MANAGEMENT ADVISORY SERVICES

December 16, 2021

8:00AM – 11:00AM
Compiled By: 11 Supernova

DISCLAIMER: Not of all these questions are the exact questions itself on the said
CPALE but the concept behind those questions, exists HERE. The importance of the
concept/rationale is important. Padayon, future CPA’s!

P.S. Wag maniniwala sa chismis (BOA yern). Always believe in your preparation and
your efforts will never betray you. ^^

1. Starbucks Corporation experiments with adding ice cream sundaes to its menu at
several stores. One of its stores is in Bonifacio Global. Financial reports are
prepared showing revenues and costs for in each new menu item. Based on in which
reports, management at in which corporate office will decide which to permanently
add or remove in the new menu item. Financial report is an example of ________
information.
scorekeeping c) problem-solving
attention directing d) management auditing

2. Which of the following statements about step costs is FALSE?

A) If the individual chunks of cost are relatively large and apply to a specific,
broad range of activity, the step cost is considered to be a fixed cost over that
range of activity.
B) When individual chunks of cost are relatively small and apply to a narrow range
of activity, step costs are considered to be variable costs.
C) Some step costs can be assumed to be variable costs for planning purposes with
little loss of accuracy.
D) Step costs are the same as mixed costs.

3. Mcgrady Company prepared the following absorption-costing income statement for

the year ended May 31, 2024.
Sales (16,000 units) P320,000
Cost of goods sold 216,000
Gross margin P104,000
Selling and administrative exp 46,000
Operating income P58,000

Additional information follows:

Selling and administrative expenses include P1.50 of variable cost per unit
sold. There was no beginning inventory, and 17,500 units were produced. Variable
manufacturing costs were $11 per unit. Actual fixed costs were equal to budgeted
fixed costs.

How much is the operating income using variable costing?

A) P54,520 C) P54,250
B) P45,250 D) P45,520

4. In the expenditure approach, which of the following is the not included in

computing for the Gross Domestic Product?
A) Business investments
B) Government spending
C) Net Imports
D) Household Consumptions
5. Under income approach, which of the following are included in computing the
Gross Domestic Product?
A) Wages, Income of Foreigners, Profits, and Rent
B) Interest, Exports, Wages, and Profits
C) Losses, Depreciation, Indirect Business Taxes and Government spending
D) Rent, Wages, Investment Income and Realized gain on sale

6. Economists use the term “recession” to refer to

A) any slowdown in aggregate economic activity
B) zero growth in aggregate real income
C) at least two consecutive quarterly declines in real GDP
D) a decline in real GDP that lasts at least one month

7. Ruby Co. currently manufactures a subassembly for its main product. The costs
per unit are
as follows:
Direct materials P450
Direct labor 350
Variable overhead 330
Fixed overhead 300
Total P1,430

Gem Inc. has contacted Ruby with an offer to sell 5,000 of the subassemblies for
P1,350 each. Ruby will eliminate P850,000 of fixed overhead if it accepts the
proposal.

What are the relevant costs for Ruby?

A) P4,800,000
B) P6,500,000
C) P4,850,000
D) P8,000,000

8. Data on Wentz Inc. for 2018 are shown below, along with the payable deferral
period (PDP) for the firms against which it benchmarks. The firm’s new CFO believes
that the company could delay payments enough to increase its PDP to the benchmark’s
average. If this were done, by how much would payables increase? Use a 365-day
year.

Cost of goods sold P75,000

Payable P 5,000
Payables deferral period 24.33
Benchmark payables deferral period 30.00
A) P764
B) P849
C) P943
D)P1,164

9. A company identifies the following goals and objectives:

Increase sales 10% each year.
Increase profits 5% each year.
Increase total plant assets 5% each year.

Which of the following budgets identifies the overall goals and objectives of an
organization?
A) strategic plan
B) financial planning model
C) sales budget
D) master budget

10. Punuan ang mga patlang.

Ako, si _____________________________________________________, ng
___________________________________________________________________________ay
taimtim na nanunumpa na ____(1)___ko at _____(2)_____ang Saligang Batas ng
Pilipinas, na ako ay tunay na _____(3)_____at ____(4)_____rito; na ______(5)_____ko
ang mga batas, mga utos na legal, at mga atas na ipinahayag ng mga sadyang itinakdang
may kapangyarihan ng Republika ng Pilipinas; at kusa kong _____(6)____ang
pananagutang ito, na walang ano mang _____(7)_____o ____(8)____umiwas.

Ano ang dapat nasa patlang 1 at 4?

A) ipagtatanggol; itataguyod
B) mananalig; susundin
C) susundin; itataguyod
D) itataguyod; tatalima

11. Overland Corporation has gathered the following data on a proposed investment
project:
Investment required in equipment P150,000
Annual cash inflow P40,000
Salvage value of equipment P0
Life of the investment 10 years
Required rate of return 10%

The company uses straight-line depreciation on all equipment. Assume cash flows
occur uniformly throughout a year except for the initial investment.

The payback period for the investment is:

A) 0.27 years
B) 3.75 years
C) 10.00 years
D) 2.13 years

12. On a balance scorecard, which of the following is not an appropriate measure

of internal business process perspective?
A) Quality costs
B) Delivery cycle time
C) Customer retention
D) Number of customer complaints

13. A company tighten its credit policy. The new policy will decrease the average
number of days in collection from 75 to 50 days and reduce the ratio of credit
sales to total revenue from 70 to 60%. The company estimates that projected sales
would be 5% less if the proposed new credit policy were implemented. The firm’s
short-term interest cost is 10%. What effect would the implementation of this new
credit policy have on income before taxes?
A) P2,500,000 decrease
B) P2,166,667 decrease
C) P83,334 increase
D) P33,334 increase
14. A measure that describes the risk of an investment project relative to other
investments in general is the
A) Coefficient of variation
B) Beta coefficient
C) Standard deviation
D) Expected return

15. Mosh Ka Ba Manufacturing recently completed and sold an order of 50 units. The
company has now been requested to prepare a bid for 150 units of the same product.

Direct Material P1,500

Direct Labor (1,000 hours x P8.50) 8,500
Variable Overhead (1,000 hours x P4.00)* 4,000
Fixed Overhead** 1,400
P15,400
*Applied on the basis of direct labor hours
** Applied at the rate of 10% of variable cost

If an 80% learning curve is application, Mosh Ka Ba’s total cost on this order
would be estimated
A) P26,400
B) P32,000
C) P38,000
D) P41,800

16. If an investment project has a profitability index of 1.15, the

A) Project’s internal rate of return is 15%
B) Project’s cost of capital is greater that its internal rate of return
C) Projects internal rate of return exceeds its net present value
D) Net present value of the project is positive

17. Profit maximization as the goal of the firm is not ideal because it ignores all
of the following, except:
A) Risk
B) Earnings per share
C) Timing of returns
D) Cash flows available to shareholders

18. When monthly production volume is constant and sales volume is less than
production, income
determined under variable costing procedures will
A) Always be greater than income determined under absorption costing
B) Always be less than income determined under absorption costing
C) Be equal to contribution margin per unit times units sold
D) Be equal to income determined using absorption costing

19. Two market structures that are imperfectly competitive are oligopoly and
monopolistic competition. What
is the difference between an oligopoly and monopolistic competition?
A) Oligopoly is about the number of firms while monopolistic competition is about
the variety of products
B) Monopolistic competition is about the number of firms while oligopoly is about
the variety of products
C) Oligopoly has no barriers to entry while monopolistic competition has low entry
barrier
D) Monopolistic competition has no barriers to entry while oligopoly has low entry
barrier
20. The optimal level of inventory is affected by all of the following, except the:
A) Current level of inventory
B) Usage rate of inventory per time period
C) Cost per unit of inventory
D) Cost of placing an order for merchandise

21. Accruals and accounts payable are _________ sources of short-term financing.
A) Negotiated, secured
B) Spontaneous, secured
C) Negotiated, unsecured
D) Spontaneous, unsecured

22. An increase in the beta of a corporation indicates __________ and results in

______________.
A) a decrease in risk; a higher required rate of return and hence a lower share
price.
B) an increase in risk; a higher required rate of return and hence a lower share
price
C) a decrease in risk; a lower required rate of return and hence a higher share
price.
D) an increase in risk; a lower required rate of return and hence a higher share
price.

23. The main focal point of financial management in a firm is the

A) Profit earned by the firm
B) Creation of value for shareholders
C) Minimization of the amount of taxes paid by the firm
D) The number and types of products or services provided by the
firm

24. A manufacturing firm intentionally priced its product below cost to eliminate
competition. It has a reasonable prospect of recovering the resulting loss through
higher prices once competition is eliminated or through a greater share in the
market. The manufacturing firm has engaged in
A) Price discrimination
B) Predatory pricing
C) Collusive pricing
D) Black Market pricing

25. A company is expected to have unsold units on its first year of operations,
then its
a. Sales must be below breakeven point
b. Manufacturing variances are expected to be mostly unfavorable
c. Profit under absorption costing must be higher than the profit under variable
costing
d. Decision to accept or reject a special order on the unsold units shall include
an element of opportunity cost

26. Which of the following is a correct adjustment to net income in calculating

operating cash flows under the indirect method?
A) Add back cash expenses
B) Add increases in inventory
C) Deduct increases in accounts payable
D) Deduct increases in accounts receivable
27. The flexible-budget variance measures
A) what the costs and revenues should have been for the budgeted number of outputs.
B) the difference between budgeted expenditures and actual expenditures for the
budgeted number of outputs.
C) The difference between budgeted and actual variable costs.
D) The difference between expected expenditures for the actual number of outputs
and the actual expenditures for the actual number of outputs.

28. Determine the least accurate statement about a feasibility study.

A) A feasibility study is an analysis that considers all of a project's relevant
factors — including economic, technical, legal, financial, and scheduling
considerations — to ascertain the likelihood of completing the project successfully.
B) A feasibility study is designed to answer whether or not a proposed project or
idea should go forward by determining whether the project or plan is practical and
doable.
C) A feasibility study should include the level of resources and technology needed
and the return on investment from the project.
D) A good feasibility study need not include a contingency plan that would serve
as a viable alternative in case the original plan fails.

29. When comparing current year financial ratios to prior years, you find that
MAMAMOO Company has an improving current ratio and a deteriorating acid test (quick)
ratio. Which of the following actions would be a logical management action step
given these results?
A) Offer cash discounts for early payment on accounts receivable.
B) Increase budget controls so that expenses are reduced.
C) Work with suppliers on reducing inventory levels.
D) Reduce long-term debt by issuing new stock.

30. What purpose does an internal differentiation analysis serve a firm

conducting a value-chain analysis that assesses competitive advantage?
A) Diagnoses the cost drivers for each value-creating process.
B) Evaluates opportunities for achieving relative cost advantages.
C) Identifies the customer’s value perceptions of the firm’s products and services.
D) Determine sources of profitability and the relative cost of internal processes.

31. In comparing the constant growth model and the capital asset pricing model
(CAPM) to calculate the cost of common stock equity,
A) the constant growth model ignores risk, while the CAPM directly considers risk
as reflected in the beta.
B) the CAPM directly considers risk as reflected in the beta, while the constant
growth model uses the market price as a reflection of the expected risk-return
preference of investors.
C) the CAPM directly considers risk as a reflected in the beta, while the constant
growth model uses dividend expectations as a reflection of risk.
D) the CAPM indirectly considers risk as reflected in the market return, while the
constant growth model uses dividend expectations as a reflection of risk.

32. If a firm’s goal is to keep portfolio risk low, the best strategy would be to
include:
A) diversified investments with low betas.
B) diversified investments with high betas.
C) investments with high betas and low correlated returns.
D) investments with low betas and highly correlated returns.
33. Management consultancy
A) is limited to CPAs
B) is not limited to CPAs
C) can be practiced by anybody
D) is exclusive to the CPA profession

34. Appropriate disclosure of NOCLAR to authorities overrides which particular

ethical standard?
A) Integrity
B) Competence
C) Credibility
D) Confidentiality

35. Which of the following ratios best measures short-term solvency?

A) Quick ratio
B) Earnings per share
C) Creditor’s equity to total assets
D) Return on investment

36. It refers to the practice of financing assets with borrowed capital. Its
extensive use may impact on the return on common stockholders’ equity to be above
or below the rate of return on total asset.
A) Discounting
B) Mortgage
C) Leverage
D) Arbitrarge

37. During 2021, Brownout Company experienced the following power outages:

Number of Power Outages Per Month Number of Months

0 3
1 2
2 4
3 3

Each power outage results in out-of-pocket costs of P400. For P500 per month, the
company can lease an auxiliary generator to provide power during outages. If the
company leases an axillary generator in 2022, the estimated savings (or additional
expenditures) for 2022 would be
A)(P3,600)
B)(P1,200)
C) P1,600
D) P1,900

38. A consultant recommends that a company hold funds for the following two reasons:

1. Cash needs can fluctuate substantially throughout the year.

2. Opportunities for buying at a discount may appear during the year.

The cash balances use to address the reasons given above are correctly classified
as:

A) (1) Speculative balances; (2) Speculative balances

B) (1) Speculative balances; (2) Precautionary balances
C) (1) Precautionary balances; (2) Speculative balances
D) (1) Precautionary balances; (2) Precautionary balances
39. An analyst covering Mimo Company’s Common stocks estimates the following
information for the next year:

Expected return on the market portfolio 12%

Expected returns on treasury securities 5%
Expected beta of Mimo Company 2.2

Using the CAPM, the analyst’s estimate for the next year’s risk premium for Mimo
Company’s stock is closest to:
A) 7.0%
B) 15.4%
C) 10.4%
D) 21.4%

40. The country of Dresrossa has a total adult population of 10 million, and of
these 210 thousand are currently out of work and actively searching for new
employment. A further 2.9 million are not working because they are retired,
institutionalized, or simply choose not to work. Finally a total of 100 thousand
citizens are currently enlisted with the Dresrossa military. What is Dresrossa’s
current unemployment rate?
A) 3%
B) 2.1%
C) 2.9%
D) 4%

210k/(10 million – 2.9 million - 100k) = 3%

41. Which of the following is true of budgets when they are administered
thoughtfully?
A) They eliminate subjectivity in performance evaluation
B) They can eliminate uncertainty faced by a company
C) They promote coordination within the subunits of a company
D) They are a substitute of planning and coordination functions of management

42. The linear programming method is most useful in optimization problems involving
A) Nonlinear constraints
B) A quadratic objective function
C) A linear objective and linear constraints
D) Investment decisions and other long-term decisions

43. The direct materials price variance is best measured and reported to appropriate
management personnel at the time
A) Purchased quantities exceed standard order size
B) Quarterly financial statements are prepared
C) Shipments are received and recorded as purchases
D) Direct materials are issued to production areas

44. A company that is operating at full capacity should emphasize those products
and services that have the
A) highest operating income
B) lowest total per-unit costs
C) highest contribution margin per unit
D) highest contribution margin per unit of scarce resource
45. Momonusuke Company recently reviewed the profitability of each of its segments
the company’s Japan unit projected a loss for the coming period and was shut down.
In which one of the following situations would the total company profits of
Momonusuke Company decrease after shutting down the Japan unit?
A) Japan unit’s projected loss was less than the allocated home office cost
B) Japan unit’s projected contribution margin was negative
C) Japan unit’s inventory was transferred to other divisions
D) Japan unit’s projected fixed costs were eliminated

46. The imputed interest rate used in the residual income approach to performance
evaluation is described as
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

47. The learning curve is also known as

A) Growth curve
B) Production curve
C) Experience curve
D) Exponential curve

48. The biggest advantage of capitalism is that

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.

49. Which of the following statements regarding transfer pricing is FALSE?

A) When the 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.

50. The standard deviation of a stock investment is best described as the

A) Variability of expected returns
B) Sensitivity to market movements
C) Trade-off between risk and return
D) Variation around the mean return

51. The internal rate of return method assumes that the project funds are reinvested
at the
A) Hurdle rate
B) Cost of debt capital
C) Cost of equity capital
D) Rate of return earned on the project

52. In order to enhance the wealth of shareholders and to send positive signals to
the market, corporations generally raise funds using the following order:
A) Retained earnings, debt, equity
B) Equity, retained earnings, debt
C) Debt, retained earnings, equity
D) Retained earnings, equity, debt
53. Discount cash flow techniques for analyzing capital budgeting decisions are not
normally applied to projects
A) That are essential to the business
B) Involving replacement of existing assets
C) Having useful lives shorter than one year
D) Requiring no investment after the first year of life

54. The following groups of ratios primarily measure risk

A) liquidity, activity, and profitability
B) liquidity, activity, and common stock
C) liquidity, activity, and debt
D) activity, debt, and profitability

55. _______ project do not compete with each other, the acceptance of one _______
the others from consideration.
A) Capital; eliminates
B) Independent; does not eliminate
C) Mutually exclusive; eliminates
D) Replacement; does not eliminate

56. Marites Company keeps careful track of the time required to fill orders. The
times recorded for a particular order appear below:
Hours
Move time 3.2
Wait time 10.9
Queue time 5.1
Process time 1.2
Inspection time 0.2

The manufacturing cycle efficiency (MCE) was closest to:

A) 0.89
B) 0.06
C) 0.29
D) 0.12

57. To compute the break-even point per unit, which of the following formulas is
used?
A) FC/CM per unit
B) FC/CM ratio
C) (FC+VC)/CM ratio
D) None of the above

58. As part of a cost study, the cost accountant of Namo Corporation has recorded
the cost of operations at seven different levels of materials usage. The records
show the following:

Kilos of Materials Costs of Operation

80 P 800
60 480
20 320
120 1,200
140 1,280
40 480
100 1,040

Sum of the kilos 560

Sum of the costs P5,600
 Sum of the kilos multiplied by the costs P545,600
Sum of the kilos squared P56,000

The projected cost of operations for 90 kilos of materials is

A) P886.90 if the high-low points method is used
B) P880.00 if the method of least squares is used
C) P886.90 if the method of least squares is used
D) P880.00 regardless of the method used

59. When the interest rate is extremely high

A) there is no cost to holding money because its purchasing power remains constant
B) the supply by money will be relatively small
C) the opportunity cost of holding money is high
D) the opportunity cost of holding money is low

60. Pro forma financial statements are part of the budgeting process. Normally, the
last pro forma statement prepared is the
A) Income statement
B) Statement of cost of goods sold
C) Statement of cash flows
D) Statement of manufacturing costs

61. A corporation had sales of P2,000,000, a profit margin of 11% and assets of
P2,500,000. The company decided to reduce its debt ratio to 0.40 from 0.50 by
selling new common stock and using the proceeds to repay principal on some
outstanding long-term debt. After the financing, what is the company’s return on
equity?
A) 3.5%
B) 5.3%
C) 14.7%
D) 22.9%

62. A computer service center had the following operating statistics F the month:

Sales P450,000
Operating income 25,000
Net profit after taxes 8,000
Total assets 500,000
Shareholder’s equity 200,000
Cost of capital 6%

Based on the given information, which one of the following statements is true? The
computer service center has a
A) return on investment of 4%
B) residual income of P(5,000)
C) return on investment of 1.6%
D) residual income of P(22,000)

63. Which of the following costs is relevant in a scrap or rework decision on a

defective product?
Variable Manufacturing Cost Applied Fixed Rework Cost
A) Yes No
B) No Yes
C) Yes Yes
D) No No
64. A make or buy cost analysis involves all of the following considerations except
A) comparison of incremental revenue with incremental costs
B) consideration of opportunity costs
C) comparison of relevant internal costs with the cost to purchase externally
D) evaluation of an external supplier

65. EOQ is unaffected by:

I. The increase of safety stock
II. The increase in the variable costs of placing and receiving an order
III. The change of inventory valuation (e.g. FIFO to Average Method)

A) I and II
B) II and III
C) I and III
D) I, II and III

66. Which of the following correlation has the strongest direct relationship?
A) 0.91
B) -0.92
C) 1.04
D) 0.65

67. 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.

68. An opportunity cost commonly associated with a special order is

A) The variable costs of the order
B) The contribution margin on lost sales.
C) Additional fixed costs related to the increased output
D) Any of the above

69. The measure of activity that allows for routine variations in manufacturing
activity is
A) theoretical capacity
B) practical capacity
C) normal capacity
D) expected capacity

70. Which of the following is classified as usual services provided by management

consultants?
A) Assistance in the preparation of forecasts and budgets
B) Surveying credit losses
C) Preparing market analysis
D) All of the above

71. A financial analyst applied the DuPont Analysis to the following data for a
company:

Equity Turnover 4.2

Net profit margin 5.5%
Total asset turnover 2.0
Dividend payout ratio 31.8%
The company’s return on equity is closest to:
A) 11.0%
B) 23.1%
C) 46.2%
D) 63.6%

72. Selected financial statements items are provided below for Kook Co.

Prepaid Expenses P35,000

Annual Sales P1,200,000
Current Liabilities P375,000
Days sales outstanding (365-day year) 40 days
Inventory turnover ratio 4.80 times
Current ratio 1.20 to 1
Gross profit margin 20%

The company’s current assets consist only of cash, inventories, accounts

receivables, and prepaid expenses. How much cash does Kook have on its balance
sheet?
A) P83,493
B) P33,493
C) P118,493
D) P68,493

73. Choi Inc. is going to use the services of an underwriter to sell its preferred
stock. Four underwriters have given estimates on their fees and the selling price
as well as the expected dividend on the stock as follows:

Underwriter Selling Price Dividends Fees

A P102 P11 P7
B P97 P7 P3
C P98 P8 P3
D P101 P10 P5

Which underwriter should Choi choose based on cost of funds for the preferred stock?
A) Underwriter B
B) Underwriter D
C) Underwriter A
D) Underwriter C

74. Which of the following condition justifies a company with a low inventory
turnover ratio?
A) Low stock-out costs
B) Low inventory order costs
C) High carrying costs
D) Long inventory order lead times

75. Heavy Kong Corporation is a steel manufacturer that finances its operations
with 40 percent debt, 10 percent preferred stock, and 50 percent equity. The
interest rate on the company’s debt is 11 percent.The preferred stock pays an annual
dividend of P2 and sells for P20 a share. The company’s common stock trades at P30
a share, and its current dividend of P2 per share is expected to grow at a constant
rate of 8 percent per year. The flotation cost of external equity is 15 percent of
the peso amount issued, while the flotation cost on preferred stock is 10 percent.
The company estimates that its WACC is 12.30 percent. Assume the firm will not have
enough retained earnings to fund the equity portion of its capital budget. What is
the company’s tax rate?
A) 30.33%
B) 32.87%
C) 35.75%
D) 38.12%
E) 40.98%

76. What happens to expected portfolio return if the portfolio beta increases from
1.0 to 2.0, the risk-free rate decreases from 5% to 4%, and the market risk premium
remains at 8%?
A) it increases from 12% to 19%
B) it increases from 13% to 16%
C) it increases from 13% to 20%
D) it remains unchanged

77. The effect of a change in a firm’s credit terms from “net 30” to “2/10, net 30”
on its customer’s balance sheets is likely yo
A) decrease accounts receivable
B) increase accounts receivable
C) decrease accounts payable
D) increase accounts payable

78. A favorable fixed overhead spending variance might indicate that

A) more capacity was used than planned
B) the denominator level was less than planned
C) the fixed overhead cost allocation base was not used efficiently
D) a plant expansion did not proceed as originally planned

79. A just-in-time manufacturer is more likely than a conventional manufacturer to

A) receive more frequent deliveries of materials
B) spend less money on advertising
C) need workers with fewer skills
D) all of the above

80. Josh Pint Company has a standard of 15 parts of component AB costing P1.50
each. Josh Pint purchased 14,910 units of component Cong for P22,145. Josh Pint
generated a P220 favorable price variance and a P3,735 unfavorable quantity
variance. If there were no changes in the component inventory, how many units of
finished product were produced?
A) 994 units
B) 1,090 units
C) 828 units
D) 1,160 units

81. Which of the following is (are) true statement(s) about cost behavior in
incremental analysis?

Statement I: Fixed costs will not change between alternatives

Statement II: Fixed costs may change between alternatives
Statement III: Variable costs will always change between alternatives

A) Statement I
B) Statement III
C) Statement II
D) Statement II and III
82. In multiproduct situations, when sales mix shifts toward the product with the
highest contribution margin, then
A) Total revenues will decrease
B) Breakeven quantity will decrease
C) Total contribution margin will decrease
D) Operating income will decrease

83. Activity-Based management (ABM) includes decisions about all EXCEPT:

A) Pricing and product mix
B) Smoothing costs
C) Reducing costs
D) Improving processes

84. Which of the following statements about a make-or-buy decision analysis is not
correct?
A) Available resources should be used as efficiently as possible before outsourcing
B) The analysis should involve avoidable costs only
C) If the total relevant cost of production is less than the cost to buy the item,
it should be produced in-house
D) The decision depends on whether the company is operating at or below the normal
capacity.

85. Controller’s function includes

A) Investor relations
B) Preparation of cash flow statement
C) Risk management
D) Credit and collection

86. FURION Corp. uses the following quarterly cost formula for the estimation of
its maintenance costs:

Y = P60,000 + 2.5x

X represents direct labor hours worked. For each unit produced by FURION, 0.30
direct labor hours are needed. During the month of April, FURION produced 20,000
units. FURION’s estimated maintenance costs for the month of April is
A) P110,000
B) P70,000
C) P75,000
D) P35,000

87. The ____ the coefficient of variation, the _____ the risk
A) Lower, lower
B) Higher, lower
C) Lower, higher
D) More stable, higher

88. The variance that arises solely because the quantity actually sold differs from
the quantity budgeted to be sold is
A) Static budget variance
B) Master budget variance
C) Sales mix variance
D) Sales volume variance

89. Determine the false statement about project feasibility study

A) A feasibility study is basically a forecast
B) A good feasibility study is prepared to ascertain the viability of new projects
C) A feasibility study is prepared to ascertain the viability of new projects
D) The marketing aspect is usually the starting point of a project feasibility
study.

90. A limitation of transfer prices based on actual cost is that they

A) Charge inefficiencies to the department that is transferring the goods
B) Can lead to suboptimal decisions for the company as a whole
C) Must be adjusted by some markup
D) Lack clarity and administrative convenience

91. DXD Inc. is evaluating four independent investment proposals. The expected
returns and standard deviations for each of these proposals are presented below

Investment Proposal Expected Returns Standard Deviation

I 16% 10%
II 14% 10%
III 20% 11%
IV 22% 15%

Which one of the investment proposals has the least relative level of risk?
A) Investment I
B) Investment III
C) Investment IV
D) Investment II

92. Capitalism or “market economics” has all of the following features, except
A) Private ownership
B) Pursuit of personal profit
C) Government control of the economy
D) Competition and consumer sovereignity

93. Assuming costs are represented on the vertical axis and volume of activity on
the horizontal axis, which of the following costs would be represented by a line
that starts at the origin and reaches a maximum value beyond which the line is
parallel to the horizontal axis?
A) Total direct material costs
B) A consultant paid P100 per hour with a maximum fee of P2,000
C) Employees who are paid P15 per hour and guaranteed a minimum weekly wage of P300
D) Rent on exhibit space at a convention

94. Which of the following is an inventory cushion against delivery problems?

A) Anticipation inventory
B) Safety stock
C) Theoretical inventory
D) Transit stock

95. The IMA Statement of Ethical Professional Practice includes an integrity

standard. It requires an IMA member to
A) refrain from conduct that prejudices the ability to perform duties ethically
B) report any relevant information that could influence users of financial
statements
C) disclose confidential information when authorized by his or her firm or required
under the law
D) refuse gifts from anyone
96. A company is contemplating 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 units. Variable costs
will decrease to 50% of sales for units in excess of 75,000. If the product is
expected to sell for P25 per unit, how many units must the company sell to breakeven?
A) 120,000
B) 111,000
C) 96,000
D) 80,000

97. As a short term creditor concerned with a company’s ability to meet its financial
obligation to you, which one of the following combinations of ratios would you most
likely prefer?

Current Ratio TIE Debt Ratio

A) 0.5 0.5 0.33
B) 1.0 1.0 0.50
C) 1.5 1.5 0.50
D) 2.0 1.0 0.67

98. A company has just been taken over by new management that believes it can raise
earnings before taxes (EBT) from P600 to P1,000, merely by cutting overtime pay and
reducing cost of goods sold. Prior to the change, the following data applied:

Total assets P8,000

Debt ratio 45%
Tax rate 35%
BEP ratio 13.3125%
EBT P600
Sales P15,000

These data have been constant for several years, and all income is paid out as
dividends. Sales, the tax rate and the balance sheet will remain constant. What is
the company’s cost of debt?
A) 12.92%
B) 13.23%
C) 13.51%
D) 13.75%

99. Which of the following is used to describe the practice of adding resources to
shorten selected activity time on the critical path of a project?
A) Making adjustments
B) Project crashing
C) Slack time
D) Reengineering

100. Which of the following position exhibits a line function?

I. Plant controller
II. Vice president for finance
III. Store manager

A) I and II
B) II and III
C) I and III
D) I, II, and III
SITUATION 1:

Following a strategy of product differentiation, Gumiho Corporation makes a high-

end smart phone, CR7, that is superior and unique from competition. Gumiho
Corporation believes that putting additional resources into R&D and staying ahead
of the competition with technological innovations are critical to implementing its
strategy. Gumiho Corporation presents the following data for the years 2020 and
2021:

2020 2021
Units of CR7 produced and sold 5,000 5,500
Selling price P400 P440
Direct materials (pounds) 15,000 15,375
Direct materials costs per pound P40 P44
Manufacturing capacity for CR7 (units) 10,000 10,000
Conversion costs P1,000,000 P1,100,000
Conversion costs per unit of capacity P100 P110
Selling and customer-service capacity
(customers) 60 58
Total selling and customer-service costs P360,000 P362,500
Selling and customer-service capacity cost
per customer P6,000 P6,250

101. What is the cost effect of the price-recovery component?

A)140,000F
B)220,000F
C)140,000U
D)66,000U

102. What is the net effect on operating income as a result of the price-recovery
component?
A)220,000F
B)39,000F
C)140,000U
D)49,500U

103. What is the net effect on operating income as a result of the productivity
component?
A)12,500F
B)49,500F
C)62,000F
D)39,000F

SOLUTION:

Revenue effect of growth = (Actual units of output sold in 2021 – Actual units of
output sold in 2010) x Selling price in 2020
Revenue effect of growth = (5,500 units – 5,000 units) x P400
Revenue effect of growth = P200,000 F

Cost effect of the growth for variable cost = (Units of input required to produce
2021 output in 2020 – Actual units of input used to produce in 2020 output) x Input
price in 2020
Cost effect of the growth for variable cost = ( 15,000 pounds x 5,500 units / 5,000
units – 15,000 pounds x P40/pound
Cost effect of the growth for variable cost = P60,000 U
Cost effect of the growth for fixed cost = (Actual units of capacity in 2020 because
adequate capacity exists to produce 2021 output in 2020 – Actual units of capacity
in 2020) x Price per unit of capacity in 2020
Cost effect of the growth for fixed cost :
Conversion cost
= ( 10,000 units – 10,000 units) x P100/unit = P0
Selling & Customer service = (60 customers – 60 customer) x P6,000/customer = P0
Cost effect of the growth for fixed cost = P0

Cost effect of the growth component = Cost effect of the growth for variable cost
+ Cost effect of the growth for fixed cost
Cost effect of the growth component = P60,000 + P0
Cost effect of the growth component = P60,000 U

Revenue effect of the price-recovery = (Selling price in 2021 – Selling price in

2020) x Actual units of output sold in 2021
Revenue effect of the price-recovery = (P440 - P400) x 5,500 units
Revenue effect of the price-recovery = P220,000 F

Cost effect of price recovery for variable cost = (Input price in 2021 – Input
price in 2020) x Units of input required to produce 2021 output in 2020
Cost effect of price recovery for variable cost = (P44 - P40) x 16,500 pounds*
Cost effect of price recovery for variable cost = P66,000 U

*Units of input required to produce 2021 output in 2020

= 15,000 pounds x 5,500 𝑢𝑛𝑖𝑡𝑠 / 5,000 𝑢𝑛𝑖𝑡𝑠
= 16,500 pounds

Cost effect of price recovery for fixed cost = (Price per unit of capacity in 2021
– Price per unit of capacity in 2020) x Actual units of capacity in 2020 (because
adequate capacity exists to produce 2021 output in 2020)

Cost effect of price recovery for fixed cost :

Conversion cost
= ( P110/unit - P100/unit) x 10,000 units = P100,000 U
Selling & Customer Service
= ( P6,250/customer – P6,000/customer) x 60 customer = P15,000 U
Cost effect of price recovery for fixed cost = P115,000 U

Cost effect of the price-recovery component = Cost effect of price recovery for
variable cost + Cost effect of price recovery for fixed cost
Cost effect of the price-recovery component = P66,000 U + 115,000 U
Cost effect of the price-recovery component = P181,000 U

Cost affect of productivity for variable cost = (Actual units of input used to
produce 2021 output – Units of input required to produce 2021 output in 2020) x
Input price in 2021

Cost affect of productivity for variable cost = (15,375 pounds – 16,500 pounds*) x
P44/pound
Cost affect of productivity for variable cost = P49,500 F

Cost affect of productivity for fixed cost = (Actual units of capacity in 2021 –
Actual units of capacity in 2020 because adequate capacity exists to produce
2021 output in 2020) x Price per unit of capacity in 2021
Cost affect of productivity for fixed cost :
Conversion cost
= (10,000 units – 10,000 units) x P110/ unit = P0
Selling & Customer Service = (58 customers – 60 customers) x P6,250/Customs
= P12,500 F
Cost affect of productivity for fixed cost = P12,500 F

Cost affect of productivity = Cost affect of productivity for variable cost + Cost
affect of productivity for fixed cost
Cost affect of productivity = P49,500 F + P12,500 F
Cost affect of productivity = P62,000 F

Income Revenue and Revenue and Cost effect Income

Statement - Cost cost of Statement -
2020 Effects of effects of productivity 2021
Growth price component in
Component - recovery 2021
2021 component
in 2021
Revenue P2,000,000 P200,000 F P220,000 F - P2,420,000
Costs P1,960,000 P60,000 U P181,000 U P62,000 F P2,139,000
Operating P40,000 P140,000 F P3,000 F P62,000 F P281,000
income
SITUATION 2:

Suppose that the market portfolio is equally likely to increase by 24% or decrease
by 8%. Security "Xatu" goes up on average by 29% when the market goes up and goes
down by 11% when the market goes down. Security "Yawa" goes down on average by 16%
when the market goes up and goes up by 16% when the market goes down. Security
"Zeke" goes up on average by 4% when the market goes up and goes up by 4% when the
market goes down.

104. The beta for security "Xatu" is closest to:

A) 0
B) 0.80
C) 1.00
D) 1.25

105. The beta for security "Yawa" is closest to:

A) -1.00
B) -0.25
C) 0.00
D) 0.25

106. The beta for security "Zeke" is closest to:

A) -1.00
B) -0.25
C) 0.00
D) 0.25
SITUATION 3

Nuisance Realty bought a 2,000-acre island for P10,000,000 and divided it into
200 equal size lots. As the lots are sold, they are cleared at an average cost of
P5,000. Storm drains and driveways are installed at an average cost of P8,000 per
site. Sales commissions are 10 % of selling price. Administrative costs are P850,000
per year. The average selling price was P160,000 per lot during 2022 when 50 lots
were sold.

During 2023, the company bought another 2,000-acre island and developed it
exactly the same way. Lot sales in 2023 totaled 300 with an average selling price
of P160,000. All costs were the same as in 2022.

107. How much is the cost per site using absorption and variable costing?
A) 55,000; 5,000
B) 63,000; 8,000
C) 63,000; 13,000
D) 58,000; 8,000

108. Operating income to be reported in 2023 using absorption costing

is______________.
A) P3,200,000
B) P(4,300,000)
C) P23,450,000
D) P28,450,000

109. Operating income to be reported in 2022 using variable costing

is______________.
A) P3,200,000
B) P(4,300,000)
C) P23,450,000
D) P28,450,000
SITUATION 4

Pampam intends to sell his customers a special round-trip airline ticket package.
He is able to purchase the package from the airline carrier for P150 each. The
round-trip tickets will be sold for P200 each and the airline intends to reimburse
Pampam for any unsold ticket packages. Fixed costs include P5,000 in advertising
costs.

110. How many ticket packages will Pampam need to sell to break even?
A) 34 packages
B) 50 packages
C) 100 packages
D) 150 packages

111. How many ticket packages will Pampam need to sell in order to achieve
P60,000 of operating income?
A) 367 packages
B) 434 packages
C) 1,100 packages
D) 1,300 packages

112. For every P25,000 of ticket packages sold, operating income will increase
by:
A) P6,250
B) P12,500
C) P18,750
D) an indeterminable amount
SITUATION 5

Relx Custom Construction Company is considering three new projects, each requiring
an equipment investment of P26,410. Each project will last for 3 years and produce
the following net annual cash flows.

Year AA BB CC
1 P11,259 P14,665 P18,209
2 14,456 14,665 14,039
3 20,989 14,665 15,429
Total P46,704 P43,995 P47,677

The equipment's salvage value is zero, and Relx uses straight-line depreciation.
Relx will not accept any project with a cash payback period over 2 years. Relx's
required rate of return is 12%.

113. What is the payback period of project AA?

A)2.03 years
B)1.8 years
C)1.59 years
D)1.6 years

114. What is the payback period of project BB?

A)2.03 years
B)1.8 years
C)1.59 years
D)1.6 years

115. What is the payback period of project CC?

A)2.03 years
B)1.8 years
C)1.59 years
D)1.6 years
SITUATION 6

Pfizer Company applies the high-low method of cost estimation to customer order
data for the first 5 months of 2021:
Month Orders Cost
January 1,200 3,120
February 1,300 3,185
March 7,300 14,320
April 1,800 4,320
May 1,700 3,895

116. What is the estimated slope of the line per order? variable cost
a. P 2.00
b. P 2.20
c. P 1.83
d. P 1.84

117. What is the estimated Y-intercept per order? fixed cost

a. P720
b. P888
c. P961
d. P495

118. Compute the dependent variable at 1,650 orders? total cost

a. P4,020.00
b. P4,518.00
c. P3,980.50
d. P3,756.00
SITUATION 7

The balance sheet of TWICE Merchandising at December 31, 2021 are as follows (in
thousands)

Assets Liabilities and SHE

Cash P 220 Accounts payable P ?
Accounts Receivable ? 440 Accrued expenses ?
Inventory 410 Total current Liabilities P ? 370
Total current assets P ? Long-term debt 1,960
Plant and Equipment 5,600 Common stock 1,810
Accumulated depreciation (2,100) Retained earnings 430
Total Assets P ? Total Liabilities and SHE P4,570

119. What is the Acid Test Ratio? quick ratio

a. 1.78 c. 1.98
b. 2.89 d. 1.87

120. What is the Current Ratio?

a. 2.89 c. 1.87
b. 1.78 d. 1.98

121. What is the Debt to Equity Ratio?

a. 0.09 c. 1.44
b. 1.04 d. 1.08
SITUATION 8:

Claire Company has four projects to be considered in her business 10 years

Annual Net Investment Cost of IRR NPV

Cash Inflow Capital
Project A P45,000 P188,640 14% ? 20% P46,080
Project B P75,000 ? 337,056 12% 18% ? 86,700
Project C ? 62,067 P300,000 ? 10% 16% P81,440
Project D P100,000 P450,000 12% 18% P115,000

122. How much is the annual cash flow of Project C?

A) P62,073
B) P69,000
C) P37,050
D) P45,000

123. The internal rate of return of Project A should be

A) 18%
B) 16%
C) 20%
D) 14%

124. What is the net present value of Project B?

A) P85,500
B) P86,700
C) P80,000
D) P82,550
SITUATION 9:

Selected data for the two divisions of the Royal Company are given below:

South Division North Division

Net Sales P4,000,000 P7,000,000
Average total assets P2,000,000 P2,000,000
Operating income before taxes P360,000 P420,000
Tax rate 20% 20%
Average after-tax cost of capital 10% 12%

Income is defined as operating income after taxes.

125. Based on the ROI, which manager should receive a bonus? Bonuses are awarded
if ROI equals or exceeds 15%.
A) South Division only
B) North Division only
C) Both South and North Division
D) Neither South nor North Division

126. Based on the residual income, which division manager should receive a bonus?
Bonuses are awarded if residual income is greater than P100,000.
A) South Division only
B) North Division only
C) Both South and North Division
D) Neither South nor North Division
SITUATION 10:
The following data show actual figures for selected accounts of Koro Sensei
Corporation for the calendar year 2020 and 2021.

December 31, 2020 December 31, 2021

Current Assets:
Cash P 16,000 P 8,000
Accounts receivable 80,000 56,000
Inventory 56,000 64,000
Other current assets 16,000 16,000
Total Current Assets P168,000 P144,000
Non-current Asssets 220,000 204,000
TOTAL ASSETS P388,000 P348,000

Current Liabilities P 62,400 P 68,000

Long-term Liabilities 60,000 24,000
Total Liabilities P122,400 P 92,000
Common Stock (P24 par value) P240,000 P240,000
Retained Earnings 25,600 16,000
Total Equity P265,600 P256,000
Total Liabilities and Equity P388,000 P348,000
INCOME STATEMENT
For the year ended December 31, 2021

Sales (all on credit) P280,000

Cost of Goods sold 128,000
Gross income P152,000
Administrative expenses 53,600
Operating Income P 98,400
Interest Expense 2,400
Income before tax P 96,000
Income tax (40%) 38,400
Net Income P 57,600

127. The expected return on assets in 2021 is

A) 15.65%
B) 16.55%
C) 14.84%
D) 7.83%

128. The expected number of times the company can earn interest expense in 2021 is
A) 24 times
B) 40 times
C) 63 times
D) 41 times

129. The company’s earnings per share is

A) P5.76
B) P9.60
C) P9.84
D) P15.20
SITUATION 11:
White Freeze Products has a budget of P900,000 in 2020 for prevention costs. If it
decides to automate a portion of its prevention activities, it will save P60,000
in variable costs. The new method will require P18,000 in training costs and
P120,000 in annual equipment costs. Management is willing to adjust the budget for
an amount up to the cost of the new equipment. The budgeted production level is
150,000 units.

Appraisal costs for the year are budgeted at P600,000. The new prevention procedures
will save appraisal costs of P30,000. Internal failure costs average P15.75 per
failed unit of finished goods. The internal failure rate is expected to be 3.25%
of all completed items. The proposed changes will cut the internal failure rate by
33.69% Internal failure units are destroyed. External failure costs average P54.50
per failed unit. The company's average external failures average 2.67% of units
sold. The new proposal will reduce this rate by 50%. Assume all of the units
produced are sold and no ending inventories to be remained.

130. What is the net change in the budget of prevention costs if the procedures are
automated in 2021?
A) P60,000 decrease
B) P78,000 increase
C) P60,000 increase
D) P138,000 increase

131. How much will internal failure costs change if the internal product failures
are reduced by 50% with the new procedures?
A) P38,391 decrease
B) P57,586 decrease
C) P86,704 decrease
D) P41,288 decrease

132. Management has offered to allow the prevention changes if all changes take
place as anticipated and the amounts netted are less than the cost of the equipment.
What is the net impact of all the changes created by the preventive changes?
A) P78,000
B) P(39,174)
C) P(87,004)
D) P(75,917)

Prevention changes, net 78,000

Appraisal changes, net (30,000)
Internal failure changes, net
(150,000 x 3.25% x 33.69% x 15.75) (25,868)
External failure changes, net
(150,000 x 2.67% x 50% x 54.50) (109,136)
Net of all changes (87,004)

133. An important difference between financial measures of quality and nonfinancial

measures of quality is
A) financial measures of quality tend to be useful indicators of future long-term
performance, while nonfinancial measures have more of a short-term focus.
B) nonfinancial measures of quality tend to be useful indicators of future long-
term performance, while financial measures of quality have more of a short-term
focus
C) nonfinancial measures are generally too subjective to have any long-term value.
D) there is no substantive difference between the financial and nonfinancial
measures of quality.
SITUATION 12:

Meme sells a special putter for P20 each. In March, it sold 28,000 putters while
manufacturing 30,000. There was no beginning inventory on March 1. Production
information for March was:

Direct manufacturing labor per unit 15 minutes

Fixed selling and administrative costs P 40,000
Fixed manufacturing overhead 132,000
Direct materials cost per unit 2
Direct manufacturing labor per hour 24
Variable manufacturing overhead per unit 4
Variable selling expenses per unit 2

134. How much is the ending inventory under absorption costing? Variable costing?
A) P28,800 and P20,000
B) P36,800 and P32,000
C) P32,800 and P24,000
D) P25,429 and P21,429

135. How much is the cost per unit under both absorption and variable costing?
A) P16.40 and P12.00
B) P18.40 and P16.00
C) P14.40 and P10.00
D) P12.71 and P10.71

136. How much is the operating income under both variable and absorption costing?
A) P4,800 and (P4,000)
B) (P4,000) and P4,800
C) (P4,800) and P4,000
D) P4,000 and (P4,000)
SITUATION 13:
Consider the following Price and Dividend data for Ford Motor Company:

Date Price Dividend

December 31, 2021 P14.64
January 26, 2022 13.35 P0.10
April 28, 2022 9.14 0.10
July 29, 2022 10.74 0.10
October 28, 2022 8.02 0.10
December 30, 2022 7.72

137. Assume that you purchased Ford Motor Company stock at the closing price on
December 31, 2021 and sold it after the dividend had been paid at the closing price
on January 26, 2022. Your dividend yield for this period is closest to:
A) -8.15%
B) 0.75%
C) 0.70%
D) -8.80%

= div / P0 = .10 / 14.64 = .0068

138. Assume that you purchased Ford Motor Company stock at the closing price on
December 31, 2021 and sold it after the dividend had been paid at the closing price
on January 26, 2022. Your capital gains rate (yield) for this period is closest to:
A) 0.75%
B) 0.70%
C) -8.80%
D) -8.15%

= (P1 - P0) / P0 = (13.35 - 14.64) / 14.64 = -.088115

139. Assume that you purchased Ford Motor Company stock at the closing price on
December 31, 2021 and sold it after the dividend had been paid at the closing price
on January 26, 2022. Your total return rate (yield) for this period is closest to:
A) 0.75%
B) -8.80%
C) 0.70%
D) -8.15%

D) = (P1 + D1 - P0) / P0 = (13.35 + .10 - 14.64) / 14.64 = -.08128

SITUATION 14:
Fayeh Company has outstanding accounts payable of P 450,000, on terms of 2/10,
net/60. Because of a cash shortage, Fayeh Company would have to borrow P 220,000
in order to take advantage of the discount. If Fayeh
decides to forego the discount, it will be able to pay off the account in 60 days
without borrowing. The P 220,000 loan would be a 30-day note on which Fayeh would
have to repay P 223,300.

The following relationships have been established for inventory ordering

and storage costs of Helsinki Company, which works 50 weeks for one year:
A) Requirements for the year are 10,000 units.
B) The purchase price per unit is P 100.
C) The carrying cost is 20% of the purchase price of the goods.
D) The cost per order place is P 90.
E) The desired safety stock on hand is 400 units.
F) Three weeks are required for delivery.

Orphan Electronics needs P 250,000 that can be obtained through a factoring

arrangement. The factor will purchase Orphan’s accounts receivable, advancing the
invoice amount less a 4% commission on the invoices purchased each month. All sales
are 30-day term. In addition, the factor will charge a 15% annual interest rate on
the total invoice price, deducted in advance. Under the factoring arrangement,
Orphan will be able to reduce its bad debt losses by 5% on the receivables factored,
and will be able to cut the staff in its credit department for a savings of P 20,000
per month.

140. Should Fayeh borrow the funds, or forego the discount?

A) Forego the discount since it will not cost anything
B) Borrow the funds since it is cheaper by 0.5% than foregoing the
discount
C) Forego the discount since it is cheaper by 0.31% than borrowing
the funds
D) Forego the discount since it is cheaper by 3.31% than borrowing
the funds

Trade credit: (2/98) x (360/50) = 14.69%

Loan EAR: (3,300/220,000) x (360/30) = 18%

141. How frequent should Helsinki place orders in one year?

A) About every 1.50 weeks
B) About every 1.56 weeks
C) About every 1.58 weeks
D) About every 2.29 weeks

EOQ = Square root of [2(10,000)90/20] = 300

No. of orders: 10,000/300 = 33.33 times
Frequency: 50 weeks/33.33 times = 1.5 weeks

142. Orphan requires what rounded amount of accounts receivable to receive a net
amount of P 250,000?
A) P 308,642
B) P 294,118
C) P 290,698
D) P 260,417

250,000/(100% - 4% - 15%)
SITUATION 15:

Insan Company has the following revenue and cost budgets for the two products it
sells:

Product Xiexie Product Yawa

Sales Price P 50.00 P75.00
Direct Materials 10.00 15.00
Direct Labor 15.00 25.00
Fixed Overhead 15.00 20.00
Net Income per unit 10.00 15.00

Budgeted unit sales 100,000 300,000

The budgeted unit sales equal the current unit demand, and total fixed overhead for
the year is budgeted at P975,000. Assume that the company plans to maintain the
same proportional mix. In numerical calculations, Insan rounds to the nearest cent
and unit.

143. The total number of units Insan needs to produce and sell to break even is
A) 30,000 units
B) 60,000 units
C) 35,455 units
D) 70,909 units

144. The total number of units needed to breakeven if the budgeted direct labor
costs were P10.00 for Product Xiexie instead of P1.00 is
A) 28,889 units
B) 30,806 units
C) 29,235 units
D) 31,200 units

145. The total number of units needed to breakeven if sales were budgeted at 150,000
units of Product Xiexie and 300,000 units of Product Yawa with all other costs
remaining constant is
A) 30,789 units
B) 73,034 units
C) 34,392 units
D) 83,691 units
SITUATION 16:
Kaya Ko To Beh Co. has made the following information available for its production
facility for September 2022. The following standard unit cost data were available:

Direct material 20 pieces @ P8 per piece P160.00

Direct labor 1.5 hours @ P12 per hour 18.00
Variable overhead 4.8 hours @ P5 per machine hour 24.00
Fixed overhead 4.8 hours @ P6 per machine hour 28.80
Standard unit costs P230.80

Fixed overhead was estimated at 19,000 machine hours for the production cycle.
Actual machine hours for the period were 18,900, which generated 3,900 units. Other
relevant information during the period are as follows:

Material purchased (40,000 pieces) P314,000

Actual fixed overhead 60,000
Actual labor cost 40,120
Actual labor hours 5,900

146. Total conversion costs efficiency variance is

A) P600 adverse
B) P900 unfavorable
C) P1,500 unfavorable
D) P7,500 unfavorable

147. The materials purchase price variance is

A) P6,000 favorable
B) P5,970 favorable
C) P5,850 favorable
D) P6,400 adverse

148. The volume variance is

A) P1,080 unfavorable
B) P300 adverse
C) P600 favorable
D) P1,680 unfavorable
SITUATION 17:

Chen corporation is a highly automated manufacturing firm. The vice president of

finance has decided that traditional standards are inappropriate for performance
measures in an automated environment. Labor is insignificant in terms of the total
cost of production and tends to be fixed, material quality is considered more
important than minimizing material cost, and customer satisfaction is the number
one priority. As a result, delivery performance measures have been chosen to
evaluate performance.

The following information is considered typical of the time involved to complete

orders of 50 units.

Wait time from order being placed to start of production 5 hours

Wait time from start of production to completion 7 hours
Inspection time 2 hours
Process time 8 hours
Move time 3 hours

149. What is the manufacturing cycle efficiency for this order?

A) 40%
B) 32%
C) 80%
D) 61.5%

150. What is the delivery cycle efficiency for this order?

A) 40%
B) 32%
C) 80%
D) 61.5%

151. What is the velocity for this order?

A) 0.16
B) 0.40
C) 2.5
D) 6.25

Velocity = units/production time = 50/20 = 2.5 units per hour

SITUATION 18:

Trigger Corp. produces a single product. The cost of producing and selling a single
unit of this product at the company’s normal level of 80,000 units per month is as
follows:

Direct materials P37.50

Direct labor 6.00
Variable manufacturing overhead 1.00
Fixed manufacturing overhead 11.50
Variable selling and administrative expenses 1.80
Fixed selling and administrative expenses 8.00

An order has been received from an overseas customer for 1,000 units to be delivered
this month at a special discounted price. This order would have no effect on the
company’s normal sales and would not change the total amount of the Company’s fixed
costs. The variable selling and administrative expense would be P1.50 less per unit
on this order than on normal sales.

Direct labor is a variable cost in this company.

152. Suppose there is ample idle capacity to produce the units required by the
overseas customer and the special discounted price on the special order is P63.70
per unit. By how much would this special order increase (decrease) the company’s
net operating income for the month?
A) P7,400
B) (P5,900)
C) P18,900
D) (P2,100)

153. Suppose the company is already operating at capacity when the special order
is received from the overseas customer. What would be the opportunity cost of each
unit delivered to the overseas customer?
A) P24.80
B) P6.80
C) P7.40
D) P5.30

154. Suppose there is not enough idle capacity to produce all of the units for the
overseas customer and accepting the special order would require cutting back on
production of 400 units for regular customers. The minimum acceptable price per
unit for the special order is closest to:
A) P56.00
B) P65.80
C) P71.10
D) P54.72
SITUATION 19:

RHASTA CORP. is engaged in producing and selling 2 types of furniture, SHACKLES

and HEX. The two products are sold in a ratio of 2 units of SHACKLES to 3 units
of HEX. Data concerning these products are as follows:

SHACKLES HEX
Selling Price P12 P28
Unit Variable Cost 3 16

RHASTA CORP. has a total fixed cost of P600,000 per year and faces a tax rate of
30%.

155. How much is the net income if there are 90,000 units to be sold by RHASTA
CORP. during the year?
A) P241,500
B) P222,600
C) P260,400
D) None of the above

156. Compute the volume of sales in units of DELUXE if the company plans to earn
10 percent on sales revenue in before-tax income.
A) 27,778 units
B) 50,000 units

C) 41,667 units
D) 32,143 units

157. Compute the necessary peso sales of SUPREME to breakeven.

A) P933,333
B) P266,667
C) P480,000
D) P720,000
SITUATION 20:

JJ Corporation has the following budget estimates for its second year of operations:

Projected sales P3,500,000

Projected income before tax 12% of sales
Estimated selling and administrative expenses 25% of sales

Direct labor and factory overhead are budgeted at 70% of the total manufacturing
cost. Inventories are estimated as follows:

Beginning Ending
Raw Materials P220,000 P270,000
Work-in-process 250,000 300,000
Finished goods 350,000 420,000

158. The estimated cost of goods sold would be

A) P2,275,000
B) P2,205,000
C) P2,325,000
D) P1,750,000

159. The estimated purchases of raw materials would be

A) P967,500
B) P732,500
C) P697,500
D) P747,500
SITUATION 21:

CASIO Company prepared the following sales budget:

Month Cash Sales Credit Sales

February P 80,000 P340,000
March 100,000 400,000
April 90,000 370,000 95%
May 120,000 460,000 85%
June 110,000 380,000 40%

Additional information:
• 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
• Gross profit rate for the months February to June is 37.5 of total sales.

160. The company’s 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

161. The accounts receivable balance as of May 31 is

A) P291,000
B) P331,500
C) P264,000
D) P297,000

162. The cost of goods sold for April and June is

A) P287,500 and P306,250
B) P362,500 and P287,500
C) P306,250 and P262,500
D) P312,500 and P362,500
SITUATION 22:

Information about PRODUCT CHOPPER of LUFFY CORP is as follows:

Annual Sales 500,000 units

Ordering cost P1,125 per order
Carrying cost per year P500 per unit

Currently, every order of LUFFY from its supplier has a lot size of 1,000 units.
Delivery of the supplier is not that stable. The usual delivery takes three days,
however at times, the lead time has gone as high as eight days. LUFFY uses 200-day
work per year

163. What is the economic order quantity?

A) 1,000 units
B) 667 units
C) 1,500 units
D) 800 units

164. Currently, what is the total carrying cost of LUFFY?

A) P6,500,000
B) P250,000
C) P375,000
D) P500,000

165. At economic order quantity, what is the total cost related to its inventories?
A) P750,000
B) P500,000
C) P7,062,500
D) P7,000,000

166. What is the reorder point?

A) 12,500 units
B) 20,000 units
C) 7,500 units
D) 5,000 units

167. EOQ is unaffected by

I. The increase of safety stock
II. The increase in the variable costs of placing and receiving an order
III. The change of inventory valuation (e.g. FIFO to Average Method)

A) I and II
B) II and III
C) I and III
D) I, II and III
SITUATION 23:

On December 30, 2022, a flash flood caused by a typhoon destroyed the bulk of the
accounting records of the Boat Division, a small one-product manufacturing division
that uses standard costs and flexible budgets. All variances are written off as
additions to (or deductions from) income; none are prorated to inventories. In
addition, the chief accountant mysteriously disappeared. You have the task of
reconstructing the records for the year 2022. The general manager has said that the
accountant has been experimenting with both absorption costing and variable costing.

The records are a mess, but you have gathered the following data for 2022:

a. Cash on hand, December 31, 2022 P10

b. Sales P128,000
c. Actual fixed indirect manufacturing costs P21,000
d. Accounts receivable, December 31, 2022 P20,000
e. Standard variable manufacturing costs per unit P1
f. Variances from standard of all variable
manufacturing costs P5,000 U
g. Operating income, absorption-costing basis P14,400
h. Accounts payable, December 31, 2022 P18,000
i. Gross profit, absorption costing at standard
(before deducting variances) P22,400
j. Total liabilities P100,000
k. Unfavorable budget variance, fixed manufacturing costs P1,000 U
l. Notes Receivable from chief accountant P4,000
m. Contribution margin, at standard
(before deducting variances) P48,000
n. Direct-material purchases, at standard prices P50,000
o. Actual selling and administrative costs (all fixed) P6,000

168. The operating income on a variable-costing basis

A) P15,000
B) P22,000
C) P16,000
D) P21,000

169. The number of units sold in 2022

A) 62,500
B) 80,000
C) 75,000
D) 68,750

170. The number of units produced in 2022

A) 62,500
B) 80,000
C) 75,000
D) 68,750

171. The number of units used as the denominator to obtain fixed indirect cost
application rate per unit on absorption-costing basis
A) 62,500
B) 80,000
C) 75,000
D) 68,750
SITUATION 24:

Spain (but the S is silent) Inc. is interested in measuring its overall cost of
capital and has gathered the following data. Under the terms described below, the
company can sell unlimited amounts of all instruments

• Spain can raise cash by selling P1,000, 8%, 20-year bonds with annual interest
payments. In selling the issue, an average premium of P30 per bond would be
received, and the firm must pay flotation costs of P30 per bond. The after-tax
cost of funds is estimated to be 4.8%.
• Spain can sell 8% preferred stock at P105 per share. The cost of issuing and
selling the preferred stock is expected to be P5 per share.
• Spain’s common stock is currently selling for P100 per share. The firm expects
to pay next year cash dividends of P7 per share, and the dividends are expected
to remain constant. The stock will have to be underpriced by P3 per share, and
flotation costs are expected to amount to P5 per share.
• Spain expects to have available P100,000 of retained earnings in the coming year,
once these retained earnings are exhausted, the firm will use new common stock
as the form of common stock equity financing.
• Spain’s preferred capital structure is: Long-term debt, 30%; Preferred stock,
20%; Common stock, 50%.

172. What is the cost of funds from sale of common stock for Spain?
A) 7.0%
B) 7.4% 7
C) 7.6% 100-5-3
D) 8.1%

173. What is the cost of funds from retained earnings for Spain?
A) 7.0% 7
B) 7.4% 100
C) 7.6%
D) 8.1%

174. If Spain needs a total of P200,000, what would be the firm’s weighted average
cost of capital?
A) 4.8%
B) 6.5%
C) 6.8%
D) 19.80%

175. If Spain needs a total of P1,000,000, what would be the firm’s weighted average
cost of capital?
A) 4.8%
B) 6.5%
C) 6.8%
D) 27.4%
SITUATION 25:

ITLOG NA PULA Company are going to invest P20,000 in a portfolio consisting of

Assets X, Y, and Z, as follows:

Asset Annual Return Probability Beta Proportion

X 10% 0.50 1.2 0.333
Y 8% 0.25 1.6 0.333
Z 1 6% 0.25 2.0 0.333

176. What is the expected annual return of this portfolio?

A) 11.4%
B) 10.0%
C) 11.0%
D) 11.7%

177. The beta of the portfolio containing assets X, Y, and Z is:

A) 1.5
B) 2.4
C) 1.6
D) 2.0

178. The beta of the portfolio indicates this portfolio

A) has more risk than the market
B) has less risk than the market
C) has an undetermined amount of risk compared to the market
D) has the same risk as the market

176 – 10%(0.50) + 8%(0.25) + 16%(0.25) = 11.0%

177 – 1.2(0.333) + 1.6(0.333) + 2.0(0.333) = 1.6
SITUATION 26:

Case I: The following are information regarding Asset A

Possible Outcomes Probability Returns
Pessimistic 25% 10%
Most likely 45% 12%
Optimistic 30% 16%

Case II: The following are the data of a financial manager regarding to its assets
Asset Expected Return Standard Deviation
B 10% 5%
M 16% 10%
Q 14% 9%
D 12% 8%

Case III: Given the following information

Expected Return (%)
Year Asset A Asset B Asset C
1 6 8 6
2 7 7 7
3 8 6 8

179. The expected value and the standard deviation of returns for Asset A in Case
I are
A) 12% and 4%
B) 12.7% and 2.3%
C) 12.7% and 4%
D) 12% and 2.3%

180. Given the following in Case II, which asset should the prudent financial
manager select?
A) Asset B
B) Asset M
C) Asset Q
D) Asset D

181. In Case III , the correlation of returns between Asset A and Asset B can be
characterized as
A) perfectly positively correlated
B) perfectly negatively correlated
C) uncorrelated
D) cannot be determined

182. In Case III, if you were to create a portfolio designed to reduce risk by
investing equal proportions in each of two different assets, which portfolio would
you recommend?
A) Assets A and B
B) Assets A and C
C) None of the available combinations
D) Cannot be determined

183. In Case III, the portfolio with a standard deviation of zero

A) is comprised of Assets A and B C) is not possible
B) is comprised of Assets A and C D) cannot be determined
SITUATION 27:

SARADA Company produces and sells cellular phone blaster, a gadget which explodes
when activated with a remote commander. This is used by cellphone owners when their
unit is snatched from them or is taken by thieves. The static master budget and the
actual results of operations for the month of June are as follows:

Budget (8,000 units) Actual (9,600 units)

Sales P800,000 P1,056,000
Cost of Goods Sold 480,000 556,800
Gross Profit 320,000 499,200

Management wants an explanation of the favorable gross profit variance of P179,200.

184. Determine the sales price variance and sales volume variance
A) P96,000 favorable and P160,000 favorable
B) P160,000 favorable and P96,000 favorable
C) P19,200 favorable and P96,000 unfavorable
D) P96,000 unfavorable and P19,200 favorable

185. Determine the cost price variance and cost volume variance
A) P96,000 favorable and P160,000 favorable
B) P160,000 favorable and P96,000 favorable
C) P19,200 favorable and P96,000 unfavorable
D) P96,000 unfavorable and P19,200 favorable

186. What is the percentage change in sales price? cost price? volume?
A) 20% increase; 10% increase; 3.33% decrease
B) 10% increase; 3.33% decrease; 20% increase
C) 3.33% decrease; 20% increase; 10% increase
D) 10% decrease; 20% decrease; 3.33% increase
SITUATION 28:

HXH and DXD are the only two divisions in the XXX Company. HXH makes and sells
units that can be sold either to outside customers or to DXD. The following data
are available from last month:

HXH Division:
Unit selling price to outside customers P45
Unit variable costs when sold to outside customers 30
Capacity in units 12,000
Units sold to outside customers 6,000

DXD Division:
Number of units needed per month 4,000
Unit price paid to an outside supplier P42

If HXH sells the units to DXD, HXH can avoid P2 per wheel in sales commissions.

187. What transfer price would be used according to the transfer pricing formula?
A) P28
B) P30
C) P42
D) P45

188. What is the maximum price per wheel that DXD should be willing to pay HXH if
a transfer were to take place?
A) P28
B) P30
C) P42
D) P45

189. Suppose that HXH sells 9,000 units each month to outside customers and the
transfer pricing formula is used to determine the transfer price, what is the
appropriate transfer price per unit?
A) P29.50
B) P31.75
C) P39.25
D) P42.00
SITUATION 29:

KAEL Incorporated provided the following data in relation to its utility costs for
the four quarters of the current year:

Quarters Machine Hours Units of Production Utility Costs

First 5,000 3,000 11,000
Second 3,500 2,500 7,000
Third 3,000 2,000 8,000
Fourth 4,000 4,000 10,000

The company conducted a correlation analysis and determined that the coefficient
of correlation on the relationship of machine hours and units of production to
utility costs is 0.80 and -0.85.

190. Using high-low method, what are the estimated monthly fixed costs?
A) P6,000
B) P3,500
C) P2,000
D) P3,000

191. Using high-low method, what is the total estimated annual utility cost if the
next year’s estimates for units of production are 10,000 units while for machine
hours are 15,000 hours?
A) P16,000
B) P34,000
C) P26,000
D) P36,500

192. Using least-square method, what is the annual cost equation for utility costs?
A) Y = 6,000.00 + 1.00x
B) Y = 3,500.00 + 1.50x
C) Y = 4,078.50 + 1.67x
D) Y = 5,061.25 + 1.37x
SITUATION 30:

Believing that its traditional costing system may be providing misleading

information, an organization is considering an activity-based costing (ABC)
approach. It now employs a full-cost system and has been applying its manufacturing
overhead on the basis of machine hours.

Activity Cost Driver Budgeted Budgeted Cost

Activity
Materials No. of parts 6,000,000 P720,000
handling handled
Setup costs No. of setups 750 P315,000
Machining costs Machine hours 30,000 P540,000
Quality Control No. of batches 500 P225,000
P1,800,000

Costs, sales, and production data for one of the organization’s products for the
coming year are as follows:

Prime costs:
Direct materials cost per unit P4.40
Direct labor cost per unit (0.50 DLH @ P15/DLH) 0.75
Total P5.15

Sales and production data:

Expected sales 20,000 units
Batch size 5,000 units
Setup 2 per batch
Total parts per finished unit 5 parts
Machine hours required 80 MH per batch

193. If the organization uses the full-cost system, the cost per unit for this
product for the coming year will be
A) P5.39
B) P5.55
C) P6.11
D) P6.95

194. If the organization employs an activity-based costing system, the cost per
unit for the product described for the coming year will be
A) P6.00
B) P6.08
C) P6.21
D) P6.30
SITUATION 31:

The following information is available for Dellinger Enterprises for 2020:

Pre-tax operating profit 20,000,000

Depreciation expense 2,000,000
Increase in net working capital 4,000,000
Capital expenditures 9,000,000
Current liabilities 8,000,000
Long-term debt - at par, 10% 40,000,000
Debt-to-equity ratio 1.2:1
WACC 9%
Income tax rate 30%

195. Using the information given, what is the cost of equity?

A) 9%
B) 7%
C) 11%
D) 5.5%

196. Using the same information, what is the economic value-added?

A) P6,800,000
B) P6,080,000
C) P12,080,000
D) P12,800,000
SITUATION 31:

The data presented below show actual figures for selected accounts of Gugulu Company
for the fiscal year ended May 31, 2020, and selected figures for the 2021 fiscal
year. Gugulu Company’s controller is in the process of reviewing the 2021 budget.
Gugulu Company monitors yield or return ratios using the average financial position
of the company. (Round all calculations to three decimal places if necessary.)

May 31 2021 May 31, 2020

Current assets P105,000 P 90,000
Noncurrent assets 137,500 127,500
Current liabilities 39,000 42,500
Long-term debt ? 15,000
Common stock – P30 par value 150,000 150,000
Retained earnings ? 10,000

2021 Operations:
Sales P175,000
Cost of goods sold 80,000
Interest expense 1,500
Income taxes (40% rate) ?
Dividends declared and paid in 2021 30,000
Administrative expenses 33,500

All sales are credit sales.

Current Assets
May 31 2021 May 31, 2020
Cash P10,000 P 5,000
Accounts receivable 50,000 35,000
Inventory 35,000 40,000
Other 10,000 10,000

197. Gugulu’s debt to total assets ratio for 2021 is

A) 0.352
B) 0.264
C) 0.315
D) 0.237

198. The 2021 accounts receivable turnover for Gugulu company is

A) 1.882
B) 3.500
C) 5.000
D) 4.118

199. Using a 365-day year, Gugulu Company’s inventory turnover is

A) 2.133
B) 2.281
C) 1.995
D) 4.615

200. Gugulu Company’s total assets turnover for 2021 is

A) 0.805
B) 0.761
C) 0.722
D) 0.348
201. The 2021 return on assets for Gugulu Company is:
A) 0.261
B) 0.157
C) 0.166
D) 0.148

SITUATION 32:

In order to increase production capacity, Coldplay Company is considering replacing

an existing production machine with a new technology-improved machine effective
January 1. The following information is being considered by the company:

1. The new machine would be purchased for P160,000 in cash. Shipping, installation,
and testing would cost an additional P30,000.

2. The new machine is expected to increase annual sales by 20,000 units at a sales
price of P40 per unit. Incremental operating costs include P30 per unit in variable
costs and total fixed costs of P40,000 per year.

3. The investment in the new machine will require an immediate increase in working
capital of P35,000. This cash outflow will be recovered after five years.

4. Colplay uses straight-line depreciation for financial reporting and tax reporting
purposes. The new machine has an estimated useful life of 5 years and zero salvage
value.

5. Coldplay is subject to a 40% income tax rate.

Coldplay uses the net present value method to analyze investments and
will employ the following factors and rates:

Period Present Value Present Value of an Ordinary

of P1 at 10% Annuity of P1 at 10%
1 0.909 0.909
2 0.826 1.736
3 0.751 2.487
4 0.683 3.170
5 0.621 3.791

202. Colplay’s net cash outflow in a capital budgeting decision is

A) P 90,000
B) P195,000
C) P204,525
D) P225,000

203. Coldplay’s discounted annual depreciation tax shield for Year 1 is

A) P13,817
B) P16,762
C) P20,725
D) P22,800

204. The overall discounted cash flow impact of Coldplay’s working capital
investment for the new production machine would be
A) P(7,959)
B) P(10,080)
C) P(13,265)
D) P(35,000)
205. The acquisition of the new production machine by Coldplay will
contribute a discounted net of tax contribution margin of
A) P242,624
B) P303,280
C) P363,936
D) P454,920

SITUATION 33:

The next year’s budgeted sales of DAZZLE CORP is P1,000,000, 90% would be credit
sales. The current credit term of the company is 30 days which is also its average
collection period. The company estimates that a proposed relaxation of credit
standards would increase credit sales by 30% and increase the average collection
period from 30 days to 45 days. However, bad debts losses on the incremental sales
would be 3%. The following information relates to DAZZLE CORP:

Selling price P50

Variable cost per unit 30
Carrying cost 10%
Fixed costs P250,000

Assume 360 days a year and a tax rate of 30%.

206. What is the incremental carrying cost resulting from relaxation of the credit
policy?
A) P4,275
B) P4,750
C) P3,700
D) P5,675

207. What would be the effect of those changes in net income?

A) P66,605 increase
B) P65,975 increase
C) P66,937.50 increase
D) P108,062.50 decrease

SITUATION 34

The following selected data pertains to Migoy Company at December 31, 2022:

Quick assets P208,000

Acid-test ratio 2.6 to 1
Current ratio 3.5 to 1
Net sales for 2022 P1,800,000
Cost of sales for 2022 P990,000
Average total assets for 2022 P1,200,000

208. Migoy Company’s current liabilities at December 31, amount to

A) P59,429
B) P80,000
C) P134,857
D) P187,200

209. Migoy Company’s inventory balance at December 31, 2022 is

A) P72,000
B) P187,200
C) P231,111
D) P282,857

210. Migoy Company’s asset turnover for 2022 is

A) 0.675
B) 0.825
C) 1.21
D) 1.50

“Whatever you do, do it all for the glory of God.”

1 Corinthians 10:31