CPAR MAS Preweek Quizzer May2005

MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Preweek !
i""er
OVERVIEW
Management Advisory Services
#$ The followin% ch&r&cteri"e '&n&%e'ent &(visor) services e*cept
A$ involve (ecision for the f!t!re
+$ ,ro&(er in scope &n( v&rie( in n&t!re
C$ !tili"e 'ore -!nior st&ff th&n senior 'e',ers of the fir'
D$ rel&te to specific pro,le's where e*pert help is re.!ire(
/$ 0hich of the followin% is not cl&ssifi&,le &s & '&n&%e'ent &(visor) service ,) CPA1
A$ S)ste's (esi%n$ C$ M&ke or ,!) &n&l)sis$
+$ Pro-ect fe&si,ilit) st!()$ D$ Assist&nce in ,!(%et prep&r&tion$
Managerial Accounting
2$ The followin% &re inherent to either '&n&%e'ent &cco!ntin% or fin&nci&l &cco!ntin%3
#$ E*tern&l report
/$ 4istoric&l infor'&tion
2$ Contri,!tion &ppro&ch inco'e st&te'ent
5$ Gener&ll) &ccepte( &cco!ntin% principles
6$ Prospective fin&nci&l st&te'ents
0hich of the fore%oin% &re rel&te( to '&n&%e'ent &cco!ntin% &n( fin&nci&l &cco!ntin%7
respectivel)1
M&n&%e'ent Acco!ntin% 8in&nci&l Acco!ntin%
A$ #7 /7 6 27 5
+$ 27 6 #7 /7 5
C$ /7 2 #7 57 6
D$ 2 #7 /7 57 6
COST BEHAVIOR
5$ Tot&l pro(!ction costs for C&rer&7 Inc$ &re ,!(%ete( &t P/297999 for 697999 !nits of ,!(%ete(
o!tp!t &n( P/:97999 for ;97999 !nits of ,!(%ete( o!tp!t$ +ec&!se of the nee( for &((ition&l
f&cilities7 ,!(%ete( fi*e( costs for ;97999 !nits &re /6< 'ore th&n ,!(%ete( fi*e( costs for
P697999 !nits$ 4ow '!ch is C&rer&=s ,!(%ete( v&ri&,le cost per !nit of o!tp!t1
A$ P#$;9 C$ P2$99
+$ P#$;> D$ P6$99
COST-VO!ME-"RO#IT A$A%SIS
Brea&even "oint
6$ Scr&',le( +r&in Co'p&n) h&s fi*e( costs of P?97999$ At & s&les vol!'e of P29979997 ret!rn
on s&les is #9<@ &t & P6997999 vol!'e7 ret!rn on s&les is //<$ 0h&t is the ,re&kAeven
vol!'e1
A$ P#/97999 C$ P//67999B
+$ P/997999 D$ P5697999
;$ +!sh Electronics7 Inc$ h&( the followin% s&les res!lts for /9953
TV sets CD pl&)er R&(ios
Peso s&les co'ponent r&tio 9$29 9$29 9$59
Contri,!tion '&r%in r&tio 9$59 9$59 9$;9
+!sh Electronics7 Inc$ h&( fi*e( costs of P/75997999$
The ,re&kAeven s&les in pesos for +!sh Electronics7 Inc$ &re3
TV sets CD pl&)er R&(ios
A$ P#7:997999 P#7:997999 P27;997999
+ P#7:997999 P#7:997999 P#7;997999
C$ P#76997999 P#76997999 P/79997999
D$ P#762#7?#6 P#762#7?#6 P/795/7662
>$ Gl&reless Co'p&n) '&n!f&ct!res &n( sells s!n%l&sses$ Price &n( cost (&t& &re &s follows3
Sellin% price per p&ir of s!n%l&sses P/6$99
V&ri&,le costs per p&ir of s!n%l&sses3
R&w '&teri&ls P##$99
Direct l&,or 6$99
M&n!f&ct!rin% overhe&( /$69
Sellin% e*penses #$29
Tot&l v&ri&,le costs per !nit P#?$:9
Ann!&l fi*e( costs3
M&n!f&ct!rin% overhe&( P#?/7999
Sellin% &n( &('inistr&tive />;7999
Tot&l fi*e( costs P5;:7999
8orec&ste( &nn!&l s&les vol!'e C#/97999 p&irsD P279997999
Inco'e t&* r&te 59<
Gl&reless Co'p&n) esti'&tes th&t its (irect l&,or costs will incre&se : percent ne*t )e&r$ 4ow
'&n) !nits will Gl&reless h&ve to sell ne*t )e&r to re&ch ,re&keven1
A$ ?>7699 !nits C$ :276>/ !nits
M&) /996 P&%e # of 2/
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Preweek !i""er
+$ #9#7>59 !nits D$ :;7/69 !nits :$ M&(el Co'p&n) '&n!f&ct!res & sin%le electronic pro(!ct c&lle( 0&l&stik$ 0&l&stik sells for
P?99 per !nit$ In /9997 the followin% v&ri&,le costs were inc!rre( to pro(!ce e&ch 0&l&stik
(evice$
Direct l&,or P#:9
Direct '&teri&ls /59
8&ctor) overhe&( #96
Sellin% costs >6
Tot&l v&ri&,le costs P;99
M&(el is s!,-ect to 59 percent inco'e t&* r&te7 &n( &nn!&l fi*e( costs &re P;7;997999$ E*cept
for &n oper&tin% loss inc!rre( in the )e&r of incorpor&tion7 the fir' h&s ,een profit&,le over the
l&st five )e&rs$
In /99#7 & si%nific&nt ch&n%e in M&(el=s pro(!ction technolo%) c&!se( & #9< incre&se in
&nn!&l fi*e( costs &n( & /9< !nit cost incre&se in the (irect l&,or co'ponent &s & res!lt of
hi%her skille( (irect l&,or$ 4owever7 this ch&n%e per'itte( the repl&ce'ent of & costl)
i'porte( co'ponent with & loc&l co'ponent$ The effect w&s to re(!ce !nit '&teri&l costs ,)
/6<$ There h&s ,een no ch&n%e in the 0&l&stik sellin% price$
The &nn!&l s&les !nits re.!ire( for M&(el to ,re&keven &re3
A$ +$ C$ D$
/999 //7999 //7999 #57999 #57999
/99# /97:59 //759> //759> /97:59
"ro'it "lanning
?$ Si%n&l Co$ '&n!f&ct!res & sin%le pro(!ct$ 8or /9997 the co'p&n) h&( s&les of P?979997
v&ri&,le costs of P6979997 &n( fi*e( costs of P297999$ Si%n&l e*pects its cost str!ct!re &n(
s&les price per !nit to re'&in the s&'e in /99#7 however tot&l s&les &re e*pecte( to -!'p ,)
/9<$ If the /99# pro-ections &re re&li"e(7 net inco'e in /99# sho!l( e*cee( net inco'e in
/999 ,)
A$ #99< C$ /9<
+$ :9< D$ 69<
#9$ Si*ATwo Convenience Store c!rrentl) opens onl) Mon(&) thro!%h S&t!r(&)$ Si*ATwo is
consi(erin% openin% on S!n(&)s$ The &nn!&l incre'ent&l fi*e( costs of S!n(&) openin%s &re
esti'&te( &t P2?7999$ Si*ATwo=s %ross '&r%in on s&les is /6 percent$ Si*ATwo esti'&tes th&t
;9 percent of its S!n(&) s&les to c!sto'ers wo!l( ,e '&(e on other (&)s if the stores were
not open on S!n(&)s$ The oneA(&) vol!'e of S!n(&) s&les th&t wo!l( ,e necess&r) for Si*A
Two to &tt&in the s&'e weekl) oper&tin% inco'e &s the c!rrent si*A(&) week is
A$ P;7999 C$ P>7699
M&) /996 P&%e / of 2/
+$ P67999 D$ P57699 ##$ Gorill&7 Co$ provi(es two pro(!cts7 M &n( 0$ M &cco!nts for ;9 percent of tot&l s&les7 v&ri&,le
cost &s & percent&%e of sellin% price &re ;9< for M &n( :6< for 0$ Tot&l fi*e( costs &re
P//67999$ If fi*e( costs will incre&se ,) 29 percent7 wh&t &'o!nt of peso s&les wo!l( ,e
necess&r) to %ener&te &n oper&tin% profit of P5:79991
A$ P#72697999 C$ P#7#267999
+$ P5:;75/6 D$ P?#97999
#/$ Mo!nt P&rk7 Inc$ h&( the followin% econo'ic infor'&tion for the )e&r /99/3
S&lesC697999 !nits E P/9D P#79997999
V&ri&,le '&n!f&ct!rin% costs 5997999
8i*e( costs /697999
Inco'e t&* r&te 59 percent
Mo!nt P&rk ,!(%ets its /992 s&les &t ;97999 !nits or P#7/997999$ The co'p&n) &nticip&tes
incre&se( co'petition@ hence7 &n &((ition&l P>67999 &(vertisin% costs is ,!(%ete( in or(er to
'&int&in its s&les t&r%et for /992$
0h&t is the &'o!nt of peso s&les nee(e( for /992 in or(er to e.!&l the &fterAt&* inco'e in
/99/1
A$ P#7#/67999 C$ P#7#:>7699
+$ P#72/67999 D$ P#72:>7699
#2$ F&r" Co'p&n) pro(!ces & sin%le pro(!ct$ It sol( /67999 !nits l&st )e&r with the followin%
res!lts3
S&les P;/67999
V&ri&,le costs P2>67999
8i*e( costs #697999 6/67999
Net inco'e ,efore t&*es P#997999
Inco'e t&*es 597999
Net inco'e P ;97999
In &n &tte'pt to i'prove its pro(!ct in the co'in% )e&r7 F&r" is consi(erin% repl&cin% &
co'ponent p&rt in its pro(!ct th&t h&s & cost of P/$69 with & new &n( ,etter p&rt costin% P5$69
per !nit$ A new '&chine will &lso ,e nee(e( to incre&se pl&nt c&p&cit)$ The '&chine wo!l(
cost P#:7999 with & !sef!l life of ; )e&rs &n( no s&lv&%e v&l!e$ The co'p&n) !ses str&i%htA
line (epreci&tion on &ll pl&nt &ssets$
If F&r" wishes to '&int&in the s&'e contri,!tion '&r%in r&tio &fter i'ple'entin% the ch&n%es7
wh&t sellin% price per !nit of pro(!ct '!st it ch&r%e ne*t )e&r to cover the incre&se( '&teri&l
costs1
A$ P/>$99 C$ P2/$69
+$ P/6$99 D$ P/:$22
M&) /996 P&%e 2 of 2/
"oint o' Indi''erence
#5$ R&vine Ski Co'p&n) recentl) e*p&n(e( its '&n!f&ct!rin% c&p&cit) to &llow it to pro(!ce !p to
#67999 p&irs of crossAco!ntr) skis of either the 'o!nt&ineerin% 'o(el or the to!rin% 'o(el$
The s&les (ep&rt'ent &ss!res '&n&%e'ent th&t it c&n sell ,etween ?7999 &n( #27999 p&irs
C!nitsD of either pro(!ct this )e&r$ +ec&!se the 'o(els &re ver) si'il&r7 R&vine Ski will
pro(!ce onl) one of the two 'o(els$ The infor'&tion ,elow w&s co'pile( ,) the &cco!ntin%
(ep&rt'ent$
Mo!nt&ineerin% To!rin%
Sellin% price per !nit P::9$99 P:99$99
V&ri&,le costs per !nit P6/:$99 P6/:$99
8i*e( costs will tot&l P27;?;7999 if the 'o!nt&ineerin% 'o(el is pro(!ce( ,!t will ,e onl)
P27#;:7999 if the to!rin% 'o(el is pro(!ce($ R&vine Ski is s!,-ect to & 59< inco'e t&* r&te$
The tot&l s&les reven!e &t which R&vine Ski Co'p&n) wo!l( '&ke the s&'e profit or loss
re%&r(less of the ski 'o(el it (eci(e( to pro(!ce is
A$ P:7:997999 C$ P?7/597999
+$ P57//57999 D$ P;7:;57999
#6$ V&lle) of 8ire Corpor&tion h&s one (ep&rt'ent th&t pro(!ces three repl&ce'ent p&rts for the
co'p&n)$ 4owever7 onl) one p&rt c&n ,e pro(!ce( in &n) 'onth ,ec&!se of the &(-!st'ents
th&t '!st ,e '&(e to the e.!ip'ent$ The (ep&rt'ent c&n pro(!ce !p to #67999 !nits of &n)
one of the three p&rts in e&ch 'onth$ The co'p&n) e*presses the 'onthl) &fter t&*
costGvol!'eGprofit rel&tionships for e&ch p&rt !sin% &n e.!&tion 'etho($ The for'&t of the
e.!&tions &n( the e.!&tion for e&ch repl&ce'ent p&rt &re %iven ,elow3
CATRD H CCSP I VCD * CJD I 8CD
ATR K &fterAt&* r&te VC K v&ri&,le cost 8C K fi*e( costs
SP K sellin% price J K !nits
P&rt P&rt E.!&tions
AF56 $; CCP5$99 I P#$/6D CJD I P227599D
+T;6 $; CCP5$96 I P/$66D CJD I P#67999D
GM#> $; CCP5$#9 A P/$99D CJD A P//72;6D
The pro(!ction &n( !nit s&les vol!'e level &t which V&lle) will ,e in(ifferent &s to whether P&rt
+T;/ or GM#> is pro(!ce( is
A$ >72;6 C$ #972:9
+$ 579?/ D$ #/7/>6
#;$ +M Motors7 Inc$ e'plo)s 59 s&les personnel to '&rket its line of l!*!r) &!to'o,iles$ The
&ver&%e c&r sells for P#7/997999 &n( & ;< co''ission is p&i( to the s&lesperson$ +M Motors
is consi(erin% & ch&n%e to & co''ission &rr&n%e'ent th&t wo!l( p&) e&ch s&lesperson &
s&l&r) of P/57999 per 'onth pl!s & co''ission of /< of the s&les '&(e ,) th&t s&lesperson$
The &'o!nt of tot&l c&r s&les &t which +M Motors wo!l( ,e in(ifferent &s to which pl&n to
select is
A$ P//76997999 C$ P/579997999
+$ P2979997999 D$ P#/79997999
#>$ L&p&tero7 Inc$ oper&tes & ch&in of shoe stores &ro!n( the co!ntr)$ The stores c&rr) '&n)
st)les of shoes th&t &re &ll sol( &t the s&'e price$ To enco!r&%e s&les personnel to ,e
&%%ressive in their s&les efforts7 the co'p&n) p&)s & s!,st&nti&l s&les co''ission on e&ch
p&ir of shoes sol($ S&les personnel &lso receive & s'&ll ,&sic s&l&r)$
The followin% cost &n( reven!e (&t& rel&te to Store ? &n( &re t)pic&l of the co'p&n)=s '&n)
s&les o!tlets3
Sellin% price P:99
V&ri&,le e*penses3
Invoice costs P2;9
S&les co''ission #59
P699
8i*e( e*penses per )e&r3
Rent P#7;997999
A(vertisin% 279997999
S&l&ries #75997999
Tot&l P;79997999
The co'p&n) is consi(erin% eli'in&tin% s&les co''issions entirel) in its stores &n( incre&sin%
fi*e( s&l&ries ,) P/7#5/7999 &nn!&ll)$
If this ch&n%e is '&(e7 wh&t will ,e the n!',er of p&irs of shoes to ,e sol( ,) Store ? to ,e
in(ifferent to co''ission ,&sis1
A$ /67299 C$ #:7696
+$ #67299 D$ /#7999
Sensitivity Analysis
#:$ If fi*e( costs incre&se while v&ri&,le cost per !nit re'&ins const&nt7 the contri,!tion '&r%in
will ,e
A$ lower C$ !nch&n%e(
+$ hi%her D$ !npre(ict&,le
M&) /996 P&%e 5 of 2/
#?$ 8ir' D &n( 8ir' S &re co'petitors within the s&'e in(!str)$ 8ir' D pro(!ces its pro(!ct
!sin% l&r%e &'o!nts of (irect l&,or$ 8ir' S h&s repl&ce( (irect l&,or with invest'ent in
'&chiner)$ Pro-ecte( s&les for ,oth fir's &re fifteen percent less th&n in the prior )e&r$ 0hich
st&te'ent re%&r(in% pro-ecte( profits is tr!e1
A$ 8ir' D will lose 'ore profit th&n 8ir' S$
+$ 8ir' S will lose 'ore profit th&n 8ir' D$
C$ 8ir' D &n( 8ir' S will lose the s&'e &'o!nt of profit$
D$ Neither 8ir' D nor 8ir' S will lose profit$
/9$ F&st 'onth7 L&'or& Co'p&n) h&( &n inco'e of P9$>6 per !nit with s&les of ;97999 !nits$
D!rin% the c!rrent 'onth when the !nit s&les &re e*pecte( to ,e onl) 5679997 there is & loss of
P#$/6 per !nit$ +oth the v&ri&,le cost per !nit &n( tot&l fi*e( costs re'&in const&nt$ The fi*e(
costs &'o!nte( to
A$ P:97999 C$ P/5>7699
+$ P2;97999 D$ P/#97999
/#$ The Fi,er&l M&rketin% Co$7 is e*pectin% &n incre&se of fi*e( costs ,) P>:7>69 !pon 'ovin%
their pl&ce of ,!siness to the (owntown &re&$ Fikewise it is &nticip&tin% th&t the sellin% price
per !nit &n( the v&ri&,le e*penses will not ch&n%e$ At present7 the s&les vol!'e necess&r) to
,re&keven is P>697999 ,!t with the e*pecte( incre&se in fi*e( costs7 the s&les vol!'e
necess&r) to ,re&keven wo!l( %o !p to P?>67999$ +&se( on these pro-ections7 wh&t were the
tot&l fi*e( costs ,efore the incre&se of P>:7>691
A$ P25#7/69 C$ P#:27>69
+$ P/;/7699 D$ P2997999
//$ M&ch&n Co$=s )e&rAen( inco'e st&te'ent is &s follows3
S&les C/97999 !nitsD P2;97999
V&ri&,le costs //97999
Contri,!tion '&r%in P#597999
8i*e( costs #967999
Net inco'e P 267999
M&n&%e'ent is !nh&pp) with the res!lts &n( pl&ns to '&ke so'e ch&n%es for ne*t )e&r$ If
'&n&%e'ent i'ple'ents & new '&rketin% pro%r&'7 fi*e( costs &re e*pecte( to incre&se ,)
P#?7/99 &n( v&ri&,le costs to incre&se ,) P# per !nit$ Jnit s&les &re e*pecte( to incre&se ,)
#6 percent$ 0h&t is the effect on inco'e if the fore%oin% ch&n%es &re i'ple'ente(1
A$ Decre&se of P/#7/99 C$ Incre&se of P#27:99
+$ Incre&se of P#7:99 D$ Incre&se of P#57:99
/2$ C&n()'&n Co'p&n) is & wholes&le (istri,!tor of c&n()$ The co'p&n) services %rocer)7
convenience7 &n( (r!% stores in Metro M&nil&$ S'&ll ,!t ste&() %rowth in s&les h&s ,een
&chieve( ,) the co'p&n) over the p&st few )e&rs while c&n() prices h&ve ,een incre&sin%$
The co'p&n) is for'!l&tin% its pl&ns for the co'in% fisc&l )e&r$ Presente( ,elow &re the (&t&
!se( to pro-ect the c!rrent )e&r=s &fterAt&* net inco'e of P##97599$
M&n!f&ct!rers of c&n() h&ve &nno!nce( th&t the) will incre&se prices of their pro(!cts &n
&ver&%e of #6< in the co'in% )e&r (!e to incre&ses in r&w '&teri&l Cs!%&r7 coco&7 pe&n!ts7
etc$D &n( l&,or costs$ C&n()'&n Co'p&n) e*pects th&t &ll other costs will re'&in &t the s&'e
r&tes or levels &s the c!rrent )e&r$ C&n()'&n is s!,-ect to 59 percent t&* r&te$
Aver&%e sellin% price P5$99 per ,o*
Aver&%e v&ri&,le costs
Cost of c&n() P/$99 per ,o*
Sellin% e*penses 9$59 per ,o*
Tot&l P/$59 per ,o*
Ann!&l fi*e( costs
Sellin% P#;?7999
A('inistr&tive /:97999
Tot&l P5597999
E*pecte( &nn!&l s&les vol!'e C2?97999 ,o*esD P#76;97999
If net inco'e &fter t&*es is to re'&in the s&'e &fter the cost of c&n() incre&ses ,!t no
incre&se in the s&les price is '&(e7 how '&n) ,o*es of c&n() '!st C&n()'&n sell1
A$ 5:97999 C$ />7;99
+$ 5997999 D$ /?7299
Margin o' Sa'ety
/5$ Cl&re'ont Co'p&n) h&( is & '&n!f&ct!rer of its onl) one pro(!ct line$ It h&( s&les of
P5997999 for /99/ with & contri,!tion '&r%in r&tio of /9 percent$ Its '&r%in of s&fet) r&tio w&s
#9 percent$ 0h&t &re the co'p&n)=s fi*e( costs1
A$ P>/7999 C$ P/::7999
+$ P:97999 D$ P2/97999
/6$ Fe'er) Corpor&tion h&( s&les of P#/97999 for the 'onth of M&)$ It h&s & '&r%in of s&fet)
r&tio of /6 percent7 &n( &fterAt&* ret!rn on s&les of ; percent$ The co'p&n) &ss!'es its s&les
const&nt ever) 'onth$ If the t&* r&te is 59 percent7 how '!ch is the 'onthl) fi*e( costs1
A$ P2;7999 C$ P52/7999
+$ P?97999 D$ P2;97999
M&) /996 P&%e 6 of 2/
(egree o' O)erating everage
/;$ A ver) hi%h oper&tin% lever&%e in(ic&tes th&t & fir'
A$ h&s hi%h fi*e( costs
+$ h&s & hi%h net inco'e
C$ h&s hi%h v&ri&,le costs
D$ is oper&tin% close to its ,re&keven point
/>$ The Di(&n% Co'p&n) h&s &n oper&tin% lever&%e of /$ S&les for /99# &re P/79997999 with &
contri,!tion '&r%in of P#79997999$ S&les &re e*pecte( to ,e P279997999 in /99/$ Net inco'e
for /99/ c&n ,e e*pecte( to incre&se ,) wh&t &'o!nt over /99#1
A$ P/697999 C$ P6997999
+$ /99 percent D$ 59 percent
Situational
!estions /: thr! 25 &re ,&se( on the followin% infor'&tion3
C&l&',& 4ospit&l oper&tes & %ener&l hospit&l ,!t rents sp&ce &n( ,e(s to sep&r&te entities for
speci&li"e( tre&t'ent s!ch &s pe(i&trics7 '&ternit)7 ps)chi&tric7 etc$ C&l&',& ch&r%es e&ch
sep&r&te entit) for co''on services to its p&tients like 'e&ls &n( l&!n(r) &n( for &ll &('inistr&tive
services s!ch &s ,illin%s7 collections7 etc$ All !ncollecti,le &cco!nts &re ch&r%e( (irectl) to the
entit)$ Sp&ce &n( ,e( rent&ls &re fi*e( for the )e&r$
8or the entire )e&r en(e( M!ne 297 the Pe(i&trics Dep&rt'ent &t C&l&',& 4ospit&l ch&r%e( e&ch
p&tient &n &ver&%e of P;6 per (&)7 h&( & c&p&cit) of ;9 ,e(s7 oper&te( /5 ho!rs per (&) for 2;6
(&)s7 &n( h&( reven!e of P#7#2:7:99$
E*penses ch&r%e( ,) the hospit&l to the Pe(i&trics Dep&rt'ent for the )e&r en(e( M!ne 29 were3
+&sis of Alloc&tion
P&tient D&)s +e( C&p&cit)
Diet&r) P 5/7?6/
M&nitori&l P #/7:99
F&!n(r) /:7999
F&,7 other th&n (irect ch&r%es to p&tients 5>7:99
Ph&r'&c) 227:99
Rep&irs &n( '&inten&nce 67/99 >7#59
Gener&l &('inistr&tive services #2#7>;9
Rent />672/9
+illin%s &n( collections 597999
+&( (e,t e*pense 5>7999
Other #:795: $
P/;/7:99 P5627999
The onl) personnel (irectl) e'plo)e( ,) the Pe(i&trics Dep&rt'ent &re s!pervisin% n!rses7 n!rses7
&n( &i(es$ The hospit&l h&s 'ini'!' personnel re.!ire'ents ,&se( on tot&l &nn!&l p&tient (&)s$
4ospit&l re.!ire'ents ,e%innin% &t the 'ini'!'7 e*pecte( level of oper&tion follow3
Ann!&l P&tient D&)s Ai(es N!rses S!pervisin% N!rses
#97999 I #57999 /# ## 5
#5799# I #>7999 // #/ 5
#>799# I /27>/6 // #2 5
/27>/; I /67669 /6 #5 6
/6766# I />72>6 /; #5 6
/>72>; I /?7/99 /? #; ;
The st&ffin% levels &,ove represent f!llAti'e e.!iv&lents7 &n( it sho!l( ,e &ss!'e( th&t the
Pe(i&trics Dep&rt'ent &lw&)s e'plo)s onl) the 'ini'!' n!',er of re.!ire( f!llAti'e e.!iv&lent
personnel$
Ann!&l s&l&ries for e&ch cl&ss of e'plo)ee follow3 s!pervisin% n!rses7 P#:7999@ n!rses7 P#27999@
&n( &i(es7 P67999$ S&l&r) e*pense for the )e&r en(e( M!ne 29 for s!pervisin% n!rses7 n!rses7 &n(
&i(es w&s P>/79997 P#;?79997 &n( P##979997 respectivel)$
The Pe(i&trics Dep&rt'ent oper&te( &t #99< c&p&cit) (!rin% ### (&)s of the p&st )e&r$ It is
esti'&te( th&t (!rin% ?9 of these c&p&cit) (&)s7 the (e'&n( &ver&%e #> p&tients 'ore th&n
c&p&cit) &n( even went &s hi%h &s /9 p&tients 'ore on so'e (&)s$ The hospit&l h&s &n &((ition&l
/9 ,e(s &v&il&,le for rent for the co'in% fisc&l )e&r$
/:$ The v&ri&,le e*pense per p&tient (&) is
A$ P#6$9: C$ P#6$99
+$ P#/$69 D$ P69$99
/?$ The contri,!tion '&r%in per p&tient (&) is
A$ P5?$?/ C$ P69$99
+$ P6/$69 D$ P6/$99
29$ 4ow '&n) p&tient (&)s &re necess&r) to cover fi*e( costs for ,e( c&p&cit) &n( for s!pervisor)
n!rses1
A$ ?7699 C$ #/7699
+$ ##7699 D$ #97699
2#$ The n!',er of p&tient (&)s nee(e( to cover tot&l costs is
A$ #57/99 C$ #67:/9
+$ #67/99 D$ #57//9
M&) /996 P&%e ; of 2/
2/$ If the Pe(i&trics Dep&rt'ent rente( &n &((ition&l /9 ,e(s &n( &ll other f&ctors re'&in the
s&'e &s in the p&st )e&r7 wh&t wo!l( ,e the incre&se in reven!e1
A$ P??7569 C$ P#967569
+$ P:>7>69 D$ P:?7>69
22$ Contin!in% to consi(er the /9 &((ition&l rente( ,e(s7 the incre&se in tot&l v&ri&,le cost &pplie(
per p&tient (&) is
A$ P//7?26 C$ P//7?;6
+$ P//7?69 D$ P/27?26
25$ 0h&t is the incre&se( fi*e( cost &pplie( for ,e( c&p&cit)7 %iven the incre&se( n!',er of ,e(s1
A$ P#6#7999 C$ P#5>7999
+$ P#>27?69 D$ P#6/7999
!estions 26 thr! 2> &re ,&se( on the followin% infor'&tion$
Ms$ C&sserole st&rte( & pi""& rest&!r&nt in #??:$ 8or this p!rpose & ,!il(in% w&s rente( for P599
per 'onth$ Two wo'en were hire( to work f!ll ti'e &t the rest&!r&nt &n( si* colle%e st!(ents were
hire( to work 29 ho!rs per week (eliverin% pi""&$ This level of e'plo)'ent h&s ,een consistent$
An o!tsi(e &cco!nt&nt w&s hire( for t&* &n( ,ookkeepin% p!rposes7 for which Ms$ C&sserole p&)s
P299 per 'onth$ The necess&r) rest&!r&nt e.!ip'ent &n( (eliver) c&rs were p!rch&se( with
c&sh$ Ms$ C&sserole h&s notice( th&t e*penses for !tilities &n( s!pplies h&ve ,een r&ther
const&nt$ Ms$ C&sserole incre&se( her ,!siness ,etween #??: &n( /99#$ Profits h&ve 'ore th&n
(o!,le( since #??:$ Ms$ C&sserole (oes not !n(erst&n( wh) profits h&ve incre&se( f&ster th&n
vol!'e$
A pro-ecte( inco'e st&te'ent for the )e&r en(e( Dece',er 2#7 /99/7 prep&re( ,) the &cco!nt&nt7
is shown ,elow3
S&les P?67999
Cost of foo( sol( P/:7699
0&%es N frin%e ,enefits3
Rest&!r&nt help :7#69
Deliver) help #>7299
Rent 57:99
Acco!ntin% services 27;99
Depreci&tion3
Deliver) e.!ip'ent 67999
Rest&!r&nt e.!ip'ent 27999
Jtilities /72/6
S!pplies #7/99 >27:>6
Net inco'e ,efore t&*es P/#7#/6
Inco'e t&*es C59<D :7569
Net inco'e P#/7;>6
Note3 The &ver&%e pi""& sells for P/$69$
26$ 0h&t is the t&* shiel( on the nonc&sh fi*e( costs1
A$ P27/99 C$ P27599
+$ P#57?69 D$ P67599
2;$ 0h&t is the ,re&keven point in n!',er of pi""&s th&t '!st ,e sol(1
A$ /67?/? C$ #:7#69
+$ /276;? D$ 5/7##5
2>$ 0h&t is the c&sh flow ,re&keven point in n!',er of pi""&s th&t '!st ,e sol(1
A$ #?76/? C$ #/7??9
+$ /#7/:5 D$ #97>>2
VARIABE COSTI$* VS+ ABSOR"TIO$ COSTI$*
A,sor)tion Costing
2:$ 0hen & fir' prep&res fin&nci&l reports ,) !sin% &,sorption costin%7 it '&) fin( th&t
A$ profits will &lw&)s incre&se with incre&se in s&les$
+$ profits will &lw&)s (ecre&se with (ecre&ses in s&les$
C$ profit '&) (ecre&se with incre&se( s&les even if there is no ch&n%e in sellin% price &n(
costs$
D$ (ecre&se( o!tp!t &n( const&nt s&les res!lt in incre&se( profit$
2?$ The +!sh Co'p&n) h&s provi(e( infor'&tion concernin% its pro-ections for the co'in% )e&r &s
follows3
Net s&les P#979997999
8i*e( '&n!f&ct!rin% costs P #79997999
+!sh pro-ects v&ri&,le '&n!f&ct!rin% costs of ;9< of net s&les$ Ass!'in% no ch&n%e in
inventor)7 wh&t will the pro-ecte( cost of %oo(s sol( ,e1
A$ P679997999 C$ P>79997999
+$ P;79997999 D$ P:79997999
59$ Col%er Co'p&n) '&n!f&ct!res & sin%le pro(!ct !sin% st&n(&r( costin%$ V&ri&,le pro(!ction
costs &re P#/ &n( fi*e( pro(!ction costs &re P#/67999$ Col%er !ses & nor'&l &ctivit) of
M&) /996 P&%e > of 2/
#/7699 !nits to set its st&n(&r( costs$ Col%er ,e%&n the )e&r with #7999 !nits in inventor)7
pro(!ce( ##7999 !nits7 &n( sol( ##7699 !nits$ The st&n(&r( costs of %oo(s sol( !n(er
&,sorption costin% wo!l( ,e
A$ P##67999 C$ P/5/7999
+$ P#2/7999 D$ P/627999
5#$ The Trinkets Co'p&n) esti'&te( the followin% (&t& for the co'in% )e&r3
8i*e( '&n!f&ct!rin% costs P6;67999
V&ri&,le pro(!ction costs per peso of s&les
M&teri&ls P9$#/6
Direct l&,or 9$#69
V&ri&,le overhe&( 9$9>6
V&ri&,le sellin% costs per peso of s&les 9$#69
Trinkets esti'&tes its s&les for the co'in% )e&r to ,e P/79997999$
The e*pecte( cost of %oo(s sol( for the co'in% )e&r is
A$ P#7/;67999 C$ P#7##67999
+$ P#76;67999 D$ P >997999
5/$ Nirv&n& Co$ e'plo)s & nor'&l Cnonst&n(&r(D &,sorption cost s)ste'$ The infor'&tion ,elow
is fro' the fin&nci&l recor(s of the co'p&n) for the )e&r$
Tot&l '&n!f&ct!rin% costs were P/76997999$
Costs of %oo(s of '&n!f&ct!re( w&s P/75/67999$
Applie( f&ctor) overhe&( w&s 29 percent of tot&l '&n!f&ct!rin% costs$
8&ctor) overhe&( w&s &pplie( to pro(!ction &t & r&te of :9< of (irect l&,or cost$
0orkAinAprocess inventor) &t M&n!&r) # w&s >6< of workAinAprocess inventor) &t
Dece',er 2#$
0h&t &re the &'o!ntsGv&l!e of the followin% cost ele'ents &n( inventor)1
Direct l&,or Direct '&teri&ls 0orkAinAprocess inventor)
A$ P>697999 P>697999 P//67999
+$ P?2>7699 P:#/7699 P//67999
C$ P?2>7699 P:#/7699 P2997999
D$ P>697999 P>697999 P2997999
52$ +l&ck 8orest7 Inc$ ,e%&n oper&tions on M&n!&r) 2$ St&n(&r( costs were est&,lishe( in e&rl)
M&n!&r) &ss!'in% & nor'&l pro(!ction vol!'e of #;97999 !nits$ 4owever7 +l&ck 8orest
pro(!ce( onl) #597999 !nits of pro(!ct &n( sol( #997999 !nits &t & sellin% price of P#:9 per
!nit (!rin% the )e&r$ V&ri&,le costs tot&le( P>799979997 of which ;9< were '&n!f&ct!rin% &n(
59< were sellin%$ 8i*e( costs tot&le( P##7/9979997 of which 69< were '&n!f&ct!rin% &n(
69< were sellin%$ +l&ck 8orest h&( no r&w '&teri&ls or workAinAprocess inventories &t
Dece',er 2#$ Act!&l inp!t prices &n( .!&ntities per !nit of pro(!ct were e.!&l to st&n(&r($
Jsin% &,sorption costin%7 +l&ck 8orest=s inco'e st&te'ent wo!l( show3
Cost of Goo(s Sol( &t St&n(&r( Cost Overhe&( Vol!'e V&ri&nce
A$ P:7/997999 P:997999 Jnf
+$ P>7/997999 P:997999 8&v
C$ P;76997999 P>997999 Jnf
D$ P>79997999 P>997999 8&v
A,sor)tion Costing - Varia,le Costing
55$ So!thse&s Corp$ !ses & st&n(&r( cost s)ste'$ The st&n(&r( cost per !nit of one of its
pro(!cts &re &s follows3
Direct M&teri&ls P5$99
Direct l&,or ;$99
8&ctor) overhe&(
V&ri&,le 2$99
8i*e( C,&se( on & nor'&l c&p&cit) of #97999 !nitsD /$99
Tot&l #6$99
+e%innin% inventor) /7999 !nits
Pro(!ction :7999 !nits
Jnits sol( Csellin% price P69D >7999 !nits
Act!&l costs3
Direct '&teri&ls P 267999
Direct l&,or 697999
V&ri&,le overhe&( /27999
8i*e( #:7999
V&ri&,le sellin% &n( &('$ ;97999
8i*e( sellin% &n( &('$ 267999
V&ri&nces &re close( to cost of s&les 'onthl)
M&) /996 P&%e : of 2/
4ow '!ch &re the net inco'e !n(er &,sorption costin% &n( v&ri&,le costin% 'etho(s1
A$ +$ C$ D$
A,sorption P#557999 P#527999 #557999 #5/7999
V&ri&,le #527999 #557999 #5/7999 #557999
56$ For( In(!stries '&n!f&ct!res & sin%le pro(!ct$ V&ri&,le pro(!ction costs &re P#9 &n( fi*e(
pro(!ction costs &re P>67999$ For( !ses & nor'&l &ctivit) of #97999 !nits to set its st&n(&r(
costs$ For( ,e%&n the )e&r with no inventor)7 pro(!ce( ##7999 !nits &n( sol( #97699 !nits$
The vol!'e v&ri&nce !n(er e&ch pro(!ct costin% &re3
A$ +$ C$ D$
Jn(er A,sorption Costin% P27>69 P27>69 P>7699 P>7699
Jn(er V&ri&,le Costin% P 9 P>7699 P9 P9
A,sor)tion Costing Income vs+ Varia,le Costing Income
5;$ Si'ple Corp$ pro(!ces & sin%le pro(!ct$ The followin% cost str!ct!re &pplie( to their first )e&r
of oper&tions7 /9993
V&ri&,le Costs per Jnit Ann!&l 8i*e( Costs
SGNA P/$99 P#57999
Pro(!ction 5$99 P/97999
Ass!'e th&t (!rin% /999 Si'ple Corp$ '&n!f&ct!re( 67999 !nits &n( sol( 27:99$ There w&s
no ,e%innin% or en(in% workAinAprocess inventor)$ 4ow '!ch l&r%er or s'&ller wo!l( Si'ple
Corp$=s inco'e ,e if it !ses &,sorption r&ther th&n v&ri&,le costin%1
A$ The &,sorption costin% inco'e wo!l( ,e P;7999 l&r%er
+$ The &,sorption costin% inco'e wo!l( ,e P;7999 s'&ller
C$ The &,sorption costin% inco'e wo!l( ,e P57:99 l&r%erB
D$ The &,sorption costin% inco'e wo!l( ,e P57999 s'&ller
STA$(AR( COSTI$* - VARIA$CE A$A%SIS
Basic Conce)ts
5>$ 0hich of the followin% is & (ifference ,etween & st&tic ,!(%et &n( & fle*i,le ,!(%et1
A$ A fle*i,le ,!(%et incl!(es onl) v&ri&,le costs@ & st&tic ,!(%et incl!(es onl) fi*e( costs$
+$ A fle*i,le ,!(%et incl!(es &ll costs7 & st&tic ,!(%et incl!(es onl) fi*e( costs$
C$ A fle*i,le ,!(%et %ives (ifferent &llow&nces for (ifferent levels of &ctivit)7 & st&tic ,!(%et
(oes not$
D$ There is no (ifference ,etween the two$
Setting Standards
5:$ 0hich of the followin% st&te'ents &,o!t the selection of st&n(&r(s is tr!e1
A$ I(e&l st&n(&r(s ten( to e*tr&ct hi%her perfor'&nce levels since the) %ive e'plo)ees
so'ethin% to live !p to$
+$ C!rrentl) &tt&in&,le st&n(&r(s '&) enco!r&%e oper&tin% inefficiencies$
C$ C!rrentl) &tt&in&,le st&n(&r(s (isco!r&%e e'plo)ees fro' &chievin% their f!ll
perfor'&nce potenti&l$
D$ I(e&l st&n(&r(s (e'&n( '&*i'!' efficienc) which '&) le&ve workers fr!str&te(7 th!s
c&!sin% & (ecline in perfor'&nce$
5?$ The perA!nit st&n(&r( cost for v&ri&,le overhe&( is nor'&ll) ,&se( on the
A$ st&n(&r( .!&ntit) of &n inp!t f&ctor !se( in & !nit of pro(!ct$
+$ &ct!&l v&ri&,le overhe&( cost inc!rre( &t the &chieve( level of pro(!ction$
C$ ,!(%ete( tot&l cost for v&ri&,le overhe&( (ivi(e( ,) the n!',er of !nits e*pecte( to ,e
pro(!ce($
D$ r&tio of frin%e ,enefits to the ,&sic cost of l&,or$
69$ Relev&nt Co'p&n) h&( the followin% fle*i,le ,!(%et for /992 &t #99 percent c&p&cit) of
297999 (irect l&,or ho!rs$
Direct '&teri&ls P:997999
Direct l&,or ;997999
V&ri&,le '&n!f&ct!rin% overhe&( 2;97999
8i*e( '&n!f&ct!rin% overhe&( /::7999
0h&t is the tot&l '&n!f&ct!rin% overhe&( &pplic&tion r&te if the Relev&nt Co'p&n) h&s to
oper&te &t :9 percent of the st&te( c&p&cit)1
A$ P/5$99 C$ P/5$;9
+$ P/>$99 D$ P/#$;9
Ra. Materials Variances
6#$ Der,) Co$ !ses & st&n(&r( costin% s)ste' in connection with the '&n!f&ct!re of & line of TA
shirts$ E&ch !nit of finishe( pro(!ct cont&ins / )&r(s of (irect '&teri&l$ 4owever7 & /9 percent
(irect '&teri&l spoil&%e c&lc!l&te( on inp!t .!&ntities occ!rs (!rin% the '&n!f&ct!rin%
process$ The cost of the (irect '&teri&ls is P#/9 per )&r($
The st&n(&r( (irect '&teri&l cost per !nit of finishe( pro(!ct is
A$ P#?/ C$ P/::
+$ P/59 D$ P299
M&) /996 P&%e ? of 2/
6/$ Silver Co'p&n) h&s & st&n(&r( of #6 p&rts of Co'ponent R costin% P#$69 e&ch$ Silver
p!rch&se( #57?#9 !nits of R for P//7#56$ Silver %ener&te( & P//9 f&vor&,le price v&ri&nce
&n( & P27>26 f&vor&,le !s&%e v&ri&nce$ If there were no ch&n%es in the co'ponent of
inventor)7 how '&n) !nits of finishe( pro(!ct were pro(!ce(1
A$ ??5 !nits C$ #7>/6 !nits
+$ #7#;9 !nits D$ :/: !nits
62$ The st&n(&r( !s&%e for r&w '&teri&ls is 6 po!n(s &t P59$99 per po!n($ C&ve Co'p&n) spent
P#2#7/99 in p!rch&sin% 27/99 po!n(s$ C&ve !se( 27#69 po!n(s to pro(!ce ;99 !nits of
finishe( pro(!ct$ The '&teri&l .!&ntit) v&ri&nce is
A$ P;7999 !nf&vor&,le C$ P67/99 !nf&vor&,le
+$ P27/99 !nf&vor&,le D$ P/7999 !nf&vor&,le
65$ R&'ie h&s & st&n(&r( price of P6$69 per po!n( for '&teri&ls$ M!l)=s res!lts showe( &n
!nf&vor&,le '&teri&l price v&ri&nce of P55 &n( & f&vor&,le .!&ntit) v&ri&nce of P/9?$ If #79;;
po!n(s were !se( in pro(!ction7 wh&t w&s the st&n(&r( .!&ntit) &llowe( for '&teri&ls1
A$ #7#95 C$ #79>5
+$ #79;; D$ #7#99
(irect a,or Variance
66$ Anne h&( & P>69 !nf&vor&,le (irect l&,or r&te v&ri&nce &n( &n P:99 f&vor&,le efficienc)
v&ri&nce$ Anne p&i( P>7#69 for :99 ho!rs of l&,or$ 0h&t w&s the st&n(&r( (irect l&,or w&%e
r&te1
A$ P:$?5 C$ P>$?5
+$ P:$99 D$ P>$:9
6;$ The fle*i,le ,!(%et for the 'onth of M&) /99/ w&s for ?7999 !nits with (irect '&teri&l &t P#6
per !nit$ Direct l&,or w&s ,!(%ete( &t 56 'in!tes per !nit for & tot&l of P:#7999$ Act!&l o!tp!t
for the 'onth w&s :7699 !nits with P#/>7699 in (irect '&teri&l &n( P>>7>>6 in (irect l&,or
e*pense$ Direct l&,or ho!rs of ;72>6 were &ct!&ll) worke( (!rin% the 'onth$ V&ri&nce
&n&l)sis of the perfor'&nce for the 'onth of M&) wo!l( show &CnD
A$ f&vor&,le '&teri&l .!&ntit) v&ri&nce of P>7699
+$ !nf&vor&,le (irect l&,or efficienc) v&ri&nce of P#7/>6
C$ !nf&vor&,le '&teri&l .!&ntit) v&ri&nce of P>7699
D$ !nf&vor&,le (irect l&,or r&te v&ri&nce of P#7/>6
T.o-Way Over/ead Variances
6>$ O&rl& Co'p&n) !ses &n &nn!&l cost for'!l& for overhe&( of P>/7999 P P#$;9 for e&ch (irect
l&,or ho!r worke($ 8or the !pco'in% 'onth O&rl& pl&ns to '&n!f&ct!re ?;7999 !nits$ E&ch
!nit re.!ires five 'in!tes of (irect l&,or$ O&rl&=s ,!(%ete( overhe&( for the 'onth is
A$ P#/7:99 C$ P:57:99
+$ P#:7:99 D$ P>>57999
6:$ If &ct!&l overhe&( is P#579997 overhe&( &pplie( is P#275997 &n( overhe&( ,!(%ete( for the
st&n(&r( ho!rs &llowe( is P#67;997 then the overhe&( controll&,le v&ri&nce is
A$ P;998 C$ P#7;998
+$ P/7/99J D$ P#7;99J
6?$ Jnivers&l Co'p&n) !ses & st&n(&r( cost s)ste' &n( prep&re( the followin% ,!(%et &t nor'&l
c&p&cit) for M&n!&r)
Direct l&,or ho!rs /57999
V&ri&,le f&ctor) O4 P5:7999
8i*e( f&ctor) O4 P#9:7999
Tot&l f&ctor) O4 per DF4 P;$69
Act!&l (&t& for M&n!&r) were &s follows3
Direct l&,or ho!rs worke( //7999
Tot&l f&ctor) O4 P#5>7999
St&n(&r( DF4s &llowe( for c&p&cit) &tt&ine( /#7999
Jsin% the twoAw&) &n&l)sis of overhe&( v&ri&nce7 wh&t is the controll&,le v&ri&nce for
M&n!&r)1
A$ P27999 8 C$ P?7999 8
+$ P67999 8 D$ P#97699 J
;9$ The Terr&in Co'p&n) h&s & st&n(&r( &,sorption &n( fle*i,le ,!(%etin% s)ste' &n( !ses &
twoAw&) &n&l)sis of overhe&( v&ri&nces$ Selecte( (&t& for the M!ne pro(!ction &ctivit) &re3
+!(%ete( fi*e( f&ctor) overhe&( costs P ;57999
Act!&l f&ctor) overhe&( /297999
V&ri&,le f&ctor) overhe&( r&ter per DF4 P 6
St&n(&r( DF4 2/7999
Act!&l DF4 2/7999
The ,!(%et Ccontroll&,leD v&ri&nce for M!ne is
A$ P#7999 f&vor&,le C$ P;7999 f&vor&,le
+$ P#7999 !nf&vor&,le D$ P;7999 !nf&vor&,le
M&) /996 P&%e #9 of 2/
;#$ So!th Co'p&n) h&s tot&l ,!(%ete( fi*e( costs of P>679997 Act!&l pro(!ction of #?7699 !nits
res!lte( in & P27999 f&vor&,le vol!'e v&ri&nce$ 0h&t nor'&l c&p&cit) w&s !se( to (eter'ine
the fi*e( overhe&( r&te1
A$ #;7699 C$ /972#2
+$ #:7>69 D$ /972/6
;/$ CTV Co'p&n) h&s & st&n(&r( fi*e( cost of P; per !nit$ At &n &ct!&l pro(!ction of :7999 !nits
& f&vor&,le vol!'e v&ri&nce of P#/7999 res!lte($ 0h&t were tot&l ,!(%ete( fi*e( costs1
A$ P2;7999 C$ P;97999
+$ P5:7999 D$ P>67999
;2$ The Pin&t!,o Co'p&n) '&kes &n( sells & sin%le pro(!ct &n( !ses st&n(&r( costin%$ D!rin%
M&n!&r)7 the co'p&n) &ct!&ll) !se( :7>99 (irect l&,orAho!rs CDF4sD &n( pro(!ce( 27999 !nits
of pro(!ct$ The st&n(&r( cost c&r( for one !nit of pro(!ct incl!(es the followin%3
V&ri&,le f&ctor) overhe&(3 2$9 DF4s E P5$99 per DF4$
8i*e( f&ctor) overhe&(3 2$9 DF4s E P2$69 per DF4
8or M&n!&r)7 the co'p&n) inc!rre( P//7999 of &ct!&l fi*e( overhe&( costs &n( recor(e( &
P:>6 f&vor&,le vol!'e v&ri&nce$
The ,!(%ete( fi*e( overhe&( cost for M&n!&r) is
A$ P2#7699 C$ P2/72>6
+$ P297;/6 D$ P227/69
!estions ;5 N ;6 &re ,&se( on the followin% infor'&tion$
F!ck) Co'p&n) sets the followin% st&n(&r(s for /9923
Direct l&,or cost C/ DF4 E P5$69D P ?$99
M&n!f&ct!rin% overhe&( C/ DF4 E P>$69D #6$99
F!ck) Co'p&n) pl&ns to pro(!ce its onl) pro(!ct e.!&ll) e&ch 'onth$ The &nn!&l ,!(%et for
overhe&( costs &re3
8i*e( overhe&( P#697999
V&ri&,le overhe&( 2997999
Nor'&l &ctivit) in (irect l&,or ho!rs ;97999
In M&rch7 F!ck) Co'p&n) pro(!ce( /7569 !nits with &ct!&l (irect l&,or ho!rs !se( of 67969$
Act!&l overhe&( costs for the 'onth &'o!nte( to P2>7/56 C8i*e( overhe&( is &s ,!(%ete($D
;5$ The &'o!nt of overhe&( vol!'e v&ri&nce for F!ck) Co'p&n) is
A$ P/69 !nf&vor&,le C$ P>69 Jnf&vor&,le
+$ P699 !nf&vor&,le D$ P2>6 Jnf&vor&,le
;6$ Jsin% the prece(in% (&t& for F!ck) Co'p&n)7 the controll&,le overhe&( v&ri&nce w&s
A$ P696 f&vor&,le C$ P/56 f&vor&,le
+$ P696 !nf&vor&,le D$ P/56 !nf&vor&,le
T/ree-Way Over/ead Variances
;;$ Arlene h&( &n P#:7999 !nf&vor&,le vol!'e v&ri&nce7 & P/67999 !nf&vor&,le v&ri&,le
overhe&( spen(in% v&ri&nce7 &n( P/7999 tot&l !n(er &pplie( overhe&($ The fi*e( overhe&(
,!(%et v&ri&nce is
A$ P5#7999 f&vor&,le C$ P5#7999 Jnf&vor&,le
+$ P567999 f&vor&,le D$ P567999 Jnf&vor&,le
#our-Way Over/ead Variances
;>$ 8r&nklin Gl&ss 0orks= pro(!ction ,!(%et for the )e&r en(e( Nove',er 297 /99# w&s ,&se( on
/997999 !nits$ E&ch !nit re.!ires two st&n(&r( ho!rs of l&,or for co'pletion$ Tot&l overhe&(
w&s ,!(%ete( &t P?997999 for the )e&r7 &n( the fi*e( overhe&( r&te w&s esti'&te( to ,e
P2$99 per !nit$ +oth fi*e( &n( v&ri&,le overhe&( &re &ssi%ne( to the pro(!ct on the ,&sis of
(irect l&,or ho!rs$ The &ct!&l (&t& for the )e&r en(e( Nove',er 297 /99# &re presente(
,elow$
Act!&l pro(!ction in !nits #?:7999
Act!&l (irect l&,or ho!rs 5597999
Act!&l v&ri&,le overhe&( P 26/7999
Act!&l fi*e( overhe&( P 6>67999
8r&nklin=s v&ri&,le overhe&( efficienc) v&ri&nce for the )e&r en(e( Nove',er 297 /99# is
A$ P227999 !nf&vor&,le C$ P;;7999 !nf&vor&,le
+$ P2676/9 f&vor&,le D$ P227999 f&vor&,le
;:$ The Vir%in Isl&n( Co'p&n) h&s st&n(&r( v&ri&,le costs &s follows3
M&teri&ls7 2 po!n(s &t P5$99 per po!n( P#/$99
F&,or7 / ho!rs P#9$99 per ho!r /9$99
V&ri&,le overhe&(7 P>$69 per l&,or ho!r #6$99
Tot&l P5>$99
D!rin% Septe',er7 Vir%in Isl&n( pro(!ce( ;7999 !nits7 !sin% ##76;9 l&,or ho!rs &t & tot&l
w&%e of P##27:>9 &n( inc!rrin% P::7;99 in v&ri&,le overhe&($ The v&ri&,le overhe&(
v&ri&nces &re3
A$ +$ C$ D$
Spen(in% P#7?99 f&vor&,le P#7?99 !nf&vor&,le P#7599 f&vor&,le P#7599 !nf&vor&,le
Efficienc) P27299 !nf&vor&,le P27299 f&vor&,le P#7?99 f&vor&,le P#7?99 f&vor&,le
M&) /996 P&%e ## of 2/
;?$ 8i*e( '&n!f&ct!rin% overhe&( w&s ,!(%ete( &t P6997999 &n( /67999 (irect l&,or ho!rs were
,!(%ete($ If the fi*e( overhe&( vol!'e v&ri&nce w&s P#/7999 f&vor&,le &n( the fi*e(
overhe&( spen(in% v&ri&nce w&s P#;7999 !nf&vor&,le7 fi*e( '&n!f&ct!rin% overhe&( &pplie(
'!st ,e
A$ P6#;7999 C$ P6957999
+$ P6#/7999 D$ P5?;7999
>9$ M!lve) Co'p&n) (erive( the followin% cost rel&tionship fro' & re%ression &n&l)sis of its
'onthl) '&n!f&ct!rin% overhe&( cost3
C K P:97999 P P#/M
0here C K 'onthl) '&n!f&ct!rin% overhe&( cost
M K '&chine ho!rs
The st&n(&r( error of the esti'&te of the re%ression is P;7999$
The st&n(&r( ti'e re.!ire( to '&n!f&ct!re one si*A!nit c&se of M!lve)=s sin%le pro(!ct is 5
'&chine ho!rs$ M!lve) &pplies '&n!f&ct!rin% overhe&( to pro(!ction on the ,&sis of
'&chine ho!rs &n( its nor'&l &nn!&l pro(!ction is 697999 c&ses$
M!lve)=s esti'&te( v&ri&,le '&n!f&ct!rin% overhe&( cost for & 'onth in which sche(!le(
pro(!ction is 67999 c&ses wo!l( ,e
A$ P:97999 C$ P/597999
+$ P2/97999 D$ P2;97999
!estions ># thr! >2 &re ,&se( on the followin% infor'&tion$
The F!stre Co'p&n) pro(!ces its onl) pro(!ct7 Oool Chewin% G!'$ The st&n(&r( overhe&( cost
for one p&ck of the pro(!ct follows3
8i*e( overhe&( C#$69 ho!rs &t P#:$99D P/>$99
V&ri&,le overhe&( C#$69 ho!rs &t P#9$99D #6$99
Tot&l &pplic&tion r&te P5/$99
F!stre !ses e*pecte( vol!'e of /97999 !nits$ D!rin% the )e&r7 F!stre !se( 2#7699 (irect l&,or
ho!rs for the pro(!ction of /97999 !nits$ Act!&l overhe&( costs were P6567999 fi*e( &n( P29:7>99
v&ri&,le$
>#$ The &'o!nt of v&ri&,le overhe&( spen(in% v&ri&nce is
A$ P;7299 8&vor&,le C$ P;7299 Jnf&vor&,le
+$ P :7>99 8&vor&,le D$ P:7>99 Jnf&vor&,le
>/$ The tot&l overhe&( controll&,le v&ri&nce is
A$ P#27>99 8&vor&,le C$ P#27>99 Jnf&vor&,le
+$ P :7>99 8&vor&,le D$ P :7 >99 Jnf&vor&,le
M&) /996 P&%e #/ of 2/
>2$ The overhe&( efficienc) v&ri&nce is
A$ P//7699 8&vor&,le C$ P//7699 Jnf&vor&,le
+$ P#67999 8&vor&,le D$ P#67999 Jnf&vor&,le
*ross "ro'it Variance Analysis
>5$ Vicki Division oper&tes &s & reven!e center &n( sells onl) one pro(!ct$ D&t& for M&) /999 &re
&s follows3
Act!&l E*pecte(
S&les in !nits #97999 ?7699
Sellin% price per !nit P## P#9
V&ri&,le e*pense per !nit P ;
What are the price variance and price volume variance?
A$ +$ C$ D$
S&les Price V&ri&nce P#97999 8 P 67999 8 P 67999 J P#97999 J
Price Vol!'e V&ri&nce P 67999 8 P#97999 J P#97999 8 P 67999 J
RES"O$SIBIIT% ACCO!$TI$* - TRA$S#ER "RICI$*
Basic Conce)ts
>6$ Controll&,le costs &re costs th&t
A$ &re likel) to respon( to the &'o!nt of &ttention (evote( to the' ,) & specifie( '&n&%er$
+$ &re %overne( '&inl) ,) p&st (ecisions th&t est&,lishe( the present levels of oper&tin% &n(
or%&ni"&tion&l c&p&cit) &n( th&t onl) ch&n%e slowl) in response to s'&ll ch&n%es in
c&p&cit)$
C$ will ,e !n&ffecte( ,) c!rrent '&n&%eri&l (ecisions$
D$ fl!ct!&te in tot&l in response to s'&ll ch&n%e in the r&te of !tili"&tion of c&p&cit)$
>;$ 0hich of the followin% (oes not &ppl) to the content of '&n&%eri&l reports1
A$ Reportin% st&n(&r( is relev&nt to the (ecision to ,e '&(e$
+$ M&) e*ten( ,e)on( (o!,leAentr) &cco!ntin% s)ste'$
C$ Pert&in to s!,!nits of the entit) &n( '&) ,e ver) (et&ile($
D$ Pert&ins to the entit) &s & whole &n( is hi%hl) &%%re%&te($B
Return on Investment
>>$ If the invest'ent t!rnover (ecre&se( ,) #9 percent &n( ROS (ecre&se( ,) 29 percent7 the
ROI wo!l(
A$ incre&se ,) 29< C$ (ecre&se ,) 2><
+$ (ecre&se ,) #9< D$ (ecre&se ,) 22$2<
>:$ Ret!rn on invest'ent CROID is & ter' often !se( to e*press inco'e e&rne( on c&pit&l investe(
in & ,!siness !nit$ A co'p&n)=s ROI wo!l( ,e incre&se( if s&les
A$ incre&se( ,) the s&'e peso &'o!nt &s e*penses &n( tot&l &ssets incre&se($
+$ re'&ine( the s&'e &n( e*penses were re(!ce( ,) the s&'e peso &'o!nt th&t tot&l
&sset incre&se($
C$ (ecre&se( ,) the s&'e peso &'o!nt th&t e*penses incre&se($
D$ &n( e*penses incre&se( ,) the s&'e percent&%e th&t tot&l &ssets incre&se($
>?$ If the invest'ent t!rnover incre&se( ,) 29< &n( ROS (ecre&se( ,) /9<7 the ROI wo!l(
A$ incre&se ,) 5< C$ incre&se ,) 29<
+$ incre&se ,) ;< D$ (ecre&se ,) 69<
Residual Income
:9$ M&r Division of 4&n()7 Inc$ e*pects the followin% res!lt for /9953
Jnit s&les >97999
Jnit sellin% price P #9
Jnit v&ri&,le cost P 5
Tot&l fi*e( costs P2997999
Tot&l invest'ent P6997999
The 'ini'!' re.!ire( ROI is #6 percent7 &n( (ivisions &re ev&l!&te( on resi(!&l inco'e$ A
forei%n c!sto'er h&s &ppro&che( M&r=s '&n&%er with &n offer to ,!) #97999 !nits &t P> e&ch$
If M&r &ccepts the or(er7 it wo!l( not lose &n) of the >97999 !nits &t the re%!l&r price$ Acceptin%
the or(er wo!l( incre&se fi*e( costs ,) P#97999 &n( invest'ent ,) P597999$
0h&t is the 'ini'!' price th&t M&r co!l( &ccept for the or(er &n( still '&int&in its e*pecte(
resi(!&l inco'e1
A$ P6$99 C$ P5$>6
+$ P6$;9 D$ P?$99
Return on Investment - Residual Income
:#$ Scotch Co$ h&s the followin% res!lts for the )e&r3
S&les P>597999
V&ri&,le e*penses /;97999
8i*e( e*penses 2997999
Tot&l (ivision&l &ssets &ver&%e P#79997999$ The co'p&n)=s 'ini'!' re.!ire( r&te of ret!rn is
#5 percent$ The resi(!&l inco'e &n( ret!rn on invest'ent for Scotch &re3
A$ +$ C$ D$
Resi(!&l Inco'e P2;7999 P597999 P2;7999 P597999
M&) /996 P&%e #2 of 2/
Ret!rn on Invest'ent 2;< #:< #:< 2;< :/$ The followin% infor'&tion rel&tes to two pro-ects of Ric& Corpor&tion$
Pro-ect A Pro-ect +
Oper&tin% inco'e P/76997999 P;997999
Resi(!&l inco'e P 6997999 P/997999
ROI #9< #/<
Ret!rn on resi(!&l invest'ent /< 5<
A ,on!s of P697999 will ,e p&i( to the '&n&%er whose pro-ect contri,!te( 'ost to the over&ll
perfor'&nce of the fir'$ The P697999 ,on!s sho!l( %o to the '&n&%er of
A$ pro-ect A ,ec&!se the resi(!&l inco'e is hi%her
+$ pro-ect + ,ec&!se the ret!rn on invest'ent is hi%her
C$ pro-ect A ,ec&!se it w&s & l&r%er7 'ore co'ple* pro-ect
D$ pro-ect + ,ec&!se the ret!rn on resi(!&l invest'ent is hi%herB
Trans'er "ricing
:2$ An &ppropri&te tr&nsfer price ,etween two (ivisions of the St&r Corpor&tion c&n ,e (eter'ine(
fro' the followin% (&t&3
8&,ric&tion Division
M&rket price of s!,&sse',l) P69
V&ri&,le cost of s!,&sse',l) P/9
E*cess c&p&cit) Cin !nitsD #7999
Asse',lin% Division
N!',er of !nits nee(e( ?99
0h&t is the n&t!r&l ,&r%&inin% r&n%e for the two (ivisions1
A$ +etween P/9 &n( P69 C$ An) &'o!nt less th&n P69
+$ +etween P69 &n( P>9 D$ 69 is the onl) &ccept&,le price
"RO(!CT "RICI$*
:5$ In & costA,&se( pricin% s)ste' the '&rk!p sho!l( cover
I$ Sellin% &n( &('inistr&tive e*penses
II$ Desire( profit
III$ M&n!f&ct!rin% cost
A$ I7 II7 &n( III C$ I &n( III onl)
+$ I &n( II onl) D$ II &n( III onl)
M&) /996 P&%e #5 of 2/
REEVA$T COSTI$*
Basic Conce)ts
:6$ The potenti&l ,enefit th&t '&) ,e o,t&ine( fro' followin% &n &ltern&tive co!rse of &ction is
c&lle(
A$ opport!nit) ,enefit C$ relev&nt cost
+$ opport!nit) cost D$ s!nk cost
:;$Opport!nit) costs3
A$ Are tre&te( &s perio( costs !n(er v&ri&,le costin%$
+$ 4&ve &lre&() ,een inc!rre( &s & res!lt of p&st &ction$
C$ Are ,enefits th&t co!l( h&ve ,een o,t&ine( ,) followin% &nother co!rse of &ction$
D$ Do not v&r) &'on% &ltern&tive co!rses of &ction$
:>$ The A!to Division of 8l) Ins!r&nce e'plo)s three cl&i's processors c&p&,le of processin%
67999 cl&i's e&ch$ The (ivision c!rrentl) processes #/7999 cl&i's$ The '&n&%er h&s
recentl) ,een &ppro&che( ,) two sister (ivisions$ Division A wo!l( like the &!to (ivision to
process &ppro*i'&tel) /7999 cl&i's$ Division + wo!l( like the &!to (ivision to process
&ppro*i'&tel) 67999 cl&i's$ The A!to Division wo!l( ,e co'pens&te( Division A or Division +
for processin% these cl&i's$ Ass!'e th&t these &re '!t!&ll) e*cl!sive &ltern&tives$ Cl&i's
processor s&l&r) cost is relev&nt for
A$ (ivision A &ltern&tive onl)
+$ (ivision + &ltern&tive onl)
C$ ,oth Division A &n( Division + &ltern&tives
D$ neither Division A nor Division + &ltern&tives
Sell as is or "rocess-#urt/er
::$ Ott&w& Corpor&tion pro(!ces two pro(!cts fro' & -oint process$ Infor'&tion &,o!t the two
-oint pro(!cts follows3
Pro(!ct H Pro(!ct Y
Anticip&te( pro(!ction /7999 l,s 57999 l,s
Sellin% price per l,$ &t splitAoff P29 P#;
A((ition&l processin% costsGl, &fter splitAoff C&ll v&ri&,leD P#6 P29
Sellin% priceGl, &fter f!rther processin% P59 P69
The cost of the -oint process is P:67999$
Ott&w& c!rrentl) sells ,oth pro(!cts &t the splitAoff point$ If Ott&w& '&kes (ecisions which
'&*i'i"es profit7 Ott&w&=s profit will incre&se ,)
A$ P#;7999 C$ P697999
+$ P57999 D$ P#97999
O,solete Inventories
:?$ The cost to '&n!f&ct!re &n !nfinishe( !nit is P59 CP29 v&ri&,le &n( P#9 fi*e(D$ The sellin%
price per !nit is P69$ The co'p&n) h&s !n!se( pro(!ction c&p&cit) &n( h&s (eter'ine( th&t
!nits co!l( ,e finishe( &n( sol( for P;6 with &n incre&se in v&ri&,le costs of 59<$ 0h&t is the
&((ition&l net inco'e per !nit to ,e %&ine( ,) finishin% the !nit1
A$ P2 C$ P#6
+$ P#9 D$ P#/
"ro'it Ma0imi1ation
?9$ 8e Co'p&n) h&s onl) /67999 ho!rs of '&chine ti'e e&ch 'onth to '&n!f&ct!re its two
pro(!cts$ Pro(!ct H h&s & contri,!tion '&r%in of P69 &n( Pro(!ct Y h&s & contri,!tion '&r%in
of P;5$ Pro(!ct H re.!ires 6 '&chine ho!rs &n( Pro(!ct Y7 : ho!rs$ If 8e w&nts to (e(ic&te
:9< of its '&chine ti'e to the pro(!ct th&t will provi(e the 'ost inco'e7 8e will h&ve & tot&l
'onthl) contri,!tion '&r%in of
A$ P/697999 C$ P/#97999
+$ P/597999 D$ P/997999
?#$ Ge&r) M&n!f&ct!rin% h&s &sse',le( the followin% (&t& pert&inin% to two pop!l&r pro(!cts$
+len(er Electric 'i*er
Direct '&teri&ls P ; P##
Direct l&,or 5 ?
8&ctor) overhe&( E P#; per ho!r #; 2/
Cost if p!rch&se( fro' &n o!tsi(e
s!pplier
/9 2:
Ann!&l (e'&n( C!nitsD /97999 /:7999
P&st e*perience h&s shown th&t the fi*e( '&n!f&ct!rin% overhe&( co'ponent incl!(e( in the
cost per '&chine ho!r &ver&%es P#9$ Ge&r) h&s & polic) of fillin% &ll s&les or(ers7 even if it
'e&ns p!rch&sin% !nits fro' o!tsi(e s!ppliers$
If 697999 '&chine ho!rs &re &v&il&,le7 &n( Ge&r) M&n!f&ct!rin% (esires to follow &n opti'&l
str&te%)7 it sho!l( pro(!ce
A$ /67999 electric 'i*ers7 &n( p!rch&se &ll other !nits &s nee(e(
+$ /97999 ,len(ers &n( #67999 electric 'i*ers7 &n( p!rch&se &ll other !nits &s nee(e(
C$ /97999 ,len(ers &n( p!rch&se &ll other !nits &s nee(e(
D$ /:7999 electric 'i*ers &n( p!rch&se &ll other !nits &s nee(e(
M&) /996 P&%e #6 of 2/
?/$ A+C Electronics h&s the followin% st&n(&r( costs &n( other (&t&3
P&rt +et& P&rt Let&
Direct '&teri&ls P 5$99 P:9$99
Direct l&,or #9$99 5>$99
8&ctor) overhe&( 59$99 /9$99
Jnit st&n(&r( cost P65$99 P#5>$99
Jnits nee(e( per )e&r ;7999 :7999
M&chine ho!rs per !nit 5 /
Jnit cost if p!rch&se( P69 P#69$99
In p&st )e&rs7 A+C h&s '&n!f&ct!re( &ll of its re.!ire( co'ponents@ however7 this )e&r onl)
297999 ho!rs of otherwise i(le '&chine ti'e c&n ,e (evote( to the pro(!ction of co'ponents$
Accor(in%l)7 so'e of the p&rts '!st ,e p!rch&se( fro' o!tsi(e s!ppliers$ In pro(!cin% p&rts7
f&ctor) overhe&( is &pplie( &t P#9 per st&n(&r( '&chine ho!r$ 8i*e( c&p&cit) costs th&t will
not ,e &ffecte( ,) &n) '&keAorA,!) (ecision represent ;9< of the &pplie( overhe&($
The 297999 ho!rs &v&il&,le '&chine ti'e &re to ,e sche(!le( so th&t A+C re&li"es '&*i'!'
potenti&l cost s&vin%s$ The relev&nt !nit pro(!ction costs th&t sho!l( ,e consi(ere( in the
(ecision to sche(!le '&chine ti'e &re3
A$ P65$99 for +et& &n( P#5>$99 for Let& C$ P#5$99 for +et& &n( P#/>$99 for Let&
+$ P69$99 for +et& &n( P#69$99 for Let& D$ P29$99 for +et& &n( P#26$99 for Let&
!estions ?2 N ?5 &re ,&se( on the followin% infor'&tion$
+r)nles M&n!f&ct!rin% Co'p&n) pro(!ces two pro(!cts for which the followin% (&t& h&ve ,een
t&,!l&te($ 8i*e( '&n!f&ct!rin% cost is &pplie( &t & r&te of P#$99 per '&chine ho!r$
Per Jnit HYA> +DA5
Sellin% price P5$99 P2$99
V&ri&,le '&n!f&ct!rin% cost P/$99 P#$69
8i*e( '&n!f&ct!rin% cost P9$>6 P9$/9
V&ri&,le sellin% cost P#$99 P#$99
The s&les '&n&%er h&s h&( & P#;97999 incre&se in the ,!(%et &llot'ent for &(vertisin% &n( w&nts
to &ppl) the 'one) to the 'ost profit&,le pro(!ct$ The pro(!cts &re not s!,stit!tes for one &nother
in the e)es of the co'p&n)=s c!sto'ers$
The '&n&%er '&) (evote the entire P#;97999 to incre&se( &(vertisin% for either HYA> or +DA5$
?2$ The 'ini'!' incre&se in peso s&les of either HYA> or +DA5 re.!ire( to offset the incre&se(
&(vertisin% is
A$ +$ C$ D$
HYA> P#;97999 P;597999 P :97999 P :97999
+DA5 P2/97999 P?;97999 P?;97999 P2/97999
?5$ S!ppose +r)nles h&s onl) #997999 '&chine ho!rs th&t c&n ,e '&(e &v&il&,le to pro(!ce
&((ition&l !nits of HYA> &n( +DA5$ If the potenti&l incre&se in s&les !nits for either pro(!ct
res!ltin% fro' &(vertisin% is f&r in e*cess of this pro(!ction c&p&cit)7 which pro(!ct sho!l( ,e
&(vertise( &n( wh&t is the esti'&te( incre&se in contri,!tion '&r%in e&rne(1
A$ Pro(!ct HYA> sho!l( ,e pro(!ce(7 )iel(in% & contri,!tion '&r%in of P>67999$
+$ Pro(!ct HYA> sho!l( ,e pro(!ce(7 )iel(in% & contri,!tion '&r%in of P#227222$
C$ Pro(!ct +DA5 sho!l( ,e pro(!ce(7 )iel(in% & contri,!tion '&r%in of P#:>7699$
D$ Pro(!ct +DA5 sho!l( ,e pro(!ce(7 )iel(in% & contri,!tion '&r%in of P/697999$
S)ecial Order
?6$ An opport!nit) cost co''onl) &ssoci&te( with & speci&l or(er is
A$ the contri,!tion '&r%in on lost s&les
+$ the v&ri&,le costs of the or(er
C$ &((ition&l fi*e( rel&te( to the incre&se( o!tp!t
D$ &n) of the &,ove
?;$ M&p Co'p&n)=s !nit cost of '&n!f&ct!rin% &n( sellin% & %iven ite' &t &n &ctivit) level of
#97999 !nits per 'onth &re3
M&n!f&ct!rin% costs
Direct '&teri&ls P2?
Direct l&,or ;
V&ri&,le overhe&( :
8i*e( overhe&( ?
Sellin% e*penses
V&ri&,le 29
8i*e( ##
The co'p&n) (esires to seek &n or(er for 67999 !nits fro' & forei%n c!sto'er$ The v&ri&,le
sellin% e*penses will ,e re(!ce( ,) 59<7 ,!t the fi*e( costs for o,t&inin% the or(er will ,e
P/97999$ Do'estic s&les will not ,e &ffecte( ,) the or(er$
The 'ini'!' ,re&kAeven price per !nit to ,e consi(ere( on this speci&l s&le is
A$ P># C$ P;?
+$ P>6 D$ P:5
M&) /996 P&%e #; of 2/
Ma&e or Buy
?>$ 8or the p&st #/ )e&rs7 the +l!e Co'p&n) h&s pro(!ce( the s'&ll electric 'otors th&t fit into its
'&in pro(!ct line of (ent&l (rillin% e.!ip'ent$ As '&teri&l costs h&ve ste&(il) incre&se(7 the
controller of the +l!e Co'p&n) is reviewin% the (ecision to contin!e to '&ke the s'&ll 'otors
&n( h&s i(entifie( the followin% f&cts3
#$ The e.!ip'ent !se( to '&n!f&ct!re the electric 'otors h&s & ,ook v&l!e of P#697999$
/$ The sp&ce now occ!pie( ,) the electric 'otor '&n!f&ct!rin% (ep&rt'ent co!l( ,e !se( to
eli'in&te the nee( for stor&%e sp&ce now ,ein% rente($
2$ Co'p&r&,le !nits c&n ,e p!rch&se( fro' &n o!tsi(e s!pplier for P6?$>6$
5$ 8o!r of the persons who work in the electric 'otor '&n!f&ct!rin% (ep&rt'ent wo!l( ,e
ter'in&te( &n( %iven ei%ht weeks= sever&nce p&)$
6$ A P#97999 !nsec!re( note is still o!tst&n(in% on the e.!ip'ent !se( in the '&n!f&ct!rin%
process$
0hich of the ite's &,ove &re relev&nt to the (ecision th&t the controller h&s to '&ke1
A$ #7 27 &n( 5 C$ /7 27 57 &n( 6
+$ /7 27 &n( 5 D$ #7 /7 57 &n( 6
?:$ +!en& Corpor&tion oper&tes & pl&nt with & pro(!ctive c&p&cit) to '&n!f&ct!re #97999 !nits of
its pro(!ct & )e&r$ The followin% infor'&tion pert&ins to the pro(!ction costs &t c&p&cit)3
V&ri&,le costs P :97999
8i*e( costs #/97999
Tot&l costs P/997999
A s!pplier h&s offere( to sell :7999 !nits to +!en& &nn!&ll)$ Ass!'e no ch&n%e in the fi*e(
costs$ 0h&t is the price per !nit th&t '&kes +!en& in(ifferent ,etween the QM&keR &n( Q+!)R
options1
A$ P: C$ P/9
+$ P#/ D$ P#9
??$ Ell) In(!stries is & '!ltiApro(!ct co'p&n) th&t c!rrentl) '&n!f&ct!res 297999 !nits of P&rt
MR/5 e&ch 'onth for !se in pro(!ction$ The f&cilities now ,ein% !se( to pro(!ce P&rt MR/5
h&ve & fi*e( 'onthl) costs of P#697999 &n( & c&p&cit) to pro(!ce :57999 !nits per 'onth$ If
Ell) were to ,!) P&rt MR/5 fro' &n o!tsiDe s!pplier7 the f&cilities wo!l( ,e i(le7 ,!t its fi*e(
costs wo!l( contin!e &t 59 percent of their present &'o!nt$ The v&ri&,le pro(!ction costs of
P&rt MR/5 &re P## per !nit$
If Ell) In(!stries is &,le to o,t&in P&rt MR/5 e&ch 'onth7 it wo!l( re&li"e & net ,enefit ,)
p!rch&sin% P&rt MR/5 fro' &n o!tsi(e s!pplier onl) if the s!pplier=s !nit price is less th&n
A$ P#5$99 C$ P#;$99
+$ P##$99 D$ P#2$99
#99$+elow &re & co'p&n)=s 'onthl) !nit costs to '&n!f&ct!re &n( '&rket & p&rtic!l&r pro(!ct$
M&n!f&ct!rin% Costs3
Direct '&teri&ls P/$99
Direct l&,or /$59
V&ri&,le in(irect #$;9
8i*e( in(irect #$99
M&rketin% Costs3
V&ri&,le 2$99
8i*e( #$69
The co'p&n) '!st (eci(e to contin!e '&kin% the pro(!ct or ,!) it fro' &n o!tsi(e s!pplier$
The s!pplier h&s offere( to '&ke the pro(!ct &t the s&'e level of .!&lit) th&t the co'p&n) c&n
'&ke it$ 8i*e( '&rketin% costs wo!l( ,e !n&ffecte(7 ,!t v&ri&,le '&rketin% costs wo!l( ,e
re(!ce( ,) 29< if the co'p&n) were to &ccept the propos&l$ 0h&t is the '&*i'!' &'o!nt
per !nit th&t the co'p&n) c&n p&) the s!pplier witho!t (ecre&sin% its oper&tin% inco'e1
A$ P:$69 C$ P>$>6
+$ P;$>6 D$ P;$?9
#9#$C&,le Co'p&n) pro(!ces #7999 !nits of P&rt 0 per 'onth$ The tot&l '&n!f&ct!rin% costs of
the p&rt &re &s follows3
Direct '&teri&ls P#97999
Direct l&,or 67999
8i*e( overhe&( 297999
Tot&l '&n!f&ct!rin% costs P697999
An o!tsi(e s!pplier h&s offere( to s!ppl) the p&rt &t P29 per !nit$ It is esti'&te( th&t /9< of
the fi*e( overhe&( &ssi%ne( to P&rt 0 will no lon%er ,e inc!rre( if the co'p&n) p!rch&ses the
p&rt fro' the o!tsi(e s!pplier$ If C&,le Co'p&n) p!rch&ses #7999 !nits of P&rt 0 fro' the
o!tsi(e s!pplier per 'onth7 then its 'onthl) oper&tin% inco'e will
A$ (ecre&se ,) P57999 C$ (ecre&se ,) P/97999
+$ incre&se ,) P#7999 D$ incre&se ,) P/97999
#9/$The R!r&l Cooper&tive7 Inc$ pro(!ces #7999 !nits of P&rt M per 'onth$ The tot&l
'&n!f&ct!rin% costs of the p&rt &re &s follows3
Direct l&,or 67999
8i*e( overhe&( 297999
M&) /996 P&%e #> of 2/
Tot&l '&n!f&ct!rin% cost P697999
An o!tsi(e s!pplier h&s offere( to s!ppl) the p&rt &t P29 per !nit$ It is esti'&te( th&t /9< of
the fi*e( overhe&( &ssi%ne( to P&rt M will no lon%er ,e inc!rre( if the co'p&n) p!rch&ses the
p&rt fro' the o!tsi(e s!pplier$ If R!r&l Cooper&tive p!rch&ses #7999 !nits of P&rt M fro' the
o!tsi(e s!pplier per 'onth7 then its 'onthl) oper&tin% inco'e will
A$ (ecre&se ,) P57999 C$ (ecre&se ,) P/97999
+$ incre&se ,) P#7999 D$ incre&se ,) P/97999
2ee) or (ro)
#92$In(ic&te which of the followin% costs wo!l( ,e &voi(e( if & se%'ent is eli'in&te($
#$ v&ri&,le '&n!f&ct!rin% costs
/$ (irect fi*e( costs
2$ co''on fi*e( costs
5$ v&ri&,le sellin% costs
6$ (irect fi*e( sellin% costs
;$ co''on fi*e( sellin% costs
A$ /7 27 67 ; C$
+$ #7 /7 57 6B D$ #7 /7 27 57 657 67 ;
#95$+EA In(!stries pro(!ces two pro(!cts$ Infor'&tion &,o!t the pro(!cts is &s follows3
Ite' 2:+ Ite' 598
Jnits pro(!ce( &n( sol( #7999 57999
Sellin% price per !nit P /6 P /9
V&ri&,le e*penses per !nit P #6 P #/
The co'p&n)=s fi*e( costs tot&le( P5979997 of which P:7999 c&n ,e &voi(e( if Ite' 2:+ is
(roppe( &n( P/67999 c&n ,e &voi(e( if Ite' 598 is (roppe($ Pro(!ct '&r%in for Ite' 598 is
A$ P27/99 C$ PC/7999D
+$ P>7999 D$ P#97999
S/ut (o.n "oint
#96$+!l!s&n Co'p&n) nor'&ll) pro(!ces &n( sells 297999 !nits of E#5 e&ch 'onth$ E#5 is &
s'&ll electric&l rel&) !se( in the &!to'otive in(!str) &s & co'ponent p&rt in v&rio!s pro(!cts$
The sellin% price is P// per !nit7 v&ri&,le costs &re P#5 per !nit7 fi*e( '&n!f&ct!rin% overhe&(
costs tot&l P#697999 per 'onth7 &n( fi*e( sellin% costs tot&l P297999 per 'onth$
E'plo)'entAcontr&ct strikes in the co'p&nies th&t p!rch&se the ,!lk of the E#5 h&ve c&!se(
+!l!s&n Co'p&n)=s s&les to te'por&ril) (rop to onl) ?7999 !nits per 'onth$ +!l!s&n
Co'p&n) esti'&tes th&t the strikes will l&st for &,o!t two 'onths7 &fter which ti'e s&les of
E#5 sho!l( ret!rn to nor'&l$ D!e to the c!rrent low level of s&les7 however7 +!l!s&n
Co'p&n) is thinkin% &,o!t closin% (own its own pl&nt (!rin% the two 'onths th&t the strikes
&re on$ If +!l!s&n Co'p&n) (oes close (own its pl&nt7 it is esti'&te( th&t fi*e( '&n!f&ct!rin%
overhe&( costs c&n ,e re(!ce( to P#967999 per 'onth &n( th&t fi*e( sellin% costs c&n ,e
re(!ce( ,) #9<$ St&rtA!p costs &t the en( of the sh!t(own perio( wo!l( tot&l P:7999$ Since
+!l!s&n Co'p&n) !ses -!stAinAti'e pro(!ction 'etho(7 no inventories &re on h&n($
At wh&t level of !nit s&les for the twoA'onth perio( sho!l( +!l!s&n Co'p&n) ,e in(ifferent
,etween closin% the pl&nt or keepin% it open1
A$ ##7999 C$ #97999
+$ /57#/6 D$ :7999
CA"ITA B!(*ETI$*
Basic Conce)ts
#9;$If Sol Co'p&n) e*pects to %et & oneA)e&r lo&n to help cover the initi&l fin&ncin% of c&pit&l
pro-ect7 the &n&l)sis of the pro-ect sho!l(
A$ offset the lo&n &%&inst &n) invest'ent in inventor) or receiv&,le re.!ire( ,) the pro-ect
+$ show the lo&n &s &n incre&se in the invest'ent
C$ show the lo&n &s & c&sh o!tflow in the secon( )e&r of the pro-ect=s life
D$ i%nore the lo&n
#9>$0hen co'p&re( Net Present V&l!e 'etho( to Intern&l R&te of Ret!rn in ter's of reinvest'ent
of c&sh flows7 NPV is ,etter th&n IRR$ 0h&t &re the reinvest'ent r&te for e&ch 'etho(1
Net Present V&l!e 'etho( Intern&l R&te of Ret!rn 'etho(
A$ Disco!nt R&te Disco!nt R&te
+$ Disco!nt R&te IRR
C$ IRR IRR
D$ IRR Disco!nt R&te
Accounting Rate o' Return
#9:$T&'&r&w Co'p&n) is ne%oti&tin% to p!rch&se e.!ip'ent th&t wo!l( cost P/9979997 with the
e*pect&tion th&t P597999 per )e&r co!l( ,e s&ve( in &fterAt&* c&sh costs if the e.!ip'ent were
&c.!ire($ The e.!ip'ent=s esti'&te( !sef!l life is #9 )e&rs7 with no s&lv&%e v&l!e7 &n( wo!l(
,e (epreci&te( ,) the str&i%htAline 'etho($ T&'&r&w=s 'ini'!' (esire( r&te of ret!rn is #/
percent$ Present v&l!e of &n &nn!it) of # &t #/ percent for #9 perio(s is 6$;6$ Present v&l!e
of # (!e in #9 perio(s &t #/ percent is 9$2//$
The &ver&%e &ccr!&l &cco!ntin% r&te of ret!rn (!rin% the first )e&r of &sset=s !se is
A$ /9$9 percent C$ #9$9 percent
+$ #9$6 percent D$ 59$9 percent
M&) /996 P&%e #: of 2/
#9?$The 8iel(s Co'p&n) is pl&nnin% to p!rch&se & new '&chine which it will (epreci&te7 for ,ook
p!rposes7 on & str&i%htAline ,&sis over & tenA)e&r perio( with no s&lv&%e v&l!e &n( & f!ll )e&r=s
(epreci&tion t&ken in the )e&r of &c.!isition$ The new '&chine is e*pecte( to pro(!ce c&sh
flow fro' oper&tions7 net of inco'e t&*es7 of P;;7999 & )e&r in e&ch of the ne*t ten )e&rs$
The &cco!ntin% C,ook v&l!eD r&te of ret!rn on the initi&l invest'ent is e*pecte( to ,e #/<$
4ow '!ch will the new '&chine cost1
A$ P2997999 C$ P;;97999
+$ P6697999 D$ P>?/7999
##9$ Green Me&(ows 8o!n(&tion CGM8D7 & t&*Ae*e'pt or%&ni"&tion7 investe( P/997999 in & fiveA
)e&r pro-ect &t the ,e%innin% of the )e&r$ GM8 esti'&tes th&t the &nn!&l c&sh s&vin%s fro'
this pro-ect will &'o!nt to P;67999$ T&* &n( ,ook (epreci&tion on the pro-ect will ,e P597999
per )e&r for five )e&rs$ On invest'ents of this t)pe7 GM8=s (esire( r&te of ret!rn is #/<$
Infor'&tion on present v&l!e f&ctors is &s follows3
At #/< At #5< At #;<
Present v&l!e of P# for 6 perio(s 9$6> 9$6/ 9$5:
Present v&l!e of &n &nn!it) of # for 6 perio(s 2$; 2$5 2$2
8or the pro-ect=s first )e&r7 GM8=s &cco!ntin% r&te of ret!rn7 ,&se( on the pro-ect=s &ver&%e
,ook v&l!e wo!l( ,e
A$ #5$5< C$ #/$6<
+$ #2$?< D$ #/$9<
"ay,ac& "eriod
###$ The p&),&ck 'etho( &ss!'es th&t &ll c&sh inflows &re reinveste( to )iel( & ret!rn e.!&l to
A$ "ero C$ the Ti'eAA(-!ste(AR&teAofARet!rn
+$ the Disco!nt R&te D$ the CostAofAC&pit&l
Bailout "eriod
##/$ A pro-ect costin% P#7:997999 is e*pecte( to pro(!ce the followin% &nn!&l c&sh flows C&fter t&*D
&n( s&lv&%e v&l!e3
Ye&r Net c&sh inflow S&lv&%e v&l!e
# 6997999 :997999
/ 6997999 ;997999
2 ;997999 6997999
5 :997999 5997999
6 >997999 2997999
M&) /996 P&%e #? of 2/
0h&t is the ,&ilo!t perio( for the pro-ect1
A$ 2$/6 )rs$ C$ /$>2 )rs
+$ /$6 )rs D$ /$5 )rs$
$et "resent Value
##2$ P&n&'& Ins!r&nce Co'p&n)=s '&n&%e'ent is consi(erin% &n &(vertisin% pro%r&' th&t wo!l(
re.!ire &n initi&l e*pen(it!re of P#;67699 &n( ,rin% in &((ition&l s&les over the ne*t five )e&rs$
The cost of &(vertisin% is i''e(i&tel) reco%ni"e( &s e*pense$ The pro-ecte( &((ition&l s&les
reven!e in Ye&r # is P>679997 with &ssoci&te( e*penses of P/67999$ The &((ition&l s&les
reven!e &n( e*penses fro' the &(vertisin% pro%r&' &re pro-ecte( to incre&se ,) #9 percent
e&ch )e&r$ P&n&'& Ins!r&nce Co'p&n)=s t&* r&te is 59 percent$
The present v&l!e of # &t #9 percent7 en( of e&ch perio(3
Perio(s Present v&l!e 8&ctor)
# 9$?9?9?
/ 9$:/;56
2 9$>6#2#
5 9$;:29#
6 9$;/9?/
The net present v&l!e of the &(vertisin% pro%r&' wo!l( ,e
A$ P2>79;5 C$ PC2>79;5D
+$ P/?7#2; D$ PC/?7#2;D
##5$ 8or P56979997 Ro*&s Corpor&tion p!rch&se( & new '&chine with &n esti'&te( !sef!l life of
five )e&rs with no s&lv&%e v&l!e$ The '&chine is e*pecte( to pro(!ce c&sh flow fro'
oper&tions7 net of 59 percent inco'e t&*es7 &s follows3
8irst )e&r P#;97999
Secon( )e&r #597999
Thir( )e&r #:97999
8o!rth )e&r #/97999
8ifth )e&r #997999
Ro*&s will !se the s!'AofAtheA)e&rsA(i%its= 'etho( to (epreci&te the new '&chine &s follows3
8irst )e&r P#697999
Secon( )e&r #/97999
Thir( )e&r ?97999
8o!rth )e&r ;97999
8ifth )e&r 297999
The present v&l!e of # for 6 perio(s &t #/ percent is 2$;95>:$ The present v&l!es of # &t #/
percent &t en( of e&ch perio( &re3
En( of3 Perio( # I 9$:?/:7 Perio( / A 9$>?>#?7 Perio( 2 A 9$>##>:7 Perio( 5 A 9$;266/7
Perio( 6 A 9$6;>52
4&( Ro*&s !se( str&i%htAline 'etho( of (epreci&tion7 wh&t is the (ifference in net present
v&l!e provi(e( ,) the '&chine &t & (isco!nt r&te of #/ percent1
A$ Incre&se of P?7>69 C$ Decre&se of P/572>;
+$ Decre&se of P?7>69 D$ Incre&se of P/572>;
"ro'ita,ility Inde0
##6$ A pro-ect h&s & NPV of P#67999 when the c!toff r&te is #9<$ The &nn!&l c&sh flows &re
P/97696 on &n invest'ent of P697999$ the profit&,ilit) in(e* for this pro-ect is
A$ #$2;> C$ /$52:
+$ 2$222 D$ #$299
Internal Rate o' Return
##;$ 4illtop Co'p&n) is pl&nnin% to invest P:97999 in & threeA)e&r pro-ect$ 4illtop=s e*pecte( r&te
of ret!rn is #9<$ The present v&l!e of P# &t #9< for one )e&r is $?9?7 for )e&rs is $:/;7 &n(
for three )e&rs is $>6#$ The c&sh flow7 net of inco'e t&*es7 will ,e P297999 for the first )e&r
Cpresent v&l!e of P/>7/>9D &n( P2;7999 for the secon( )e&r Cpresent v&l!e of P/?7>2;D$
Ass!'in% the r&te of ret!rn is e*&ctl) #9<7 wh&t will the c&sh flow7 net of inco'e t&*es7 ,e for
the thir( )e&r1
A$ P#>7/;: C$ P//7??5
+$ P//7999 D$ P297 ;#:
##>$ C&re Pro(!cts Co'p&n) is consi(erin% & new pro(!ct th&t will sell for P#99 &n( h&ve &
v&ri&,le cost of P;9$ E*pecte( vol!'e is /97999 !nits$ New e.!ip'ent costin% P#7699 &n(
h&vin% & fiveA)e&r !sef!l life &n( no s&lv&%e v&l!e is nee(e(7 &n( will ,e (epreci&te( !sin% the
str&i%htAline 'etho($ The '&chine h&s c&sh oper&tin% costs of P/97999 per )e&r$ The fir' is in
the 59 percent t&* ,r&cket &n( h&s cost of c&pit&l of #/ percent$ The present v&l!e of #7 en(
of five perio(s is 9$6;>52@ present v&l!e of &nn!it) of # for 6 perio(s is 2$;95>:$
S!ppose the /97999 esti'&te( vol!'e is so!n(7 ,!t the price is in (o!,t$ 0h&t is the sellin%
price Cro!n(e( to ne&rest pesoD nee(e( to e&rn & #/ percent intern&l r&te of ret!rn1
A$ P:#$99 C$ P>9$99
+$ P:6$99 D$ P?9$99
M&) /996 P&%e /9 of 2/
##:$ P&),&ck Co'p&n) is consi(erin% the p!rch&se of & copier '&chine for P5/7:/6$ The copier
'&chine will ,e e*pecte( to ,e econo'ic&ll) pro(!ctive for 5 )e&rs$ The s&lv&%e v&l!e &t the
en( of 5 )e&rs is ne%li%i,le$ The '&chine is e*pecte( to provi(e #6 percent intern&l r&te of
ret!rn$ The co'p&n) is s!,-ect to 59 percent inco'e t&* r&te$
The present v&l!e of &n or(in&r) &nn!it) of # for 5 perio(s is /$:65?:$
In or(er to re&li"e the IRR of #6 percent7 how '!ch is the esti'&te( ,eforeAt&* c&sh inflow to
,e provi(e( ,) the '&chine1
A$ P#>7:;9 C$ P/67999
+$ P#67999 D$ P267>99
E3ui)ment Re)lacement
##?$ A co'p&n) is consi(erin% repl&cin% & '&chine with one th&t will s&ve P597999 per )e&r in
c&sh oper&tin% costs &n( h&ve P#97999 'ore (epreci&tion e*penses per )e&r th&n the e*istin%
'&chine$ The t&* r&te is 59<$ +!)in% the new '&chine will incre&se &nn!&l net c&sh flows of
the co'p&n) ,)
A$ P/:7999 C$ P#:79999
+$ P/57999 D$ P;7999
#/9$M&*well Co'p&n) h&s &n opport!nit) to &c.!ire & new '&chine to repl&ce one of its present
'&chines$ The new '&chine wo!l( cost P?979997 h&ve & fiveA)e&r life7 &n( no esti'&te(
s&lv&%e v&l!e$ V&ri&,le oper&tin% costs wo!l( ,e P#997999 per )e&r$ The present '&chine
h&s & ,ook v&l!e of P697999 &n( & re'&inin% life of five )e&rs$ Its (ispos&l v&l!e now is
P679997 ,!t it wo!l( ,e "ero &fter five )e&rs$ V&ri&,le oper&tin% costs wo!l( ,e P#/67999 per
)e&r$ I%nore present v&l!e c&lc!l&tions &n( inco'e t&*es$
Consi(erin% the five )e&rs in tot&l7 wh&t wo!l( ,e the (ifference in profit ,efore inco'e t&*es
,) &c.!irin% the new '&chine &s oppose( to ret&inin% the present one1
A$ P#97999 (ecre&se C$ P267999 incre&se
+$ P#67999 (ecre&se D$ P597999 incre&se
Investment (ecision
#/#$The NPV &n( IRR 'etho(s %ive
A$ the s&'e (ecision C&ccept or re-ectD for &n) sin%le invest'ent
+$ the s&'e choice fro' &'on% '!t!&ll) e*cl!sive invest'ents
C$ (ifferent r&nkin%s of pro-ects with !ne.!&l lives
D$ the s&'e r&nkin%s of pro-ects with (ifferent re.!ire( invest'ents
#//$In choosin% fro' &'on% '!t!&ll) e*cl!sive invest'ents the '&n&%er sho!l( nor'&ll) select
the one with the hi%hest
A$ NPV C$ p&),&ck reciproc&l
+$ IRR D$ ,ook r&te of ret!rn
#/2$0h) (o the NPV 'etho( &n( the IRR 'etho( so'eti'es pro(!ce (ifferent r&nkin%s of
'!t!&ll) e*cl!sive invest'ent pro-ects1
A$ The NPV 'etho( (oes not &ss!'e reinvest'ent of c&sh flows while the IRR 'etho(
&ss!'es the c&sh flows will ,e reinveste( &t the intern&l r&te of ret!rn$
+$ The NPV 'etho( &ss!'es & reinvest'ent r&te e.!&l to the (isco!nt r&te while the IRR
'etho( &ss!'es & reinvest'ent r&te e.!&l to the intern&l r&te of ret!rn$B
C$ The IRR 'etho( (oes not &ss!'e reinvest'ent of the c&sh flows while the NPV &ss!'es
the reinvest'ent r&te is e.!&l to the (isco!nt r&te$
D$ The NPV 'etho( &ss!'es & reinvest'ent r&te e.!&l to the ,&nk lo&n interest r&te while
the IRR 'etho( &ss!'es & reinvest'ent r&te e.!&l to the (isco!nt r&te$
#/5$Investors7 Inc$ !ses & #/< h!r(le r&te for &ll c&pit&l e*pen(it!res &n( h&s (one the followin%
&n&l)sis for fo!r pro-ects for the !pco'in% )e&r3
Pro-ect # Pro-ect / Pro-ect 2 Pro-ect 5
Initi&l c&sh o!tl&) P/997999 P/?:7999 P/5:7999 P/>/7999
Ann!&l net c&sh inflows
Ye&r # P ;67999 P#997999 P :97999 P ?67999
Ye&r / >97999 #267999 ?67999 #/67999
Ye&r 2 :97999 ?97999 ?97999 ?97999
Ye&r 5 597999 ;67999 :97999 ;97999
Net present v&l!e C 27>?:D 57/>; #579;5 #57;;/
Profit&,ilit) in(e* ?:< #9#< #9;< #96<
Intern&l r&te of ret!rn ##< #2< #5< #6<
0hich pro-ectCsD sho!l( Investors7 Inc$ select (!rin% the !pco'in% )e&r !n(er e&ch ,!(%ete(
&'o!nt of f!n(s1
No +!(%et Restriction P;997999Av&il&,le 8!n(s P2997999Av&il&,le 8!n(s
A$ Pro-ects /727 N 5 Pro-ects 2 N 5 Pro-ect 2
+$ Pro-ects #7 /7 N 2 Pro-ects /7 2 N 5 Pro-ects 2 N 5
C$ Pro-ects #7 27 N 5 Pro-ects / N 2 Pro-ect /
D$ Pro-ects 2 N 5 Pro-ects / N 5 Pro-ects / N 5
M&) /996 P&%e /# of 2/
Com)re/ensive
#/6$0hich of the followin% co',in&tions is possi,le1
Profit&,ilit) In(e* NPV IRR
A$ %re&ter th&n # positive e.!&ls cost of c&pit&l
+$ %re&ter th&n # ne%&tive less th&n cost of c&pit&l
C$ less th&n # ne%&tive less th&n cost of c&pit&lB
D$ less th&n # positive less th&n cost of c&pit&l
MASTER B!(*ET
Basic Conce)ts
#/;$LeroA,&se ,!(%etin% re.!ires '&n&%ers to
A -!stif) e*pen(it!res th&t &re incre&ses over the prior perio(=s ,!(%ete( &'o!nt$
+$ -!stif) &ll e*pen(it!res7 not -!st incre&ses over l&st )e&r=s &'o!nt$
C$ '&int&in & f!llA)e&r ,!(%et int&ct &t &ll ti'es$
D$ '&int&in & ,!(%et with "ero incre&ses over the prior perio($
"roduction Budget
#/>$Is&,elle7 In(!stries pl&ns to sell /997999 !nits of +&tik pro(!cts in Octo,er &n( &nticip&tes &
%rowth in s&les of 6 percent per 'onth$ The t&r%et en(in% inventor) in !nits of the pro(!ct is
:9 percent of the ne*t 'onth=s esti'&te( s&les$ There &re #697999 !nits in inventor) &s of the
en( of Septe',er$ The pro(!ction re.!ire'ent in !nits of +&tik for the .!&rter en(in%
Dece',er 2# wo!l( ,e
A$ ;>976;9 C$ ;;67>/9
+$ ;?#76/6 D$ ;>67?/6
Cas/ Budget
#/:$The M&n%o Co'p&n) is prep&rin% its c&sh ,!(%et for the 'onth of M&)$ The followin%
infor'&tion is &v&il&,le concernin% its &cco!nts p&)&,le3
Esti'&te( cre(it s&les for M&) P/997999
Act!&l cre(it s&les for April #697999
Esti'&te( collections in M&) for cre(it s&les in M&) /9<
Esti'&te( collections in M&) for cre(it s&les in April >9<
Esti'&te( collections in M&) for cre(it s&les prior to April P#/7999
Esti'&te( writeAoffs in M&) for !ncollecti,le cre(it s&les :$999
Esti'&te( provision for ,&( (e,ts in M&) for cre(it s&les in M&) >7999
0h&t &re the esti'&te( c&sh receipts fro' &cco!nts receiv&,le collections in M&)1
A$ P#5/7999 C$ P#697999
+$ P#5?7999 D$ P#6>7999
#/?$At the ,e%innin% of the c!rrent 'onth7 Rose h&( P#997999$ C&sh (is,!rse'ents were
P/7;997999 &n( c&sh collections were P/7:697999$ Rose invests &ll e*cess c&sh in & 'one)
'&rket f!n( &n( h&s & line of cre(it to cover c&sh (eficiencies$
If Rose wishes to st&rt the ne*t 'onth with P#6979997 Rose '!st
A$ invest P/997999 C$ invest P2697999
+$ ,orrow P5997999 D$ (o nothin%
#I$A$CIA STATEME$T A$A%SIS
Hori1ontal Analysis
#29$S&les for & threeA)e&r perio( &re3 Ye&r #7 P5$9 'illion7 Ye&r /7 P5$; 'illion7 &n( Ye&r 27 P6$9
'illion$ Jsin% )e&r # &s the ,&se )e&r7 the respective percent&%e incre&se in s&les in )e&r /
&n( 2 &re
A$ ##6< &n( #/6< C$ ##6< &n( #29<
+$ ##6< &n( #9?< D$ :>< &n( :9<
Solvency Ratio
#2#$A fir'=s fin&nci&l risk is & f!nction of how it '&n&%es &n( '&int&ins its (e,t$ 0hich one of the
followin% sets of r&tios ch&r&cteri"es the fir' with the %re&test &'o!nt of fin&nci&l risk1
A$ 4i%h (e,tAtoAe.!it) r&tio7 hi%h interest cover&%e r&tio7 vol&tile ret!rn on e.!it)
+$ 4i%h (e,tAtoAe.!it) r&tio7 hi%h interest cover&%e r&tio7 st&,le ret!rn on e.!it)
C$ Fow (e,tAtoAe.!it) r&tio7 low interest cover&%e r&tio7 vol&tile ret!rn on e.!it)
D$ 4i%h (e,tAtoAe.!it) r&tio7 low interest cover&%e r&tio7 vol&tile ret!rn on e.!it)B
#2/$The r&tio th&t 'e&s!res & fir'=s &,ilit) to %ener&te e&rnin%s is
A$ ti'es interest e&rne($ C$ (&)s= s&les in receiv&,les$
+$ s&les to workin% c&pit&l$ D$ oper&tin% &sset t!rnover$
Ot/er Ratio
#22$T&)lor co'p&n) p&i( o!t oneAh&lf of its /99/ e&rnin%s in (ivi(en(s$ T&)lor=s e&rnin%s
incre&se( ,) /9<7 &n( the &'o!nt of its (ivi(en(s incre&se( ,) #6< in /992$ T&)lor=s
(ivi(en( p&)o!t r&tio for /992 w&s
A$ >6$9< C$ 5>$?<
+$ 6/$2< D$ 5#$><
#25$Glo e*pects s&les for /99/ to ,e P/799979997 res!ltin% in & ret!rn on s&les of #9<$ The
(ivi(en( p&)o!t r&te is ;9<$ +e%innin% stockhol(ers= e.!it) w&s P:697999 &n( c!rrent
li&,ilities &re pro-ecte( to ,e P2997999 &t the en( of /99/$
M&) /996 P&%e // of 2/
0h&t &re the tot&l e.!ities &v&il&,le if the r&tio of lon%Ater' (e,t to stockhol(ers= e.!it) is
;9<1
A$ P#7>::7999 C$ P/795;7999
+$ P#7?:97999 D$ P:6:7999
#26$The followin% were reflecte( fro' the recor(s of 0&r 8re&k Co'p&n)3
E&rnin%s ,efore interest &n( t&*es P#7/697999
Interest e*pense /697999
Preferre( (ivi(en(s /997999
P&)o!t r&tio 59 percent
Sh&res o!tst&n(in% thro!%ho!t /992
Preferre( /97999
Co''on /67999
Inco'e t&* r&te 59 percent
Price e&rnin%s r&tio 6 ti'es
The (ivi(en( )iel( r&tio is
A$ 9$69 C$ 9$#/
+$ 9$59 D$ 9$9:
Integrated Ratios
#2;$Selecte( (&t& fro' M&!i Co'p&n)=s )e&rAen( fin&nci&l st&te'ents &re presente( ,elow$ The
(ifference ,etween &ver&%e &n( en(in% inventor) is i''&teri&l$
C!rrent r&tio /$9
!ick r&tio #$6
C!rrent li&,ilities P#/97999
Inventor) t!rnover C,&se( on cost of s&lesD : ti'es
Gross profit '&r%in 59<
M&!i=s net s&les for the )e&r were
A$ P:997999 C$ P;>/7999
+$ P5:97999 D$ P#7/997999
#2>$Ass!'e )o! &re %iven the followin% rel&tionships for the +r)&n Co'p&n)3
S&lesGtot&l &ssets #$6H
Ret!rn on &ssets CROAD 2<
Ret!rn on e.!it) CROED 6<
The +r)&n Co'p&n)=s (e,t r&tio is
A$ 59< C$ ;9<
+$ 26< D$ ;6<
#2:$The followin% (&t& were o,t&ine( fro' the recor(s of Tren(7 Inc$3
C!rrent r&tio C&t )e&r en(D #$6 to #
Inventor) t!rnover ,&se( on s&les &n( en(in% inventor) #6 ti'es
Inventor) t!rnover ,&se( on cost of %oo(s sol( &n( en(in% inventor) #9$6 ti'es
Gross '&r%in for /99/ P2#67999
0h&t w&s Tren(7 Inc$=s Dece',er 2#7 /99/ ,&l&nce in the Inventor) &cco!nt1
A$ P#2:7999 C$ P#597999
+$ P >97999 D$ P#267999
#2?$The ,o&r( of (irectors of Conte'por&r) Co'p&n) w&s !nh&pp) with the c!rrent ret!rn on
co''on e.!it)$ Tho!%h the ret!rn on s&les Cprofit '&r%inD w&s i'pressivel) %oo( &t #/$6
percent7 the &sset t!rnover w&s onl) 9$>6$ The present (e,t r&tio is 9$59$
Att)$ Trist&n7 the viceApresi(ent of corpor&te pl&nnin%7 presente( & propos&l &s follows3
Profit '&r%in sho!l( ,e r&ise( to #6 percent$
The new c&pit&l str!ct!re will ,e revise( ,) r&isin% (e,t co'ponent$
The &sset t!rnover will ,e '&int&ine( &t 9$>6$
The propose( &(-!st'ent is esti'&te( to r&ise ret!rn on e.!it) ,) 69 percent$
0h&t (e,t r&tio (i( Att)$ Trist&n propose in or(er to r&ise the ret!rn on e.!it) CROED to #69
percent of the present level1
A$ 9$6/ C$ 9$;#
+$ 9$;: D$ 9$>/
Sensitivity Analysis
#59$Annette Co'p&n) !ses the (irect writeAoff 'etho( to &cco!nt for !ncollecti,le &cco!nts
receiv&,le$ If the co'p&n) s!,se.!entl) collects &n &cco!nt receiv&,le th&t w&s written off in
& prior &cco!ntin% perio(7 the effect of the collection of the &cco!nt receiv&,le on Annette=s
c!rrent r&tio &n( tot&l workin% c&pit&l wo!l( ,e
A$ +$ C$ D$
C!rrent R&tio None Incre&se Decre&se None
0orkin% C&pit&l None Incre&se Decre&se Incre&se
#5#$The (&)s= s&lesAinAreceiv&,le r&tio will ,e !n(erst&te( if the co'p&n)
A$ !ses & n&t!r&l ,!siness )e&r for its &cco!ntin% perio(B
+$ !ses & c&len(&r )e&r for its &cco!ntin% perio(
C$ !ses &ver&%e receiv&,le in the r&tio c&lc!l&tion
D$ h&s hi%h s&les &t the en( of the )e&r
M&) /996 P&%e /2 of 2/
WOR2I$* CA"ITA MA$A*EME$T
Wor&ing Ca)ital "olicy
#5/$As & co'p&n) ,eco'es 'ore conserv&tive with respect to workin% c&pit&l polic)7 it wo!l( ten(
to h&ve &CnD
A$ incre&se in the r&tio of c!rrent li&,ilities to nonc!rrent li&,ilities$
+$ (ecre&se in the oper&tin% c)cle$
C$ (ecre&se in the oper&tin% c)cle$
D$ incre&se in the r&tio of c!rrent &ssets to nonc!rrent li&,ilities$B
#52$0en Co'p&n) follows &n( &%%ressive fin&ncin% polic) in its workin% c&pit&l '&n&%e'ent
while M&non% Corpor&tion follows & conserv&tive fin&ncin% polic)$ 0hich one of the followin%
st&te'ents is correct1
A$ 0en h&s low r&tio of shortAter' (e,t to tot&l (e,t while M&non% h&s & hi%h r&tio of shortA
ter' (e,t to tot&l (e,t$
+$ 0en h&s & low c!rrent r&tio while M&non% h&s & hi%h c!rrent r&tio
C$ 0en h&s less li.!i(it) risk while M&non% h&s 'ore li.!i(it) risk$
D$ 0en fin&nces shortAter' &ssets with lon%Ater' (e,t while M&non% fin&nces shortAter'
&ssets with shortAter' (e,t$
Cas/ Management
#55$Ge&r Inc$7 h&s & tot&l &nn!&l c&sh re.!ire'ent of P#57>997999 which &re to ,e p&i( !nifor'l)$
Ge&r h&s the opport!nit) to invest the 'one) &t /5< per &nn!'$ The co'p&n) spen(s7 on the
&ver&%e7 P59 for ever) c&sh conversion to '&rket&,le sec!rities$
0h&t is the opti'&l c&sh conversion si"e1
A$ P;97999 C$ P:97999
+$ P;/7699 D$ P>97999
#56$The Al&,&n% Co'p&n) h&s & (&il) &ver&%e collection of checks of P/697999$ It t&kes the
co'p&n) 5 (&)s to convert the checks to c&sh$ Ass!'e & lock,o* s)ste' co!l( ,e e'plo)e(
which wo!l( re(!ce the c&sh conversion perio( to 2 (&)s$ The lock,o* s)ste' wo!l( h&ve &
net cost of P/67999 per )e&r7 ,!t &n) &((ition&l f!n(s '&(e &v&il&,le co!l( ,e investe( to net
: percent per )e&r$ Sho!l( Al&,&n% &(opt the lock,o* s)ste'1
A$ Yes@ the s)ste' wo!l( free P/697999 in f!n(s
+$ Yes@ the ,enefits of the lockA,o* s)ste' e*cee( the costs$
C$ No@ the ,enefit is onl) P#97999$
D$ No@ the fir' wo!l( lose P67999 per )e&r if the s)ste' were !se($
Receiva,les Management
#5;$It is hel( th&t the level of &cco!nts receiv&,le th&t & fir' h&s or hol(s reflects ,oth the vol!'e
of & fir'=s s&les on &cco!nt &n( & fir'=s cre(it policies$ 0hich one of the followin% ite's is not
consi(ere( &s p&rt of & fir'=s Qcre(it polic)R1
A$ The '&*i'!' risk %ro!p to which cre(it sho!l( ,e e*ten(e($
+$ The e*tent Cin ter's of 'one)D to which & fir' will %o to collect &n &cco!nt$
C$ The len%th of ti'e for which cre(it is e*ten(e($
D$ The si"e of the (isco!nt th&t will ,e offere($
#5>$Rel&* Co'p&n)=s ,!(%ete( s&les for the co'in% )e&r &re P5976997999 of which :9< &re
e*pecte( to ,e cre(it s&les &t ter's of nG29$ Rel&* esti'&tes th&t & propose( rel&*&tion of
cre(it st&n(&r(s will incre&se cre(it s&les ,) /9< &n( incre&se the &ver&%e collection perio(
fro' 29 (&)s to 59 (&)s$ +&se( on & 2;9A(&) )e&r7 the propose( rel&*&tion of cre(it to
st&n(&r(s will res!lt in &n e*pecte( incre&se in the &ver&%e &cco!nts receiv&,le ,&l&nce of
A$ P6597999 C$ P?997999
+$ P/7>997999 D$ P#7;/97999
#5:$M&t&n%AF&win=s ,!(%ete( s&les for the co'in% )e&r &re P5:799979997 of which :9< &re
e*pecte( to ,e cre(it s&les &t & ter's of nG29$ M&t&n%AF&win esti'&tes th&t & propose(
rel&*&tion of cre(it st&n(&r(s wo!l( incre&se cre(it s&les ,) 29 percent &n( incre&se the
&ver&%e collection perio( fro' 29 (&)s to 56 (&)s$ +&se( on & 2;9A(&) )e&r7 the propose(
rel&*&tion of cre(it st&n(&r(s wo!l( res!lt in &n e*pecte( incre&se in the &cco!nts receiv&,le
,&l&nce of
A$ P275597999 C$ P279597999
+$ P#75597999 D$ P?;97999
#5?$Fip& co'p&n) c!rrentl) h&s &nn!&l s&les of P/79997999$ Its &ver&%e collection perio( is 59
(&)s7 &n( ,&( (e,ts &re 6 percent of s&les$ The cre(it &n( collection '&n&%er is consi(erin%
instit!tin% & stricter collection polic)7 where,) ,&( (e,ts wo!l( ,e re(!ce( to / percent of tot&l
s&les7 &n( the &ver&%e collection perio( wo!l( f&ll to 29 (&)s$ 4owever7 s&les wo!l( &lso f&ll
,) &n esti'&te( P/697999 &nn!&ll)$ V&ri&,le costs &re ;9 percent of s&les &n( the cost of
c&rr)in% receiv&,les is #/ percent$ Ass!'e & t&* r&te of 59 percent &n( 2;9 (&)s per )e&r$
0h&t wo!l( ,e the incre'ent&l invest'ent in receiv&,les if the ch&n%e were '&(e1
A$ PC#;7;;>D C$ PC5:7;##D
+$ PC/>7#;>D D$ PC567:22D
M&) /996 P&%e /5 of 2/
Inventory Management
#69$0hich of the followin% ite's is irrelev&nt for & co'p&n) th&t is &tte'ptin% to 'ini'i"e the cost
of the stocko!t1
A$ Cost of pl&cin% &n or(er C$ Stor&%e cost of inventor)
+$ Contri,!tion '&r%in on lost s&les D$ Si"e of the s&fet) stock
#6#$0hen & specifie( level of s&fet) stock is c&rrie( for &n ite' in inventor)7 the &ver&%e inventor)
level for th&t ite'
A$ (ecre&se( ,) the &'o!nt of the s&fet) stock$
+$ is oneAh&lf the level of the s&fet) stock$
C$ incre&ses ,) oneAh&lf the &'o!nt of the s&fet) stock$
D$ incre&ses ,) the &'o!nt of the s&fet) stock$
#6/$Glei' Co'p&n)7 which '&n!f&ct!res & line of &ppli&nces7 h&s &n &nn!&l (e'&n( for its 4D
w&shin% '&chine esti'&te( &t >7699 !nits$ The &nn!&l cost of c&rr)in% one !nit of inventor) is
P/997 &n( the cost to initi&te & pro(!ction r!n is P67999$There &re no 4D w&shin% '&chine on
h&n(7 &n( Glei' h&s sche(!le( 6 e.!&l pro(!ction r!ns of 4D w&shin% '&chines for the
co'in% )e&r$ Glei' h&s /69 ,!siness (&)s per )e&r$ Ass!'e th&t s&les occ!r !nifor'l)
thro!%ho!t the )e&r &n( th&t pro(!ction is inst&nt&neo!s$
If Gleim does not maintain a safety stock, the estimated total carrying costs
and total set-up costs for the coming year are:
A$ +$ C$ D$
C&rr)in% costs P#697999 P2997999 P#697999 P2997999
SetA!p costs P /67999 P /67999 P 67999 P 67999
#62$The s&les office of 4er'it Co'p&n) h&s (evelope( the followin% pro,&,ilit) (istri,!tion for
(&il) s&les of & perish&,le pro(!ct$
H CJnits Sol(D P CS&les K HD
/99 9$/
/69 9$6
299 9$/
269 9$#
The pro(!ct is restocke( &t the st&rt of e&ch (&)$ If the co'p&n) (esires & ?9< service level
in s&tisf)in% s&les (e'&n(7 the initi&l stock ,&l&nce for e&ch (&) sho!l( ,e
A$ /56 C$ 2#6
+$ 299 D$ //9
#65$E&ch stocko!t of & pro(!ct sol( ,) A8M Co$ costs P#7>69 per occ!rrence$ The co'p&n)=s
c&rr)in% cost per !nit of inventor) is P6 per )e&r7 &n( the co'p&n) or(ers #7699 !nits of
pro(!ct /9 ti'es & )e&r &t & cost of P#99 per or(er$ The pro,&,ilit) of & stocko!t &t v&rio!s
levels of s&fet) stock &re3
Jnits of S&fet) Stock Pro,&,ilit) of Stocko!t
9 9$69
#99 9$29
/99 9$#5
299 9$96
599 9$9#
The opti'&l s&fet) stock level for the co'p&n) ,&se( on the !nits of s&fet) stock level &,ove
is
A$ 9 !nits C$ 299 !nits
+$ #99 !nits D$ 599 !nits
Trade Credit
#66$If & ret&iler=s ter' of tr&(e &re 2G#97 net 56 with s!pplier7 wh&t is the cost on &n &nn!&l ,&sis of
not t&kin% the (isco!nt1 Ass!'e & 2;9A(&) )e&r$
A$ /5$99< C$ /5$>5<
+$ 2>$##< D$ 2#$:#<
S/ort-term oans
#6;$Alice Co'p&n) ,orrows fro' & ,&nk & cert&in lo&n &t & st&te( (isco!nt r&te of #/ percent per
&nn!'$ The ,&nk re.!ires #9 percent of lo&n &s co'pens&tin% ,&l&nce in its new checkin%
&cco!nt$ The lo&n is p&)&,le &t the en( of ; 'onths$ The effective interest r&te of this lo&n is
A$ /:$/#< C$ #5$/?<
+$ />$/>< D$ #6$2:<
#6>$The De&n Co'p&n) h&s &n o!tst&n(in% # )e&r ,&nk lo&n of P:997999 &t & st&te( interest r&te
of :<$ In &((ition7 De&n is re.!ire( to '&int&in & /9< co'pens&tin% ,&l&nce in its checkin%
&cco!nt$ Ass!'in% De&n wo!l( nor'&ll) '&int&in & "ero ,&l&nce in its checkin% &cco!nt7 the
effective interest r&te on the lo&n is
A$ :$9< C$ ##$##<
+$ #9$9< D$ ;$5<
M&) /996 P&%e /6 of 2/
COST O# CA"ITA
Cost o' (e,t
#6:$The M&r! Co'p&n)=s ,on(s h&ve 6 )e&rs re'&inin% to '&t!rit)$ Interest is p&i( &nn!&ll)@ the
,on(s h&ve & P#7999 f&ce v&l!e@ &n( the co!pon interest r&te is ? percent$
0h&t is the esti'&te( )iel( to '&t!rit) of the ,on(s &t their c!rrent '&rket price of P:691
A$ #9$;5 percent C$ ##$>; percent
+$ ##$99 percent C1D D$ #9$99 percent
Ca)ital Asset "ricing Model
#6?$Spec7 Inc$=s stock is e*pecte( to %ener&te & (ivi(en( &n( ter'in&l v&l!e one )e&r fro' now of
P6>$99$ The stock h&s & ,et& of #$27 the riskAfree interest r&te is ; percent7 &n( the e*pecte(
ret!rn '&rket ret!rn is ## percent$ 0h&t sho!l( the e.!ili,ri!' price of Spec=s stock in the
'&rket now1
A$ P69$;> C$ P62$>>
+$ P6#$26 D$ P52$:5
(ividend *ro.t/ Model
#;9$Ti%er Co'p&n)=s stock is c!rrentl) sellin% for P;9 & sh&re$ The fir' is e*pecte( to e&rn P6$59
per sh&re &n( to p&) & )e&rAen( (ivi(en( of P2$;9$
If investors re.!ire & ? percent ret!rn7 wh&t r&te of %rowth '!st ,e e*pecte( for Ti%er1
A$ Lero %rowth C$ 59$9 percent
+$ 2$9 percent D$ 69$9 percent
(ividend "olicy
#;#$Resi7 Inc$ e*pects net inco'e of P:997999 for the ne*t fisc&l )e&r$ Its t&r%ete( &n( c!rrent
c&pit&l str!ct!re is 59< (e,t &n( ;9< co''on e.!it)$ The (irector of c&pit&l ,!(%etin% h&s
(eter'ine( th&t the opti'&l c&pit&l spen(in% for ne*t )e&r is P#7/997999$ If Resi follows &
strict resi(!&l (ivi(en( polic)7 wh&t is the e*pecte( (ivi(en( p&)o!t r&tio for ne*t )e&r1
A$ :9$9< C$ 59$9<
+$ ;;$>< D$ #9$9<
#;/$G&lve" Co'p&n) e*pects ne*t )e&r=s &fterAt&* inco'e to ,e P>76997999$ The fir'=s (e,t r&tio
is c!rrentl) 59 percent$ G&lve" h&s P;79997999 of profit&,le invest'ent opport!nities7 &n( it
wishes to '&int&in its e*istin% (e,t r&tio$ Accor(in% to the resi(!&l (ivi(en( polic)7 wh&t is the
e*pecte( (ivi(en( p&)o!t r&tio ne*t )e&r1
A$ 6/$9 percent C$ 5:$9 percent
+$ >6$9 percent D$ /6$9 percent
#;2$Glen(& Co'p&n) e*pects to %ener&te P#9 'illion intern&ll) which co!l( ,e &v&il&,le for
fin&ncin% p&rt of its P#/ 'illion c&pit&l ,!(%et for this co'in% )e&r$ Glen(&=s '&n&%e'ent
,elieves th&t & (e,tAe.!it) r&tio of 59 percent is ,est for the fir'$ 4ow '!ch sho!l( ,e p&i( in
(ivi(en(s if the t&r%et (e,tAe.!it) r&tio is to ,e '&int&ine(1
A$ P/7:997999 C$ P:76>#75/?
+$ P#75/:76># D$ P579997999
4!A$TITATIVE METHO(S
"ro,a,ilities
#;5$E*press Co$ is (evelopin% & silver 'ine &t & cost of P6 'illion$ There is & /9< pro,&,ilit) th&t
silver worth P#6 'illion c&n ,e sol($ There is & /9< pro,&,ilit) th&t the silver will onl) ,e
worth P6997999$ 0h&t is the '&*i'!' E*press wo!l( ,e willin% to spen( to (evelop the
'ine1
A$ P#979997999 C$ P27#997999
+$ P 679997999 D$ P9
#;6$CTV Co'p&n) h&s three s&les (ep&rt'ents$ Dep&rt'ent 8A processes &,o!t 69 percent of
CTV=s s&les7 Dep&rt'ent TA &,o!t 29 percent7 &n( Dep&rt'ent PA &,o!t /9 percent$ In the
p&st7 Dep&rt'ents 8A7 TA7 &n( PA h&( error r&tes of &,o!t / percent7 6 percent7 &n( /$6
percent7 respectivel)$ A r&n(o' &!(it of the s&les recor(s )iel(s & recor(in% error of s!fficient
'&%nit!(e to (istort the co'p&n)=s res!lts$ The pro,&,ilit) th&t Dep&rt'ent 8A is responsi,le
for this error is
A$ $69 C$ $9/
+$ $22 D$ $/6
#;;$A ,ever&%e st&n( c&n sell either soft (rinks or coffee on &n) %iven (&)$ If the st&n( sells soft
(rinks &n( the we&ther is hot7 it will '&ke P/7699@ if the we&ther is col(7 the profit will ,e
P#7999$ If the st&n( sells coffee &n( the we&ther is hot7 it will '&ke P#7?99@ if the we&ther is
col(7 the profit will ,e P/7999$The pro,&,ilit) of col( we&ther on & %iven (&) &t this ti'e is
;9<$
The e*pecte( p&)off for either sellin% coffee or soft (rinks &n( the e*pecte( p&)off if the
ven(or h&s perfect infor'&tion &re
Coffee Soft (rinks Perfect infor'&tion
A$ P#72;9 P#7;99 P27999
+$ P#7?;9 P#7;99 P/7/99
C$ P/7/99 P#7?99 P#72;9
D$ P27?99 P#7?99 P#7?;9
M&) /996 P&%e /; of 2/
inear "rogramming
#;>$ An(erson Co$ '&n!f&ct!res two (ifferent pro(!cts7 A &n( +$ The co'p&n) h&s #99 po!n(s of
r&w '&teri&ls &n( 299 (irect l&,or ho!rs &v&il&,le for pro(!ction$ The ti'e re.!ire'ent &n(
contri,!tion '&r%ins per !nit &re &s follows3
A +
R&w '&teri&ls per !nit Cl,sD # /
Direct l&,or ho!rs per !nit 5 /
Contri,!tion '&r%in per !nit P5 P6
The objective function for maimi!ing profits and the e"uation for the
constrain on ra# materials are:
O,-ective 8!nction Constr&int on r&w '&teri&ls
A$ M&* P#A P P/+ 5A P /+ S #99
+$ M&* P5A P P6+ #A P /+ S #99
C$ M&* P5A P P/+ 5A P 6+ S #99
D$ Min P5A P P6+ 5A P 6+ S 299
ACTIVIT%-BASE( COSTI$*
#;:$A cost s)ste' th&t first tr&ces costs to &ctivities &n( then tr&ces cost fro' &ctivities to pro(!cts
A$ Mo, or(er cost s)ste'$ C$ Activit)A,&se( cost s)ste'$
+$ Process cost s)ste'$ D$ 8le*i,le cost s)ste'$
#;?$The l&st step in &ctivit)A,&se( costin% is to
A$ i(entif) the '&-or &ctivities th&t pert&in to the '&n!f&ct!re of specific pro(!cts
+$ &lloc&te '&n!f&ct!rin% overhe&( costs to &ctivit) cost pools
C$ i(entif) the cost (rivers th&t &cc!r&tel) 'e&s!re e&ch &ctivit)=s contri,!tion to the finishe(
pro(!ct
D$ &ssi%n '&n!f&ct!rin% overhe&( costs for e&ch &ctivit) cost pool to pro(!cts
#>9$McM(=s st&n(&r( cost c&r( in(ic&tes th&t it t&kes three ho!rs of (irect l&,or to pro(!ce one
!nit of pro(!ct$ A recentl) con(!cte( ti'e &n( 'otion st!() reve&le( th&t it sho!l( t&ke one
ho!r to pro(!ce the s&'e !nit$ F&,or cost is P#69 per ho!r$
McM(=s v&l!eA&((e(7 &n( nonv&l!eA&((e( costs wo!l( ,e
A$ P#69 &n( P9 C$ P#69 &n( P299
+$ P9 &n( P#69 D$ P569 &n( P9
#>#$Desi%nin% &n( re(esi%nin% &re &ctivities th&t &re cl&ssifie( &s
A$ f&cilit) level C$ !nit level
+$ ,&tch level D$ pro(!ct level
M&) /996 P&%e /> of 2/
#>/$A co'p&n) th&t !ses &ctivit)A,&se( costin% to (evelop st&n(&r( costs
A$ will !s!&ll) h&ve 'ore th&n one v&ri&,le overhe&( co'ponent in its st&n(&r( costs
+$ c&nnot co'p!te v&ri&,le overhe&( efficienc) v&ri&nces
C$ will h&ve less infor'&tion &,o!t the profit&,ilit) of in(ivi(!&l pro(!cts
D$ &ll of the &,ove
#>2$Cl&ssif) the followin% &s vol!'e C!nitD ,&se or nonvol!'e C&ctivit)D ,&se3
#$ N!',er of p!rch&se or(ers iss!e(
/$ Direct l&,or ho!rs
2$ N!',er of '&chine ho!rs
5$ N!',er of set !ps
6$ N!',er of receivin% reports iss!e(
;$ Direct '&teri&l cost
Vol!'e CJnitD +&se Nonvol!'e CActivit)D +&se
A$ #7 57 67 ; /7 2
+$ #7 57 6 /7 27 ;
C$ #7 /7 27 57 6 ;
D$ /7 27 ; #7 57 6
#>5$The Oilfiel( pl&nt h&s two c&te%ories of overhe&(3 '&inten&nce &n( inspection$ Costs
e*pecte( for these c&te%ories for the co'in% )e&r &re &s follows3
M&inten&nce P#997999
Inspection #697999
The pl&nt c!rrentl) &pplies overhe&( !sin% (irect l&,or ho!rs &n( e*pecte( c&p&cit) of 697999
(irect l&,or ho!rs$ The followin% (&t& h&ve ,een &sse',le( for !se in (evelopin% & ,i( for &
propose( -o,3
Direct l&,or P57999
M&chine ho!rs 699
N!',er of inspections 5
Direct l&,or ho!rs :99
Tot&l e*pecte( '&chine ho!rs for &ll -o,s (!rin% the )e&r is /679997 &n( the tot&l e*pecte(
n!',er of inspections is #7699$
Jsin% &ctivit)A,&se( costin% &n( the &ppropri&te &ctivit) (rivers7 the tot&l cost of the potenti&l
-o, wo!l( ,e
A$ P/7599 C$ P>7599
+$ P27;99 D$ P>7>69
4!AIT% COST
#>6$The cost of st&tistic&l .!&lit) control in & pro(!ct .!&lit) cost s)ste' is
A$ tr&inin% cost C$ &ppr&is&l cost
+$ intern&l f&il!re cost D$ prevention cost
I$#ORMATIO$ S%STEMS
#>;$The process of le&rnin% how the c!rrent s)ste'7 f!nctions7 (eter'inin% the nee(s of !sers7
&n( (evelopin% the lo%ic&l re.!ire'ents of & propose( s)ste' is referre( to &s
A$ s)ste's '&inten&nce C$ s)ste's fe&si,ilit) st!()
+$ s)ste's &n&l)sis D$ s)ste's (esi%n
#>>$0hich of the followin% is not & ch&r&cteristic of & ,&tch processin% s)ste'1
A$ The collection of like tr&ns&ctions which &re sorte( &n( processe( se.!enti&ll) &%&inst &
'&ster file$
+$ Oe)p!nchin% of tr&ns&ctions7 followe( ,) '&chine processin%$
C$ The pro(!ction of n!'ero!s printo!ts$
D$ The postin% of & tr&ns&ction7 &s it occ!rs7 to sever&l files witho!t inter'e(i&te printo!ts$
#>:$All &ctivit) rel&te( to & p&rtic!l&r &pplic&tion in & '&n!&l s)ste' is recor(e( in & -o!rn&l$ The
n&'e of the correspon(in% ite' in & co'p!teri"e( s)ste' is &
A$ '&ster file C$ tr&ns&ction file
+$ )e&rAtoA(&te file D$ c!rrent ,&l&nce file
#>?$One of the first steps in the cre&tion of & (&t& ,&se is to
A$ (efine co''on v&ri&,les &n( fiel(s !se( thro!%ho!t the fir'B
+$ incre&se the secon(&r) stor&%e c&p&cit)$
C$ o,t&in softw&re th&t will f&cilit&te (&t& retriev&l$
D$ inte%r&te the &cco!ntin% s)ste' into the (&t& ,&se$
#:9$A s)ste' with sever&l co'p!ters th&t &re connecte( for co''!nic&tion &n( (&t& tr&ns'ission
p!rposes ,!t th&t per'its e&ch co'p!ter to process its own (&t& is &
A$ (istri,!te( (&t& processin% network C$ (ecentr&li"e( network
+$ centr&li"e( network D$ '!lti(rop network
#:#$The process of (evelopin% specific&tions for h&r(w&re7 softw&re7 personnel ho!rs7 (&t&
reso!rces7 &n( infor'&tion pro(!cts re.!ire( to (evelop & s)ste' is referre( to &s
A$ s)ste's &n&l)sis C$ s)ste's (esi%n
+$ s)ste's fe&si,ilit) D$ s)ste's '&inten&nce
M&) /996 P&%e /: of 2/
#:/$An inte%r&te( set of co'p!ter pro%r&'s th&t f&cilit&tes the cre&tion7 '&nip!l&tion7 &n(
.!er)in% of inte%r&te( files is c&lle( &CnD
A$ tr&nsl&tor C$ oper&tin% s)ste'
+$ (&t&,&se '&n&%e'ent s)ste' D$ fl&t file s)ste'
#:2$T!rn&ro!n( (oc!'ents
A$ %ener&ll) circ!l&te onl) within the co'p!ter center$
+$ c&n ,e re&( &n( processe( onl) ,) the co'p!ter$
C$ &re %ener&te( ,) the co'p!ter &n( event!&ll) ret!rn to it$
D$ &re onl) !se( intern&ll) in &n or%&ni"&tion$
Ans.er 2ey
#$ C ##$ C /#$ + 2#$ C 5#$ A
/$ D #/$ A //$ A 2/$ A 5/$ C
2$ + #2$ D /2$ A 22$ + 52$ C
5$ C #5$ A /5$ A 25$ A 55$ C
6$ C #6$ D /6$ C 26$ A 56$ D
;$ C #;$ C /;$ D 2;$ A 5;$ C
>$ A #>$ + />$ C 2>$ A 5>$ C
:$ + #:$ C /:$ C 2:$ C 5:$ D
?$ + #?$ + /?$ C 2?$ C 5?$ A
#9$ C /9$ + 29$ D 59$ D 69$ A
6#$ D ;#$ + >#$ A :#$ + ?#$ +
6/$ + ;/$ A >/$ A :/$ D ?/$ D
62$ A ;2$ + >2$ D :2$ A ?2$ +
65$ A ;5$ A >5$ A :5$ + ?5$ D
66$ + ;6$ D >6$ A :6$ + ?6$ A
6;$ D ;;$ A >;$ D :;$ C ?;$ +
6>$ + ;>$ A >>$ C :>$ + ?>$ +
6:$ C ;:$ + >:$ + ::$ A ?:$ A
6?$ A ;?$ + >?$ A :?$ A ??$ A
;9$ D >9$ C :9$ + ?9$ + #99$ D
#9#$ A ###$ A #/#$ A #2#$ D #5#$ A
#9/$ A ##/$ + #//$ A #2/$ A #5/$ D
#92$ + ##2$ A #/2$ + #22$ C #52$ +
#95$ + ##5$ + #/5$ A #25$ A #55$ D
#96$ A ##6$ D #/6$ C #26$ D #56$ D
#9;$ D ##;$ D #/;$ + #2;$ A #5;$ +
#9>$ + ##>$ + #/>$ C #2>$ A #5>$ D
#9:$ + ##:$ A #/:$ D #2:$ + #5:$ C
#9?$ A ##?$ A #/?$ A #2?$ A #5?$ D
##9$ + #/9$ D #29$ A #59$ + #69$ A
#6#$ D #;#$ D #>#$ D #:#$ C
#6/$ A #;/$ A #>/$ A #:/$ +
#62$ + #;2$ + #>2$ D #:2$ C
#65$ D #;5$ C #>5$ C
#66$ D #;6$ + #>6$ C
#6;$ C #;;$ + #>;$ +
#6>$ + #;>$ + #>>$ D
#6:$ + #;:$ C #>:$ C
#6?$ A #;?$ D #>?$ A
#;9$ + #>9$ C #:9$ A
M&) /996 P&%e /? of 2/
TR!E STATEME$TS
#$ St&n(&r( cost can, if properly used, help motivate employees
/$ A co'p&n) wo!l( 'ost likel) h&ve &n !nf&vor&,le l&,or r&te v&ri&nce &n( & f&vor&,le l&,or
efficienc) if the mix of workers used in the production process was more experienced than the
normal mix
2$ The expected annual capacity level h&s tr&(ition&ll) ,een !se( to co'p!te the fi*e( overhe&(
&pplic&tion r&te1
5$ A f&vor&,le vol!'e v&ri&nce incre&ses &,sorption costin% net inco'e@ it (oes not &ffect
v&ri&,le costin% net inco'e$
6$ The v&ri&,le costin% for'&t is often 'ore !sef!l to '&n&%ers th&n the &,sorption costin%
for'&t ,ec&!se costs &re cl&ssifie( ,) their ,eh&vior$
;$ CVP &n&l)sis relies on the &ss!'ptions th&t costs &re either strictl) fi*e( or strictl) v&ri&,le$
Consistent with these &ss!'ptions7 &s vol!'e (ecre&ses tot&l v&ri&,le costs &n( tot&l costs
(ecre&se while fi*e( costs re'&in const&nt$
>$ A '&n&%eri&l preference for & ver) low (e%ree of oper&tin% lever&%e 'i%ht in(ic&te th&t &
(ecre&se in s&les vol!'e is e*pecte(
:$ P&),&ck perio( potenti&ll) i%nores p&rt of & pro-ect=s relev&nt c&sh flows$
?$ P&),&ck 'etho( (oes not ro!tinel) rel) on the &ss!'ption th&t &ll c&sh flows occ!r &t the en(
of the perio(1
#9$ The p&),&ck 'etho( &ss!'es th&t &ll c&sh inflows &re reinveste( to )iel( & ret!rn e.!&l to
"ero
##$ 0hen !sin% one of the (isco!nte( c&sh flow 'etho(s to ev&l!&te the (esir&,ilit) of & c&pit&l
,!(%etin% pro-ect7 the 'etho( of fin&ncin% the pro-ect !n(er consi(er&tion is not &n i'port&nt
f&ctor1
#/$ In c&pit&l ,!(%etin%7 & fir'=s cost of c&pit&l is fre.!entl) !se( &s the (isco!nt r&te
#2$ The net present v&l!e 'etho( &ss!'es th&t &ll c&sh inflows c&n ,e i''e(i&tel) reinveste( &t
the (isco!nt r&te
#5$ The ,&sis for 'e&s!rin% the cost of c&pit&l (erive( fro' ,on(s &n( preferre( stock7
respectivel)7 is the &fterAt&* r&te of interest for ,on(s &n( st&te( &nn!&l (ivi(en( r&te for
preferre( stock
#6$ The wei%hte( &ver&%e cost of c&pit&l th&t is !se( to ev&l!&te & specific pro-ect sho!l( ,e
,&se( on the over&ll c&pit&l str!ct!re of the corpor&tion
#;$ The wei%hte( &ver&%e cost of c&pit&l &ppro&ch to (ecision '&kin% is not (irectl) &ffecte( ,)
the c!rrent ,!(%et for c&pit&l e*p&nsion
#>$ At & profit&,ilit) in(e* of #$97 the NPV is 97 &n( the IRR e.!&ls the (isco!nt r&te !se($ If the PI
is &,ove #$97 the NPV is positive &n( the IRR is hi%her th&n the (isco!nt r&te !se($
#:$ The profit&,ilit) in(e* is the r&tio of the present v&l!e of c&sh flows to the ori%in&l invest'ent
#?$ The r&te of interest th&t pro(!ces & "ero net present v&l!e when & pro-ect=s (isco!nte( c&sh
oper&tin% &(v&nt&%e is nette( &%&inst its (isco!nte( net invest'ent is the intern&l r&te of
ret!rn
/9$ Intern&l r&te of ret!rn h&s ,een critici"e( ,ec&!se it 'i%ht 'ist&kenl) i'pl) th&t e&rnin%s &re
reinveste( &t the r&te of ret!rn e&rne( ,) the invest'ent$
/#$ As the '&r%in&l t&* r&te %oes !p7 the ,enefit fro' the (epreci&tion t&* shiel( incre&ses
//$ 8i*e( cost is relev&nt if it is &voi(&,le
/2$ 0hen & sc&rce reso!rce7 s!ch &s sp&ce7 e*ists in &n or%&ni"&tion7 the criterion th&t sho!l( ,e
!se( to (eter'ine pro(!ction is contri,!tion '&r%in per !nit of sc&rce reso!rce
/5$ A cost (river is (efine( &s & c&!s&l f&ctor th&t incre&ses the tot&l cost of & cost o,-ective
/6$ Co''itte( costs &re %overne( '&inl) ,) p&st (ecisions th&t est&,lishe( the c!rrent levels of
oper&tin% &n( or%&ni"&tion&l c&p&cit) &n( th&t onl) ch&n%e slowl) in response to s'&ll
ch&n%es in c&p&cit)
M&) /996 P&%e 29 of 2/
/;$ Discretion&r) costs &re those th&t '&n&%e'ent (eci(es to inc!r in the c!rrent perio( to en&,le
the co'p&n) to &chieve o,-ectives other th&n the fillin% of or(ers pl&ce( ,) c!sto'ers
/>$ If & fir' or(ers r&w '&teri&ls in .!&ntities l&r%er th&n the opti'!' .!&ntit) o,t&ine( !sin% the
si'ple econo'ic or(er .!&ntit) 'o(el in or(er to o,t&in & .!&ntit) (isco!nt7 the co'p&n) will
e*perience c&rr)in% costs hi%her th&n or(erin% costs
/:$ One of the pri'&r) p!rposes of !sin% & st&n(&r( cost s)ste' is to provi(e & (istinct 'e&s!re
of cost control$
/?$ 8&vor&,le v&ri&nces &re not necess&ril) %oo( v&ri&nces$
29$ 0hether the v&ri&nce is f&vor&,le or !nf&vor&,le is irrelev&nt to & nee( of investi%&tin% it$
2#$ The s!' of the '&teri&l price v&ri&nce &n( '&teri&ls .!&ntit) v&ri&nce is not 'e&nin%f!l$
2/$ The fi*e( overhe&( v&ri&nce wo!l( ,e the s&'e irrespective of the c&p&cit) or (eno'in&tor
!se($
22$ The fi*e( overhe&( vol!'e v&ri&nce is the le&st si%nific&nt v&ri&nce for control p!rposes$
4owever7 it is the 'ost !sef!l v&ri&nce in ev&l!&tin% pl&nt !tili"&tion$
25$ 8i*e( overhe&( costs &re 'ostl) inc!rre( to provi(e the c&p&cit) to pro(!ce &n( &re ,est
controlle( on & tot&l ,&sis &t the ti'e the) &re ori%in&ll) ne%oti&te($
26$ In & st&n(&r( cost s)ste'7 when pro(!ction is %re&ter th&n the esti'&te( !nit or (eno'in&tor
level of &ctivit)7 there will ,e & f&vor&,le vol!'e v&ri&nce$
2;$ In &n&l)"in% f&ctor) overhe&( v&ri&nces7 vol!'e v&ri&nce is the (ifference ,etween the ,!(%et
&llow&nce ,&se( on st&n(&r( ho!rs &llowe( for &ct!&l pro(!ction for the perio( &n( the
&'o!nt ,!(%ete( to ,e &pplie( (!rin% the perio($
2>$ The !se of sep&r&te v&ri&,le &n( fi*e( overhe&( r&tes is ,etter th&n & co',ine( r&te ,ec&!se
s!ch & s)ste' is 'ore effective in &ssi%nin% overhe&( costs to pro(!cts$
2:$ In & -!stAinAti'e inventor) s)ste'7 i(e&l st&n(&r(s ,eco'e e*pecte( st&n(&r(s$
2?$ If & fir' pro(!ces 'ore !nits th&n it sells7 &,sorption costin%7 rel&tive to v&ri&,le costin%7 will
res!lt in hi%her inco'e &n( &ssets$
59$ A fir' presentl) h&s tot&l s&les of P#997999$ If its s&les rise ,) P#$997 its net inco'e ,&se( on
v&ri&,le costin% will %o !p 'ore th&n its net inco'e ,&se( on &,sorption costin%$
5#$ A co'p&n) co!l( never inc!r & loss th&t e*cee(e( its tot&l costs$
5/$ At ,re&keven point the contri,!tion '&r%in e.!&ls fi*e( costs$ After the level of vol!'e
e*cee(s the ,re&keven point7 the tot&l contri,!tion '&r%in e*cee(s the tot&l fi*e( costs$
52$ As pro-ecte( net inco'e incre&ses the (e%ree of oper&tin% lever&%e (eclines$
55$ A '&n&%eri&l preference for & ver) low (e%ree of oper&tin% lever&%e 'i%ht in(ic&te th&t &
(ecre&se in s&les vol!'e is e*pecte($
56$ The ti'e v&l!e of 'one) is consi(ere( in lon%Ar&n%e invest'ent (ecisions ,) &ssi%nin%
%re&ter v&l!e to 'ore i''e(i&te c&sh flows$
5;$ 8or & pro-ect s!ch &s pl&nt invest'ent7 the ret!rn th&t sho!l( le&ve the '&rket price of the
fir'=s stock !nch&n%e( is known &s the cost of c&pit&l$
5;$ Opport!nit) cost of c&pit&l is the hi%hest r&te of ret!rn th&t c&n ,e e&rne( fro' the 'ost
&ttr&ctive &ltern&tive c&pit&l pro-ect &v&il&,le to the fir'$
5>$ If &n &n&l)st (esires & conserv&tive net present v&l!e esti'&te7 he will &ss!'e th&t &ll c&sh
inflows occ!r &t )e&rAen($
5:$ 0hen & profit&,le corpor&tion sells &n &sset &t & loss7 the &fterAt&* c&sh flow on the s&le will
e*cee( the preAt&* c&sh flow on the s&le$
5?$ Sensitivit) &n&l)sis is &n &ppropri&te response to !ncert&int) in c&sh flow pro-ections$
69$ Relev&nt costs &re &nticip&te( f!t!re costs th&t will (iffer &'on% v&rio!s &ltern&tives$
6#$ In & '&ke or ,!) (ecisions7 the opport!nit) cost of c&p&cit) co!l( ,e consi(ere( to (ecre&se
the price of !nits p!rch&se( fro' s!ppliers$
M&) /996 P&%e 2# of 2/
6/$ 8i*e( costs &re i%nore( in &lloc&tin% sc&rce reso!rces ,ec&!se the) &re !n&ffecte( ,) the
&lloc&tion of sc&rce reso!rces$
62$ A line&r pro%r&''in% 'o(el '!st h&ve onl) one o,-ective f!nction$
65$ Str&te%ic pl&nnin% &s &ss!'e( ,) top '&n&%e'ent is st&tin% &n( est&,lishin% lon%Ater'
pl&ns$
66$ The '&ster ,!(%et is & st&tic ,!(%et ,ec&!se it is %e&re( to onl) one level of pro(!ction &n(
s&les$
6;$ The pri'&r) re&son wh) '&n&%ers i'pose & 'ini'!' c&sh ,&l&nce in the c&sh ,!(%et is th&t
it protects the or%&ni"&tion fro' the !ncert&int) of the ,!(%etin% process$
6>$ Sl&ck in oper&tin% ,!(%ets is %re&ter when '&n&%ers &re &llowe( to p&rticip&te in the
,!(%etin% process$ +!(%et sl&ck refers to intention&l overesti'&te of e*penses or
!n(eresti'&te of reven!es$
6:$ Perfor'&nce 'e&s!re'ents &n( & rew&r( s)ste' &re p&rt of 'otiv&tion&l ele'ent of cost
'&n&%e'ent s)ste'$ 8oc!s on cost control &n( &ssessin% core co'petencies &re p&rt of
infor'&tion&l ele'ent of cost '&n&%e'ent s)ste'$
6?$ A (ecentr&li"e( co'p&n) %rows ver) .!ickl) th&n & centr&li"e( one$
;9$ In & (ecentr&li"e( co'p&n)7 tr&nsfer pricin% s)ste' is (esi%ne( to &i( in the &ppr&is&l &n(
'otiv&tion of '&n&%eri&l perfor'&nce$
;#$ Responsi,ilit) &cco!ntin% refers to &n &cco!ntin% s)ste' in which the oper&tions of the
,!siness &re ,roken (own into report&,le se%'ents &n( the control f!nction of s&les '&n&%er
or s!pervisor is e'ph&si"e($
;/$ The 'ost v&li( re&son for !sin% so'ethin% other th&n & f!llAcost ,&se( tr&nsfer price ,etween
!nits of & co'p&n) is ,ec&!se & f!llAcost price (oes not ens!re the control of costs of &
s!ppl)in% !nit$
;2$ A cost cl&ssifie( &ccor(in% to its &ctivit)Arel&te( ,eh&vior is & fi*e( cost$
;5$ The (istinction ,etween (irect &n( in(irect costs (epen(s on whether & cost c&n ,e
convenientl) &n( ph)sic&ll) tr&ce( to & cost o,-ect !n(er consi(er&tion$
;6$ An &cco!ntin% s)ste' th&t foc!ses on tr&ns&ctions is & tr&(ition&l &cco!ntin% s)ste'$
M&) /996 P&%e 2/ of 2/

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MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Preweek !

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