in cash operati ng costs: P350,000

Annual depreciati on 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.
b. P170,000.
c. P245,000.
d. P320,000

9. Bear Valley produces three products: A, B, and C. One machine is used to produce the
products. The contributi on margins, sales demands, and ti me on the machine (in minutes)
are as follows:
ti me on
Demand CM machine
------ ---- --------
A 100 P25 10
B 80 18 5
C 150 30 10

There are 2400 minutes available on the machine during the week. How many units should
be produced and sold to maximize the weekly contributi on?
A B C A B C
a. 100 80 150 c. 90 0 150
b. 50 80 150 d. 100 80 100

On March 1, Hugh Corporati on plans to borrow P550,000 from the Scotland State Bank by
signing a 12%, 15-year note payable. The note calls for 180 monthly payments of P6,000,
which includes both interest and principal components.
10. Refer to the informati on above. Hugh's budgeted interest expense for March is:
a. P500.
b. P2,444.
c. P5,500.
d. P6,000.

11. A piece of equipment costs P30,000, and is expected to generate P8,500 of annual cash
revenues and P1,500 of annual cash expenses. The disposal value at the end of the esti mated
10-year life is P3,000. Ignoring income taxes, the payback period is:
a. 3.53 years.
b. 3.86 years.
c. 4.29 years.
d. 6.98 years.

12. Elk Grove produces three products: A, B, and C. A machine is used to produce the products.
The contributi on margins, sales demands, and ti me on the machine (in minutes) are as
follows:

ti me on
Demand CM machine
------ ---- --------
A 120 P20 5
B 80 36 10
C 100 50 15

There are 2400 minutes available on the machine during the week. How many units should
be produced and sold to maximize the weekly contributi on?
A B C A B C
a. 120 80 100 c. 120 30 100
b. 20 80 100 d. 120 80 66

13. Wakefi eld evaluates future projects by using the profi tability index. The company is currently
reviewing fi ve similar projects and must choose one of the following:

Initial Present Value

Projec Investme of Cash
t nt 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 Wakefi eld select if the decision is based enti rely on the profitability
index?
a. Project 1.
b. Project 2.
c. Project 3.
d. Project 4.

14. DJH Company produces 1,000 units of Part X per month. The total manufacturing costs of the
part are as follows:

Direct materials P10,000

Direct labor 15,000
Variable overhead 5,000
Fixed overhead 30,000
 -------
Total manufacturing cost P60,000
=======

An outside supplier has offered to supply the part at P40 per unit. It is esti mated that 20% of
the fi xed overhead assigned to Part X will no longer be incurred if the company purchases the
part from the outside supplier. If DJH Company purchases 1,000 units of Part X from the
outside supplier per month, then its monthly operati ng income will
a. decrease by P20,000.
b. decrease by P4,000.
c. not change.
d. increase by P20,000.

15. Wateredge Corporati on has budgeted a total of P361,800 in costs and expenses for the
upcoming quarter. Of this amount, P45,000 represents depreciati on expense and P7,300
represents the expirati on of prepayments. Wateredge's current payables balance is P265,000
at the beginning of the quarter. Budgeted payments on current payables for the quarter
amount to P370,000. The company's esti mated current payables balance at the end of the
quarter is:
a. P179,500.
b. P204,500.
c. P203,500.
d. P310,000

16. St. Andrews ranks investments by using the profi tability index (PI). The following data relate
to Project X and Project Y:

Project X Project
Y
Initial investment P400,00 P1,300,000
0
Present value of infl ows 600,000 1,800,000

Which project would be more att racti ve as judged by its ranking, and why?
a. Project X because the PI is 1.50. c. Project X because the PI is 0.67.
b. Project Y because the PI is 1.38. d. Project Y because the PI is 0.72.

17. Colfax Company expects to incur the following costs at the planned producti on level of
10,000 units:

Direct materials P100,000

Direct labor 120,000
Variable overhead 60,000
Fixed overhead 30,000

The selling price is P50 per unit. The company currently operates at full capacity of 10,000
units. Capacity can be increased to 13,000 units by operati ng overti me. Variable costs
increase by P14 per unit for overti me producti on. Fixed overhead costs remain unchanged
when overti me operati ons occur. Colfax Company has received a special order from a
wholesaler who has off ered to buy 1,000 units at P45 each. What is the incremental cost
associated with this special order?
a. P14,000
b. P28,000
c. P42,000
 d. P45,000

BT & T Corporati on manufactures telephones. Recently, the company produced a batch of 600
defecti ve telephones at a cost of P9,000. BT & T c a n sell these telephones as scrap for P9 each.
It can also rework the enti re batch at a cost of P6,500, aft er which the telephones could be
sold for P20 per unit.

18. Refer to the informati on above. Which of the following statements is false regarding the
defecti ve units?
a. BT & T will not recover its costs if it sells the defecti ve units as scrap.
b. BT & T will recover its costs if it reworks the defecti ve units.
c. BT & T will not recover its costs if it reworks the defecti ve units.
d. BT & T will recover more of its costs if it decides to rework the defecti ve units.

19. Refer to the informati on above. If BT & T reworks the defecti ve telephones, by how much will
its operati ng income change?
a. Increase by P500. c. Increase by P5,500.
b. Decrease by P1,600. d. Decrease by P6,500.

The Banderas Company, a merchandising fi rm, has budgeted its acti vity for December
according to the following informati on:
• Sales at P550,000, all for cash.
• Merchandise inventory on November 30 was P300,000.
• Budgeted depreciati on for December is P35,000.
• The cash balance at December 1 was P25,000.
• Selling and administrati ve expenses are budgeted at
P60,000 for December and are
paid in cash.
• The planned merchandise inventory on December 31 is P270,000.
• The invoice cost for merchandise purchases represents 75% of the sales price. All
purchases are paid for in cash.

20. The budgeted cash receipts for December are:

a. P412,500
b. P137,500
c. P585,000
d. P550,000

21. The budgeted cash disbursements for December are:

a. P382,500
b. P442,500
c. P472,500
d. P477,500

22. The budgeted net income for December is:

a. P107,500
b. P137,500
c. P42,500
d. P77,500

Osawa Inc. manufactured 200,000 units of its only product in its fi rst year of operati ons.
Variable manufacturing costs were P30 per unit. Fixed manufacturing costs were P600,000
and selling and administrati ve costs totaled P400,000. Osawa
sold 120,000 units at a selling price of P40 per unit.

23. Osawa's net operati ng income using absorpti on costi ng would be:
a. P200,000
b. P440,000
 c. P600,000
d. P840,000

24. In eight years, Larson Company plans to receive P11,000 cash from the sale of a machine that
has a P16,000 book value. If the company is subject to a 30% income tax rate and has a 12%
after-tax hurdle rate, the correct discounted net cash fl ow would be:
a. P606.
b. P1,414.
c. P3,838.
d. P5,050.

25. Colfax Company expects to incur the following costs at the planned producti on level of
10,000 units:

Direct materials P100,000

Direct labor

120,000
Variable overhead 60,000
Fixed overhead

30,000

The selling price is P50 per unit. The company currently operates at full capacity of 10,000
units. Capacity can be increased to 13,000 units by operati ng overti me. Variable costs
increase by P14 per unit for overti me producti on. Fixed overhead costs remain unchanged
when overti me operati ons occur. Colfax Company has received a special order from a
wholesaler who has off ered to buy 1,000 units at P45 each. What is the impact on Colfax's
operati ng income if this special order is accepted?

a. P17,000 increase
b. P3,000 increase
c. no change
d. P5,000 decrease

26. Seidman Company manufactures and sells 30,000 units of product X per month. Each unit of
product X sells for P16 and has a contributi on margin of P7. If product X is disconti nued,
a. Increase by P210,000. c. Decrease by P210,000.
P85,000 in fi xed monthly overhead costs would be eliminated and there would be no effect
b. Increase by P125,000. d. Decrease by P125,000.
on the sales volume of Seidman Company's other products. If product X is disconti nued,
Seidman Company's monthly income before taxes should:
27. In 10 years, Hopkins Company plans to receive P9,000 cash from the sale of a machine that
has a P5,000 book value. If the company is subject to a 30% income tax rate and has an 8%
after-tax hurdle rate, the correct discounted net cash fl ow would be:
a. P2,916.90
b. P3,611.40
c. P4,167.00
d. P4,722.60.
e. some other amount.

28. G MH Company manufactures 100,000 units of Part X annually for use in one of its main
products. The total manufacturing cost for 100,000 units of Part X is as follows:

Direct materials P120,000

Direct labor 80,000
Variable overhead 40,000
Fixed overhead 160,000
 -------
Total cost P400,000
========

Selin Company has off ered to sell G MH 100,000 units of Part X per year. If G M H accepts this
offer, the faciliti es used to produce Part X can be used in the producti on of other
components. This change would save G MH P10,000 in rent for the leased producti on facility
used at present to support the producti on of other components. What is the amount of
relevant costs for this make-or-buy decision?
a. P200,000
b. P240,000
c. P250,000
d. P400,000

29. Aircraft Products, a manufacturer of aircraft landing gear, makes 1,000 units each year of a
special valve used in assembling one of its products. The unit cost of producing this valve
includes variable costs of P70 and fi xed costs of P60. The valves could be purchased from an
outside supplier at P77 each. If the valve were purchased from the outside supplier, 40% of
the total fi xed costs incurred in producing this valve could be eliminated. Buying the valves
from the outside supplier instead of making them would cause the company's operati ng
income to:
a. Increase by P26,000. c. Decrease by P9,000.
b. Increase by P17,000. d. Decrease by P29,000.

30. A new machine is expected to produce a MACRS deducti on in three years of P50,000. If the
fi rm has a 12% after-tax hurdle rate and is subject to a 30% income tax rate, the correct
discounted net cash fl ow to include in an acquisiti on analysis would be:
a. P0.
b. P10,680.
c. P24,920.
d. P46,280.

31. Last year, Tinklenberg Corporati on's variable costi ng net operati ng income was P52,400 and
its ending inventory decreased by 1,400 units. Fixed manufacturing overhead cost was P8 per
unit. What was the absorpti on costi ng net operati ng income last year?
a. P41,200
b. P11,200
c. P63,600
d. P52,400

32. G MH Company manufactures 100,000 units of Part X annually for use in one of its main
products. The total manufacturing cost for 100,000 units of Part X is as follows:

Direct materials P120,000

Direct labor 80,000
Variable overhead 40,000
Fixed overhead 160,000
--------
Total cost P400,000
========

Sutt on Company has off ered to sell G MH 100,000 units of Part X per year. If G MH accepts this
offer, the faciliti es used to produce Part X can be used in the producti on of other
components. This change would save GMH P10,000 in rent for the leased producti on facility
used at present to support the producti on of other components. What is the maximum price
that G MH should be willing to pay Sutt on for part X?
a. P1.20
b. P2.00
 c. P2.40
d. P2.50

JCN Industries normally produces and sells 5,000 keyboards for personal computers each
month. Variable manufacturing costs amount to P25 per unit, and fi xed costs are P146,000 per
month. The regular sales price of the keyboards is P86 per unit. JCN has been approached by a
foreign company that wants to purchase an additi onal 1,000 keyboards per month at a
reduced price. Filling this special order would not aff ect JCN 's regular sales volume or fi xed
manufacturing costs.

33. Refer to the informati on above. On the basis of the above informati on only, which of the
following is not true?
a. At the 5,000-unit level of producti on, JCN's average cost per unit is P54.20.
b. At the 6,000-unit level of producti on, JCN's average cost per unit is P49.33.
c. It would not be profi table for JCN to consider the special order at a price less than P49 per
unit.
d. Neither the fi xed manufacturing costs of P146,000 nor the variable manufacturing costs of
P25 per unit is relevant to
this decision regarding the special order.

Muecke Inc. is working on its cash budget for April. The budgeted beginning cash balance is
P40,000. Budgeted cash receipts total P150,000 and budgeted cash disbursements total
P158,000. The desired ending cash balance is P50,000.

34. The excess (defi ciency) of cash available over disbursements for April will be:
a. P32,000
b. P190,000
c. P48,000
d. (P8,000)

35. To att ain its desired ending cash balance for April, the company needs to borrow:
a. P18,000
b. P0
c. P50,000
d. P82,000

36. Refer to the informati on above. Assume that the price off ered by the foreign company is P43
per unit. Accepti ng the special order will cause JCN's operati ng income to:
a. Increase by P18,000. c. Decrease by P33,000.
b. Decrease by P2,000. d. Decrease by P35,000.

37. A machine is expected to produce increases in cash operati ng costs of P200,000 for the next
six years. If the fi rm has a 14% after-tax hurdle rate and is subject to a 30% income tax rate,
the correct discounted net cash fl ow would be:
a. P(233,340).
b. P(544,460).
c. P(777,800).
d. P(1,011,140).

38. Barrie, Inc., produces three products: A, B, and C. Two machines are used to produce the
products. The contributi on margins, sales demands, and ti me on each machine (in minutes) is
as follows:
time

time
 Demand CM on M1 on M2
A 100 P12 5 10
B 80 18 10 5
C 100 25 15 5

There are 2,400 minutes available on each machine during the week. How many units should
be produced and sold to maximize the weekly contribution?
A B C A B C
a. 100 80 100 c. 100 40 100
b. 20 80 100 d. 100 80 73

39. A machine is expected to produce annual savings in cash operating costs of P400,000 for the
next six years. If the firm has a 10% after-tax hurdle rate and is subject to a 30% income tax
rate, the correct discounted net cash flow would be:
a. P522,600.
b. P947,520
c. P1,219,400.
d. P1,742,000.

40. Barrie, Inc., produces three products: A, B, and C. Two machines are used to produce the
products. The contribution margins, sales demands, and time on each machine (in minutes) is
as follows:
time time
Demand CM on M1 on M2
A 100 P12 5 10
B 80 18 10 5
C 150 25 5 10

There are 2,400 minutes available on each machine during the week. How many units should
be produced and sold to maximize the weekly contribution?
A B C A B C
a. 100 80 150 c. 90 0 150
b. 50 80 150 d. 100 80 100