University of Makati SET A

Qualifying Examinations – Management Advisory Services

FOURTH YEAR
Bachelor of Science in Accountancy

NAME: __________________________________________________________ Date: ___________________________

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. Which of the following methods defines product cost as the unit-level cost incurred each time a unit is
manufactured?
a. Absorption costing. c. Process costing.
b. Throughput costing. d. Back-flush costing.
____ 2. ZAKU Company, which applies overhead to production on the basis of machine hours, reported the following
data for the period just ended:
Actual units produced: 14,800
Actual fixed overhead incurred: P791,000
Standard fixed overhead rate: P13 per hour
Budgeted fixed overhead: P780,000
Planned level of machine-hour activity: 60,000
If ZAKU estimates four hours to manufacture a completed unit, the company's fixed-overhead volume
variance would be:
a. P10,400 unfavorable. c. P11,000 unfavorable.
b. P10,400 favorable. d. P11,000 favorable,
____ 3. The quality costs that are incurred to determine whether particular units produced meet quality standards are
a. external failure costs. c. prevention costs.
b. internal failure costs. d. appraisal costs.
____ 4. The following were reflected from the records of MILLENIUM Company:
Earnings before interest and taxes P1,250,000
Interest expense 250,000
Preferred dividends 200,000
Payout ratio 40 percent
Shares outstanding throughout 2010
Preferred 20,000
Common 25,000
Income tax rate 40 percent
Price earnings ratio 5 times
The dividend yield ratio is
a. 0.08 c. 0.40
b. 0.12 d. 0.50
____ 5. The worst transfer-pricing method is to base the prices on
a. market prices. c. budgeted variable costs.
b. actual total costs. d. budgeted total costs.
____ 6. Each of FREEDOM's production managers (annual salary cost, P45,000) can oversee 60,000 machine hours
of manufacturing activity. Thus, if the company has 50,000 hours of manufacturing activity, one manager is
needed; for 75,000 hours, two managers are needed; for 125,000 hours, three managers are needed; and so
forth. FREEDOM's salary cost can best be described as a:
a. step fixed cost. c. variable cost.
b. fixed cost. d. step variable cost.

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____ 7. When considering whether to investigate a variance, managers should consider all of the following except the
variance's:
a. pattern of recurrence.
b. trends over time.
c. nature, namely, whether it is favorable or unfavorable.
d. size.
____ 8. A major disadvantage of static budgets is:
a. the cost behavior pattern of manufacturing overhead, which is primarily fixed.
b. their length and complexity.
c. the difficulty in developing such budgets due to the high cost of gathering the necessary
information.
d. that the variances between actual and budget on a static budget result from comparing
actual costs at one level of activity to budgeted costs at a different level of activity.
____ 9. A company has a bottleneck operation that slows production. Which of the following tools or approaches
could the firm use to determine the most cost-effective ways to eliminate this problem?
a. Theory of constraints. c. Linear programming.
b. Payoff matrices. d. Decision-tree diagrams.
____ 10. What is the fixed overhead spending variance?
a. P1,000 favorable. c. P2,000 favorable.
b. P1,000 unfavorable. d. P2,000 unfavorable.
____ 11. The current assets of WING Enterprise consists of cash, accounts receivable, and inventory. The following
information is available:
Credit sales 75% of total sales
Inventory turnover 5 times
Working capital P1,120,000
Current ratio 2 to 1
Quick ratio 1.25 to 1
Average Collection period 42 days
Working days 360
The estimated cost of goods sold amounts to:
a. P4,200,000 c. P840,000
b. P6,000,000 d. P720,000
____ 12. Discounted-cash-flow analysis focuses primarily on the
a. sensitivity of cash flows. c. timing of cash flows.
b. stability of cash flows. d. probability of cash flows.
____ 13. Controllable costs are
a. Costs that are likely to respond to the amount of attention devoted to them by a specified manager.
b. Costs that will be unaffected by current managerial decisions.
c. Costs that fluctuate in total in response to small change in the rate of utilization of capacity.
d. Costs that are governed mainly by past decisions that established the present levels of operating and
organizational capacity and that only change slowly in response to small changes in capacity.
____ 14. The SANDROCK Company manufactures Part No. 498 for use in its production cycle. The cost per unit if
20,000 units of Part No. 498 are manufactured are as follows:
Direct materials P6
Direct labor 30
Variable overhead 12
Fixed overhead applied 16
Total unit cost P64

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The BARBA Company has offered to sell 20,000 units of part No. 498 to SANDROCK for P60 per unit.
SANDROCK will make the decision to buy the part from BARBA if there is a savings of P25,000 for
SANDROCK. If SANDROCK accepts BARBA’s offer, P9 per unit of the fixed overhead applied would be
totally eliminated. Furthermore, SANDROCK has determined that the released facilities could be used to save
relevant costs in the manufacture of part No. 575. In order to have a savings of P25,000, the amount of the
relevant costs that would be saved by using the released facilities in the manufacture of Part No. 575 would
have to be
a. P 80,000 c. P 85,000
b. P125,000 d. P140,000
____ 15. BARBIE Company has set various goals, and management is now taking appropriate action to ensure that the
firm achieves these goals. One such action is to reduce outlays for overhead, which have exceeded budgeted
amounts. Which of the following functions best describes this process?
a. Coordinating. c. Decision making.
b. Planning. d. Controlling.
____ 16. The internal-rate-of-return method assumes that project funds are reinvested at the:
a. rate of earnings growth (REG). c. rate of return earned on the project.
b. cost of debt capital. d. hurdle rate.
____ 17. Which of the following statements is true when making a decision between two alternatives?
a. Fixed costs are never relevant.
b. Variable costs may not be relevant when the decision alternatives have the same activity levels.
c. Sunk costs are always relevant.
d. Variable costs are not relevant when the decision alternatives have different activity levels.
____ 18. What factor, related to manufacturing costs, causes the difference in net earnings computed using absorption
costing and net earnings computed using variable costing?
a. Absorption costing allocates fixed overhead costs between cost of goods sold and inventories, and variable
costing considers all fixed costs to be period costs.
b. Absorption costing "inventories" all direct costs, but variable costing considers direct costs to be period costs.
c. Absorption costing "inventories" all fixed costs for the period in ending finished goods inventory, but
variable costing expenses all fixed costs.
d. Absorption costing considers all costs in the determination of net earnings, whereas variable costing
considers fixed costs to be period costs.
____ 19. Many traditional costing systems:
a. trace manufacturing overhead to individual activities and require the development of numerous
activity-costing rates.
b. write off manufacturing overhead as an expense of the current period.
c. use a host of different cost drivers (e.g., number of production setups, inspection hours, orders processed) to
improve the accuracy of product costing.
d. combine widely varying elements of overhead into a single cost pool.
____ 20. A target in the balanced scorecard framework is
a. the level of performance or rate of improvement needed in the performance measure.
b. a statement of what the strategy must achieve and what is critical to its success.
c. a diagram of the cause-and-effect relationships between strategic objectives.
d. a key action program required to achieve strategic objectives.
____ 21. When a scarce resource, such as space, exists in an organization, the criterion that should be used to determine
production is
a. contribution margin per unit of scarce resource
b. total variable costs of production
c. contribution margin per unit
d. selling price per unit

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____ 22. A soft drink producer acquiring a bottle manufacturer is an example of a
a. Horizontal merger. c. Vertical merger.
b. Congeneric merger. d. Conglomerate merger.

The next item(s) is/are based on the following:

VIDAR Sales’ actual sales and purchases for April and May are shown here along with forecasted sales and
purchases for June through September.
Sales Purchases
April (Actual) P390,000 P200,000
May (Actual) 420,000 220,000
June (forecast) 390,000 210,000
July (forecast) 350,000 240,000
August (forecast) 420,000 320,000
September (forecast) 410,000 230,000
The company makes 10 percent of its sales for cash and 90 percent on credit. Of the credit sales, 30 percent
are collected in the month after the sale and 70 percent are collected two months after. VIDAR Sales pays for
45 percent of its purchases in the month after purchase and 55 percent two months after.

Labor expense equals 15 percent of the current month's sales. General overhead expense equals P10,000 per
month. Interest payments of P35,000 are due in June and September. A cash dividend of P25,000 is scheduled
to be paid in June. Tax payments of P30,000 are due in June and September. There is a scheduled purchase
for cash of an equipment, P290,000 in September.

VIDAR Sales’ ending cash balance in May is P25,000. The minimum desired cash balance is P20,000. The
maximum desired cash balance is P50,000. Excess cash (above P50,000) is used to buy marketable securities.
Marketable securities are sold before borrowing funds in case of a cash shortfall (less than P20,000).

____ 23. During the month of June, VIDAR Sales expects to receive cash from sales amounting to:
a. P408,900 c. P606,000
b. P359,100 d. P398,100
____ 24. BIG E Motors is trying to decide whether it should keep its existing car washing machine or purchase a new
one that has technological advantages (which translate into cost savings) over the existing machine.
Information on each machine follows:
Old Machine New Machine
Original cost P9,000 P20,000
Accumulated depreciation 5,000 0
Annual cash operating costs 9,000 4,000
Current salvage value of old machine 2,000
Salvage value in 10 years 500 1,000
Remaining life 10 years 10 years
The P4,000 of annual operating costs that are common to both the old and the new machine are an example of
a. irrelevant costs c. future avoidable costs
b. opportunity costs d. sunk costs
____ 25. Which of the following characteristics would best explain the use of probabilities and expected values in a
decision analysis?
a. Limited resources. c. Production bottlenecks.
b. Inflation. d. Uncertainty.
____ 26. The manager of SEVEN-11 Store reviewed the following data:
Fruits Meat Canned Products
Contribution margin ratio 40% 50% 40%
Sales mix in pesos 20% 30% 50%

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Fixed costs, P1,290,000 per month.
The breakeven sales for each month is
a. P4,500,000 c. P6,000,000
b. P3,000,000 d. P1,677,000
____ 27. In regression analysis, the variable that is being predicted is known as the:
a. independent variable. c. dependent variable.
b. explanatory variable. d. interdependent variable.
____ 28. PROVIDENCE Company uses the EOQ model for inventory control. The company has an annual demand
of 50,000 units for part number 6702 and has computed an optimal lot size of 6,250 units. Per-unit carrying
costs and stockout costs are P9 and P4, respectively. The following data have been gathered in an attempt to
determine an appropriate safety stock level:
Units Short Because of Excess Number of Times Short
Demand during the Lead in the last 40 Reorder
Time Period Cycles
100 8
200 10
300 14
400 8
What is the optimal safety stock level?
a. 100 units c. 400 units
b. 300 units d. 200 units
____ 29. NATAKU Corporation has a return on investment of 15%. A Sunrise division, which currently has a 13%
ROI and P750,000 of residual income, is contemplating a massive new investment that will (1) reduce
divisional ROI and (2) produce P120,000 of residual income. If NATAKU strives for goal congruence, the
investment should
a. not be acquired because the division's ROI is less than the corporate ROI before the
investment is considered.
b. be acquired because it produces P120,000 of residual income for the division.
c. not be acquired because it reduces divisional ROI.
d. not be acquired because it produces P120,000 of residual income.
____ 30. HEAVY ARMS Company began business at the start of the current year. The company planned to produce
25,000 units, and actual production conformed to expectations. Sales totaled 22,000 units at P30 each. Costs
incurred were:
Fixed manufacturing overhead P150,000
Fixed selling & administrative cost 100,000
Variable manufacturing cost per unit 8
Variable selling & administrative cost 2
If there were no variances, the company's absorption costing net income would be:
a. P202,000 c. P208,000
b. P190,000 d. P220,000
____ 31. DHELL sells a single product for P50 that has a variable cost of P30. Fixed costs amount to P5 per unit when
anticipated sales targets are met. If the company sells one unit in excess of its break-even volume, the
bottom-line profit will be:
a. P50. c. other amounts not in the choices
b. P15. d. P20.
____ 32. The management BANDAI Company has performed cost studies and projected the following annual costs
based on 40,000 units of sales:

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University of Makati SET A
Total Annual Variable Portion of
Cost Total Annual Cost
Direct material 400,000 100%
Direct labor 360,000 75%

Manufacturing overhead 300,000 40%

Selling and administrative 200,000 25%
What unit selling price will yield a 10 percent profit from sales of 40,000 units?
a. P35.00 per unit c. P30.00 per unit
b. P40.00 per unit d. P33.50 per unit
____ 33. A firm that uses a JIT purchasing philosophy probably:
a. has relatively few suppliers.
b. has relatively few suppliers and has deliveries of purchased items made in small lot sizes immediately
before the goods are needed in production.
c. has extensive inspection of purchased items at the receiving point.
d. has deliveries of purchased items made in small lot sizes immediately before the goods are needed in
production.
____ 34. With respect to overhead, what is the difference between normal costing and standard costing?
a. Use of a standard rate versus an actual rate.
b. Use of a predetermined overhead rate.
c. Use of standard hours versus actual hours.
d. The choice of an activity measure.
THE NEXT ITEM(S) IS/ARE BASED ON THE FOLLOWING
TG Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe. The
company, which uses activity-based costing, has identified five activities (and related cost drivers). Each
activity, its budgeted cost, and related cost driver is identified below.
Activity Cost Cost Driver
Material handling P225,000 Number of parts
Material insertion 2,475,000 Number of parts
Automated machinery 840,000 Machine hours
Finishing 170,000 Direct labor hours
Packaging 170,000 Orders shipped
Total P3,880,000
The following information pertains to the three product lines for next year:
Economy Standard Deluxe
Units to be produced 10,000 5,000 2,000
Orders to be shipped 1,000 500 200
Number of parts per unit 10 15 25
Machine hours per unit 1 3 5
Labor hours per unit 2 2 2
____ 35. Under an activity-based costing system what is the per-unit cost of Standard?
a. P164 c. P272
b. P228 d. P282
THE NEXT ITEM(S) IS/ARE BASED ON THE FOLLOWING
TALL GEESE Chemical Company uses a standard cost system to collect costs related to the production of its
"bowling ball" fruitcakes. The direct labor standard for each fruitcake is 1.25 hours at a standard cost of
P11.00 per hour. During the month of November, TALL GEESE's fruitcake production used 9,820 direct
labor hours at a total direct labor cost of P106,547. This resulted in production of 8,500 fruitcakes for
November.

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____ 36. What is TALL GEESE's labor efficiency variance for November?
a. P13,047 unfavorable c. P10,328 favorable
b. P14,520 unfavorable d. P8,855 favorable
____ 37. The budgeting technique that focuses on different phases of a product such as planning and concept design,
testing, manufacturing, and distribution and customer service is known as:
a. base budgeting. c. integrative budgeting.
b. comprehensive budgeting. d. life-cycle budgeting.
____ 38. Managerial accountants:
a. are located throughout an organization.
b. are found primarily at higher levels of the organizational hierarchy.
c. often work on cross-functional teams.
d. are found throughout an organization and work on cross-functional teams.
____ 39. The times interest earned ratio of VEYETE Company is 4.5 times. The interest expense for the year was
P20,000, and the company's tax rate is 40%. The company's net income is:
a. P66,000 c. P42,000
b. P54,000 d. P22,000
____ 40. A systematic approach known as zero-based budgeting (ZBB)
a. divides the activities of individual responsibility centers into a series of packages that are prioritized
b. commences with either the current level of spending or projected whichever is lower
c. classifies the budget by the prior year's activity and estimates the benefits arising from each activity
d. presents planned activities for a period of time but does not present a firm commitment
____ 41. A technique that is useful in exploring what would happen if a key decision prediction or assumption proved
wrong is termed:
a. project analysis. c. sensitivity analysis.
b. linear programming. d. uncertainty analysis.
____ 42. MERCURIOUS manufactures products X and Y, applying overhead on the basis of labor hours. X, a
low-volume product, requires a variety of complex manufacturing procedures. Y, on the other hand, is both a
high-volume product and relatively simplistic in nature. What would an activity-based costing system likely
disclose about products X and Y as a result of MERCURIOUS's current accounting procedures?
Product X Product Y
a. Undercosted Undercosted c. Overcosted Undercosted
b. Undercosted Overcosted d. Overcosted Overcosted
____ 43. Corporation XYZ is a wholesaler that sells a single product. Management has provided the following cost
data for two levels of monthly sales volume. The company sells the product for P133.60 per unit.
Sales volume (units) 4,000 5,000
Cost of sales P383,600 P479,500
Selling, general, and administrative costs P124,400 P136,000
The best estimate of the total contribution margin when 4,300 units are sold is:
a. P162,110 c. P28,380
b. P45,150 d. P112,230
____ 44. LEO Corporation’s stockholders’ equity at December 31, 2010 consists of the following:
6% cumulative preferred stock, P100 par, liquidating
value was P110 per share; issued and outstanding 50,000 shares P5,000,000
Common stock, par, P5 per share; issued and
outstanding, 400,000 shares 2,000,000
Retained earnings 1,000,000
Total P8,000,000
Dividends on preferred stock have been paid through 2009.

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University of Makati SET A
At December 31, 2010, LEO Corporation’s book value per share was
a. P5.50 c. P6.75
b. P7.50 d. P6.25

The next item(s) is/are based on the following information:

TG-III Merchandiser asks your services to develop cash and other budget information for the first quarter of
2020. In December 31, the store had the following balance:
Cash P55,000
Accounts receivable 4,370,000
Inventories 3,094,000
Accounts payable 1,330,550
The following information are relevant to 2020 operations:
Sales:
a Each month’s sales are billed on the last day of the month.
b Customers are allowed a 3 percent discount if payment is made within 10 days after the billing date.
Receivables are booked gross.
c Sixty percent of the billings are collected within the discount period, twenty-five percent are collected by
the end of the month, nine percent are collected by the end of the second month, and six percent are
considered entirely uncollectible.
Purchases:
1 Fifty four percent of all purchases and selling, general, and administrative expenses are paid in the month
purchased and the remainder in the following month.
2 Each month’s units of ending inventory is equal to one hundred thirty percent of the next month’s units of
sales.
3 The cost of each unit of inventory is P200.
4 Selling, general, and administrative expenses, of which P20,000 is depreciation, are equal to fifteen
percent of the current month’s sales.

Actual and projected sales are as follows:

UNITS PESOS
November 11,800 P3,540,000
December 12,100 3,630,000
January 11,900 3,570,000
February 11,400 3,420,000
March 12,000 3,600,000
April 12,200 3,660,000

____ 45. The respective amounts of budgeted purchases for the months of January and February are:
a. P2,418,000 and P2,360,000 c. P2,250,000 and P2,436,000
b. P3,570,000 and P3,420,000 d. P2,380,000 and P2,280,000
____ 46. A tool that compares how tasks are performed internally with the best practices of industry leaders is
a. re-engineering c. process value analysis
b. caveat analysis d. benchmarking
____ 47. A responsibility center in which the manager is held accountable for the profitable use of assets and capital is
commonly known as a(n):
a. investment center. c. revenue center.
b. cost center. d. profit center.

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____ 48. X and Y are complementary products. If the price of product Y increases, the immediate impact on product
X is that its
a. Price, quantity demanded and supplies will remain unchanged.
b. Price will decrease.
c. Quantity supplied will decrease.
d. Quantity demanded will decrease.
____ 49. If a firm is at full capacity, the minimum special order price must cover
a. variable and fixed manufacturing costs associated with the special order.
b. variable and incremental fixed costs associated with the special order.
c. variable costs associated with the special order.
d. variable costs and incremental fixed costs associated with the special order plus foregone
contribution margin on regular units not produced
____ 50. WING PROTO Aggregates, Inc. plans to replace one of its machines with a new efficient one. The old
machine has a net book value of P120,000 with remaining economic life of 4 years. This old machine can be
sold for P80,000. If the new machine were acquired, the cash operating expenses will be reduced from
P240,000 to P160,000 for each of the four years, the expected economic life of the new machine. The new
machine will cost WING PROTO a cash payment to the dealer of P300,000. The company is subject to 32
percent tax and for this kind of investment, a marginal cost of capital of 9 percent. The present value of
annuity of 1 and the present value of 1 for 4 periods using 9 percent are 3.23972 and 0.70843, respectively.

The net present value to be provided by the replacement of the old machine is
a. P46,794 c. P59,594
b. P28,493 d. P15,693

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