ASIA PACIFIC COLLEGE OF ADVANCED STUDIES

PRELIMS EXAM
MGMT ACCTG 2
MANAGEMENT ACCOUNTING 2
NAME:____________________________________________________________ DATE:_________________
MULTIPLE CHOICE. Show your solutions. (2 points each)
1. PTO Company desires an ending inventory of P140,000. It expects sales of P800,000 and has a beginning inventory of
P130,000. Cost of sales is 65% of sales. Budgeted purchases are
A. P 530,000
C. P 810,000
B. P 790,000
D. P1,070,000
2. Calypso Co. has projected sales to be P600,000 in January, P750,000 in February, and P800,000 in March. Calypso
wants to have 50% of next months sales needs on hand at the end of a month. If Calypso has an average gross profit
of 40%, what are the February 28 purchases?
A. P465,000
C. P775,000
B. P310,000
D. P428,000
3. Blue Company budgeted purchases of P100,000. Cost of sales was P120,000 and the desired ending inventory was
P42,000. The beginning inventory was
A. P20,000
C. P42,000
B. P32,000
D. P62,000
4. The payment schedule of purchases made on account is: 60% in the time period of purchase, 30% in the following
time period, and 10% in the subsequent time period. Total credit purchases were P200,000 in May, and P100,000 in
June. Total payments on credit purchases were P140,000 in June. What were the credit purchases in the month of
April?
A. P200,000
C. P145,000
B. P100,000
D. P215,000
5. Lorie Company plans to sell 400,000 units of finished product in July an anticipates a growth rate in sales of 5% per
month. The desired monthly ending inventory in units of finished product is 80% of the next months estimated sales.
There are 300,000 finished units in the inventory on June 30. Each unit of finished product requires four pounds of
direct materials at a cost of P2.50 per pound. There are 800,000 pounds of direct materials in the inventory on June
30. How many units should be produced for the three-month period ending September 30?
A. 1,260,000
C. 1,331,440
B. 1,328,000
D. 1,424,050
6. If the required direct materials purchases are 8,000 pounds and the direct materials required for production is three
times the direct materials purchases, and the beginning direct materials are three and a half times the direct
materials purchases, what are the desired ending direct material in pounds?
A. 20,000
C. 12,000
B. 4,000
D. 32,000
7. If there were 30,000 pounds of raw material on hand on January 1, 60,000 pounds are desired for inventory at
December 31, and 180,000 pounds are required for annual production, how many pounds of raw material should be
purchased during the year?
A. 150,000 pounds
C. 120,000 pounds
B. 240,000 pounds
D. 210,000 pounds
8. Silver Bowl Company manufactures a single product. It keeps its inventory of finished goods at 75% the coming
months budgeted sales. It also keeps its inventory of raw materials at 50% of the coming months budgeted production.
Each unit of product requires two pounds of materials. The production budget is, in units: May, 1,000; June, 1,200;
July, 1,300; august, 1,600. Raw material purchases in July would be
A. 1,525 pounds
C. 2,550 pounds

B. 2,900 pounds

D. 3,050 pounds

9. Generous Company began its operations on January 1 of the current year. Budgeted sales for the first quarter are
P240,000, P300,000, and P420,000, respectively, for January, February and March. Generous Company expects
20% of its sales cash and the remainder on account. Of the sales on account, 70% are expected to be collected in
the month of sale, 25% in the month following the sale, and the remainder in the following month. How much should
Generous receive from sales in March?
A. P304,800
C. P388,800
B. 294,000
D. P295,200
10. Mendrez Company has a collection schedule of 60% during the month of sales, 15% the following month, and 15%
subsequently. The total credit sales in the current month of September were P80,000 and total collections in
September were P57,000. What were the credit sales in July?
A. P90,000
C. P45,000
B. P30,000
D. P32,000
11. Obligacion Company has P299,000 in accounts receivable on January 1, 2006. Budgeted sales for January are
P860,000. Obligacion expects to sell 20% of its merchandise for cash. Of the remaining sales, 75% are expected to
be collected in the month of sale and the remainder the following month.
The January cash collections from sales are:
A. P815,000
C. P471,000
B. P691,000
D. P987,000
12. Adel Company has the following sales forecasts for the selected three-month period in 2007:
Month
Sales
April
P12,000
May
7,000
June
8,000
Seventy percent of sales are collected in the month of the sale, and the remainder is collected in the following month.
Accounts receivable balance (April 1, 2007)
P10,000
Cash balance (April 1, 2007)
5,000
Minimum cash balance is P5,000. Cash can be borrowed in P1,000 increments from the local bank (assume no
interest charges).
How much cash would be collected in June from sales?
A. P 7,700
C. P 8,000
B. P 8,500
D. P10,000
13. As of January 1, 2007, the Liberal Sales Company had an account receivable of P500,000. The sales for January,
February, and March were as follows: P1,200,000, P1,400,000 and P1,500,000, respectively. Of each months
sales, 80% is on account. 60% of account sales is collected in the month of sale, with remaining 40% collected in
the following month. What is the accounts receivable balance as of March 31, 2007?
A. P720,000
C. P587,200
B. P480,000
D. P600,000
14. Albatross Company started its commercial operations on September 30 of the current year. Projected manufacturing
costs for the first three months of operations are P1,568,000, P1,952,000, and P2,176,000, respectively.
Depreciation, insurance, and property taxes represent P288,000 of the estimated manufacturing costs. Insurance
was paid on September 30, and property taxes will be paid in July next year. Seventy-five percent of the remainder
of the manufacturing costs are expected to be paid in the month in which they are incurred, with the balance to be
paid in the following month. The cash payments for manufacturing costs in the month of November are:
A. P1,568,000
C. P1,664,000
B. P1,952,000
D. P1,856,000
15. What term identifies an accounting system in which the operations of the business are broken down into reportable
segments and the control functions of a foreperson, sales managers, or supervisor is emphasized?
A. Responsibility accounting
C. Operations-research accounting
B. Control accounting
D. Budgetary accounting

16. A responsibility center

A. is an organization unit where management control exists over incurring costs or generating revenue
B. is responsible for all other departments
C. has a responsible manager in charge of it
D. all of the above
17. The sequence that reflects increasing breadth of responsibility is
A. cost center, investment center, profit center
B. cost center, profit center, investment center
C. profit center, cost center, investment center
D. investment center, cost center, profit center
18. A profit center is
A. a responsibility center that always reports a profit.
B. a responsibility center that incurs costs and generates revenues.
C. evaluated by the rate of return earned on the investment allocated to the center.
D. referred to as a loss center when operations do not meet the company's objectives.
D. it is a responsibility center which only generates revenues.
19. In which type of responsibility center is the manager held accountable for its profits?
A. Cost center
C. Investment center
B. Profit center
D. Profit centers or Investment centers

20. The Dela Merced Companys Household Products Division reported in 2007 sales of P15,000,000, an asset turnover
ratio of 3.0, and a rate of return on average assets of 18 percent. The percentage of net income to sales is
A. 6 percent.
C. 3 percent
B. 12 percent.
D. 5 percent.
21. Marsh Company that had current operating assets of one million and net income of P200,000 had an opportunity to
invest in a project that requires an additional investment of P250,000 and increased net income by P40,000. After the
investment, the company's ROI will be
A. 16.0%
C. 19.2%
B. 18.0%
D. 20.2%
22. Matipid Division of Expenditures Company expects the following results for 2007:
Unit sales
70,000
Unit selling price
P
10
Unit variable cost
P
4
Total fixed costs
P300,000
Total investment
P500,000
Consider the following:
Investment centers after-tax operating profit
P 50,000
Investment centers total assets
800,000
Investment centers current liabilities
80,000
Weighted-average cost of capital
6.5%
What is the economic value added (EVA)?
A. P60,000
C. P 6,000
B. P 3,200
D. P50,000
23. If the investment turnover increased by 30% and ROS decreased by 20%, the ROI would
A. increase by 30%
C. increase by 6%
B. increase by 4%
D. none of these
24. An appropriate transfer price between two divisions of the Reno Corporation can be determined from the following
data:
Fabrication Division

Market price of subassembly

P50
Variable cost of subassembly
P20
Excess capacity (in units)
1,000
Assembling Division
Number of units needed
900
What is the natural bargaining range for the two divisions?
A. Between P20 and P50
C. Between P50 and P70
B. Any amount less than P50
D. P50 is the only acceptable price
25. Company Y is highly decentralized. Division X, which is operating at capacity, produces a component that it currently
sells in a perfectly competitive market for P13 per unit. At the current level of production, the fixed cost of producing
this component is P4 per unit and the variable cost is P7 per unit. Division Z would like to purchase this component
from Division X. What would be the price that Division X should charge Division Z?
A. P 7
C. P 11
B. P 13
D. P 9
26. The Valve Division of Industrial Company produces a small valve that is used by various companies as a component
part in their products. Industrial Company operates its divisions as autonomous units, giving its divisional manager
great discretion in pricing and other decisions. Each division is expected to generate a rate of return of at least 14
percent on its operating assets. The Valve Division has average operating assets of P700,000. The valves are sold
for P5 each. Variable costs are P3 per valve, and fixed costs total P462,000 per year. The Division has a capacity of
300,000 units.
How many valves must the Valve Division sell each year to generate the desired rate of return on its assets?
A. 280,000
C. 355,385
B. 350,000
D. 265,000
27. The current income for a subunit is P36,000. Its current invested capital is P200,000. The subunit is considering
purchasing for P20,000 equipment that will increase annual income by an estimated P2,800. The firm's cost of
capital is 12%. If the equipment is purchased, the residual income of the subunit will
A. increase by P2,800
C. increase by P400
B. increase by P16,000
D. increase by 4%
28. The minimum required ROI is 15 percent, and divisions are evaluated on residual income. A foreign customer has
approached Matipids manager with an offer to buy 10,000 units at P7 each. If Matipid accepts the order, it would not
lose any of the 70,000 units at the regular price. Accepting the order would increase fixed costs by P10,000 and
investment by P40,000.
What is the minimum price that Matipid could accept for the order and still maintain its expected residual income?
A. P5.00
C. P5.60
B. P4.75
D. P9.00
29. Segment A generated sales revenues of P400,000 and variable operating expenses of P180,000. Its controllable
fixed expenses were P40,000. It was assigned 20% of P200,000 of fixed costs controlled by others. The common
fixed costs were P25,000. What was Segment A's controllable segment profit margin?
A. P220,000
C. P140,000
B. P180,000
D. P160,000
30. If the investment turnover decreased by 10% and ROS decreased by 30%, the ROI would
A. increase by 30%
C. decrease by 10%
B. decrease by 37%
D. none of the above
31. Family Enterprises has two divisions: Davy and Johnny. Davy Division has a capacity to produce 2,000 units and is
expecting to sell 1,500 units. Johnny Division wants to purchase 100 units of a product Davy produces. Davy sells the
product at a selling price of P100 per unit, the variable cost per unit is P25 and the fixed costs total P30,000. The
minimum transfer price that Davy will accept is?
A. P100
C. P43.75

B. P45

D. P25

The following information has been gathered by the Budget Director of the Kareton Company, another outfit managed by the
Masugid Company. The firm manufactures and sells only one product.
Selling price per unit P5.00
Expected unit sales - 75,000 units
Direct labor cost is P3.00 per hour
1/4 an hour of DL = 1 unit of product
Expected FG, beginning 42,000 units
Expected FG, ending 50,000 units
Variable factory expenses - P33,200
Fixed overhead - P99,600
Expected Raw materials, beginning - 5,000 gallons
Expected Raw materials, ending 8,000 gallons
1 unit = 1 gallons of raw material
Raw Materials cost = P0.18 per gallon during
Variable administrative and selling expenses - P1.00 per unit
Factory overhead is applied to work-in-process on the basis of direct labor hours.
In assisting the company to formulate the budget, you determined the following budget parameters.
32. Budgeted cost of raw materials to be used in production is
A. P124,500
B. P14,940
C. P8,910
D. P22,410
33. Budgeted raw materials purchases cost is
A. P22,950

B. P22,410

C. P23,760

D. P124,500

B. P83,000

C. P62,250

D. P33,200

C. P1.80

D. P6.40

C. P1.80

D. P6.40

C. P3.40

D. P2.58

B. P96,500

C. P196,500

D. P304,000

B. P103,500

C. P53,000

D. P249,500

34. Budgeted direct labor is

A. P20,750

35. Variable overhead cost per direct labor hour is

A. P1.60

B. P4.80

36. Fixed overhead cost per direct labor hour is

A. P1.60

B. P4.80

37. Budgeted contribution margin is

A. P5.00

B. P1.80

38. Budgeted cost of goods sold (full cost) is

A. P76,500
39. Net profit before tax is
A. P178,500

40. Pera Inc. prepared the following sales budget

Month

Cash Sales

Credit Sales

P 80,000

P 340,000

100,000

400,000

April

90,000

370,000

May

120,000

460,000

June

110,000

380,000

February
March

Collections are 40% in the month of sale, 45% in the month following the sale, and 10% two months following the sale. The
remaining 5% is expected to be uncollectible. The companys total budgeted collection from April to June amounts to
A. P1,090,250

B. P1,325,500

C. P1,468,500

D. P1,397,500

41. An organization's break-even point is 4,000 units at a sales price of P50 per unit, variable cost of P30 per unit, and total
fixed costs of P80,000. If the company sells 500 additional units, by how much will its profit increase?
A. P25,000

B. P15,000

C. P10,000

42. Consider the following:

Fixed expenses
Unit contribution margin
Target net profit
How many unit sales are required to earn the target net profit?
A. 15,000 units
C. 12,800 units
B. 10,000 units
D. 20,000 units

D. P12,000

P78,000
12
42,000

43. Carribean Company produces a product that sells for P60. The variable manufacturing costs are P30 per unit. The fixed
manufacturing cost is P10 per unit based on the current level of activity, and fixed selling and administrative costs are
P8 per unit. A selling commission of 10% of the selling price is paid on each unit sold.
The contribution margin per unit is:
A. P24.
B. P36.

C. P30.
D. P54.

44. Seal Yard Ornaments sells lawn ornaments for P15 each. Seal's contribution margin ratio is 40%. Fixed costs are
P32,000. Should fixed costs increase 30%, how many additional units will Seal have to produce and sell in order to
generate the same net profit as under the current conditions?
A. 1,600.
B. 5,333.

C. 6,933.
D. 1,067.

45. At a break-even point of 5,000 units sold, variable expenses were P10,000 and fixed expenses were P50,000. The profit
from the 5,001st unit would be?
A. P10
C. P15
B. P50
D. P12
46. Galactica Company has fixed costs of P100,000 and breakeven sales of P800,000. Based on this relationship, what is
its projected profit at P1,200,000 sales?
A. P 50,000
C. P150,000
B. P200,000
D. P400,000
47. The Alpine Companys year-end income statement is as follows:
Sales (20,000 units)
P360,000
Variable costs
220,000
Contribution margin
P140,000
Fixed costs
105,000
Net income
P 35,000
Alpines management is unhappy with the results and plans to make some changes for next year. If management
implements a new marketing program, fixed costs are expected to increase by P19,200 and variable costs to increase
by P1 per unit. Unit sales are expected to increase by 15 percent.
What is the effect on income if the foregoing changes are implemented?
A. decrease of P21,200
C. increase of P 1,800
B. increase of P13,800
D. increase of P14,800
48. Mercado, Inc. had the following economic data for 2007:
Net sales
Contribution margin
Margin of safety
What is Mercados breakeven point in 2007?
A. P360,000
C. P320,000
B. P288,000
D. P 80,000
49. Below is the income statement for Blender Co. for 2007:
Sales

P400,000
160,000
40,000

P400,000

Variable costs
(125,000)
Contribution margin
P275,000
Fixed costs
( 200,000)
Profit before tax
P 75,000
What is the degree of operating leverage for Blender Company for 2007?
A. 3.67
C. 5.33
B. 1.45
D. 1.67
50. Levis Company has revenues of P500,000, variable costs of P300,000, and pretax profit of P150,000. Had the
company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left variable cost per unit
unchanged, what would the new breakeven point in pesos have been?
A. P 88,000
C. P100,000
B. P 80,000
D. P125,000