MANAGEMENT SERVICES (ReSA Test Bank 15-08)

EASY QUESTIONS

1. Variable costing treats

D a. All variable expenses as product costs
All variable expenses as period costs
b.
c. All fixed expenses as product costs
d. All fixed expenses as period costs

2. If DOTC expects that an increase in the MRT fare will raise mass
transportation revenues for the government, it must think that the
demand for MRT is
B a. Elastic
b. Inelastic
c. Unit elastic
d. Perfectly elastic

3. Standard cost variances are not closed to

A a. Direct materials inventory
b. Work-in-process inventory
c. Finished goods inventory
d. Cost of goods sold

Items 4 to 7 are based on the following information

Kidney Motors is trying to decide whether it should keep its existing
car washing machine or purchase a new one that has technological
advantages (which translate into cost savings) over the existing
machine. Information on each machine follows:
Old machine New machine
Original cost P 9,000 P 20,000
Accumulated depreciation 5,000 0
Annual cash operating costs 9,000 4,000
Current salvage value 2,000
Salvage value in 10 years 500 1,000
Remaining life 10 yrs. 10 yrs.

4. The P 4,000 of annual operating costs that are common to both the old
and the new machine are an example of a(n)
B a. Sunk cost
b. Irrelevant cost
c. Opportunity cost
d. Future avoidable cost

5. The P 9,000 cost of the original machine represents a(n)

A a. Sunk cost
b. Opportunity cost
c. Future relevant cost
d. Historical relevant cost

6. The P 20,000 cost of the new machine represents a(n)

C a. Sunk cost
b. Opportunity cost
c. Future relevant cost
d. Future irrelevant cost

7. The estimated P 500 salvage value of the existing machine in 10 years

represents a(n)
B a. Sunk cost
b. Opportunity cost of selling the existing machine now
c. Opportunity cost of keeping the existing machine for 10 years
d. Opportunity cost of keeping the existing machine and buying
the new machine
 8. The cost estimation methods that consider more than two data points
to segregate variable and fixed components of a mixed cost:
C a. High-low and scatter diagram methods
b. High-low and least squares regression methods
c. Scatter diagram and least squares regression methods
d. High-low, scatter diagram and least squares regression
methods

9. To address the problem of a recession, the Central Bank most likely

would take which of the following actions?
B a. Sell government bonds in open-market transactions
b. Lower the discount rate it charges banks for loans
c. Increase the rate charged by banks when they borrow from one
another
d. Increase the level of funds a bank is legally required to hold
in reserve

10. A responsibility center that is mostly likely to be organized as an

investment center.
C a. Shared service department
b. Ticket sales outlet
c. Provincial branch
d. Factory division

11. The minimum transfer price for a selling division with full capacity
to accommodate an internal transfer of produced units to the buying
division is usually based on the
B a. Buying division’s regular selling price
b. Selling division’s regular selling price
c. Buying division’s variable cost per unit
d. Selling division’s variable cost per unit

12. Which of the following is normally associated with capacity variance?

D a. Direct materials
b. Direct labor
c. Variable overhead costs
d. Fixed overhead costs

13. The shutdown point is same as the breakeven point in the absence of
B a. Avoidable fixed costs
b. Shutdown costs
c. Variable costs
d. Joint costs

14. Which of the following ratios is least likely to be used in

evaluating the effectiveness of working capital management?
D a. Average collection period
b. Inventory turnover ratio
c. Acid-test ratio
d. Debt ratio

15. Prostate Co. is preparing its cash budget for the month of May.
Prostate pays 60% of purchases in the month of purchase and the
remainder the next month. Operational information follows:
Beginning inventory, May 1 P 20,000
Estimated May cost of goods sold 100,000
Estimated May ending inventory 35,000
April purchases 90,000

What are Prostate’s estimated cash payments for shoes in May?

B a. P 115,000
b. P 105,000
c. P 87,000
 d. P 70,000
16. Ovary Company manufactures a single product. Unit variable
production costs are P 20 and fixed production costs are P 750,000.
Ovary uses a normal activity of 100,000 units. Ovary began the year
with no inventory, produced 120,000 units, and sold 75,000 units.
Determine the unit product cost under absorption costing.
C a. P 20.00
b. P 26.25
c. P 27.50
d. P 30.00

17. Under the balanced scorecard concept developed by Kaplan and Norton,
employee turnovers and retention are measures used under which of the
following perspectives?
A a. Learning and growth
b. Internal business
c. Financial
d. Customer

18. Abu Dhabi Company has daily cash receipts of P 400,000. Abu Dhabi’s
bank offers a lockbox service that will reduce collection time by two
days for a P 2,000 monthly fee. Abu Dhabi can earn 8% annually with
any additional funds. What will be the annual increase to income
before taxes from using the lockbox service?
C a. P 24,000
b. P 32,000
c. P 40,000
d. P 64,000

19. Which of the following effects would a lockbox most likely provide
for receivable management?
A a. Minimized collection float
b. Maximized collection float
c. Minimized disbursement float
d. Minimized disbursement float

20. What is called a spontaneous financing source?

B a. Debentures
b. Trade credit
c. Notes payable
d. Preferred stock

21. Gross domestic product (GDP) includes which of the following

measures?
C a. The size of a population that must share a given output within
one year
b. The negative externalities of the production process of a
nation within one year
c. The total monetary value of all final goods and services
produced within a nation in one year
d. The total monetary value of all final goods and services,
including barter transactions, within a nation in one year

22. The capital structure of a firm includes bonds with a coupon rate of
12% and an effective interest rate of 14%. The corporate tax rate is
30%. What is the firm’s cost of debt?
B a. 8.4%
b. 9.8%
c. 12.0%
d. 14.0%

23. Activity-based costing (ABC)

C a. Is typically applied to manufacturing prime costs
b. Uses multiple cost drivers for a single cost pool
c. May be applied to selling overhead costs
 d. Is not compatible with standard costing
24. Which working capital policy has the greatest likelihood that a firm
will be unable to meet obligations as they become due?
B a. Financing all current assets with long-term debt
b. Financing all current assets with short-term debt
c. Financing fluctuating current assets with short-term debt and
permanent current assets with equity
d. Financing fluctuating current assets with short-term debt and
permanent current assets with long-term debt

25. Monopolistic competition is characterized by

A a. A relatively large group of sellers who produce differentiated
products
b. A relatively small group of sellers who produce differentiated
products
c. A relatively large group of sellers who produce homogeneous
products
d. A relatively small group of sellers who produce homogeneous
products

26. A company’s management is concerned about compute data eavesdropping

and wants to maintain the confidentiality of its information as it is
transmitted (e.g. EFT). The company should utilize
B a. Password codes
b. Data encryption
c. Dial-back systems
d. Message acknowledge procedures

27. The degree of financial leverage is least associated with

B a. Interest payments
b. Common dividend payments
c. Preferred dividend payments
d. Earnings before interest and taxes

28. The least-square technique of segregating variable and fixed costs

B a. Is less objective than the scatter diagram method
b. Considers the sums of observed costs and activities
c. Utilizes the highest and lowest points of activities
d. Cannot be applied to a set of data point where one is
considered as an outlier

29. A company decided to replace an old machine with a new one as part of
its rehabilitation plan. In evaluating this capital investment, which
of the following is generally considered irrelevant in determining
the initial cost of investment for decision making purposes?
B a. Salvage value of the old machine
b. Salvage value of the new machine
c. Purchase price of the new machine
d. Additional working capital required to support the new machine

30. Which information is not necessarily used when determining materials

price usage variance?
D a. Actual quantity of materials used
b. Actual price of materials purchased
c. Standard price of materials purchased
d. Standard quantity of materials allowed for actual production
 AVERAGE QUESTIONS
31. The following information pertains to data that have been gathered in
the process of estimating a simple least squares regression:
Mean value of the dependent variable 30
Mean value of the independent variable 10
Coefficient of the independent variable 3
Number of observations 12
What is the "a" value for the least squares regression model?
D a. 60
b. 20
c. 6
d. 0

32. Phuket Company presented the following information for its initial
calendar year. There were no work-in-process inventories.
Units produced 10,000
Units sold 9,000
Direct materials used P 20,000
Direct labor incurred P 10,000
Fixed factory overhead P 12,500
Variable factory overhead P 6,000
Fixed selling and administrative expenses P 15,000
Variable selling and administrative expenses P 2,250
Finished goods inventory, January 1 None
What is Phuket’s finished goods inventory cost at December 31 under
the variable costing method?
A a. P 3,600
b. P 3,825
c. P 4,000
d. P 4,850

33. Phuket Company presented the following information for its initial
calendar year. There were no work-in-process inventories.
Units produced 10,000
Units sold 9,000
Direct materials used P 20,000
Direct labor incurred P 10,000
Fixed factory overhead P 12,500
Variable factory overhead P 6,000
Fixed selling and administrative expenses P 15,000
Variable selling and administrative expenses P 2,250
Finished goods inventory, January 1 None
Which costing method, absorption or variable costing, would show a
higher annual operating income and by what amount?
A a. Absorption costing, P 1,250
b. Variable costing, P 1,250
c. Absorption costing, P 2,750
d. Variable costing, P 2,750

34. Heart Company provided that following information regarding its

biggest branch in suburb Manila:
Operating assets, January 1 P 180,000
Operating assets, December 31 P 300,000
Operating liabilities, January 1 P 75,000
Operating liabilities, December 31 P 125,000
Sales P 500,000
Cost of capital 20%

Assuming that the branch’s profit margin is 12%, what is the return
on investment?
B a. 20.00%
b. 25.00%
c. 33.33%
d. 40.00%
 35. Heart Company provided that following information regarding its
biggest branch in suburb Manila:
Operating assets, January 1 P 180,000
Operating assets, December 31 P 300,000
Operating liabilities, January 1 P 75,000
Operating liabilities, December 31 P 125,000
Sales P 500,000
Cost of capital 20%
Assuming a target residual income of P 24,000, how much should be the
expenses of the branch for the year?
C a. P 476,000
b. P 452,000
c. P 428,000
d. Cannot be determined from the given information

36. The following data pertains to Brain Company:

Total cost Unit cost
Sales (40,000 units) P 1,000,000 P 25
Raw materials 160,000 4
Direct labor 280,000 7
Factory overhead
Variable 80,000 2
Fixed 360,000
Selling and general expenses
Variable 120,000 3
Fixed 225,000
Assuming that Brain sells 80,000 units, what is the maximum that can
be paid for an advertising campaign while still breaking even?
A a. P 135,000
b. P 535,000
c. P 695,000
d. P 1,015,000

37. To determine the best cost driver of warranty costs related to glass
breakage during shipments, Beijing Co. used simple linear regression
analysis to study the relationship between warranty costs and each of
the following variables: type of packaging, quantity shipped, type of
carrier, and distance shipped. The analysis yielded the following
statistics:
Independent Coefficient of Standard Error
Variable Determination of Regression
Type of packaging 0.60 1,524
Quantity shipped 0.48 1,875
Distance shipped 0.20 4,876
Type of carrier 0.45 2,149
Based on these analyses, what is the best driver of warranty costs
for glass breakage?
A a. Type of packaging
b. Quantity shipped
c. Distance shipped
d. Type of carrier

38. Spine Corporation presented the following information for its three
divisions for the past month. Divisions A and B are manufacturing
divisions, whereas Division C is distribution.
Production level of A significantly below capacity
Sales price to Division C P 50 per unit
Division A’s variable cost P 20 per unit
Total fixed costs (Div. A and B) P 120,000
Division C’s sales price Market value
What is the minimum transfer price from Division A to Division B?
B a. P 10
b. P 20
c. P 30
 d. P 50
39. Liver Corporation has the following sales budget for six months of
2014:
July P 200,000
August 210,000
September 220,000
October 230,000
November 240,000
December 250,000
Historically, the cash collection on sales has been as follows:
● 65% of sales collected in the month following the sale

● 25% of sales collected in the second month following sale

● 8% of sales collected in the third month following sale, and

● 2% of sales is uncollectible

Determine the total cash collections in the fourth quarter in 2014.

A a. P 663,900
b. P 603,900
c. P 578,600
d. P 363,000

40. Liver Corporation has the following sales budget for six months of
2014:
July P 200,000
August 210,000
September 220,000
October 230,000
November 240,000
December 250,000
Historically, the cash collection on sales has been as follows:
● 65% of sales collected in the month following the sale

● 25% of sales collected in the second month following sale

● 8% of sales collected in the third month following sale, and

● 2% of sales is uncollectible

What is the projected year-end balance of accounts receivable

assuming uncollectible balance is written off immediately?
C a. P 101,700
b. P 111,500
c. P 342,600
d. P 352,200

41. Spleen Company with P 210,000 of fixed cost has the following data:
Product X Product Y
Unit sales price P 10 P 5
Unit variable costs P 8 P 4
Assume that 3 units of X are sold for each unit of Y. How much is
the contribution margin of product X at its breakeven point?
B a. P 900,000
b. P 180,000
c. P 120,000
d. P 90,000

42. Lungs Company incurred the following factory overhead costs for the
second quarter of the year:
Machine Hours Factory Overhead
April 150 P 4, 200
May 120 P 3,600
June 180 P 4,800
 Using high-low method, how much is the variable factory overhead
costs if Lungs had 160 machine hours?
B a. P 4,400
b. P 3,200
c. P 2,800
d. P 1,200
43. Lungs Company incurred the following factory overhead costs for the
second quarter of the year:
Machine Hours Factory Overhead
April 150 P 4,200
May 120 P 3,600
June 180 P 4,800
Using high-low method, how much is the fixed factory overhead cost
for the second quarter?
C a. P 1,200
b. P 2,400
c. P 3,600
d. P 4,800

44. Contribution margin ratio x (sales – breakeven sales) = ____________

D a. No meaningful amount
b. Variable costs
c. Fixed costs
d. Profit

45. Lungs Company incurred the following factory overhead costs for the
second quarter of the year:
Machine Hours Factory Overhead
April 150 P 4,200
May 120 P 3,600
June 180 P 4,800
Which of the following equations shall be used under least-squares
method?
D a. 12,600 = 3 a + 69,300 b
b. 1,926,000 = 3 a + 69,300 b
c. 1,890,000 = 450 a + 69,300 b
d. 1,926,000 = 450 a + 69,300 b

46. Shanghai Company estimates that it would incur a P 100,000 cost to

prepare a bid proposal. Shanghai estimates also that there would be
an 80% chance of being awarded the contract if the bid is low enough
to result in a net profit of P 250,000. What is the expected value
of the payoff?
C a. P 0
b. P 150,000
c. P 180,000
d. P 220,000

47. Bladder Company manufactures and sells native bracelets to assorted

prints. Data for the previous year were as follows:
Selling price per piece P 8.00
Variable cost per piece P 2.00
Number of bracelets to breakeven 25,000
Net post-tax income P 5,850
For the coming year, the company estimates that the selling price
will be P 9.50 per piece, variable cost to manufacture will increase
by 25%, and fixed costs will increase by 20%. Income tax rate of 35%
remains constant. How many units are required to maintain the same
income as last year?
B a. 26,000 units
b. 27,000 units
c. 28,333 units
d. 29,666 units
 48. What is the ‘most likely time’ for a PERT network’s activity based on
a certain discrete business project, given that the optimistic time
is 6 days, expected time is 9 days and pessimistic time is 16 days?
A a. 8.00 days
b. 8.67 days
c. 9.33 days
d. 9.67 days
Items 49 to 55 are based on the following information
The following information is available for Ana Manufacturing
Company when it produced 2,100 units in the month of February:
STANDARD
Material 2 pounds per unit @ P 4.00 per pound
Labor 3 hours per unit
Variable overhead P 15 per hour

ACTUAL
Material 4,500 pounds purchased @ P 17,100
Labor 6,400 direct labor hours

49. What is the materials purchase price variance?

A a. P 900 favorable
b. P 900 unfavorable
c. P 840 favorable
d. P 840 unfavorable

50. Assuming that raw materials inventory increased by 500 pounds in

February, then what is the actual cost of materials used?
A a. P 15,200
b. P 15,960
c. P 16,000
d. P 18,000

51. Assuming that raw materials inventory increased by 400 pounds in

February, What is the materials usage variance?
B a. P 380 favorable
b. P 400 favorable
c. P 1,140 unfavorable
d. P 1,200 unfavorable

52. How did the company factory workers perform in February?

D a. P 100 efficient
b. P 100 inefficient
c. 100 hours efficient
d. 100 hours inefficient

53. Assuming that the February payroll amounted to P 76,800 and that the
labor rate variance is P 12,800 unfavorable, then what is the
standard labor rate?
A a. P 10 per hour
b. P 12 per hour
c. P 14 per hour
d. Cannot be determined from the given information

54. Assuming that the overhead cost is applied on the basis of labor
hours, what is the variable overhead efficiency variance?
D a. P 1,000 favorable
b. P 1,000 unfavorable
c. P 1,500 favorable
d. P 1,500 unfavorable

55. Assuming that the actual factory overhead costs incurred amounted to
P 150,000 and 35% of which is fixed, then what is the variable
overhead controllable variance?
D a. P 1,500 favorable
b. P 1,500 unfavorable
 c. P 3,000 favorable
d. P 3,000 unfavorable

56. Bukit, Inc. has been manufacturing 5,000 units of Part 12345 which is
used in the manufacture of one its products. At this level of
production, the cost per unit of manufacturing Part 12345 is as
follows:
Direct materials P 2
Direct labor 8
Variable overhead 4
Fixed overhead applied 6
Total P 20
Bintang Company has offered to sell Bukit 5,000 units of Part 12345
for P 19 a unit. Bukit has determined that it could use the
facilities presently used to manufacture Part 12345 to manufacture
Product ABC and generate an operating profit of P 4,000. Bukit has
also determined that two-thirds of the fixed overhead applied will
continue even if Part 12345 is purchased from Bintang.

Should Bukit accept Bintang’s offer? Why?

A a. No, because it would be P 11,000 cheaper to make the part
b. No, because it would be P 15,000 cheaper to make the part
c. Yes, because it would be P 5,000 cheaper to buy the part
d. Yes, because it would be P 9,000 cheaper to buy the part

57. Colon Co. has 3 divisions: A, B, and C. Division A's income statement
shows the following for the year ended December 31, 2014:
Sales P 1,000,000
Cost of goods sold (800,000)
Gross profit P 200,000
Selling expenses P 100,000
Administrative expenses 250,000 (350,000)
Net loss $ (150,000)

Cost of goods sold is 75 percent variable and 25 percent fixed. Of

the fixed costs, 60 percent are avoidable if the division is closed.
All of the selling expenses relate to the division and would be
eliminated if Division A were eliminated. Of the administrative
expenses, 90 percent are applied from corporate costs. If Division A
were eliminated, what is the effect on Colon Company profit?
C a. P 150,000 increase
b. P 75,000 decrease
c. P 155,000 decrease
d. P 215,000 decrease

58. A certain manufacturing job is subject to a learning curve. The first

batch of units required 80 hours to complete, while the second batch
took an additional 40 hours to complete. What percentage of learning
curve occurred?
C a. 25%
b. 50%
c. 75%
d. 100%

59. The following vendors have submitted their proposed terms for Mustafa
Center Company which uses a 360-day calendar year for business
purposes:
Vendor A: 2/10, n/35
Vendor B: 1/15, n/25
Vendor C: 3/20, n/50
 Which vendor shall be chosen by Mustafa based on the lowest annual
cost of trade credit?
A a. Vendor A
b. Vendor B
c. Vendor C
d. Cannot be determined from the given information
60. A management accountant performs a linear regression of maintenance
cost vs. production using a computer spreadsheet. The regression
output shows an “intercept” value of P 322,897. How should the
accountant interpret this information?
A a. Y has a value of P 322,897 when X equals zero
b. X has a value of P 322,897 when Y equals zero
c. The residual error of the regression is P 322,897
d. Maintenance cost has an average value of P 322,897

61. Penang Company has 5,000 obsolete desk lamps that are carried in
inventory at a manufacturing cost of P 50,000. If the lamps are
reworked for P 20,000, they could be sold for P 35,000.
Alternatively, the lamps could be sold for P 8,000 to a jobber
located in a distant city. What alternative is more desirable and
what are the total relevant costs for that alternative?
B a. Neither, since there is an overall loss under either
alternative
b. Rework and P 20,000
c. Rework and P 70,000
d. Scrap and P 50,000

62. Changmai Company is evaluating a proposed credit policy change. The

proposed policy would change the average number of days for
collection from 60 to 27 days and would reduce total sales by 25%,
all of the decrease due to credit sales. Under the current policy,
next year’s sales are estimated at P 128 million, with 75% of them
being credit sales. Based on a 360-day year, what is the decrease in
Changmai’s average accounts receivable balance of implementing the
proposed credit policy change?
C a. P 4.8 million
b. P 10.0 million
c. P 11.2 million
d. P 16.0 million

63. Kowloon Company presented the following information:

Units actually produced 76,000
Actual direct labor hours worked 160,000
Actual variable overhead incurred P 500,000
Actual fixed overhead incurred P 384,000
Based on monthly normal volume of 100,000 units (200,000 direct
labor hours), Kowloon’s standard cost system contains the following
overhead costs:
Variable P 6 per unit
Fixed P 4 per unit
What was fixed overhead budget variance?
C a. P 8,000 favorable
b. P 8,000 unfavorable
c. P 16,000 favorable
d. P 16,000 unfavorable

64. Kowloon Company presented the following information:

Units actually produced 76,000
Actual direct labor hours worked 160,000
Actual variable overhead incurred P 500,000
Actual fixed overhead incurred P 384,000
Based on monthly normal volume of 100,000 units (200,000 direct
labor hours), Kowloon’s standard cost system contains the following
overhead costs:
Variable P 6 per unit
 Fixed P 4 per unit
What was unfavorable variable overhead spending variance?
B a. P 12,000
b. P 20,000
c. P 24,000
d. P 44,000
65. Kowloon Company presented the following information:
Units actually produced 76,000
Actual direct labor hours worked 160,000
Actual variable overhead incurred P 500,000
Actual fixed overhead incurred P 384,000
Based on monthly normal volume of 100,000 units (200,000 direct
labor hours), Kowloon’s standard cost system contains the following
overhead costs:
Variable P 6 per unit
Fixed P 4 per unit
What was fixed overhead volume variance?
B a. P 96,000 favorable
b. P 96,000 unfavorable
c. P 80,000 favorable
d. P 80,000 unfavorable

66. A banking system with a reserve ratio of 20% and a change in reserves
of P 1,000,000 can increase its total demand deposits by
A a. P 5,000,000
b. P 1,000,000
c. P 800,000
d. P 200,000

Items 67 to 71 are based on the following information

Sentosa is a medical laboratory that performs tests for physicians.
Sentosa anticipates performing between 5,000 tests and 12,000 tests
during April. Compared to industry averages, at the low range of
activity, Sentosa has a lower sales price per test, higher fixed
costs, and the same break-even point in number of tests performed.
At the high range of activity, Sentosa’s sales price per test and
fixed costs are the same as industry averages, and Sentosa’s variable
costs are lower. At the low range of activity (0 to 4,999 tests
performed), fixed costs are P 160,000. At the high range of activity
(5,000 tests to 14,999 tests performed), fixed costs are P 200,000.
67. How is the cost of electricity to run laboratory equipment
categorized?
C a. Fixed cost
b. Direct material cost
c. Overhead cost for testing
d. General and administrative cost

68. How is the office manager’s salary categorized?

D a. Variable cost
b. Direct labor cost
c. Overhead cost for testing
d. General and administrative cost

69. How is the cost of distilled water used in tests categorized?

B a. Fixed cost
b. Direct material cost
c. Overhead cost for testing
d. General and administrative cost

70. What is Sentosa’s break-even point at high activity range assuming a

selling price of P 60 and a unit variable cost of P 20?
B a. 4,000 tests
b. 5,000 tests
c. 8,000 tests
d. 9,000 tests
 71. Are the contribution margin (CM) and break-even point (BEP) greater
or lower than the industry average at the high activity range?
B a. (CM) greater (BEP) greater
b. (CM) greater (BEP) lower
c. (CM) lower(BEP) greater
d. (CM) lower(BEP) lower
72. Langkawi Corporation currently operates two divisions that had
operating results for calendar year 1 as follows:
West East
Sales P 900,000 P 300,000
Variable costs 510,000 230,000
Divisional fixed costs 110,000 50,000
Allocated corporate costs 135,000 45,000
Since the East Division also sustained an operating loss during year
0, Langkawi’s president is considering the elimination of the
division. The East Division fixed costs could be avoided if the
division was eliminated. If the East Division had been eliminated on
January 1, Year 1, Langkawi’s Year 1 operating income would have been
A a. P 20,000 lower
b. P 25,000 higher
c. P 45,000 lower
d. P 70,000 higher

73. The expected rate of return for the stock of Causeway Enterprise is
20%, with a standard deviation of 15%. The expected return of return
for the stock of Mongkok Associates is 10%, with a standard deviation
of 9%. Which of the following conclusions can be made?
C a. Causeway’s stock is riskier because of its higher return
b. Mongkok’s stock is less risky because of its lower standard
deviation
c. Mongkok’s stock is riskier because of its higher coefficient
of variation
d. Causeway’s stock is riskier because of its lower coefficient
of variation

74. Pratunam Company has an average unit cost of P 45 at 10,000 units and
P 25 at 30,000 units. Assuming a unit selling price of 40, what is
the margin of safety at P 1,000,000 sales?
C a. 6,000 units
b. 12,000 units
c. 13,000 units
d. 20,000 units

75. 1,200,000 papers that were processed by Orchard Company:

Total cost P 1,050,000
Labor cost P 950,000
Labor hours 190,000 hours
The following processing STANDARDS have been set for Orchard’s
clerical workers:
Number of hours per 1,000 papers processed 150 hours
Normal number of papers processed per year 1,600,000
Wage rate per 1,000 papers P 750
variable cost of processing 1,600,000 papers P 1,280,000
Fixed costs per year P 200,000
Orchard Company’s expected total cost to process 1,200,000 papers,
assuming standard performance, is
C a. P 1,480,000
b. P 1,280,000
c. P 1,160,000
d. P 1,100,000

76. Given the following information:

Current ratio: 2.0
Acid-test ratio: 1.5
Total liabilities: P 2,000,000 (75% non-current)
 Costs of goods sold: P 1,000,000
Assuming a 360-day year, what is the inventory conversion period?
A a. 90 days
b. 120 days
c. 150 days
d. 180 days
77. Bangkok has made changes in its inventory handling policies that are
expected to increase turnover from 7 to 8 times per year. Bangkok’s
budgeted sales and costs of sales for the next year are P 42,000,000
and P 28,000,000, respectively. At a 6% interest rate, what are
Bangkok’s expected savings from the lower inventory level?
B a. P 15,000
b. P 30,000
c. P 45,000
d. P 60,000

78. A capital project has a useful life of 5 years but a payback period
of 3.25 years. The annual post-tax cash flows are as follows:
Year Cash Flows
0 ?
1 P 100,000
2 P 80,000
3 P 60,000
4 P 40,000
5 P 20,000

Assuming no salvage value, how much is the annual straight-line

depreciation of the capital investment project?
B a. P 48,000
b. P 50,000
c. P 52,500
d. P 60,000

DIFFICULT QUESTIONS

79. Genting Foundation is a tax-exempt charitable organization. Genting

invested P 400,000 in a five-year project at the beginning of year 1.
Genting estimates that the annual cash savings from this project will
amount to P 130,000. The P 400,000 of assets will be depreciated
over their five-year life on the straight-line basis. On investments
of this type, Genting’s desired rate of return is 12%. Information
on present value factors is as follows:
12% 14% 16%
PV of P 1 for 5 periods 0.57 0.52 0.48
PV of an annuity of P 1 for 5 periods 3.60 3.40 3.30

For the project’s first year, what would be Genting’s accounting rate
of return, based on the project’s average book value for year 1?
B a. 12.5%
b. 13.9%
c. 15.6%
d. 36.1%

80. The profit increases by 30% when sales go up by 20%. If current

profit is P 6,000, then how much is the contribution margin?
C a. P 4,000
b. P 8,000
c. P 9,000
d. P 10,000

81. Which one of the following variances is of least significance from a

behavioral control perspective?
D a. Unfavorable materials quantity variance amounting to 20% of
the quantity allowed for the output attained.
b. Unfavorable labor efficiency variance amounting to 10% more
 than the budgeted hours for the output attained.
c. Favorable materials price variance obtained by purchasing raw
materials from a new vendor.
d. Fixed factory overhead volume variance resulting from
management's decision midway through the fiscal year to
reduce its budgeted output by 20%.
82. Pancreas Company has 3,200 machine hours of plant capacity and
infinite labor hours available for manufacturing two products with
the following characteristics:
Product S Product T
Selling price P 200 P 165
Costs:
Direct materials P 80 P 40
Direct labor* 40 35
Variable overhead** 15 30
Fixed overhead** 10 20
Operating expenses (variable) 40 20
Total P 185 P 145
Net income P 15 P 20
* applied on the basis of labor hours.
** applied on the basis of machine hours

Assuming that there is no market limit, what is the maximum CM that

could be attained under the scenario?
B a. P 96,000
b. P 80,000
c. P 72,000
d. P 64,000

83. Seoul Company currently has 100,000 shares of common stock

outstanding and a price-earnings ratio of seven. Net income for the
recently ended year is P 375,000. Seoul’s board of directors
declared a 15-for-2 split. Jeju owned 100 shares of Seoul before the
split. What is the approximate value of Jeju’s investment in Seoul
immediately after the split?
C a. P 26
b. P 350
c. P 2,625
d. P 5,250

84. DMZ’s has the following meaningful data taken from its records and
most recent financial statements:
Debt ratio 75%
Current ratio 2x
Plowback ratio 20%
Assets turnover 4x
Return on equity 40%
Receivable turnover 4 times
Cash conversion cycle 250 days
Times interest earned 3.6 times
Economic order quantity 72,000 units
Optimal initial cash balance P 100,000
Cost of equity under dividend growth model 12.5%
What is DMZ’s profit margin?
A a. 2.5%
b. 5.0%
c. 7.5%
d. Cannot be determined from the given information

85. Kuala Corporation provides the following information:

Pretax operating profit P 300,000,000
Tax rate 40%
Capital used (50% debt, 50% equity) P 1,200,000,000
Cost of equity 15%
Cost of debt (post-tax) 5%
 Determine Kuala’s year-end economic value-added amount.
B a. P 0
b. P 60,000,000
c. P 120,000,000
d. P 180,000,000

86. The annual demand for a single product is 4,000 units. The cost to
carry one unit is P 0.50 while cost per order amounts to P 10.00.
Assuming that the units are demanded evenly throughout the year, how
often should the company place an order within a 360-day year?
B a. Every 30 days
b. Every 36 days
c. Every 45 days
d. Every 72 days

87. A vendor offered Pat Pong Company P 25,000 compensation for losses
resulting from faulty raw materials. Alternatively, a lawyer offered
to represent Pat Pong in a lawsuit against the vendor for a P 12,000
retainer and 50% of any award over P 35,000. Possible court awards
with their associated probabilities are:
Award Probability
P 75,000 60%
P 0 40%
Compared to accepting the vendor’s offer, the expected value for Pat
Pong to litigate the matter to verdict provides a
C a. P 4,000 loss
b. P 18,200 gain
c. P 21,000 gain
d. P 38,000 gain

88. Pattaya Company’s current ratio is 2.5 to 1. Pattaya’s current

liabilities are P 252,000. Loan provisions require that Pattaya’s
current ratio not drop below 1.5 to 1. What is the maximum
additional short-term debt that Pattaya may incur?
A a. P 168,000
b. P 378,000
c. P 420,000
d. P 630,000

89. Lumpur Company is considering a P 50,000,000 project. Lumpur plans

to use both debt and equity to finance the project. Lumpur’s beta
coefficient is estimated to be 0.95. Lumpur has a 30% effective
income tax rate. The equity market is expected to have average
earnings of 12%. Philippine treasury bonds currently yield 4%.
Funds generated from earnings, P 35,000,000
Additional funds from P 15,000,000, 20-yaer, 6% bonds at a price
of 102, with flotation costs of 3% of par.
What is Lumpur’s expected rate of return using the capital asset
pricing model (CAPM) model?
C a. 12.4%
b. 12.0%
c. 11.6%
d. 11.4%

90. Dubai Company expects next year’s net income to be P 2,000,000.

Dubai’s current capital structure is 30% debt, 30% preferred equity,
and 40% common equity. Next year, Dubai plans to issue debt and
common stock as needed to maintain their 30:40 ratio (not issue more
preferred stock). Interest payments on Dubai’s 10,000 4%, P 1,000
par value bonds are current. Dubai can issue up to P 1,000,000 more
4% bonds at face value. Dubai’s marginal tax rate is 30%. There are
no dividends in arrears on Dubai’s 10,000 shares of 6%, P 1,000 par
value cumulative preferred stock. Optimal capital spending for next
year is estimated at P 1,400,000. Using a strict residual dividend
 policy, what is the approximate estimated common stock dividend
payout ratio for the next year?
C a. 0%
b. 16%
c. 30%
d. 70%

SITUATIONAL / CASELET QUESTIONS

Items 91 to 95 are based on following information

Mr. Dennis Lee, A&A Company’s general manager, was requested to
drop by the Office of the President to shed light on the recent
dismal performance of the company’s factory operations in spite of
the fact that it has thus far produced its lone product, Forbes Wood.
After asking specific information from the finance division, Mr. Lee
was able to secure the following information for the president’s
perusal:
Variable costs
Direct materials P 12.00
Direct labor 6.00
Factory overhead 4.00
Selling and administrative 2.00
Fixed costs
Factory overhead P 120,000
Selling and administrative 60,000
For its first year of operations (2013), A&A Company produced 12,000
units of the Forbes Wood and managed to sell 10,000 units of these
for P 40.00 each. For 2014, the Marketing group has projected the
following sales forecasts:
Sales Probability
20,000 units 75%
12,000 units 25%
91. Which of the following is incorrect regarding the company’s cost
function based on Y = a + bX?
D a. The value of the slope is 24
b. The y-axis intercept amounted to P 180,000
c. The average unit cost based on 2013 production is P 39.00
d. The total costs based on 2013 sales amounted to P 468,000

92. Assuming that a special order for 1,200 units was received from a
foreign customer, what should be the minimum selling price for this
order?
B a. P 48,000
b. P 28,800
c. P 19,200
d. The order cannot be accepted due to lack of capacity

93. Assuming the unit sales price remains constant, what is the margin of
safety in 2014?
C a. 12.5%
b. P 1,250
c. 6,750 units
d. 270,000 units

94. Compared to variable costing, the company’s 2013 profit under

absorption costing would have been
B a. P 20,000 lower
b. P 20,000 higher
c. P 30,000 lower
d. P 30,000 higher

95. Assume that A&A contemplates on outsourcing Forbes Wood from an

outside supplier that has quoted a price of P 36 per unit. How many
units will A&A be indifferent between making & buying Forbes Wood?
B a. 12,000 units
b. 15,000 units
c. 18,000 units
d. 540,000 units

Items 96 to 100 are based on the following information

ASIA Company
Income Statement
For the Month ended April 30, 2014
Sales (P 10 per unit) P 900,000
Less: Variable Costs:
Variable Cost of Goods Sold:
Beginning Inventory P 125,000
Variable Cost of Goods Manufactured 400,000
Goods available for Sale P 525,000
Less: Ending Inventory (75,000)
Variable Cost of Goods Sold P 450,000
Variable Selling Expense 90,000 (540,000)
Contribution Margin: P 360,000
Less: Fixed Costs:
Manufacturing P 240,000
Selling and Administrative 90,000 (330,000)
Profit P 30,000

During April 2014, 80,000 units were manufactured and average capital
of P 1,000,000 was invested. Variable production costs have remained
constant on a per unit basis over the past several months.

96. Under absorption costing, what is the peso value of the company’s
inventory on April 30?
A a. P 120,000
b. P 90,000
c. P 75,000
d. P 60,000

97. Under absorption costing, what is Asia’s profit or loss for the month
ended April 30?
A a. Nil amount
b. P 30,000 loss
c. P 30,000 profit
d. P 60,000 profit

98. Under variable costing, what would be Asia Company’s total costs at
the break-even point?
B a. P 900,000
b. P 825,000
c. P 495,000
d. P 412,500

99. Under variable costing, what amount of peso sales is necessary to

achieve a Return on Investment (RoI) of 15%?
A a. P 1,200,000
b. P 1,100,000
c. P 1,000,000
d. P 950,000

100. If sales grow by 4% next month, by how many percent is the Asia’s
profit expected to increase?
C a. 4%
b. 12%
c. 48%
d. Some other percentage
 - END –

1. (Cost concepts | Easy)

The term "committed costs" refers to costs that
a. are likely to respond to the amount of attention devoted to them by a specified manager
b. are governed mainly by past decisions that established the present levels of operating and
organizational capacity and that only change slowly in response to small changes in capacity
c. fluctuate in total in response to small changes in the rate of utilization of capacity
d. management decides to incur in the current period to enable the company to achieve objectives other
than the filling of orders placed by customers

2. (Cost concepts | Easy)

A cost driver
a. causes fixed costs to rise because of production changes
b. has a direct cause-effect relationship to a cost
c. can predict the cost behavior of a variable, but not a fixed, cost
d. is an overhead cost that causes distribution costs to change in distinct increments with changes in
production volume

3. (Cost concepts | Easy)

A local JPIA chapter wants to rent a half for P3,000 a day to hold a Bingo fund raiser. Every session of
bingo requires a caller for P200. There are supplies that are needed that cost P3 per person playing bingo.
On average each bingo player spends P20 and 1,000 people attend each session. P10,000 in prizes are
awarded each session.

Total cost for 1 session can be classified as:

Fixed Costs 13,200
Variable Costs 3,000

4. (Cost concepts | Easy)

Which is not a common accounting classification of costs?
a. By the method of payment for the expenditure
b. By the objective of expenditure
c. By behavior
d. By the function incurring the expenditure
5. (Constraint resources | Difficult)

Hanson Company manufactures two different types of receivers, a regular Model R and a special features
Model S. The company has limited resources. On an annual basis it has a total of 480 direct labor-hours
and a total of 300 lbs. of material available for use in the manufacture of these receivers. The company
uses linear programming to determine a production schedule that will maximize the company’s profit.

Based on the company’s current data on selling prices and production costs, it is estimated that the sale of
Model R will contribute P7 profit per unit and the sale of Model S will contribute P10 profit per unit.
Resources used in the production of the two receivers are as follows. (Let Model S = S and Model R = R.)
Model S Model R
Raw materials used per unit 5 lbs. 3 lbs.
Labor used per unit 6 hours 4 hours
The objective function for Hanson Company can be expressed as
a. 5S + 3R < = 300 c. 6S + 4R < = 480
b. Max = 7R + 10S d. Min = 5S + 3 R

6. (Probability Tree | Average)

A beverage stand can sell either softdrinks or coffee on any given day. If the stand sells softdrinks and the
weather is hot; it will make P2,500; if the weather is cold, the profit will be P1,000. If the stand sells coffee
and the weather is hot, it will make P1,900; if the weather is cold, the profit will be P2,000. The probability
of cold weather on a given day at this time is 60%. The expected payoff if the vendor has perfect
information is:
Answer: P2,200

7. (Learning curve | Difficult)

GoPush Inc. has a target total labor cost of P 3,600 for the first four batches of a product. Labor is paid P10
an hour. If Soft expects an 80% learning curve, how many hours should the first batch take?
Answer:140.63 hours

8. (Critical Path Method | Average)

Critical Path Method (CPM) is a technique for analyzing, planning, and scheduling large, complex projects
by determining the critical path from single time estimate from each event in a project. The critical path:
a. Is the shortest path from the first event to the last event for a project
b. Is an activity within the path that requires the most number of time
c. Has completion that reflects the earliest time to complete the project
d. Is the maximum amount of time an activity may be delayed without delaying the total project beyond
its target completion time
9. (Inventory management | Easy)
A company is designing a new regional distribution warehouse. To minimize delays in loading and
unloading trucks, an adequate number of loading docks must be built. The most relevant technique to
assist in determining the proper number docks is
a. Cost-volume-profit analysis c. PERT / CPM analysis
b. Queuing theory d. Linear programming

10. (PERT | Difficult)

KayaMoYan Construction Inc. is considering a three-phase research project. The time estimates for
completion of Phase 1 of the project are:
Pessimistic 29 weeks
Most likely 25 weeks
Optimistic 15 weeks
Using the program evaluation and review technique (PERT), the expected time for completion of Phase 1
should be
Answer: 24 weeks

11. (CPM | Easy)

The network below describes the interrelationships of several activities necessary to complete a project.
The arrows represent the activities. The numbers between the arrows indicate the number of months to
complete each activity.
2
4 2 4
4
Start 1 6 5 End
2
6 3 4 5
The shortest time to complete the project is
Answer: 16 months

12. (Working capital Management | Average)

As a company becomes more conservative with respect to working capital policy, it would tend to have
a(n)
a. Increase in the operating cycle.
b. Decrease in the operating cycle.
c. Increase in the ratio of current assets to current liabilities.
d. Increase in the ratio of current liabilities to noncurrent liabilities.

13. (Working capital Management | Easy)

Temporary working capital supports
a. The cash needs of the company c. Payment of long term debt.
b. Acquisition of capital equipment d. Seasonal peaks
14. (Working capital Management | Difficult)
SoarHigh Company follows an aggressive financing policy in its working capital management while
AimHigh Corporation follows a conservative financing policy. Which one of the following statements is
correct?
a. SoarHigh has a low current ratio while AimHigh has a high current ratio.
b. SoarHigh has less liquidity risk while AimHigh has more liquidity risk.
c. SoarHigh finances short-term assets with long term debt while AimHigh finances short-term assets
with short-term debt.
d. SoarHigh has low ratio of short-term debt to total debt while AimHigh has a high ratio of short-term
debt to total debt.

15. (Cash Management | Average)

Simile Inc. has a total annual cash requirement of P 9,075,000 which is to be paid uniformly. Simile has the
opportunity to invest the money at 24% per annum. The company spends, on the average, P40 for every
cash conversion to marketable securities. What is the optimal cash conversion size?
Answer: P55,000