ReSA -The Review School of Accountancy Management Services 

May 2023 Batch

MS Quiz 3
COVERAGE - Week 8 to Week 11 Lecture
 MS-08: Responsibility Accounting, Transfer Pricing & Balanced Scorecard
 MS-09: Economics
 MS-10: Working Capital Management
1. As a company becomes more conservative in working capital policy, it would tend to have a (an)
B a. Decrease in acid test ratio
b. Increase in the ratio of current assets to units of output
c. Increase in the ratio of current liabilities to non-current liabilities
d. Increase in funds invested in common stock and a decrease in funds invested in securities
2. In economics, the biggest advantage of capitalism is that
D a. It forces involuntary exchanges
b. It generates wealth with the help of government intervention
c. Prices hinder in moving assets from high-value to low-value uses
d. It creates wealth by letting a person follow his or her own self-interest
3. Which item is least likely to appear in a performance report for a manager of an assembly line?
D a. Materials c. Repairs and maintenance
b. Direct labor d. Depreciation on the production facility
4. The amount of cash that a firm keeps on hand in order to take advantage of any bargain purchases that may
arise is referred to as its
B a. Transaction balance c. Precautionary balance
b. Speculative balance d. Compensating balance
5. A decrease in demand is represented by:
A a. A shift inward of the entire demand curve
b. A shift outward of the entire demand curve
c. A movement along the demand curve in a southeasterly direction
d. A movement along the demand curve in a northwesterly direction
6. The imputed interest rate used in the residual income approach to performance evaluation is described as
C a. Average lending rate for the year being evaluated
b. Historical weighted average cost of capital for the company
c. Target return on investment set by the company’s management
d. Marginal after-tax cost of capital on new equity capital
7. Which balanced scorecard perspective is the objective “reduce staff turnover” most likely to be included?
A a. Learning and growth c. Customer
b. Internal business processes d. Financial
8. The economic order quantity for inventory is higher for an organization that has
B a. Lower annual sales
b. Higher fixed inventory ordering costs
c. Higher purchase price per unit of inventory
d. Higher annual carrying costs as a percentage of inventory value
9. Which of the following is not an element of fiscal policy in macroeconomics?
B a. Taxation c. Government spending
b. Exchange rates d. Government borrowing
10. Which of the following is a disadvantage of a focus on return on investment?
D a. It can encourage managers to focus on cost cutting measures
b. It can encourage managers to cut inventories and reduce overall investment
c. It can encourage managers to focus on the long run at the expense of the short run
d. It can produce a narrow focus on divisional profitability at the expense of profitability for the
overall firm
11. Which of the following is NOT a characteristic of the balanced scorecard?
D a. Both financial and non-financial performance measures are included
b. Cause-and-effect linkages between strategic objectives
c. Internal process performance measures are included
d. Customer performance measures are excluded

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ReSA - The Review School of Accountancy MS Quiz 3
Coverage: MS – 08 to 10 (ReSA Batch 45 – May 2023 Batch)

12. A company obtaining short-term financing with trade credit will pay a higher percentage financing cost,
everything else being equal, when the
D a. Discount percentage is lower c. Items purchased have a higher price
b. Items purchased have a lower price d. Supplier offers a longer discount period
NOTE: A longer discount period means a shorter holding period for the delayed payment, which translates
into a higher percentage financing costs of trade credit.
13. Which of the following statements regarding transfer pricing is false?
D a. When idle capacity exists, there is no opportunity cost to producing intermediate products for
another division.
b. Market-based transfer prices should be reduced by any costs avoided by selling internally
rather than externally.
c. No contribution margin is generated by the transferring division when variable cost-based
transfer prices are used.
d. The goal of transfer pricing is to provide segment managers with incentive to maximize the
profits of their divisions.
14. Strategy should focus primarily on the organization’s
B a. Products c. Employees
b. Customers d. Shareholders
15. What is ‘strategy mapping’ in the balanced scorecard?
C a. Setting the mission
b. Mapping the business processes
c. Identifying causal links between the four perspectives
d. Agreeing the strategy with the director of the business
16. A firm with a cash conversion cycle of 175 days can stretch its average payment period from 30 days to 45
days. This will result in a (an)
B a. Increase of 15 days in the cash conversion cycle
b. Decrease of 15 days in the cash conversion cycle
c. Increase of 30 days in the cash conversion cycle
d. Decrease of 30 days in the cash conversion cycle
17. Which transaction does not change the current ratio and does not change the total current assets?
A a. A cash advance is made to a divisional office
b. A cash dividend is declared
c. Short-term notes payable are retired with cash
d. Equipment in purchased with a three-year not and a 10 percent cash down payment
18. Which of the following is true about a firm’s float?
D a. A firm strives to minimize the float for both cash receipts and cash disbursements
b. A firm strives to maximize the float for both cash receipts and cash disbursements
c. A firm strives to maximize the float for cash receipts and minimize the float for cash
disbursements.
d. A firm strives to maximize the float for cash disbursements and minimize the float for cash
receipts.
19. Marginal propensity to spend + marginal propensity to save = ________
C a. 0% c. 100%
b. 50% d. No meaningful amount
20. The working capital financing policy that subjects the firm to the greatest risk of being unable to meet the
firm’s maturing obligations is the policy that finances (where: CA = current assets)
D a. Temporary CA with long-term debts c. Permanent CA with long-term debts
b. Fluctuating CA with short-term debts d. Permanent CA with short-term debts
21. Iriga Company has been offered trade credit terms of 3/15, net 45. The firm does not take advantage of the
discount, and it pays the account after 67 days. Using a 365-day year, what is the nominal cost of not taking
the discount?
B a. 18.20% c. 23.48%
b. 21.71% d. 26.45%
Solution: Annual cost of trade credit: (3 ÷ 97) x [365 ÷ (67 – 15)]
22. What is the manufacturing cycle efficiency for Naga Company when the processing time is six hours and
inspection, queuing, and move times are one hour each? (rounded to the nearest whole percentage)
A a. 67% c. 0.78
b. 75% d. 0.88
Solution: Manufacturing Cycle Efficiency: 6  (6+1+1+1)
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ReSA - The Review School of Accountancy MS Quiz 3
Coverage: MS – 08 to 10 (ReSA Batch 45 – May 2023 Batch)

23. Legaspi Corporation is considering a lockbox system. The bank will charge P 10,000 annually for the service,
which will save the firm approximately P 5,000 in processing costs. The lockbox system will reduce the
float for cash receipts by three days. Assuming the average daily cash receipts of P 100,000, and short-term
interest costs of 5%, what is the benefit or loss from adopting the lockbox system?
C a. P 5,000 loss c. P 10,000 benefit
b. P 10,000 loss d. P 5,000 benefit
Solution: Savings: 5,000 + 100,000 (3) 5% = P 20,000 Cost: P 10,000
24. Daraga, Inc., operates under a decentralized structure. Manny Money’s Western Division plans to purchase
a needed component from the Eastern Division that is operating at capacity. Eastern incurs relevant costs of
P 400 to manufacture the component and P 100 to ship each unit, and it can sell the unit externally at a price
of P 800 per unit. The Western Division incurs costs of P 900 per unit and sells the finished goods for P 1,800
each. According to the general guideline for transfer-pricing situations, the minimum transfer price per unit
should be
D a. Eastern Division’s manufacturing and shipping costs of P 500
b. P 700 to equally divide profits between the two divisions
c. The Eastern Division’s manufacturing costs of P 400
d. The external selling price of P 800.
Solution: Since Eastern Division is operating at (full) capacity, external selling price (equivalent to unit
variable costs plus lost unit CM) is the appropriate minimum transfer price.
25. If the price elasticity of demand is 1.5 and a change in price of the product increases the quantity demanded
by 4%, then what is the percentage change in price?
D a. 0.375% increase c. 2.667% increase
b. 0.375% decrease d. 2.667% decrease
Solution: ∆% Price x Elasticity = ∆% Quantity Demanded ∆% Price  x 1.5 = 4%  (inverse relationship)
26. Sorsogon Company produced 3,000 units of Product ML (Martial Law) last week. The inputs to the
production process were as follows:
900 grams of Material A P 1.50 per gram
600 grams of Material B P 2.75 per gram
600 labor hours P 15.00 per hour
What is the total factor productivity for Product ML?
C a. 2.00 units per pound c. 0.25 units per peso input
b. 5.00 units per hour d. 0.33 units per peso input
Solution: Total input costs: 900 (1.5) + 600 (2.75) + 600 (15) = P 12,000
Total productivity factor: 3,000 units ÷ P 12,000 = 0.25 units per peso input
27. Daet Company buys 5,000 microchips annually for its computer manufacturing business. The cost of
receiving and placing an order is P 27,000, which includes handling charges of P 18,000. Annual carrying
costs are 3% of the purchase price of P 25,000 per chip. The company maintains a safety stock of 50 chips.
The delivery time is 18 days. Assuming the chips come in lots of a dozen per box, then how many boxes
should be placed each time an order is made?
B a. 25 boxes c. 300 boxes
b. 50 boxes d. 600 boxes
Solution:
EOQ = square root of (2 x 5,000 x 27,000 ÷ 750*) = 600 chips or 50 boxes
NOTE: There are 12 chips (a dozen) per box. * Unit carrying costs: 3% x 25,000
28. Albay Company estimates that the following costs and activity would be associated with the manufacture
and sale of product “Mayon”:
Number of units sold annually 40,000 units
Required investment in assets P 800,000
Cost to manufacture one unit P 25
Selling and administrative expenses P 600,000
If the company uses the full cost approach to cost-plus pricing and desires a 15% return on investment (RoI),
then what would be the required markup for Product “Mayon?”
D a. 12% c. 60%
b. 15% d. 72%
Solution: Sales = Cost + Profit = P 1,720,000 = [600,000 + 25 (40,000)] + 15% (800,000)
Selling Price: P 1,720,000 ÷ 40,000 units = P 43 Mark-up: (43 - 25) ÷ 25 = 72%
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ReSA - The Review School of Accountancy MS Quiz 3
Coverage: MS – 08 to 10 (ReSA Batch 45 – May 2023 Batch)

29. The receipt of raw materials used in the manufacture of products and the shipping of finished goods to
customers are under the control of the warehouse supervisor. Approximately 60% of the warehouse
supervisor’s time is spent on receiving activities and 40% on shipping activities. Separate employees handle
the receiving and shipping operations. The labor-related costs for the warehousing function are as follows:
Warehouse supervisor’s salary P 40,000
Receiving clerks’ wages 75,000
Shipping clerks’ wages 55,000
Employee benefit costs (30% of wage and salary costs) 51,000
Total P 221,000
The company employs a responsibility accounting system for performance reporting purposes. The costs are
classified on the report as period or product costs. The total labor-related costs to list on the responsibility
accounting performance report as product costs under the control of the warehouse supervisor are
A a. P 97,500 c. P 130,000
b. P 128,700 d. P 169,000
Solution: Shipping clerks’ wages are classified as selling expenses. Controllable product costs include
receiving clerk’s wages only plus the associated 30% employee benefit: 75,000 x 130%
30. Given the following employment and unemployment data of a country for the year 2023:
Total adult population over the age of 16 253.5 million
In the labor force 159.1 million
Employed 151.4 million
Unemployed 7.7 million
Out of the labor force 94.4 million
Determine the unemployment rate.
B a. 3.04% b. 4.84% c. 8.16% d. 37.24%
Solution:
Population over 16 (253.5) = In the labor force (159.1) + Out of the labor force (94.4)
In the labor force (159.1) = Employed (151.4) + Unemployed (7.7)
Unemployment rate = Unemployed people ÷ Total labor force = 7.7 million ÷ 159.1 million

END

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