Management Advisory Services

Management Services
Final Preboard Examination
INSTRUCTIONS: Choose the best answer among the given choices. University policies on academic
honesty are strictly enforced.

1. Management accounting
a. focuses on estimating future revenues, costs, and other measures to forecast activities and
their results.
b. provides information about the company as a whole.
c. reports information that has occurred in the past that is verifiable and reliable.
d. provides information that is generally available only on a quarterly or annual basis.

2. Which of the following statements is true?

a. A cost that is classified as variable with respect to one measure of activity could be classified
as fixed with respect to a different measure of activity.
b. The reluctance of managers to lay off employees when activity declines in the short-run leads
to an increase in the ratio of variable to fixed costs.
c. The following costs are all examples of committed fixed costs: depreciation on buildings,
advertising, insurance, and management development and training.
d. The high-low method is generally more accurate than the least-squares regression method in
analyzing cost behavior.

3. Lehmane Brothers, Inc., used the high-low method to derive its cost formula for electrical power cost.
According to the cost formula, the variable cost per unit of activity is P3 per machine-hour. Total
electrical power cost at the high level of activity was P7,600 and at the low level of activity was P7,300.
If the high level of activity was 1,200 machine hours, then the low level of activity was:
a. 800 machine hours c. 1,000 machine hours
b. 900 machine hours d. 1,100 machine hours

4. Which of the following statements is not true about ABC system?

a. The cost driver must be identified by analysis of the process
b. The allocation base is usually a financial variable.
c. Many small cost pools are accumulated
d. Cost pools are allocated based on the cost driver.

5. Which of the following statements is (are) true?

a. Activity-based costing uses a number of activity cost pools, each of which is allocated to
products on the basis of direct labor-hours.
b. Activity rates in activity-based costing are computed by dividing costs from the first-stage
allocations by the activity measure for each activity cost pool.
c. An activity-based costing system is generally easier to implement and maintain than traditional
costing system.
d. One of the goals of activity-based management is the elimination of waste by allocating costs
to products that waste resources.

For the next item: Jamilian Nuptial Bakery makes very elaborate wedding cakes to order. The company
has an activity-based costing system with three activity cost pools. The activity rate for the Size-Related
activity cost pool is P1.13 per guest. (The greater the number of guests, the larger the cake.) The activity
rate for the Complexity-Related cost pool is P43.52 per tier. (Cakes with more tiers are more complex.)
Finally, the activity rate for the Order-Related activity cost pool is P61.44 per order. (Each wedding involves
one order for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and
shortening. The activity rates do not include the costs of purchased decorations such as miniature statues
and wedding bells, which are accounted for separately.

Data concerning two recent orders appear below:

Jamil Wedding Ian Wedding
Number of reception guests ........................... 60 162
Number of tiers on the cake ........................... 4 3
Cost of purchased decorations for cake ........ P16.89 P38.61

6. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down,
what amount would the company have to charge for the Jamil wedding cake to just recover its true
cost?
a. P61.44 c. P387.45
b. P320.21 d. P16.89

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7. Cost-volume-profit analysis is a technique available to management to understand better the

interrelationships of several factors that affect a firm's profit. As with many such techniques, the
accountant oversimplifies the real world by making assumptions. Which of the following is not a major
assumption underlying CVP analysis?
a. All costs incurred by a firm can be separated into their fixed and variable components.
b. The product selling price per unit is constant at all volume levels.
c. Operating efficiency and employee productivity are constant at all volume levels.
d. For multi-product situations, the sales mix can vary at all volume levels.

8. Which of the following statements is false?

a. The margin of safety is computed by dividing 1 by the degree of operating leverage.
b. There is an inverse relationship between degree of operating leverage and the margin of safety.
c. On a CVP graph, the total cost line intersects the y-axis at zero.
d. In CVP analysis, sales and production are assumed to be equal.

9. Tonykinn Company is contemplating of marketing a new product. Fixed costs will be P800,000 for
production of 75,000 units or less and P1,200,000 if production exceeds 75,000 units The variable cost
ratio is 60% for the first 75,000. Contribution margin percentage will increase to 50% for units in excess
of 75,000. If the product is expected to sell for P25 per unit, what would be the amount of the sales
pesos for Tonykinn sell earn P125,000?
a. P2,650,000 c. P3,025,000
b. P2,775,000 d. P3,125,000

10. Selected information concerning the operations of a company for the year ended December 31 is as
follows:
Units produced 20,000
Units sold 18,000
Direct materials used P80,000
Direct labor incurred P40,000
Fixed factory overhead P50,000
Variable factory overhead P24,000
Fixed selling and administrative expenses P60,000
Variable selling and administrative expenses P9,000

Work-in-process inventories at the beginning and end of the year were zero. What was the company's
finished goods inventory cost at December 31 under the variable (direct) costing method?
a. P14,400 c. P19,400
b. P17,000 d. P23,900

11. Many firms have made significant strides in reducing their inventories. Which of the following would be
least likely to encourage managers to reduce inventory?
a. Using variable costing.
b. Using absorption costing.
c. Using throughput costing.
d. Instituting a charge against the budget for managers based on the size of the inventory.

12. The Jadine Company has a standard costing system. The following data are available for June:
Actual quantity of direct materials purchased 35,000 pounds
Standard price of direct materials P4 per pound
Material price variance P7,000 unfavorable
Material quantity variance P4,200 favorable

The actual price per pound of direct materials purchased in June is:
a. P3.92. c. P4.08.
b. P4.20. d. P4.32.

13. The most appropriate time from a control standpoint to record any variance of actual materials prices
from standard is:
a. at the time of materials usage
b. as needed to evaluate the performance of the purchasing manager
c. at the time the materials are issued by the storeroom
d. at the time of purchase

14. If a firm is at full capacity, the minimum special order price must cover:
a. variable costs associated with the special order
b. variable and fixed manufacturing costs associated with the special order
c. variable and incremental fixed costs associated with the special order plus foregone
contribution margin on regular units not produced
d. variable costs and incremental fixed costs associated with the special order.

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15. A firm can continue to manufacture a component or buy the component from an outside supplier and
rent the firm’s unused manufacturing facilities to another company. If the firm continues to manufacture
the component instead of buying it from an outside supplier, the rent the firm could receive for its
manufacturing facilities is:
a. sunk cost
b. an opportunity cost
c. an avoidable cost
d. an incremental cost

16. In a make-versus-buy decision, the relevant costs include variable manufacturing costs as well as
a. Avoidable fixed costs. C. Factory management costs.
b. Depreciation costs. D. General office costs.

Geary Manufacturing has assembled the data pertaining to two popular products as follows. Past
experience has shown that the fixed manufacturing overhead component included in the cost per machine
hour averages P10. Geary has a policy of filling all sales orders, even if it means purchasing units from
outside suppliers.

Blender Electric Mixer

Direct materials P6 P11
Direct labor 4 9
Factory overhead at P16 per hour 16 32
Cost if purchased from an outside 20 38
supplier
Annual demand (units) 20,000 28,000

17. If 50,000 machine hours are available, and Geary Manufacturing desires to follow an optimal strategy,
it should
a. Purchase all units as needed.
b. Produce 20,000 blenders and purchase all other units as needed.
c. Produce 25,000 electric mixers and purchase all other units as needed.
d. Produce 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed.

18. A manufacturer has been approached by a new customer who wants to place a one-time order for a
component similar to one that the manufacturer makes for another customer. Existing sales will not be
affected by acceptance of this order. The manufacturer has a policy of setting its targeted selling price
at 60% over full manufacturing cost. The manufacturing costs and the targeted selling price for the
existing product are presented as follows.

Direct materials P2.30

Direct labor 3.60
Variable manufacturing overhead (applied at 75% of
direct labor cost) 2.70
Fixed manufacturing overhead (applied at 150% of direct
labor cost) 5.40
Total manufacturing cost P14.00
Markup (60% of full manufacturing cost) 8.40
Targeted selling price P22.40

The manufacturer has excess capacity to produce the quantity of the component desired by the new
customer. The direct materials used in the component for the new customer would cost the manufacturer
P0.25 less than the component currently being made. The variable selling expenses (packaging and
shipping) would be the same, or P0.90 per unit. Under these circumstances, the minimum unit price at
which the manufacturer would accept the special order is one exceeding
a. P8.35 b. P14.00 c. P9.25 d. P14.80

19. If a company has favorable sales volume variance, its

a. Sales price variance is also favorable.
b. Total contribution margin might be less than planned.
c. Total contribution margin will be more than planned.
d. Income will be positive.

20. Assuming price is higher than cost, if a company has favorable cost volume variance, its
a. Sales volume variance is unfavorable
b. Sales price variance is also favorable.
c. Cost price variance is also favorable
d. Income will be negative

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21. The payback method of capital budgeting approach to the investment decision highlights
a. cash flow over the life of the investment.
b. the liquidity of the investment.
c. the tax savings of the depreciation amounts.
d. having as lengthy payback time as possible.

22. In capital budgeting, sensitivity analysis is used

a. to determine whether an investment is profitable.
b. To see how a decision would be affected by changes in variables.
c. To test the relationship of the IRR and NPV.
d. To evaluate mutually exclusive investments.

23. A capital budgeting tool management can use to summarize the difference in the future net cash inflows
from an intangible asset at two different points in time is referred to as
a. the accrual accounting rate-of-return method.
b. the net present value method.
c. sensitivity analysis
d. the payback method.

24. All other things being equal, as cost of capital increases

a. more capital projects will probably be acceptable.
b. Fewer capital projects will probably be acceptable.
c. The number of capital projects that are acceptable will change but the direction of the change
is not determinable just by knowing the direction of the change in cost of capital.
d. The company will probably want to borrow money rather than issue stock.

25. Bata Company is considering replacing a machine with a book value of P100,000, a remaining useful
life of 5 years, and annual straight-line depreciation of P20,000. The existing machine has a current
market value of P100,000. The replacement machine would cost P150,000, have a 5-year life, and
save P50,000 per year in cash operating costs. If the replacement machine would be depreciated using
the straight-line method and the tax rate is 40%, what would be the economic values relevant to me
decision?
a. b. c. d.
Net Investment P50,000 P50,000 P150,000 P150,000
Net Incremental Cash Flow P34,000 P42,000 P34,000 P42,000
Net Incremental Annual Income Taxes P16,000 P16,000 P3,000 P8,000

26. Fordem Co. is considering an investment in a machine that would reduce annual labor costs by
P30,000. The machine has an expected life of 10 years with no salvage value. The machine would be
depreciated according to the straight-line method over its useful life. The company’s marginal tax rate
is 30%. Assume that the company will invest in the machine of it generates a pre-tax internal rate of
return of 16%. What is the maximum amount the company can pay for the machine and still meet the
internal rate of return criterion?
a. P180,000 c. P187,500
b. P210,000 d. P144,996

27. The cash budget ignores all

a. dividend payments.
b. depreciation.
c. sales of capital assets.
d. sales of common stock.

28. Which of the following is part of the operating budget?

a. capital expenditures budget
b. budgeted balance sheet
c. sales budget
d. cash budget

29. A person who is qualified by education, experience, technical ability, and temperament to advise or
assist businessmen on a professional basis in identifying, defining, and solving specific management
problems involving the organization, planning, direction, control, and operation of a firm is called a
a. Management Consultant. c. Accounting Technician.
b. Certified Public Accountant. d. Management Accountant.

30. Consulting services differ fundamentally from CPA’s function of attesting to the assertions of other
parties. In a consulting service,
a. the practitioner expresses a conclusion about the reliability of a written assertion that is the
responsibility of the assertor.
b. the work is generally performed only for the use and benefit of the client.
c. the client develops findings, conclusions, and recommendations.
d. the nature and scope of work is determined solely by the consulting services practitioner.

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31. Which of the following quantitative techniques would be most useful for analyzing the interrelationships
of time and activities to discover potential bottlenecks?
a. PERT-CPM techniques
b. Expected Value analysis
c. Correlation and regression analysis
d. Linear Programming

32. Philip Enterprises, distributor of compact disks is developing its budgeted cost of goods sold for 200A.
Philip has developed the following range of sales estimates and associated probabilities for the year:
Sales Estimate Probability
P60,000 25%
85,000 40%
100,000 35%

Philip’s cost of goods sold averages 80% of sales. What is the expected value of Philip’s 200A
budgeted cost of goods sold?
a. P85,000
b. P84,000
c. P68,000
d. P67,200

33. Which of the following disadvantages should a company mostly consider in deciding whether to institute
residual income in its performance evaluation process?
a. opportunities may be undertaken which will decrease the overall return on investment.
b. this method does not make allowance for difference in the size of compared divisions.
c. residual income does not measure how effectively the division manager controls costs.
d. the minimum required rate of return may eliminate desirable opportunities from consideration.

34. The maximum of the transfer price negotiation range is

a. Set by the selling segment
b. Determined by the buying segment
c. Influenced only by cost factors within the company
d. Negotiated by the parties in the transaction

35. The following are the condensed income statement of Touya Corporation’s investment center for the
month of July, 2020:

Sales P100,000
Variable costs 30,000
Contribution margin 70,000
Fixed costs:
Manager’s salary 15,000
Depreciation – sales
equipment 5,000
Other allocated corporate
expenses 10,000 30,000

Segment income P40,000

Which of the following amounts is most likely subject to the control of the investment center’s manager?
a. P70,000
b. P55,000
c. P50,000
d. P40,000

36. A tool that focuses on manufacturing processes and seeks to optimize the activities performed within
the process is
a. Process value analysis
b. Reengineering
c. Benchmarking
d. None of the above

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37. Childe, the general manager of Fatui Manufacturing Inc. has determined the following forecasted items
for the coming year:

Working capital P4,000,000

Sales 45,000,000
Fixed assets 16,000,000

Determine the operating costs required to be incurred by Childe to achieve a residual income of
P10,000,000 using a minimum rate of return of 18%.
a. P31,400,000
b. P32,120,000
c. P36,900,000
d. P41,400,000

38. Lumine Toy Merchandise, a well-known producer of Paimon Figurines, has the following information:

Move time 3 days

Inspection time 2 days
Processing time 5 days
Storage time 15 days

What is the manufacturing cycle efficiency?

a. 25%
b. 20%
c. 75%
d. 80%

39. An increase in the discount rate

a. Will decrease present values of future cash flows
b. Results from the risk of the project being low
c. Will always result to positive NPV
d. Choices A and B are correct

40. Which of the following statements is true?

a. A high quick ratio is always an indication of well-managed liquidity position
b. A high operating leverage factor indicates a stabilized stream of earnings due to lower
operating risk
c. Low return on assets always indicate poor management performance
d. An increase in inventory level requires additional financing unless the increase is offset by an
equal or larger decrease in some other asset account

41. Systematic risks as against unsystematic risks

a. It is the risk that is specific to a particular company
b. It is the risk of a single asset taken by itself and not set off against any other investments
c. Cannot be eliminated through diversification alone
d. Can be reduced by sound management practices

42. Which of the following statements are false?

a. High inventory turnover requires lower level of working capital to sustain the day-to-day
operations
b. The results of financial statement analysis only have its value when it is being used to assess
the company’s performance on a period-to-period basis or to compare to its industry
performance.
c. The higher debts a company has, the higher the financial leverage
d. Short term creditors are usually more concerned with the company’s liquidity rather than its
profitability

43. All of the following are true regarding day’s sales outstanding, except
a. It is used as a measure of the liquidity
b. It can be computed as average accounts receivable ÷ average daily sales
c. It can be computed by dividing accounts receivable turnover by 360 or 365 days
d. Longer day’s sales outstanding indicates sound collection policy

44. Klee Corporation issued a 5 year serial bonds and used the proceeds to repurchase 30% of its
outstanding ordinary shares. This financial transaction will result to the following, except
a. Current ratio to decrease
b. Interest coverage ratio to decrease
c. Return on assets to decrease
d. Equity multiplier to decrease

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45. Jean Corporation is contemplating to acquire fixed assets either by using borrowed funds for the
purchase or by entering into an operating lease. It has maintained debt-to-equity ratio at 120% before
the aforementioned transaction. The company’s debt ratio as measured by the balance sheet after the
transaction will
a. Increase whether the assets are purchased or leased
b. Remain unchanged whether the assets are bought or leased
c. Increase if the assets are purchased, and decrease if the assets are leased
d. Increase if the assets are purchased, and remain unchanged if the assets are leased

46. Diluc Winery currently has current ratio of 150%. Diluc could increase its net working capital by
a. Purchase of marketable securities for cash
b. Prepayment of next year’s utility expenses
c. Refinancing of short-term debt with long-term bonds
d. Collection of accounts receivable

47. All of the following statements are correct regarding just-in-time inventory system, except
a. Income under absorption and variable costing are ideally the same
b. Cost of quality under JIT is mostly focused on prevention costs
c. Under JIT, economic order quantity is higher
d. JIT is more effective if processed by a computer software

48. Which of the following is true regarding Economic Profit?

a. Marginal revenue received from the sale of an output less marginal costs of all inputs used
b. Revenue received from the sale of an output and the costs of all inputs used
c. Revenue received from the sale of an output and costs of all inputs used and any opportunity
costs
d. Revenue received from the sale of an output the variable cost of all input used

49. Which of the following working capital financing policies subjects the firm to the greatest liquidity risk?
a. The firm uses long-term debts to finance fluctuating current assets
b. The firm uses short-term debts to finance fluctuating current assets
c. The firm uses long-term debts to finance permanent current assets
d. The firm uses short-term debts to finance permanent current assets

50. Wanmin Restaurant orders its ingredients from a local supplier from Liyue. This supplier provides
short-term financing to Wanmin through selling its products on credit basis without interest. Assuming
everything else being equal, Wanmin is expected to pay a higher percentage financing cost
a. If the items purchased have a higher price
b. Under no circumstance since the trade credit has no interest
c. If the discount term provided by the credit supplier is longer
d. If the discount percentage is lower

51. The credit and collection policy of Amber Inc. imposes a credit limit to its customers. During the month,
because of the campaign to achieve volume targets, the general manager has waived the credit limit
policy in a number of instances involving big volume accounts. The likely effect of this move is
a. Deterioration of aging and increase in the level of receivables
b. Increase in the level of receivables only
c. Deterioration of aging of receivables only
d. Increase in day’s sales outstanding and improvement of aging of receivables

52. All of the following affects economic order quantity, except

a. Stock out costs
b. Inventory insurance costs
c. Purchase requisition costs
d. Firm’s cost of capital

53. Assuming all else are equal, the market value of a company’s outstanding ordinary shares will be higher
if
a. Investors have shorter expected holding periods
b. Investors expect lower dividend growth
c. Investors have a lower required return on equity
d. Investors have longer expected holding periods

54. When calculating the cost of capital, cost of retained earnings is usually
a. Zero
b. Lower than the cost of external ordinary shares
c. Equal to the cost of external ordinary shares
d. Higher than the cost of external ordinary shares

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55. The theory underlying the cost of capital is primarily concerned with the cost of
a. Long-term funds and old funds
b. Short-term funds and old funds
c. Long-term funds and new funds
d. Short-term funds and new funds

56. All of the following represents systematic risks, except

a. Rise in inflation
b. Labor strikes
c. Imposition of new tax laws by the government
d. Interest rate hikes by the BSP

57. A company with a beta of 1.20 suggests

a. that the company’s stocks are more volatile than the market
b. that the company’s stocks are less volatile than the market
c. that the company’s stocks are as volatile as the market
d. that the company’s stocks are not affected by the market

58. Qiqi, an assistant finance staff, was asked by her superior to compute their firm’s cost of equity which
is relevant to a 10-year project to be conducted next year. She thought that she can make use of her
knowledge about Capital Asset Pricing Model that she learned in college in this particular assignment.
Accordingly, she extracted whatever available and useful information she can get from the company’s
database and from the internet but was not able to find any data relating to risk-free rates. Which of the
following sources may Qiqi use as benchmark for the risk-free rate applicable for the company?
a. A three-month commercial paper issued by the bank
b. A 10-year serial bonds issued by a public corporation
c. A one-year treasury bill
d. A 15-year treasury bonds, but with remaining maturity of 10 years

59. Which of the following represents degree of financial leverage?

a. represents the extent of the use of fixed costs of a specific entity in its operations.
b. measures the sensitivity of an entity’s profit to changes in sales volume
c. measures the sensitivity of a company’s earnings per share to fluctuations in its operating
income, because of changes in its capital structure
d. represents the extent of use of borrowed money to finance the purchase of asset

60. An investor uses the capital asset pricing model to evaluate the risk-return relationship on a portfolio of
stocks held as an investment. Which of the following would not be used to estimate the portfolio's
expected rate of return?
a. Standard deviation of the market returns.
b. Interest rate for the safest possible investment
c. Expected risk premium on the portfolio of stocks
d. Expected rate of return on the market portfolio

61. All of the following describes a monopolistic competition economic market

a. Economies of scale
b. Advertisements
c. Single seller of product
d. Heterogeneous products

62. Which of the following organization would most likely advertise that focuses on public relations?
a. A bus company
b. A water utility company
c. A hotel and restaurant chain
d. A car manufacturer

63. A specific good priced at P100 can be sold up to 400 units. However, if the price increase by 20%, the
number of units that can be sold to the consumers will decrease to 350 units. Using arc method, the
price elasticity of demand of the specific good is
a. 1.60
b. 0.73
c. 0.63
d. 1.37

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64. If both the supply and the demand for a good increase, the market price will
a. Rise only in the case of an elastic demand function
b. Fall only in the case of an inelastic demand function
c. Rise only in the case of elastic demand and supply function
d. Unpredictable based on the given facts

65. The following factors have a direct relationship with the quantity supplied for goods and services, except
a. Expected future prices
b. Changes in prices of substitute goods
c. Government subsidies
d. Changes in prices of complementary goods

(For numbers 66 to 70)

During its first year of operation, Tartaglia Corporation has operated at 80% capacity and reported the
following condensed income statement:

Sales P10,000,000
Cost of sales 4,000,000
Gross margin 6,000,000
Operating expenses 2,500,000
Income before tax 3,500,000
Income tax (30%) 1,050,000
Net income P2,450,000

Additional information is provided to you as follow:

 Return on assets is 25% and the Company’s cost of capital is 8%

 Tartaglia’s property and equipment acquired at the beginning of 2020 has a carrying amount of
P6,300,000, net of accumulated depreciation. Fixed assets are depreciated on a straight-line basis
for 10 years. There were no fixed assets sold or disposed of during the year.
 Other fixed costs amounted to P1,300,000, which are paid in cash.
 Unit selling price is P5.00 and expected to be constant in the next year.
 The Company’s total shareholder’s equity as at December 31, 2020 amounted to P6,450,000. The
Company has no long-term debt outstanding as at the year end.
 The Company plans to increase its sales to 3,000,000 units next year and expects to distribute
80% of the increase in earnings as dividends.
 The Company operates 360 days/year

66. How much is the total assets as of December 31, 2020?

a. P8,900,000
b. P14,000,000
c. P9,800,000
d. P25,800,000

67. How much is the net working capital as of December 31, 2020?
a. P150,000
b. P2,950,000
c. P850,000
d. P2,590,000

68. What is the contribution margin ratio for the year ended December 31, 2020?
a. 48%
b. 52%
c. 45%
d. 55%

69. Assuming 60% of the Tartaglia’s liabilities pertains to trade payable and the inventory period is 36 days,
what is the payable turnover in 2020?
a. 2.19
b. 164.38
c. 10.00
d. Cannot be determined based only on the facts given

70. Refer to the original information and assuming the Company intends to push its plan for the next year,
what is the external funding needed?
a. (P660,000)
b. P2,175,000
c. P2,490,000
d. 0

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