GARCIA COLLEGE OF TECHNOLOGY

PRE-LIM EXAMINATION
ACCTG 7

I. THEORY (2 points each) – Select the most correct answer.

1. An organization develops a code of ethics because
a. It is required by law.
b. The CEO demands it.
c. It wishes to reduce ethical conflicts by avoiding ambiguity or misunderstandings.
d. It wishers to punish those whose ethical standards are different from its own.
2. Which one of the following items would have to be included for a company preparing a
schedule of cash receipts and disbursements for the calendar year 2014?
a. A purchase order issued in December 2014 for items to be delivered in February 2015.
b. Dividends declared in November 2014 to be paid in January 2015 to shareholders of record
as of December 2014.
c. The amount of uncollectible customer accounts for 2014.
d. The borrowing of funds from a bank on a note payable taken out to pay the principal and
interest after a year, that is, June 2015.
3. 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.
4. The preparation and translation of the plans and programs of a business into terms of the funds
needed to consummate such plans and programs, the subsequent determination of the most
economic ways to acquire such funds, the control over the use of funds and the appraisal of the
results of the expenditures is called
a. business forecasting
b. budgeting
c. flexible budgets
d. capital budgets
5. Strategy specifies
a. How an organization matches its own capabilities with the opportunities in the
marketplace.
b. Standard procedures to ensure quality products.
c. Incremental changes for improved performance.
d. The demand crated for products and services.
6. An overhead budget consisting of separate budgets for different levels of activity is called a
a. progressive budget
b. capital budget
c. production budget
d. flexible budget
7. Ethical challenges for management accountants include
a. Whether to accept gifts from suppliers, knowing it is an effort to indirectly influence
decisions.
b. Whether to report unfavorable department information that may result in unfavorable
consequences for a friend.
c. Whether to file a tax return this year.
d. Both a and b.
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8. Which of the following is not a characteristic of a “staff” authority?

a. It gives support, advise, and service to line managers.
b. It is exercised laterally or upward.
c. It has the authority to command action or give orders to subordinates.
d. It directly participates in making decisions involving operations and other line functions.
9. A sales budget is classified as
a. an operating budget
b. a financial budget
c. a flexible budget
d. a program budget
10. Katrina is a financial manager who has discovered that her company is violating environmental
regulations. If her immediate superior is involved, her appropriate action is to
a. Do nothing since she has a duty of loyalty to the organization.
b. Consult the audit committee.
c. Present the matter to the next higher managerial level.
d. Confront her immediate superior.
11. Controllers are ordinarily concerned with
a. Investor relations
b. Credit extension and collection of bad debts
c. Short-term financing
d. Preparation of tax returns
12. Which of the following components of the master budget must be prepared before the others?
a. Direct labor peso budget
b. Cost of goods sold budget
c. Production budget
d. Raw materials purchase budget
13. Which of the following functions provides feedback information about the efficiency of tasks
performed?
a. Operating control
b. Product and customer costing
c. Management control
d. Financial reporting
14. A flexible budget is
a. one that can be changed whenever a manager so desires
b. adjusted to reflect expected costs at the actual level of activity
c. one that uses the formula, total cost = cost per unit x units produced
d. the same as continuous budget
15. Certified Management Accountants are required to adhere to the following ethical standards,
except
a. Competence
b. Ingenuity
c. Integrity
d. Objectivity
16. Which of the following is a controller’s responsibility?
a. tax planning and accounting
b. custodian of funds
c. in-charge of credit and collection
d. arranging short-term notes and financing
17. The cash budget is prepared
a. Before all period budgets are prepared.
b. After all forecasted income statement but before the forecasted statement of financial
position.
c. As the last step in the master budget.
d. Only if the company as doubts about the debt-paying ability.
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18. Controllership and treasurership constitute corporate finance. These are among the
controller’s traditional functions:
i. Tax management
ii. Financial reporting and interpretation
iii. Credit management
iv. Sourcing and investing funds
v. Reporting to government regulatory agencies
vi. Risk management
vii. Economic appraisal
viii. Planning for control
a. All eight items
b. Items i, ii, v, vii, and viii only
c. Items i, ii, iii, iv, v, vii, and viii only
d. Items ii, iii, v, vii, and viii only
19. Control measures should
a. Be set and not changed until the next budget cycle
b. Be flexible to allow for employees who are slackers
c. Be kept confidential from employees so that competitors don’t have an opportunity to gain
a competitive advantage
d. Be linked by feedback to planning.
20. The control area of management is primarily concerned with:
a. Standards and variances
b. Monitoring and evaluation
c. Structure and discipline
d. Organization and implementation

II. PROBLEMS. Compute the correct answer.

21. Atlas Company had prepared the following flexible budget for production costs: total
production costs = P260,000 + P5x, where x is the number of machine hours. Atlas produced
20,000 units, using 34,000 machine hours at a total cost of P425,000. The flexible budget
allowance for production costs is
a. P260,000
b. P425,000
c. P430,000
d. P525,000
22. Terry Company is preparing its cash budget for the month of April. The following information is
available concerning its inventories:
Inventories, April 1 P 90,000
Estimated purchases for April 440,000
Estimated cost of goods sold for April 450,000
Estimated payments in April for purchases in March 75,000
Estimated payments in April for purchases prior to March 20,000
Estimated payments in April for purchases in April 75%
What are estimated cash disbursements for inventories in April?
a. P401,250
b. P405,000
c. P425,000
d. P432,500
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23. Berry Company budgeted sales in units for the last quarter of the year as follows:
October – 12,000; November – 14,000; December – 16,000.
The finished goods inventory on hand October 1 is 4,000 units. Berry desires an ending
inventory on December 31 of 3,000 units. How many units should Berry produce for the last
quarter?
a. 41,000
b. 43,000
c. 45,000
d. 49,000
24. Anthony Company has projected cost of goods sold of P4,000,000, including fixed costs of
P800,000. Variable costs are expected to be 75% of net sales. What will be the projected net
sales?
a. P 4,266,667
b. P 4,800,000
c. P 5,333,333
d. P 6,400,000
25. Barron Company budgeted sales of 25,000 units for July, 30,000 for August and 40,000 for
September. Barron desires an ending inventory equal to one-fourth of the following month’s
sales needs. Budgeted production for August is
a. 32,000 units
b. 30,4000 units
c. 32,500 units
d. 35,000 units
26. Reid Company is developing a forecast of March 2016 cash receipts from credit sales. Credit
sales for March 2016 are estimated to be P320,000. The accounts receivable balance at
February 28, 2016 is P300,000; one-quarter of the balance represents January credit sales and
the remainder is from February sales. All accounts receivable from months prior to January
2016 have been collected or written-off. Reid’s history of accounts receivable are:
In the month of sale 20%
In the first month after month of sale 50%
In the second month after month of sale 25%
Written-off as uncollectible at the end of
the second month after month of sale 5%
Based on the above information, Reid is forecasting March 2016 cash receipts from credit sales
of
a. P176,500
b. P195,250
c. P253,769
d. P267,125
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For the next 3 items:

Bags, Inc. manufactures leather bags with 3 zipper-type pockets. The company outsources the
zippers at P8 per unit. Each bag requires 5 direct labor hours to produce at a rate of P10 per hour.
Budgeted sales of bags for the first quarter of the year and the first month of the following quarter
are as follows:
January 900 units
February 1,000 units
March 1,500 units
April 1,800 units
Inventory data are as follows:
January 1: Leather bags 360
Zipper 1,620
End of each month:
Leather bags – 40% of the following month’s budgeted sales
Zipper – 60% of the following month’s production requirement
27. What is the budgeted production of leather bags for the first quarter?
a. 3,760
b. 3,040
c. 4,400
d. 3,400
28. What is the budgeted purchases of zipper for February?
a. 2,844
b. 1,956
c. 4,356
d. 3,600
29. What is the total budgeted zipper and labor costs for the month of March?
a. P55,080
b. P29,160
c. P122,472
d. P119,880

30. The following purchases budget was prepared by Masagana Corp:

Month Budgeted Purchases
January P 460,000
February 380,000
March 400,000
April 440,000
May 420,000
Purchases are paid for in the following manner:
10% in the month of purchase
50% in the month after purchase
40% two months after purchase
Total disbursements for the period March to May amount to
a. P1,825,000
b. P1,352,000
c. P1,285,000
d. P1,232,000
31. On January 1, Cheers Company has a beginning balance of P42,000. During the year, the
company expects cash disbursements of P340,000 and cash receipts of P290,000. If the
company requires a cash balance of P40,000, Cheers Company should borrow by what amount?
a. P32,000
b. P40,000
c. P48,000
d. P92,000
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For the next 2 items:

Garcia Corporation has the following budget estimate for the year 2021:
Sales P 2,800,000
Income before tax 10% of sales
Selling and administrative expenses 25% of sales
Conversion cost 70% of total manufacturing cost
Inventories are budgeted as follows:
Beginning Ending
Materials P 176,000 P 216,000
Work in process 200,000 240,000
Finished goods 280,000 336,000
32. The budgeted cost of goods sold is
a. P1,764,000
b. P1,820,000
c. P1,860,000
d. P1,400,000
33. The budgeted purchases of raw materials is
a. P614,800
b. P574,800
c. P534,800
d. P1,916,000

34. Ernie Trading Co. budgeted merchandise purchases of 40,000 units next month. The expected
beginning inventory is 12,000 units and the desired ending inventory at the end of next month
is 15,000 units. Budgeted sales in units for the next month is
a. 37,000
b. 43,000
c. 55,000
d. 52,000
35. Edil Producers, Inc. will start its commercial operations on January 1, 202A. The sales forecast
per the sales manager’s estimates for its first year of operations is 50,000 units. However, the
production manager estimated that only 80% of the sales forecast can be produced with the
available workforce and equipment. The product will be sold for P20 per unit. The budgeted
peso sales for Edil Producers, Inc.’s initial year of operations is
a. P800,000
b. P1,000,000
c. P50,000
d. P40,000
36. Tasyo Company has budgeted sales of 90,000 units in January; 120,000 units in February; and
180,000 in March. The company has 20,000 units of finished goods and 35,000 pieces of
materials on hand on January 1. Each unit of product requires 2 pieces of materials. The
desired inventory of finished goods and materials at the end of each month is as follows:
Finished goods – 20% of next month’s sales
Materials – 25% of next month’s production needs
How many pieces of materials should the company plan to purchase in January?
a. 600,000
b. 567,000
c. 468,000
d. 552,500
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For the next 3 items:

Medilab, Inc. produces equipment for medical laboratories. Its revenues come from the sale of
laboratory equipment, as well as from its maintenance contracts with customers. The result of its
operations for the calendar year 202A is presented below:
Sales: Medical laboratory equipment P 4,800,000
Maintenance contracts 1,440,000
Total sales 6,240,000
Costs and expenses: Cost of equipment sold P 3,680,000
Customer maintenance 800,000
Selling 480,000
Administrative 720,000
Interest 120,000 5,800,000
Income before tax P 440,000
The operating budget for the calendar year 202B has already been prepared after considering the
following expected changes:
• An intensified promotional activity will be undertaken. Although this will require an
additional P200,000 in selling expenses, the unit sales of laboratory equipment will increase
by 10% despite the expected increase of 5% in its selling price.
• Maintenance of customer equipment is an important area of customer satisfaction.
Considering this, the company will invest in additional maintenance tools and equipment
that is expected to amount to P400,000. This additional investment will be financed by
obtaining a loan at an interest rate of 14%. No other borrowings or loan reductions will
occur on 202B.
• Aside from the additional tools and equipment to improve customer service, the company
will hire an expert maintenance technician. For this, the company will incur P150,000 for
wages and traveling expenses.
• The actions about customer service are expected to increase revenues from customer
service contracts by 15%.
• The purchase cost of laboratory equipment is expected to go up by 4%.
The company’s operating budget for the calendar year 202B should show:
37. Net sales of ____________________
38. Cost of laboratory equipment sold of ____________________
39. Income before tax of ____________________

For the next 6 items:

Pasol Company has just prepared its master budget for the year 202B. Some of the information
used in the preparation of such budget is as follows:
• Budgeted sales
January P 480,000
February 520,000
March 560,000
April 500,000
May 576,000
June 640,000
• Twenty percent of total sales is cash sales. The collections pattern for the sales on credit is as
follows:
30% in the month of sale
40% in the month after the month of sale
25% in the second month after the month of sale
• Pasol Company’s gross margin rate is 60% of sales.
• Accounts payable arising from merchandise purchases is paid for in the month following the
purchase.
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• The company desires an inventory at the end of each month equal to 30% of the next month’s
sales in units.
• The variable operating expenses (other than cost of goods sold) are 10% of sales and are paid
for in the month following the sale.
• The annual fixed operating expenses are as follows:
Depreciation P 336,000
Advertising 576,000
Insurance 144,000
Salaries 864,000
Property taxes 192,000
• All of the fixed operating expenses are incurred uniformly throughout the year. Cash fixed
operating expenses are paid in the month of incurrence, except for:
✓ Insurance – paid quarterly in January, April, July and October
✓ Property taxes – paid twice in a year in April and October
40. The budgeted cash collections in March for the sales made in March is ____________________
41. The budgeted cash receipts for the month of April is ____________________
42. The budgeted purchases of merchandise for February is ____________________
43. The budgeted cash disbursements for operating expenses (other than cost of goods sold) during
the month of April is ____________________
44. The budgeted cash disbursements to be made in April for merchandise purchases is
____________________
45. Assume that the expected cash balance at the beginning of April is P51,600. How much is the
budgeted cash balance as of April 30? ____________________