TEST BANK C.

Financial accounting, managerial accounting, cost accounting, inventory

MANAGEMENT ACCTG. – 1 accounting, Payroll accounting, tax accounting, and sales forecasting.
D. Tax accounting, internal accounting, internal auditing, general accounting.
Mgt. Acctg. Environment
15. Which of the following characteristics does not relate to management accounting?
1. Management Accounting A. Accounting reports may include non-monetary information.
A. Is governed by generally accepted accounting principles. B. It is subject to restrictions imposed by GAAP.
B. Draws from disciplines other than accounting C. Reports are often based on estimates and are seldom useful for everything
C. Is geared primarily to the past rather than future. other than the purpose for which they are prepared.
D. Places more emphasis on precision of data compared with financial accounting D. It provides data for external users within the business organizations.
which does not place more emphasis on accuracy of information.
22. The activities in a management system’s control process can be grouped into four:
2. Management accounting is an integral part of the management process. As such, it 1. Measurement of actual performance
provides essential information for the following objectives except 2. Deciding and implementing corrective action.
A. Maintaining the current level of resources utilization as well as internal and 3. Determining standards of performance.
external communication. 4. Comparing actual performance versus standards and analyzing results.
B. Measuring and evaluating performances.
C. Planning strategies and controlling current activities of the organization. The above steps must be done in this sequence:
D. Enhancing objectivity in decision-making. A. 4,3,2,1
B. 3,1,4,2
3. The chief management accountant called “controller” traditionally performs these C. 1,3,4,2
functions except D. 3,4,1,2
A. The establishment and implementation of the financial planning process.
B. Financial and management reporting and interpretation. 23. The concept of “management by exception” refers to management’s
C. Protection of company resources and economic evaluation. A. Consideration of only those items which vary materially from plans.
D. Relate to specific problems where expert help is required. B. Consideration of only rare events.
C. Consideration of items selected random.
6. Management accountants help design, develop, install and maintain reporting D. Events that involve material amount.
systems which are
aligned with the structures of the organization. These systems provide information 28. A type of managerial accounting that refers to the determination of the cost of
that are useful products and services regardless of whether they are variable or non-variable is
for decision making. Management decision processes fall into three categories. known as
A. Repetitive, non programmed and strategic A. Differential accounting
B. Repetitive, programmed and strategic B. Activity accounting
C. Repetitive, non programmed and nonstrategic C. Full cost accounting
D. Non repetitive, non programmed and strategic D. Responsibility accounting

7. In this element of internal control, the object is to gauge the efficiency of the 29. A type of managerial accounting that refers to the determination of the operating
various levels of people in the organization as well as the quality and quantity of cost regardless of cost behavior is
results. A. Differential accounting
A. Records and reports B. Full cost accounting
B. Standards and performance. C. Responsibility accounting
C. Internal audit D. Profitability accounting
D. Policies and procedures.
COSTS CONCEPTS, CLASSIFICATION AND SEGREGATION
12. You are newly appointed as controller of ABC Corporation. Among the jobs your
department would do, include the following: 1. The term relevant cost applies to all the following decision situations except the
A. Cash receipts, cash disbursement, general accounting, taxation, financial A. Acceptance of a special order.
statements analysis and internal auditing. B. Determination of a product price.
B. Financial reporting, strategic planning, managerial accounting, C. Replacement of equipment.
taxation, financial statement analysis and internal accounting. D. Addition or deletion of a product line.
 B. The variable cost
2. A decision-making concept, described as “the contribution to income that is C. The cost to produce an additional unit.
foregone by not using a limited source for its best alternative use.” is called D. The manufacturing unit cost.
A. Marginal Cost
B. Incremental Cost 9. Opportunity costs are
C. Potential Cost A. Costs irrevocably incurred by past actions.
D. Opportunity Cost B. The difference between actual and standard costs.
C. Not recorded in the accounting records.
5.The term that refers to costs incurred in the past that are not relevant to a future decision D. Partly fixed costs and partly variable costs.
is
A. Full absorption costing 10. Cost of goods sold is a component of the income statement. In a merchandising
B. Under-allocated indirect cost establishment, this refers to purchases adjusted for changes in inventory. In a
C. Sunk cost manufacturing company, what replaced purchases to arrive at cost of goods sold?
D. Incurred marginal cost A. Finished goods
B. Fixed manufacturing overhead
Q 5-7 are based on the following information. Management accountants are frequently asked C. Work in process inventory
to analyze D. Cost of goods manufactured
various decision situations including the following:
I. The cost of a special device that is necessary if a special order is accepted. 14. When all manufacturing cost used in production are attached to the products,
II. The cost proposed annually for the plant service for the grounds at corporate whether direct, or
headquarters. indirect, variable or fixed, this is called
III. Joint production cost incurred to be considered in a sell-at-split versus a A. Process costing
process-further B. Absorption costing
decision. C. Variable costing
IV. The cost of alternative use of plant space to be considered in a make-or-buy D. Job order costing
decision.
V. The cost of obsolete inventory acquired several years ago, to be considered in a 15. Al-kris Company uses a regression equation to analyze the behavior of its
keep- transportation costs (T) as a function of travel time (H). They developed the
versus-disposal decision. following equation using two years’ observation with a related coefficient of
determination of 85: T= 100,000 + P50H
The cost described in situations I and IV are
A. Prime cost If 500 hours of travel time were logged in one period, the related point estimate of
B. Discretionary costs total
C. Relevant costs transportation costs would be
D. Differential costs A. P110,000
B. P121,250
The costs described in situations III and V are C. P106,250
A. Prime costs D. P125,000
B. Sunk costs
C. Discretionary costs 16. These are among the methods of segregating fixed cost and variable costs except
D. Relevant costs A. Breakeven method
B. Simple regression analysis
The cost describe in II is a C. Scattergraph method
A. Prime costs D. High-low method.
B. Discretionary costs
C. Relevant costs
D. Differential costs Highest cost – Lowest cost = Difference in cost =Variable cost /
unit
8. Management accountants are concerned with incremental unit costs. These costs Highest hour – Lowest hour =Difference in hour =
are similar to the following, except
A. The economic marginal cost Highest or lowest Cost xxx
 - Variable cost (UVC x highest or lowest hour) xxx D. P0.93
Fixed cost xxx
23. For the six months of the year, the highest level of activity for MDG Corporation was
18,000 full
17. Dongian, Inc. is preparing a flexible budget for the next year and requires a units of production with maintenance cost at P114,000 and its lowest level of
breakdown of the cost of steam used in its factory into the fixed and variable activity for the same period was at 14,000 full units of production with maintenance
elements. The following data on the cost of steam used and direct labor hours cost at P94,000. What amount of maintenance cost should MDG expect in a month
worked are available for the last 6 months of this year. in which it was scheduled 16,000 equivalent full units of production.
A. P 24,000
Month Cost of Steam Direct Labor Hours B. P104,000
July P15,850 3,000 C. P 80,000
August 13,400 2,050 D. P114,000
September 16,370 2,900
October 19,800 3,650 24. Simple regression analysis provides the means to evaluate a line of regression,
November 17,600 2,670 which is fitted to a plot of data and represents
December 18,500 2,650 A. The way costs change with respect to the dependent variable.
P101,520 16,920 B. The way costs change with respect to both independent variable and dependent
variables.
Assuming that Dongian uses the high-low method of analysis. The estimated C. The variability expense with pesos of production.
variable cost of steam per direct labor hour is: D. The way costs change with respect to the independent variable.
A. P4.00
B. P5.42 25. The slope of the line of regression is
C. P5.82 A. The rate at which the independent variable varies.
D. P6.00 B. The rate at which the dependent variable varies.
C. The level of fixed costs.
What is the amount of fixed cost? D. The level of the total variable costs.
A. P14,600
B. P 8,200 27. The segregation of fixed costs and variable costs is key to proper cost analysis.
C. P 5,200 Regression analysis is a technique used for this purpose. Identify the appropriate
D. P 0 statements below on regression analysis:
1. It assumes that a change in value of a dependent variable is related to the
19. Mark Company estimates handling costs at two activity levels as follows: change in the value of an independent variable.
2. A linear relationship between direct cost and production volume can cause a
Kilos handled Cost problem when using accounting data for regression analysis.
80,000 P160,000 3. It attempts to find an equation for the linear relationship among variable.
60,000 132,000 4. It establishes a cause and effect relationship.

What is Mark’s estimated cost of handling 75,000 kilos? A. All four statements are appropriate.
A. P150,000 B. Statements 1, 3 and 4 only.
B. P153,000 C. Statements 1 and 3 only.
C. P157,500 D. Statements 2 and 4 only.
D. P132,000 Y = a + bx

20. The total production cost for 20,000 units was P21,000 and the total production cost Where : Y = Total cost
for making a = Fixed cost
50,000 units was P34,000. Once production exceeds 25,000 units, additional fixed b = Variable cost / unit or hour
costs of P4,000 were incurred. The full production cost per unit for making 30,000 x = number of units or hours
units is:
A. P 0.30 29. For the month just ended, the cost components to make Product AB was P50 per
B. P 0.68 unit plus fixed
C. P 0.84
 costs of P250,000. One thousand units were produced. For the month the cost to D. Variable coefficient
make the product will be P55 per unit plus fixed cost of P250,000. Fifteen hundred
units are expected to be produced. The estimates of the underlying but unknown The letter “x” in the standard regression equation is best described as a (an)
intercept and slope coefficient for the current month are A. Independent variable
A. P250,000 and P50 B. Dependent variable
B. P55 and P250,000 C. Constant coefficient
C. PP50 and P250,000 D. Coefficient of determination
D. P250,000 and P55
Based upon the data described from the regression analysis, 420 maintenance
33. Which of the following may be used to estimate how both the number of shipments hours in a month
and the weight of materials handled affect inventory warehouse costs? would mean the maintenance costs (rounded to the nearest peso) would be
A. Economic order quantity analysis budgeted at
B. Probability analysis A. P3,780
C. Correlation analysis B. P3,600
D. Multiple regression analysis C. P3,790
D. P3,746
34. A non-linear cost function
A. Does not effectively describe the behavior of costs all the time. 39. Pure Company has developed a regression equation to analyze the behavior of its
B. Never describes the behavior of costs in relation to the cost driver. maintenance costs (Q) as a function of machine hours (Z). The following equation
C. Has two constants and single slope. was developed by using 30 monthly observations with a related coefficient of
D. Always describes the behavior of costs in relation to the driver. determination of 0.90:

35. Crescent Company has the data relating total production costs to volume for each Q = P6,000 + P5.25Z
quarter during the past five years. During this period, production volume has varied
substantially. The method of production has been relatively unchanged and the cost If 1,000 machine hours are worked in one month, the related point of estimate of
behavior has been complex. What is the most appropriate method for estimating total maintenance costs would be
future production cost? A. P11,250
A. Linear programming B. P10,125
B. Cost-volume-earnings approach C. P 5,250
C. Time-series or trend regression analysis D. P 4,725
D. Program evaluation review technique
44. Y =P575,000 + P8.50x represents the behavior of maintenance costs (Y) as a
Q. 36-38 are based on the following. function of machine hours (x). Thirty (30) monthly observations wee used to
In preparing the annual profit plan for the coming year, Venus Company wants to develop the foregoing regression equation. The related coefficient of determination
determine the cost behavior pattern of the maintenance costs. Venus has decided to was .90. If 2,500 machine hours were worked in one month, the related point
use linear regression by employing the equation Y = a + bx for maintenance costs. estimate of total variable maintenance costs would be:
The prior year’s data regarding maintenance hours and costs and the results of the A. P23,000
regression analysis are given below, B. P21,250
Average cost per hour P 9.00 C. P25,250
a 684.65 D. P19,125
b 7.2884
Standard error of a 49.515 MARGINAL COSTING and COST-VOLUME-PROFIT ANALYSIS
Standard error of b .12126
Standard error of the estimate 34.469 1. Cost-volume-profit analysis assumes that over the relevant range
r2 .99724 A. Variable costs are nonlinear
B. Fixed costs are nonlinear
In the standard regression equation Y = a + bx, the letter b is best described as C. Selling prices are unchanged
a(n): D. Total costs are unchanged
A. Independent variable
B. Dependent variable 2. Cost-volume-profit analysis assumes that over the relevant range total
C. Constant coefficient A. Revenues are linear
 B. Costs are unchanged D. Needed for determining product contribution
C. Variable costs are nonlinear
D. Fixed costs are nonlinear Sales (S) xxx
- Variable C/S (VC) xxx
2. Break-even analysis assumes that over the relevant range Manufacturing margin xxx
A. Selling prices are unchanged. - Variable expenses(VE) xxx
B. Variable costs are nonlinear Contribution Margin (CM) xxx
C. Total costs are unchanged -Fixe Costs & Expenses(F C&E) xxx
D. Fixed costs are nonlinear Income Before Income Tax (IBIT) xxx

5.The amount of variable cost per unit and total fixed cost within a relevant range behave Q19-20 are based on the following selected budgeted data of Ritz Company for the coming
this way in year:
relation to production level:
A. Production increases, unit variable cost increases, total fixed cost increases.
B. Production decreases, unit variable cost decreases, total fixed cost decreases. Selling price per unit P 12.00
C. Production increases, unit variable cost remains constant, total fixed Budgeted sales 600,000
cost remains the same. Fixed expenses 150,000
D. Production increases, unit variable cost decreases, total fixed cost remains the Variable cost per unit 8.00
same.
What is the breakeven sales in units?
6.Assuming that a flexible budget is in use, production levels are expected to increase within A. 35,000
a relevant B. 37,500
ranged, the expected effect on fixed cost per unit per unit (FCU) and variable costs C. 40,000
per unit (VCU)would be D. 45,000
A. FCU to decrease and VCU to decrease
B. FCU to decrease and VCU no change What is the margin of safety ratio in percent?
C. FCU no change and VCU no change A. 15%
D. FCU no change and VCU to decrease B. 20%
C. 30%
7. One of the major assumptions limiting to reliability of break-even analysis is that D. 25
A. The cost of productivity will continually increase.
B. The cost of production factors varies with changes in technology. BEP (Units) = FC / UCM (OR) BEP(u) = Actual Sales x (1 – MS
C. Total variable cost will remain unchanged over the relevant range. Ratio)
D. Total fixed cost will remain unchanged over the relevant range.
BEP (Peso) = FC /CMR
9. At breakeven point, fixed cost is always
A. Less than contribution margin Margin of Safety = Budgeted or Actual Sales – Breakeven Sales (OR) MS=
B. Equal to contribution margin Sales x MSR
C. More than variable cost ( B or A S ) (BES)
D. More than the contribution margin MSR = MS / ACTUAL (or BUDGETED) SALES
MSR = NPR / CMR
15. The rate or amount that sales may decline before losses are incurred is called: MSR = [ 1 – (BE Sales / Actual Sales) ]
A. Sensitive level of income
B. Variable sales ratio AT BEP: PROFIT (LOSS) = 0
C. Margin of safety Sales = Total Costs
D. Residual income rates Contribution Margin = Total Fixed Costs

16. Total unit costs are Relevant Formulas

A. Relevant for cost-volume-profit analysis
B. Independent of the cost system used to generate them CONTRIBUTION MARGIN = ?
C. Irrelevant in marginal analysis CM = SALES – VARIABLE COST CM = FIXED COSTS + IBIT
 CM = SALES x CMR CM = Quantity sold A. P3,750,000
x UCM B. P1,850,000
C. P1,875,000
D. P2,500,000
CMR = ?
CMR = 100% - VCRatio CMR = CM / SALES 24. A company produced 500 units of a product and incurred the following costs. Direct
CMR = UCM / USP CMR = materials,
NPR / MSR P8,000; direct labor, P10,000; overhead (20% fixed), P45,000. If the sales value of
500 units is
UCM = ? P102,000, what is the contribution margin percentage?
UCM = USP – UVC A. 44%
UCM = FC / BEP (IN UNITS) B. 47%
UCM = CM / QUANTIRY SOLD C. 53%
D. 74%

25. Given the selling price at P120 per unit; contribution margin ratio at 25% and fixed
PROFIT = ?
cost at P250,000, the total variable expenses at the break even point would be:
PROFIT = CM – FIXED COST
A. P350,000
PROFIT = SALES x MS Ratio x CM Ratio
B. P750,000
PROFIT = SALES x NPRatio
C. P450,000
Change in Profit = CM – Inc. in FC D. P250,000
Change in Profit = CM + Dec in FC
26. Which of the following is used to determine the break-even point when using the
FIXED COST = ? contribution
FC = CM (at BEP ) margin method?
FC = BEP (units) x UCM A. Revenues less operating income equals variable costs plus fixed costs.
B. Unit contribution margin times the break-even number of units equals
VC Ratio = VC / SALES fixed costs.
VC Ratio = UVC / USP C. Selling price less unit fixed costs equals contribution margin.
VC Ratio = 100% - CMR D. Total fixed costs equal total revenues.
VC RATIO = ( CHANGE IN COST – Inc. in FC) / Change in Sales
VC RATIO = ( CHANGE IN COST +Dec. in FC) / Change in Sales 28. To reduce the break-even point, the company may
A. Decrease both the fixed costs and contribution margin.
B. Increase both the fixed costs and contribution margin.
23. Ces Co’s operating percentages were as follows: C. Decrease the fixed costs and increase the contribution margin.
D. Increase the fixed costs and decrease the contribution margin.
Revenues
100% 29. RDG Inc.’s net sales in 2009 were 15% below the 2008 level. RDG’s semi-variable
Cost of goods sold: costs would
Variable 50% A. Increase in total and increase as a percentage of net sales.
Fixed 10% B. Decrease in total and decrease as a percentage of net sales.
60% C. Increase in total but decrease as a percentage of net sales.
Gross profit D. Decrease in total but increase as a percentage of net sales.
40%
Other operating expenses: 30. Cost-volume-profit analysis is a key factor in many decisions, including choice of
Variable 20% product-lines,
Fixed 15% pricing of products, marketing strategy, and utilization of productive facilities. A
35% calculation used in CVP analysis is the break-even point. Once the break-even point
Operating income 5% has been reached operating income will increase by the
A. Sales price per unit for each additional unit sold.
Ces’s sales totaled P3 million, at what level is break-even sales? B. Contribution margin per unit for each additional unit sold.
 C. Fixed cost per unit for each additional unit sold. Q40-41 are based on the following information.
D. Gross margin per unit for each additional unit sold.
Stuff Toys Manufacturing Co. manufactures and sells dolls. The following
32. Miles Company sells three chemicals: Simpol, Plutex and Coplex. Simpol is the most information relates to the operating results for the last quarter:
profitable
product while Coplex is the least compatible. Which of the following events will Stuff toys sold 19,375
definitely decrease the firm’s overall BEP for the upcoming account period? Breakeven point in number of toys 15,500
A. An increase in the overall market of Plutex Breakeven point in peso sales P65,875
B. A decrease in Coplex’s selling price Total fixed costs P47,275
C. An increase in anticipated sales of Simpol relative to the sales of Plutex
and Coplex What was the company’s variable cost per doll?
D. An increase in Simpol raw materials A. P4.25
B. P3.05
34. Pia Company reported the following for the year just ended: C. P1.20
D. P0.96
Budgeted sales P3,000,000
Break-even sales 2,100,000 What was the margin of safety percentage for the last quarter of the company?
Budgeted contribution margin 1,800,000 (rounded to the
Cashflow break-even 600,000 nearest percent)
Q? A. 20%
A. P 900,000 B. 25%
B. P2,400,000 C. 28%
C. P1,200,000 D. 72%
D. P1,500,000
42. For a profitable company, the amount by which sale can decline before losses occur
35. The contribution margin ratio always increases when the is known as the
A. Breakeven point increases A. Variable sales ratio
B. Breakeven point decreases B. Margin of safety
C. Variable costs as a percentage of net sales decrease. C. Sales volume variance
D. Variable costs as a percentage of net sales increase. D. Marginal income rate.

36. The following information pertains to Vilma Company’s cost-volume-profit 43. Dagupan Silver, Inc. manufactures and sells key rings embossed with college names
relationships: and slogans.
Last year, the key rings sold for P75 each, and the variable costs to manufacture
Breakeven point in units sold 1,000 them were P22.50 per unit. The company needed to sell 20,000 key rings to break-
Variable costs per unit P 500 even. The net income last year was P50,400. The company expects the following for
Total fixed costs P150,000 the coming year:

How much will be contributed to profit before income taxes by the 1,001 st units  The selling price of the key rings will be P90.
sold?  Variable manufacturing costs per unit will increase by one-third.
A. P650  Fixed cost will increase by 10%.
B. P500  The income tax rate will remain unchanged.
C. P150
D. P 0 For the company to break-even the coming year, the company should sell
A. 21,600
39. Which of the following would decrease unit contribution margin the most? B. 2,600
A. A 15% decrease in selling price C. 21,250
B. A 15% increase in variable costs D. 19,250
C. A 15% decrease in variable costs
D. A 15% decrease in fixed costs.
44. A company has revenues of P500,000, variable costs of P300,000, and pretax profit B. The breakeven point in units will be decreased.
of P150,000. If the company increased the sales price per unit by 10%, reduced C. The breakeven point in units will remain unchanged.
fixed costs by 20%, and left D. The effect cannot be determined from the information given.
variable cost per unit unchanged, what would be the new breakeven point in pesos?
A. P 88,000
B. P100,000 BESales with profit
C. P110,000
D. P125,000
Break- Even Sales(U) = FC + IBIT / UCM
45. Lilly Corporation has a contribution margin ratio of 0.26. It aims to have a net
income of P320,000 with a sales volume of P2 million. Its total fixed costs amount
to 50. In using cost-volume-profit analysis to calculate expected unit sales, which of the
A. P200,000 following should be deducted to fixed cost in the numerator?
B. P 83,200 A. Predicted operating loss.
C. P230,777 B. Predicted operating income
D. P520,000 C. Unit contribution margin
D. Variable costs
46. AA Corporation, a manufacturing company, is operating at 90% capacity. Since
there is no use of the 10% idle capacity, an offer for a new order at P8.20 per unit 51. Queen Company would like to market a new product at a selling price of P15 per
requiring 15% capacity is being considered. If the order will be accepted, the 5% unit. Fixed cost
additional capacity will be sub-contracted at the cost of P7.80 per unit. The variable for his product are P1,000,000 for less than 500,000 units of output and P1,500,000
cost per unit of production of AA Corporation follows: for 500,000 or more units of output. The contribution margin percentage is 20%.
How many units of this product must be sold to earn a target operating income of
P1 million?
Materials P 4.00 A. 754,900
Labor 1.75 B. 833,334
Variable overhead 1.75 C. 825,530
Total 7.50 D. 785,320

What is the expected contribution margin per unit on the new order? 52. Merchandiser, Inc. sells Product O to retailers for P200. The unit variable cost is P40
A. P0.40 with a selling commission of 10%. Fixed manufacturing cost total P1,000,000 per
B. P0.60 month wile fixed selling and administrative costs total P420,000. The income tax
C. P0.50 rate is 30%. The target sales if after tax income is P123,200 would be
D. P0.55 A. 10,950 units
B. 15,640 units
47. Last year, the contribution margin ratio of Mara Company was 30%. This year, fixed C. 13,750 units
costs are D. 11,400 units
expected to be P120,000, the same as last year, and revenues are forecasted at
P550,000, a 10% 53. Nice Company has sales of P400,000 with variable costs of P300,000, fixed costs of
increase over last year. For the company to increase operating income by P15,000 P120,000 and an operating loss of P20,000. By how much would Nice need to
in the coming increase its sales in order to achieve a target operating income of 10% of sales?
year, the contribution margin ratio must be A. P400,000
A. 20% B. P462,000
B. 30% C. P500,000
C. 40% D. P800,000
D. 70%
Q54-55 are based on the following information.
48. A company increased the selling price of its product from P1.00 to P1.10 a unit
when total fixed Bohol Marketing Company is expecting an increase of fixed costs by P78,750 upon
costs increased from P400,000 to P480,000 and variable cost per unit remain moving their
unchanged. How will these changes affect the breakeven point? place of business to the downtown area. Likewise it its anticipating that the selling
A. The breakeven point in units will be increased. price per unit and the variable expenses will not change. At the present, the sales
 volume necessary to breakeven is P750,000 but with the expected increase in final
sales, the sales volume necessary to breakeven would go up to P975,000. Based on Fixed cost total P300,000 annually. The expected mix in units is 60% for Product Y
these projections, and 40% for
Product Z.
What is the profit-volume ratio of Bohol Marketing?
A. 35% How much is King’s breakeven sales?
B. 40% A. 857
C. 45% B. 1,111
D. 65% C. 2,000
D. 2,459
What would be the total fixed costs of Bohol Marketing after the increase of
P78,750? How much is King’s breakeven sales in pesos?
A. P 341,250 A. P300,000
B. P 262,500 B. P420,000
C. P2,183,750 C. P475,000
D. P 300,000 D. P544,000

56. Variable cost per unit is P3.50. Contribution margin is 30%. Breakeven sales is P1 68. Alpha is selling three products: Red, White, and Blue. The company sells three units
million. To sell an additional 50,000 units at the same price and contribution of Red for
margin, how much will fixed costs increase to have a gross margin equal to 10% of every unit of Blue, and two units of White for every unit of Red Fixed costs are
the sales value of the additional cost of 50,000 units to be sold? P720,000.
A. P 67,500 Contribution margin are:
B. P 50,000
C. P 57,500 P 1.90 per unit of Red
D. P125,000 2.00 per unit of White
2.30 per unit of Blue
64. Queen Company sells video tapes. The projected after tax net income for the year is
P480,000 based on a sales volume of 200,000 units. It sells the tapes at P64 each. How many units of White would the company sell at breakeven point?
The variable cost consists of P40 unit purchase price (bulk orders) and a handling A. 360,000
cost of P8 per unit. Annual fixed cost are P2,400,000 and the company’s income tax B. 108,000
rate is 35%. An increase of 10% projected unit sales volume for the year would C. 72,000
result in an increased after tax income for the year of D. 216,000
A. P120,000
B. P 48,000 69. Best Laboratory, Inc. formulates and sells three major chemicals: C1, C2, and C3. It
C. P208,000 sells to
D. P 40,000 industrial users who use and buy these chemicals in the following ratio: three (3)
measures of C1 per one (1) measure of C3, two (2) measures of C2 per one (1)
Multi-product sales measure of C1. The company makes the following contribution margin per measure:
C1 P 30
Composite BES (Units) = FC / Ave. UCM* C2 45
C3 90
*Ave UCM = Sales mix ratio/Product (x)UCM / Product
Fixed costs amounted to P1.8 million. At break-even point, the volume of C3 to be
sold would be
Q65-66 are based on the following information. A. 12,000
B. 36,000
C. 24,000
The data below pertain to two types of products manufactured by King Company: D. 4,000
Unit Sales Price Unit Variable Cost
Product Y P120 P 70
Product Z 500 200
75. In a multi-product company, as the mix of the products being sold changes, the
overall contribution margin ratio will also change. IF the shift in mix is toward the 80. When using the graph method, if the unit output exceeds the break-even point,
less profitable products, then the contribution margin ratio will A. Expenses are extremely high relative to revenues.
A. Fall B. There is loss because the total cost line exceeds the total revenue line.
B. Rise C. Total sales exceed total cost.
C. Not change D. There is profit since the total cost line exceeds the total revenue line.
D. Change in direct proportion to break-even point
81. The most important use of the cost-volume-profit graph is to show
76. Mixnuts Corporation is a multiple-product firm. In their review of operations, they A. The breakeven point.
decided to shift the sales mix from less profitable products to more profitable B. The cost/margin ratio at various levels of sale activity.
products, accounting for 30% of gross sales. This will cause the company’s C. The relationships among volume, cost, revenues, over-wide ranges of
breakeven profit to activity.
A. Decrease D. The determination of cross over point.
B. Change by 15%
C. Increase Sensitivity Analysis
D. Not change
85. Calculate the overall breakeven point in terms of units if the company believes that
77. Pangasinan Frames Inc. has the following revenue and cost budgets for the two the current price of P40 is too high and the firm faces stiff competition. After all the
products it sells sensitivity analysis is done, it was decided by the management committee to lower
the price to P36 without sacrificing the quality of the product. What is the new
Plastic Frames Glass Frames breakeven point if fixed costs are P309,750 and unit contribution margin is P6?
Sales Price P 50 P 75 A. 51,625
Direct materials (10) (15) B. 39,125
Direct labor (15) (25) C. 31,250
Fixed overhead (15) (20) D. 43,750
Net income per unit P 10 P 15
Budgeted unit sales 100,000 Q86-87are based on the following information.
300,000
Presented below are the results of operations of Venus Products, Inc. for 2009:
The budgeted unit sales equal the current unit demand, and total fixed overhead for
the year in Sales (150,000 units) P600,000
budgeted at P4,875,000. Assume that the company plans to maintain the Cost of goods sold:
proportional mix. In Fixed P150,000
numerical calculations, the company rounds to the nearest centavo and unit. The Variable 300,000 450,000
total number of Gross profit P150,000
units the company needs to produce and sell to break-even is Selling and administrative:
A. 300,000 Fixed 39,000
B. 354,545 Variable 45,000 84,000
C. 150,000 Income before taxes P 66,000
D. 75,000
The company is concerned about the expected increase in fixed manufacturing costs
79. In a profit-volume graph, the cost/volume/profit relationships are represented. The by 50% if it will buy a new equipment with a higher production capacity. However,
vertical axis is study shows that with the use of the new equipment sales volume in units are
the profit in pesos and the horizontal axis is the volume in units. The diagonal line is expected to increase by 40% while variable
the contribution margin line. The point at which the contribution margin line manufacturing costs will decrease from P2.00 to P1.50 per unit. The total fixed
intersects the zero profit line is the point: selling and
administrative expenses and variable selling and administrative expenses will
A. At which the volume level is zero. remain the same. The company has been operating at full capacity. If the company
B. At which the total costs equal the total sales. will buy the new equipment,
C. At which sale increases.
D. At which total variable costs equal total sales. What would be the breakeven point in terms of units?
 A. 120,000 Based on market study in December 2009, Winner estimated that it could increase
B. 66,000 the unit selling price by 15% and increase the unit sales volume by 10% if
C. 176,000 P100,000 were spent on advertising. Assuming that Winner incorporates these
D. 105,000 changes in its 2010 forecast, what should be the operating income from Product G?
A. P175,000
What is the maximum expected income before income tax? B. P190,000
A. P198,000 C. P205,000
B. P216,000 D. P365,000
C. P306,000
D. P288,000 91. When used in cost-volume-profit analysis, sensitivity analysis
A. Determines the most profitable mix of product to be sold.
Q.88-89 are based on the following information. B. Allows the decision maker to introduce probabilities in the evaluation of decision
alternatives.
The Handicraft Company manufactures and sells Batik handbags to assorted prints. C. Computes profit per unit of production and determines the optimum production
Data for the of the company.
previous year were as follows: D. Is done through various possible scenarios and computes the impact on
profit of various predictions of future events.
Selling price per piece P8.00
Variable cost per piece P2.00 Operating Leverage
No. of pieces to breakeven 25,000 98. Willy Corporation is operationally, a highly leveraged company, that is, it has high
Net income last year P5,850 fixed costs and low variable cost. As such, small changes in sales volume result in
A. Proportionate change in net income.
For the coming year, the company estimates that the selling price will be P 9.50 per B. Large changes in net income.
piece, variable cost to manufacture will increase by 25%, and the fixed costs will C. Negligible change in net income.
increase by 10%. Income tax rate of 35% will not change. D. No change in net income.

What is the selling price per piece that would give the same contribution margin 99. The percentage change in earning before interest and taxes associated with the
rate as previous percentage change in revenues is the degree of
year? A. Operating leverage
A. P10.00 B. Financial leverage
B. P 9.50 C. Breakeven leverage
C. P 8.00 D. Combined leverage
D. P10.50
101. Yoly Inc. manufactures computers tables. It has an investment of P1,750,000 in
If sales for the coming year are expected to exceed last year’s by 1,800 pieces, assets and expects a 25% return on investment. Its fixed production cost for 2,000
what would be the expected sales volume for the coming year? units is P550,000 plus an additional P150,000 for selling and administrative
A. 28,300 expenses. The variable cost to manufacture is P1,500 per table. The selling price
B. 27,775 per table should be:
C. 26,800 A. P2,068.75
D. 26,500 B. P1,850.00
C. P2,531.25
90. Winner Company prepared the following preliminary forecast concerning Product G D. P2,725.00
for 2010
assuming no expenditure for advertising: 102. Using absorption costing, the determination of the breakeven point depends on all
of the following, except
Selling price per unit P 10 A. The budgeted level of production.
Unit sales 100,000 B. Achieving targeted production levels.
Variable costs P600,000 C. The number of units sold during the period.
Fixed costs P300,000 D. The level of fixed manufacturing overhead.

104. State whether the following statements are true or false.

 1. The breakeven point is defined as the sum of variable expenses and fixed
expenses. 7. When all manufacturing costs used in production are attached to the products,
2. As sales exceed the breakeven point, a low contribution margin percentage whether direct or
would result in indirect, variable or fixed, this is called:
lower profit than would a high contribution margin percentages. A. Process costing
3. All fixed costs are treated as period costs when variable costing is used. B. Absorption costing
C. Variable costing
Statement 1 Statement 2 Statement 3 D. Job order costing
A. True True True
B. False True True 8. For a multiple-product company, in determining the break-even point, which of the
C. False False True following
D. False False False assumptions are commonly used when variable costing is adopted?

VARIABLE COSTING I. Sales equal production

II. Unit variable cost is constant
1. Under the direct costing, which is classified as product costs? III. Sales mix is constant
A. Only variable production costs.
B. Only direct costs. A. I and III
C. All variable costs B. I and II
D. All variable and fixed production costs. C. I, II and II
D. II and III
2. In absorption costing, as contrasted with direct costing, the following are absorbed
into inventory. 9. Carla company’s 2009 fixed manufacturing overhead cost totaled P100,000 and
A. All the elements of fixed and variable manufacturing overhead. variable selling costs totaled P80,000. Under the direct costing, how should these
B. Only the fixed manufacturing overhead. costs be classified?
C. Only the variable manufacturing overhead.
D. Neither fixed nor variable manufacturing overhead. Period Cost Product Cost
A. P 0 P 180,000
In an income statement prepared as an internal report using the direct (variable) B. P 80,000 P 100,000
costing method, fixed selling and administrative expenses would C. P100,000 P 80,000
A. Not be used. D. P180,000 P 0
B. Be used in the computation of the contribution margin.
C. Be used in the computation of operating income but not in the 10. If production is greater than sales (units), then absorption costing net income will
computation of the contribution margin. generally be
D. Be treated the same as variable selling and administrative expense. A. Greater than direct costing net income
B. Less than direct costing net income
5 In an income statement prepared as an internal report using the direct (variable) C. Equal to direct costing net income
costing method, D. Additional data is needed to be able to answer.
variable selling and administrative expenses would
A. Not be used. 11. Which of the following statements is correct?
B. Be used in the computation of the contribution margin. A. When production is higher than sales, absorption costing net income is lower
C. Be used in the computation of operating income but not in the than variable costing net income.
computation of the contribution margin. B. If all the products manufactured during the period are sold in that
D. Be treated the same as fixed selling and administrative expense. period, variable costing net income is equal to absorption costing net
income.
6 A type of managerial accounting which refers to the determination of the operating C. When production is lower than sales, variable costing net income is lower than
cost regardless of cost behavior, whether variable or non-variable, is absorption costing net income.
A. Differential accounting D. When production and sales level are equal, variable costing net income is lower
B. Full cost accounting than absorption costing net income.
C. Responsibility accounting
D. Profitability accounting
12. Operating income using direct costing as compared to absorption costing would be Variable OH xxx Variable OH
higher xxx
A. When the quantity of beginning inventory equals the quantity of ending Fixed OH
inventory. xxx
B. When the quantity of beginning inventory more than the quantity of Total Product Cost (Variable Costing) xxx Total Product Cost (Absorption Costing)
ending inventory. xxx
C. When the quantity of beginning inventory less than the quantity of ending
inventory. 20. Mark produces and sell boxes of signing pens for P1,000 per box. Direct materials
D. Under no circumstances. are P400 per box and direct manufacturing labor averages P75 per box. Variable
overhead is P25 per box and fixed overhead is P12,500,000 per year. Administrative
13. If sales equal production, one would expect net income under the variable costing expenses, all fixed, run P4,500,000 per year, with sales commissions of P100 per
method to be box. Production is expected to be 100,000 boxes, which is met every year. For the
A. The same as net income under absorption costing method. year just ended, 75,000 boxes were sold.
B. Greater than net income under absorption costing method.
C. Differing in as much as the difference between sales and production.
D. Less than net income under the absorption costing method. What is the inventoriable cost per box using variable costing?
A. P770
16. Other things being equal, income computed by the direct costing method will B. P500
exceed that computed by an absorption costing method if C. P475
A. Fixed manufacturing cost increases. D. P625
B. Units sold exceed units produced.
C. Variable manufacturing costs increase Same information above, what is the inventoriable costs per box using absorption
D. Units produced exceed units sold. costing?
A. P770
17. President X of ABC Corporation requested you to explain the difference in net B. P500
income between the variable costing income statement presentation and the C. P475
absorption method. You would say that the difference: D. P625
A. Is none if there is no change in the fixed costs in the beginning and
ending inventories. 22. Compute for the inventory value under the direct costing method using the data
B. Is equal to the fixed cost per unit times the number of units sold. given: units unsold at the end of the period, 45,000; raw materials used, P6.00 per
C. Is attributable to the variable costs in the inventory. unit; raw materials inventory, beginning, P5.90 per unit; direct labor, P3.00 per
D. Is attributable to the fixed cost in ending inventory. unit; variable overhead per unit, P2.00 per unit; indirect labor for the month,
P33,750. Total fixed costs, P67,500.
19. Identify the following statements as true or false. A. P16.90
1. In direct costing, fixed factory overhead forms part of the inventory value. B. P11.00
2. The difference in net income between variable costing and absorption C. P17.45
costing is due entirely to the treatment of fixed manufacturing overhead. D. P19.15

Statement 1 Statement 2 Q24-25 are based on the following data.

A. True True
B. True False Miles Company produced 100,000 units of Product Z during the month of June.
C. False True Costs incurred
D. False False during June were as follows:

Inventoriable cost Direct materials P100,000

Direct labor 80,000
Direct Materials xxx Direct Materials Manufacturing overhead:
xxx Variable 40,000
Direct labor xxx Direct labor Fixed 50,000
xxx Selling and Administrative Expenses:
Variable 12,000
 Fixed 46,000 Less: Actual capacity(in Units) xxx
Total P327,000 Difference xxx
(x) UFC xx
What was Product Z’s unit cost under absorption costing? Volume Variance xxx
A. P3.27
B. P2.70
C. P2.32 26. Matt and Company completed its first year of operations during which time the
D. P1.80 following
information were generated:
What was Product Z’s unit cost under variable (direct) costing?
A. P2.82 Total units produced 100,000
B. P2.70 Total units sold 80,000 @ P100/unit
C. P2.32 Work in process ending inventory none
D. P2.20 Cost:
Fixed:
Operating income Factory overhead P1.2 million
IF THEN, NET INCOME UNDER IF Selling and Administrative 0.7 million
Variable cost per unit:
Raw materials P20.00
SALES > PRODUCTION VC > AC PRODUCTION >
Direct labor 12.50
SALES
Factory overhead 7.50
SALES < PRODUCTION VC < AC PRODUCTION <
Selling and administrative 10.00
SALES
SALES = PRODUCTION VC = AC PRODUCTION =
If the company used the variable (direct) costing method, the operating income
SALES
would be
A. P2,100,000
Variable Costing Absorption B. P4,000,000
Costing C. P2,480,000
Sales xxx Sales D. P3,040,000
xxx
(-) Variable Cost & S & A Exp.(no. of units sold x vc/u) xxx Variable & Fx cost 27. Holmes Company began its operations on January 1, 2009, and produces a single
xxx product that sells for P10 per unit. Holmes uses an actual (historical) cost system.
Contribution margin xxx Gross profit In 2009, 100,000 units were
xxx produced and 80,000 units were sold. There was no work-in-process inventory at
(-) Fix OH & S&A Exp. xxx Var & Fx S&A Exp December 31,
xxx 2009. Manufacturing costs and selling and administrative expenses for 2009 were
Net income xxx as follows:
xxx
Fixed costs Variable costs
Under VC : Fixed OH = Normal capacity x UFC Raw materials - P2.00/unit produced
Fixed expenses = Normal capacity x UFC Direct labor - P1.25/unit produced
Under AC : Fixed OH = Q S x UFC Factory overhead P120,000 P0.75/unit produced
Fixed expenses = Normal capacity x UFC Selling and administrative P 70,000 P1.00/unit produced
What would be Holmes operating income for 2009 under the variable (direct)
VC AC costing method?
If there is: Variable Prod’n Variance (UF) / F (UF) / F A. P114,000
Volume Variance (UF) / F - “ in B. P210,000
computing net income” C. P234,000
D. P330,000
Volume Variance = ?
Normal capacity (in units) xxx Q29-30 are based on the following information.
 32. Crest Inc., manufactures a single product for which the costs and selling prices are:
Expected to operate at normal capacity, Ruth Corporation plans to manufacture Variable production costs P 50 / unit
275,000 units of Selling price
products in 2010, and the following estimates with respect to sales: P150 / unit
Fixed production overhead P200,000 /
Sales in units 250,000 quarter
Unit selling price P 35.00 Fixed selling and administrative overhead P480,000 /
quarter
Finished goods inventory on December 31, 2009 is estimated at 25,000 units
costing P500,000. Normal capacity is 20,000 units per quarter. Production in the 1st quarter was
Included in this amount is the fixed manufacturing overhead amounting to 19,000 units and sales volume was 16,000 units. No opening inventory for the
P300,000. No changes in the fixed manufacturing cost and variable cost per unit of quarter. The absorption costing profit for the quarter was:
produce are expected in 2010. A. P920,000
B. P950,000
What is the estimated income from manufacturing using the absorption costing C. P960,000
method? D. P970,000
A. P3,350,000
B. P3,450,000 Q 33-34 are based on the following information.
C. P3,550,000
D. P3,750,000 The following operating data are available from the records of Matt Company for the
month of
What is the estimated income from manufacturing using the variable costing January 2010:
method?
A. P3,150,000 Sales (70 per unit) P210,000
B. P3,550,000 Direct materials 59,200
C. P3,450,000 Direct labor 48,000
D. P3,750,000 Manufacturing overhead:
Fixed 36,080
31. Jane Biscuits manufactures and sells boxed coconut cookies. The biggest market for Variable 24,000
these cookies are as gift that college students buy for their business teachers. There Marketing and general expenses;
are 100 cookies per box. The following income statement shows the results of the Fixed 11,000
first year of operations. This statement was the one included in the company’s Variable 5% of sales
annual report to the stockholders. Production in units – 3,280 units
Beginning inventory – none
Sales (400 boxes @ P12.50) P5,000.00
Less: Cost of goods sold (400 boxes @P8.00) 3,200.00 The ending finished goods inventory under absorption costing method would be
Gross margin P1,800.00 A. P14,280
Less: Selling and administrative expenses 800.00 B. P16,968
Net income P1,000.00 C. P12,096
D. P16,072
Variable selling and administrative expenses are P0.90 per box unit. The company
produced 500 The net income for the month under the variable costing method would be
boxes during the year. Variable manufacturing costs are P5.25 per box and fixed A. P32,420
manufacturing B. P25,500
overhead costs total P1,375 for the year. What is the company’s direct costing net C. P23,320
income? D. P22,420
A. P2,540
B. P2,265 Q35 through 38 are based on the following information:
C. P1,000
D. P 725 Sales per unit P
15.00
 Variable production cost 8.00 and Work in Process
Annual fixed production cost none
35,000.00 Number of units produced 40,000 units
Variable office expense (unit) Number of units sold at P15
3.00 32,500 units
Annual fixed selling expense Costs:
15,000.00 Direct material used
Produced 12,500 units during the period. P177,500
No inventory at January 1 (beg.) Direct labor used 85,000
Sold 10,000 units Manufacturing costs:
Fixed P110,000
The ending inventory under direct costing is Variable 61,500 171,500
A. P25,000 Fixed administrative expenses 30,000
B. P27,500
C. P20,000 Under variable costing, what would be the finished goods inventory as at December
D. P32,500 31, 2009?
A. P81,375.00
Ending inventory under absorption costing is B. P60,750.00
A. P32,500 C. P87,000.00
B. P20,000 D. P49,218.75
C. P25,000
D. P27,000 Which costing method, variable or absorption costing, would show a higher
operating income for
Total variable annual cost charged to expense in direct costing 2009 and by how much?
A. P110,000 A. Variable by P20,625
B. P117,500 B. Absorption by P20,625
C. P 80,000 C. Variable by P26,250
D. P100,000 D. Absorption by P26,250
Total fixed cost charged against current year’s operations in absorption costing: 41. During the year 2009, Mt. Carmel Corporation manufactured 70,000 units of
A. P35,000 Product A, a new
B. P25,000 product. Only 65,000 units were sold during the year. There was no beginning
C. P15,000 inventory.
D. P43,000 Manufacturing cost per unit was P20.00 variable and P50.00 fixed. What would be
the effect on net income if absorption costing is used instead of variable costing?
Reconciliation of income A. Net income is P250,000 lower
B. Net income is P250,000 higher
Rule: C. Net income is P100,000 lower
Change in Units (Production – Sales) xxx Inventory, End xxx D. Net income is P100,000 higher
(x) FC / Unit xx or (x) FC / Unit
xx 42. At the end of Mt. Everest Company’s first year operations, 1,000 units of inventory
Difference in Net income xxx remained on
xxx hand. Variable and fixed manufacturing cost per unit were P90 and P20,
respectively. IF Mt.
Q39-40 are based on the following information. Everest uses absorption costing rather direct (variable) costing, the result would be
a higher pretax income of
The books of Fontana Company pertaining to the year ended December 31, 2009 A. P20,000
operations, showed the following figures relating to Product A: B. P70,000
C. P 0
Beginning inventory – Finished Goods D. P90,000
43. The production volume variance occurs when using Standard FxOH Rate (Budgeted FxOH / Normal capacity)
A. The absorption costing approach because of production exceeding the sales. xxx
B. The absorption costing approach because production differs from that Standard OH Rt.
use in setting the fixed overhead rate used in applying fixed overhead xxx
to production.
C. The variable costing approach because of sales exceeding the production for E. The following are the content analysis of the following expense and income
the period. accounts:
D. The variable costing approach because of production exceeding the sales for
the period. _ Accrued Expenses
PAID xx Beg.Bal xx
BUDGETING Ending Balance xx INCURRED xx
Prepaid Expense
Formulas in Flexible Budgeting Beg.Bal. xx INCURREDxxx
A. Budgeted Sales xxx Basic equations: PAID xx Ending Bal.
+ FG, End xxx FG, beg + Production Therefore: xx
= TGAS
TGAS xxx FG, end + Sales = AE, Beg + Incurred = Paid + AE, End PE, Beg + Paid = Incurred +
TGAS PE, End
-FG, Beg. xxx FG, beg + Purchases Incurred = AE, End + Purchases – AE, Beg. Incurred – PE,Beg + Paid – PE,
= FG, End + Sales End
Budgeted production xxx P= S + FG,end – FG, beg. Paid = AE, Beg +Incurred – Paid Paid = PE, Beg + Incurred –
PE, End
B. Budgeted production x
X Std Materials /u x
Budgeted materials needs x Mat Inv, Beg + Mat Purchases=Total _ Accrued Income
mat av for use Beg Bal xx RECEIVEDxx
+ Materials Invty, End x Mat Inv, End + Mat Used =Total EARNED xx
mat av for use
Materials available for use x Mat Inv, Beg + Mat
Purchases=Mat,End+Mat Used Precollected Income
-Materials Invty, Beg. x Mat Purchases = Mat Used + EARNED xx
Mat Invty, Beg Ending Bal. xx
Budgeted Materials Purchases x
X Standard materials cost / unit Px
Budgeted materials purchases in P Px

C. Budgeted Production x
X Standard DLH per unit x hrs Therefore:
Budgeted DLH x
X Standard DL rate per hour Px AI, Beg + Earned = Received + AI, End PI, Beg + Received = Earned
Budgeted DL Cost Px + PI End
Earned = AI, Ending + Received – AI, Beg Earned = PI, Beg +Received –
PI, End
D. Budgeted Variable Overhead (Budgeted Production X Standard VOH rate)
Received + AI, Beg + Earned – AI, End Received + PI, End + Earned –
xxx
PI, Beg
Budgeted Fixed Overhead (Normal capacity X Std. Fx OH rate)
xxx
Budgeted Factory Overhead
xxx F. Cash Balance
A. Cash , Beg xxx 3. Operating
Standard VOH Rate (Budgeted VOH / Budgeted Capacity) activities:
xxx
 Add: Receipts xxx Cash Inflows 4 Which of these statements are advantages of profit planning?
xxx 1. Develops profit-mindedness, encourages cost consciousness and resource
Total cash available for use xxx Cash outflows utilization throughout the company.
(xxx) xxx 2. Provides vehicle to communicate objectives, gain support for the plan, of what
Less: Payments xxx Financing is expected, thereby developing a sense of commitment to achieve established
activities: goals.
Cash balance, End xxx Cash Inflows 3. Provides yardstick to evaluate actual performance, encouraging efficiency
xxx increasing output and reducing cost.
Cash 4. Provides a sense of direction for the company and enhances coordination of
outflows (xxx) xxx business activity.
B. Cash inflows xxx Investing activities: 5. Eliminates or takes over the role of administration by providing detailed
Less: Cash outflows xxx Cash Inflows information that allows executives to operate toward achievement of the
xxx organization’s objectives.
Cash
outflows (xxx) xx A. Statements 3,4 and 5 only.
Net cash inflows (outflows) xxx Net cash inflows B. All five statements.
(outflows) xxx C. Statements 1,3 and 4 only
Add: Cash bal, Beg xxx Add: Cash balance, beg D. Statements 1, 2, 3 and 4 only.
xxx
Cash balance , End xxx Cash Balance , End 5 On budgeting, all of the following are not valid, except
xxx A. Responsibility budget identifies revenue and costs with the individual
responsibilities for their incurrence.
B. The best way to establish budget figures is to use last year’s actual cost and
activity data as this year’s budget estimates.
1. The process of creating a formal plan and translating goals into a quantitative C. A sales budget and a sales forecast are the same thing.
format is D. The primary purpose of the cash budget is to show the expected cash balance
A. Process costing at the end of the budgeted period.
B. Activity-based costing
C. Budgeting 6 In budgeting which of the following statements is false?
D. Variance analysis A. Budgeting provides a measuring device to which subsequent performance is
compared and evaluated.
2. Which of the following objectives is not a primary purpose of preparing a budget? B. Planning and control are essential features of the budgeting process.
A. To provide a basis for comparison of actual performance. C. Budget preparation is not the sole responsibility of any one department and is
B. To communicate the company’s plans throughout the entire business prepared by combining the efforts of many individual.
organizations. D. Capital expenditure budget shows the availability of idle capital cash
C. To control income and expenditures in a given period. for investment.
D. To make sure the company expands its operations.
7 These statements are proper to the budgeting process except
3. The major objectives of any budget system are to A. It is a part of management’s responsibility to plan the use of its resources.
A. Define the responsibility centers, provide a framework for performance B. It is a tool to orchestrate the various functions of operations in a business.
evaluation, and promote communication and coordination among organization C. The involvement of various levels of individuals in the company is necessary to
segments. gain acceptance and attain its goals.
B. Define responsibility centers, facilitate the fixing of blame for missed budget D. Actual results need not be compared with plan, since the process ends
predictions, and ensure goal congruence between superiors and subordinates. after the budget is approved.
C. Foster the planning of operations, provide a framework for
performance evaluation, and promote communication and coordination 8. The starting point in the preparation of an annual as well as monthly master budget
among organizational segments. prepared by the Budget Committee is the
D. Foster the planning of operations, facilitate the fixing of blame for missed A. Cash Budget
budget predictions, and ensure goal congruence between superiors and B. Investment center
subordinates. C. Cost center
D. Responsibility center
 33. If a company wishes to establish a factory overhead budget system in which
20. Computer base financial planning models often use the master budget as their estimated costs can be derived directly from estimates of activity levels, it should
A. Structural base prepare a
B. Target budget model A. Flexible budget
C. Probability source B. Discretionary budget
D. Budget formula C. Fixed budget
D. Capital budget
21. For the company that does not have resource limitation, in what sequence would
the following 34. Which one of the following may be considered an independent item in the
budgets be prepared? preparation of the master budget?
i Cash budget A. Ending inventory budget
ii Sales budget B. Capital investment budget
iii Inventory budget C. Pro-forma income statement
iv Production budget D. Pro-forma statement of financial position
v Purchases budget
36. This budgeting system places the burden of proof on the manager to justify
A. Sequence ii, iii, iv, v and i authority to spend any money whether or not there was there was spending in the
B. Sequence ii, iii, iv, i and v previous period. Different ways of performing the same activity and different levels
C. Sequence ii, iv, iii, v and i of effort for the activity is evaluated. This system is called
D. Sequence iv, iii, ii, i and v A. Scenario
B. Zero-based budgeting
22. In a master budget plan, sales forecast is under C. Budgeting by alternatives
A. Financial budget D. Budgeting by responsibility and authority
B. Operating budget
C. Performance budget 37. A systematized approach known as zero-based budgeting (ZBB)
D. Capital budget A. Classifies the budget by the prior year’s activity and estimates the benefits
arising from each activity.
26. The most common method used in sales forecasting which makes use of the cause B. Commences with either the current level of spending or projected whichever is
and effect lower.
relationship between the company sales and some outside economic factor is the C. Presents planned activities for a period of time but does not present a firm
A. Correlation analysis commitment.
B. Industry trend analysis D. Divides the activities of individual responsibility centers into a series of
C. Sales force composite method packages that are prioritized.
D. Executive opinion method
38. In zero-based budgeting, which of the following statements are true?
31. A budget expressed in units of materials, number of employees, or number of man- 1. All activities in the company are organized into breakup units called packages.
hours or service units rather than in pesos is known as 2. All costs have to be justified every budgeting period
A. Planning budget 3. The process is not time consuming since justification of costs can be done as a
B. Progressive budget routine matter.
C. Physical budget
D. Traditional budget A. All three statements
B. Statement 1 1nd 2 only
32. A budget that identifies revenues and cost with an individual controlling their C. Statement 1 only
incurrence is D. Statement 2 and 3 only
A. Master budget
B. Production budget 41. The budget that describes the long-term position, goals, and objectives of an entity
C. Responsibility budget within its
D. None of the above. environment is the
A. Capital budget
B. Operating budget
C. Cash management budget
 D. Strategic budget 62. ABC Company had data relating total production costs to volume for each quarter
during the past five years. During this period, production volume has varied
42. The information contained in a cost of goods manufactured budget most directly substantially, method of production has been relatively unchanged, and the cost
relates to the behavior has been complex. What is the most appropriate method for estimating
A. Materials used, direct labor, overhead applied, and ending work-in-process future production costs?
budgets. A. Linear programming
B. Materials used, direct labor, overhead applied, and work-in-process B. Cost-volume-earnings analysis
inventories budgets. C. Time-series or trend-regression analysis
C. Materials used, direct labor, overhead applied, and work-in-process inventories, D. Program evaluation review technique (PERT)
and finished goods inventories budgets.
D. Materials used, direct labor, overhead applied, and finished goods inventories 63. The following is the sales budget of Ruth Company for the period January to June
budgets. 2010:

44. Budgets that are prepared for various degree of plant operations and are used to Months Units
control costs at January 100,000
different levels of productive capacity is February 90,000
A. Operating budgets March 90,000
B. Rolling budgets April 80,000
C. Flexible budgets May 70,000
D. Out-of-pocket costs June 70,000

46. In flexible budget, when production levels are expected to decline within a relevant The company’s projection is to have inventory on hand at the end of each month
range, the effects would be equal to 70% of the sales for the month following. It is assumed that the inventory
A. Increase in both fixed and variable costs per unit at the end of December 2010 will meet this requirement. It is also estimated that
B. Increase in fixed costs per unit the 80,000 units will be sold in July 2010. What is the total production budget in
C. Decrease in fixed costs per unit units for the six months period ending June 30, 2010?
D. No effect on both fixed and variable costs per unit A. 556,000
B. 486,000
47. ABC Co. wishes to establish a factory overhead budget system in which estimated C. 524,000
cost can be D. 479,000
derived directly from estimates of activity levels. You should recommend that it
prepares a 64. Tin-tin Corporation plans to sell 200,000 units of Product X in July and anticipated a
A. Fixed budget growth in sales of 5% per month. The target ending inventory in units of the
B. Discretionary budget product is 80% of the next month’s estimated sales. There are 150,000 units in
C. Flexible budget inventory as of the end of June. The production requirement in units of X for the
D. Zero-based budget quarter ending September 30 would be
A. 670,560
52. Considering the budgeting concepts and principles, which of the following B. 691,525
statements is not C. 665,720
applicable? D. 675,925
A. The only difference between a flexible budget and static budget is that
a flexible budget does not contain fixed costs. Materials Budget
B. A flexible budget is geared toward a range of activity rather than toward a
single level of activity. 66. Mark, Inc. desires to reduce its inventory of a particular raw material by 40%. The
C. Although it is effective in measuring production control, a static budget is not inventory at the beginning of the budget period is 240,000 units, and the company
effective in measuring cost control. plans to manufacture 168,000 units of output. Each of these units requires 2.5 units
D. The flexible budget is often used as a basis for preparing the pre-determined raw materials. How much of the raw materials should be purchased during the
overhead rate. budget period?
A. 316,000 units
Production Budget B. 276,000 units
C. 324,000 units
 D. 139,600 units The sales manager of Rose Trading has budgeted the following sales for the third
quarter of 2009:

67. Ray Company is budgeting sales of 42,000 units of Product Y for March 2010. To July P1,235,000
make one unit of finished product, three pounds of raw material A are required. August 1,560,000
Actual beginning and desired ending inventories of raw material A and Product Y are September 2,080,000
as follows:
March 1, 2010 March 31, 2010 Other budget estimates are:
Raw Material A 100,000 pounds 110,000 pounds All merchandise are to sell at its invoice cost plus 30% mark up.
Product Y 22,000 units 24,000 units Beginning inventories of each month are budgeted at 40% of that month’s
projected cost
There is no work-in-process inventory for Product Y at the beginning and end of of goods sold.
March. For the
month of March, how many pounds of raw material A is Ray planning to purchase?
A. 126,000 The projected merchandise purchases for the month of July would be
B. 132,000 A. P 995,500
C. 136,000 B. P 850,000
D. 142,000 C. P 950,000
Q68-69are based on the following information. D. P1,050,000
Matt Corporation has the following budget estimates for its second year of The projected merchandise purchases for the month of August would be:
operations: A. P1,237,000
B. P1,040,000
Projected sales P3,500,000 C. P1,360,000
Projected income before tax 12% of sales D. P1,050,000
Estimated selling and administrative expenses 25% of sales
Direct labor and factory overhead are budgeted at 72. Each unit of product O requires 3 kilos of raw material. Next month’s production
70% of the total manufacturing cost. budget for Product O is as follows:

Inventories are estimated as follows: Opening inventory:

Raw materials 15,000 kgs.
Raw Materials Goods-in-process Finished Finished goods 2,000 units
Goods Budgeted sales 60,000 units
Beginning P220,000 P250,000 Finished goods, ending inventory:
P350,000 Raw materials 7,000 kgs.
Ending 270,000 300,000 Finished goods 3,000 units
420,000
The number of kilograms of raw materials to be purchased next month is?
The estimated cost of goods sold would be: A. 172,000
A. P2,275,000 B. 175,000
B. P2,205,000 C. 183,000
C. P2,325,000 D. 191,000
D. P1,750,000
73. Each unit of Product X uses 6 kilograms of raw materials. The production and
The estimated purchases of raw materials would be inventory budgets for June 2010 are as follows:
A. P967,500 Opening inventories:
B. P732,500 Raw materials 21,000 kgs.
C. P697,500 Finished goods 15,000 units
D. P747,500 Closing inventories:
Raw materials 24,400 kgs.
Q70-71 are based on the following information. Finished goods 11,400 units
 Budgeted sales of Product X for June are 18,000 units. During the production factory overhead rate, based on direct labor-hours, in a flexible budget at normal
process, it is usually found that 10% of production units are scrapped as defective capacity?
and this loss occurs after the raw materials have been placed in process. What will A. P6.00
the raw materials purchases be in June? B. P6.50
A. 89,800 kgs. C. P7.50
B. 96,000 kgs. D. P8.13
C. 98,440 kgs.
D. 99,400 kgs. 90. A company has the following 2010 budget data:

74. Joy Corporation uses flexible budgeting for cost control. It produced 5,400 units of Beginning Finished Goods Inventory 40,000 units
product for the month just ended incurring an indirect materials cost of P26,000. Its Sales 70,000 units
mater budget for the year showed an indirect materials cost of P360,000 at a Ending Finished Goods Inventory 30,000 units
production volume of 72,000 units. A flexible budget for the month just ended’s Direct Materials P10 per unit
production would show indirect material cost of Direct Labor P20 per unit
A. P27,000 Variable factory overhead P5 per unit
B. P26,000 Selling costs P2 per unit
C. P27,950 Fixed factory overhead P80,000
D. P23,400
What are 2010 total budgeted production costs?
A. P2,100,000
B. P2,180,000
Direct labor Budget C. P2,240,000
78. Each unit of Product Z takes five direct labor hours to make. Quality standards are D. P2,320,000
high and 8% of units produced are normally rejected due to substandard quality.
Next month budget are as follws: Operating expenses Budget
91. As you are doing an analysis of the cash flow, you found these data belonging to
Beginning inventory of finished goods 3,000 units the Yellow
Planned ending inventory of finished goods 7,600 units Company:
Budgeted sales of Product Z 36,800 units Taxes: Beginning of the year P 6,000
End of the year 4,000
All stocks of finished goods must have successfully passed the quality control check. Interest Expense 50,000
What is the General and Administrative expense 155,765
direct labor budget for the month? Tax expense per income statement 20,000
A. 198,720 hours
B. 200,000 hours A. The deferred tax account must have a debit balance
C. 223,560 hours B. The general and administrative expenses must be understated
D. 225,000 hours C. Cash used to pay taxes must have been P22,000.
D. Tax expense must have been inaccurate.
Factory overhead Budget
93 Premised on past experience Angelica Corp. adopted the following budgeted formula
82. Ronald Company is preparing a flexible budget for 2010 and the following maximum for estimating shipping expenses. The company’s shipments averaged 12 kilos per
capacity shipment ( Shipping costs = P8,000 + (P0.25 x standard kgs. shipped). Pertinent
estimates for Department M are available: data for the current month are given below
At Maximum Capacity
Direct labor hours 60,000 Planned Actual
Variable factory overhead P150,000 Sales order 800 780
Fixed factory overhead P240,000 Shipments 800 820
Units shipped 8,000 9,000
Assume that Ronald’s normal capacity is 80% of maximum capacity. What would be Sales 240,000 288,000
the total Total pounds shipped 9,600 12,300
 The actual shipping costs for the month amounted to P10,500. The appropriate 70% during the month of sale
monthly flexible 15% in the first month after sale
budget allowance for shipping costs for purposes of performance evaluation would 10% in the second month after sale
be 4% in the third month after sale
A. P10,250 1% uncollectible
B. P11,075
C. P10,340 The sales on account of the last six months of the year were reported as follows:
D. P10,460 July P120,000 October P180,000
August 140,000 November
Cash budget 200,000
September 160,000 December
94. A cash flow statement is an integral part of the company’s financial statements. It is 170,000
required
because Cash collection in October amounted to
A. It is a substitute for the balance sheet and the income statement A. P168,800
B. It is necessary to comply with government regulations. B. P 42,800
C. Top management depends on it for critical information in making economic C. P178,200
decisions. D. P126,000
D. It summarizes cash movements during the accounting period, linking the
balance sheet and the income statement. Total cash collections during the fourth calendar quarter from sales made on
account during the fourth calendar quarter would be?
95. Given the following events, which affect cash flows from operations? A. P345,000
1. Cash sale B. P550,000
2. Cash dividends paid C. P502,800
3. Purchase of a long-term asset D. P460,000
4. Purchase of inventory
5. Paid employees 102. MDG Inc. prepared the following sales budget:

A. 1 and 5 Month Cash Sales Credit Sales

B. 1, 3, 4, and 5 February P 80,000 P340,000
C. 1, 2 and 5 March 100,000 300,000
D. 1, 4 and 5 April 90,000 370,000
May 120,000 460,000
96. After generating a sizeable year-end profit, Ruth, Inc. declared and issued a 50% June 110,000 380,000
stock dividend. In the preparation of cash flows, the transaction would be included
as Collections are 40% in the month of sale, 45% in the month following the sale, and
A. An operating activity 10% two months following the sale. The remaining 5% is expected to be
B. An investing activity uncollectible. The company’s budgeted collections from April to June amounts to:
C. Would not appear at all in the statement of cash flows. A. P1,090,250
D. A financing activity. B. P1,325,500
C. P1,468,500
98. On January 1, Rachelle Company has a beginning balance of P42,000. During the D. P1,397,500
year, the company expects cash disbursements of P340,000 and cash receipts of
P290,000. If the company a cash balance of P40,000, Rachelle Company should 109. In preparing its cash budget for May 2010, LR Company made the following
borrow by what amount? projection:
A. P32,000
B. P40,000 Sales P3,000,000
C. P48,000 Gross margin (based on sales) 25%
D. P92,000 Decrease in inventories P 140,000
Decrease in accounts payable for inventories P 240,000
100. The Rupert Corporation has the following historical pattern on its credit sales:
 For May 2010, the estimated cash disbursements for inventories were: C. Need not borrow since ending balance amounted to P230,000.
A. P2,350,000 D. Had to borrow P60,000.
B. P2,110,000
C. P2,100,000 115. Morris Company had the following transactions in 2009, its first year of operations
D. P1,870,000
Sales (90% collected in 2009) P1,500,000
110. The following purchases budget was prepared by JC Corp.: Bad debts written off 60,000
Disbursements for costs and expenses 1,200,000
Month Budgeted Purchases Disbursements for income taxes 90,000
January P460,000 Purchases of fixed assets 400,000
February 380,000 Depreciation of fixed assets 80,000
March 400,000 Proceeds from issuance of common stock 500,000
April 440,000 Proceeds from short-term borrowings 100,000
May 420,000 Payments on short-term borrowings 50,000

Purchases are paid for in the following manner: What is the cash balance at December 31, 2009?
10% in the month of purchase A. P210,000
50% in the month after purchase B. P150,000
40% two months after purchase C. P280,000
D. P170,000
Total disbursements for the period March to May amounts to:
A. P1,825,000 116. In preparing its budget for July 2010, Louie Company has the following accounts
B. P1,352,000 receivable
C. P1,285,000 information available:
D. P1,232,000 Accounts receivable at June 30, 2010
P 350,000
111. RDG Company expects to sell 150,000 units during the first quarter of 2010 with an Estimated credit sales for July
ending 400,000
inventory for the quarter of 20,000 units. Variable manufacturing costs are Estimated collections in July for credit sales in July and prior years
budgeted at P50 per unit with 70% of total variable manufacturing costs requiring 320,000
cash payment during the quarter. Fixed manufacturing costs are budgeted at Estimated write-off in July for uncollectible credit sales
P120,000 per quarter, 40% of which are expected to require cash payments during 16,000
the quarter will total Estimated provision for uncollectible accounts for credit sales in July
A. P8,500,000 12,000
B. P5,950,000
C. P5,998,000 What is the projected balance of accounts receivable at July 31, 2010?
D. P5,298,000 A. P402,000
B. P414,000
114. The following information were made available for Euro Pacific Co.: C. P426,000
 June 30, cash balance, P900,000. D. P430,000
 Dividends paid in July, P240,000.
 Cash expenditures in July for operating expenses, P736,000. 117. Nikka Company has budgeted its operations for February 2010. No change in
 Depreciation expense in July, P90,000. inventory level
 Cash collections in July, P1,780,000. during the month is planned. Selected data from estimated amounts are as follows:
 Merchandise purchases paid in cash in July, P1,124,000.
 Purchased equipment for cash in July P350,000. Net loss P100,000
Increase in accounts payable
40,000
It was the company’s policy to keep a minimum cash balance of P200,000. The
Depreciation expense
company:
35,000
A. Had to borrow P200,000.
Decrease in gross amount of trade accounts receivable 60,000
B. Need not borrow since its ending balance amounted to P200,000.
 Purchase of office equipment on 45-day credit terms 15,000
Provision for estimated warranty liability 10,000 126. Lorna Trading, which is marketing a single product, has the following preliminary
forecast for
How much change in cash position is expected for February? 2011:
A. P15,000 decrease No. of units 150,000 units
B. P25,000 decrease Selling price per unit P 15
C. P30,000 increase Variable costs P1,200,000
D. P45,000 increase Fixed costs P 850,000

118. Mars Corporation has estimated its activity for January 2010. Selected data from Advertising expense was not included in the above. Based on a market study in
these estimated December 2010, the company estimated that it could increase the unit selling price
amounts are as follows: by 10% and increase the unit sales volume by 20% if P200,000 would be spent on
advertising. If Lorna will incorporate these changes in its 2011 forecast, what would
Sales P1,400,000 be the operating income?
Gross profit (based on sales) 30% A. P480,000
Increase in trade accounts receivable during month P 40,000 B. P720,000
Change in accounts payable during month P 0 C. P680,000
Increase in inventory during the month P 20,000 D. P420,000
Variable selling, general and administrative expense
include a charge for uncollectible accounts of 127. Euro Corp. is preparing its budget for 2011. For 2010, the following were reported:
1% of sales.
Total Selling, General & Administrative is P142,000 Sales (100,000 units) P1,000,000
per month plus 15% of sales. Cost of goods sold 600,000
Depreciation expense of P80,000 per month is Gross profit p 400,000
included in Fixed Selling, Administrative, and Operating expenses* 240,000
General expense. Net income P 160,000

What are the estimated cash disbursements for January 20010? *Including depreciation of P40,000.
A. P1,238,000
B. P1,252,000 Selling prices will increase by 10% and sales volume in units will decrease by 5%.
C. P1,258,000 The cost of
D. P1,272,000 goods sold as a percent of sales will increase to 62%. Other than depreciation, all
operating costs
Income statement are variable. Euro will budget a net income for 2011 of
A. P167,100
125. Angelo Company has budgeted its activity for October 2010 based on the following B. P167,500
information: C. P167,900
 Sales are budgeted at P300,000. All sales are credit sales and a provision for D. P148,100
doubtful accounts is made monthly at the rate of 3% of sales.
 Merchandise inventory was P70,000 at September 30, 2010, and an increase of 128. Leonor Corporation expects to sell 150,000 board games for July. Its master budget
P10,000 is planned for month. related to the
 All merchandise is marked up to sell at invoice cost plus 50%. sale and production of these items is presented below:
 Estimated cash disbursements for selling and administrative expenses for the
month are P40,000.
 Depreciation for the month is projected at P5,000. Revenue P480,000
Less: Cost of goods sold:
Angelo is projecting operating income for October 2010 in the amount of Direct materials P135,000
A. P86,000 Direct labor 60,000
B. P56,000 Variable overhead 90,000 285,000
C. P55,000 Contribution margin P195,000
D. P46,000 Less: Fixed overhead P 50,000
 Fixed Selling & Adm. Costs 100,000 150,000
Operating income P 45,000 139. Nikka was considering to sell flowers in baskets on the eve of All Saint’s Day. He
would buy the
July’s sales registered at 180,000 board games. Using the flexible budget, the flowers and baskets, organized them and negotiate with a store by the bus stop to
company expects the operating income for July to be occupy a stall for P250 for that day only. It would cost him P60 per basket
A. P102,000 arrangement. He was planning to come up with 500 baskets to be sold at P200 per
B. P270,000 basket. He was aware that any unsold inventories would be worthless. If he could
C. P 84,000 only sell 300 baskets, the forecasting error would cost
D. P 45,000 A. P28,000
B. P12,000
129. It is budgeting time for Paul Company. The following assumptions were agreed C. P40,000
upon for the next year after a strategic planning which covered a five-year horizon: D. P28,100
 Sales are estimated to be at 70,000 units at its national selling price of
P126.00.
 Sales discounts are given to various customers at different rates and net to STANDARD COSTING & VARIANCE ANALYSIS
gross ratio is at 93%.
 Mark-up on merchandise is at 45% of invoice cost. Beginning inventory is Std. DM : No. of lbs. @ Px / lb = Px / u
P80,900 and is expected to be reduced by P15,000 at the end of the period. Std. DL : No. of hrs. @ x/ hr = x / u
 Selling and administrative expenses are expected to be 15% of gross sales. Std VOH:No. of hrs. @ x/ hr = x / u
 Depreciation is computed at P500,000. Std FOH: No. of hrs. @ x/ hr = x / u
 Seventy-five percent (75%) of sales are on account. Doubtful accounts expense Std. Unit Cost Px/u
is estimated to be 1.5% of credit sales.
FORMULAS;
The projected operating income for the year is: A. DIRECT MATERIALS
A. P623,409
B. P590,334 MQV Material Quantity Variance AQ Actual Quantity
C. P682,944 MPV Material Price Variance SQ Standard Quantity
D. P723,775 MPPV Material Purchase-Price Variance AP Actual Price
MUPV Material Usage-Price Variance SQ Standard Price
135. Tiny Company’s total costs of operating five sales offices last year were P500,000 of
which 2-WAY ANALYSIS 3-WAY ANALYSIS
P70,000 represented fixed costs. Tiny has determined that the total costs are MPPV = (AP – SP) x AQ MPPV = (AP – SP) x SQ
significantly influenced by the number of sales offices operated. Last year’s costs MQV = (AQ – SQ) x SP MQV = (AQ – SQ) x SP
and number of sales offices can be used as the bases for predicting annual costs. Joint material variance = (AP – SP)
What would be the budgeted cost for the coming year is Tiny were to operate seven x (AP – SP)
sales offices?
A. P700,000 B. DIRECT LABOR
B. P672,000
C. P602,000 LEV Labor Efficiency Variance AH Actual Hours AR Actual
D. P586,000 Rate
LRV Labor Rate Variance SH Standard Hours SR
137. Which of the following statements is true? Standard Rate
A. Under zero-based budgeting, a manager is required to start at zero
budget levels each period, as if the programs involved were being 2-WAY ANALYSIS 3-WAY ANALYSIS
initiated for the first time. LRV = (AR – SR) x AH LRV = (AR – SR) x SH
B. The primary purpose of the cash budget is to show the expected cash balance LEV = (AH – SH) x SR LEV = (AH – SH) x SR
at the end of the budget period. Joint Labor Variance = (AR – SR) x
C. Budget data are generally prepared by top management and distributed (AH – SH)
downward in an organization.
D. The budget committee is responsible for preparing detailed budget figures in an
organization. C. OVERHEAD VARIANCE
 AFOH Actual Factory Overhead SR Standard rate Spending var. – UF (F) xxx
SFOH Standard Factory Overhead BASH Budget Allowed on xxx
Standard Hours
FxOHR Fixed Overhead Rate BAAH Budger Allowed on Actual Hours Variable Spending Variance: Capacity
VOHR Variable Overhead Rate Variance:
BAAH xxx BAAH
C-1. FxOHR (Budgeted Fx. OH / Normal Capacity) Px/ hr. xxx
VOHR (Budgeted VOH / Budgeted Capacity) x/hr -BASH xxx - AH x SR
Total Std. OH Rate Px/hr xxx
xxx
xxx

Fixed Variable Total Volume Variance: Volume Variance:

AFOH xx xx xx BASH xxx AH x SR
SFOH (SH x SR) xx xx xx xxx
OH Variance – UF(F) xx xx xx -SOH xxx SH x SR
xxx
 Spending variance (AFOH – BAAH) Vol Variance xxx
AFOH xxx xxx
-BAAH:
Fx (NC x FxOHR) xxx Summary of FOH Variances
Var(AH x VOHR) xxx xxx
Spending var. – UF (F) xxx 2-WAY 3-WAY(SVV) 3-
WAY(BuCE)
 Variable OH Efficiency variance [ (AH – SH) x Std VOH Rate ] AFOH----------] ----------] Spending ----------]Budget
 Capacity variance [(NC – AC) x FxOH Rate ] ] ] ]
BAAH ] Controllable ______] ______]
2-way analysis (Con Vo) ] ]Variable Spending ]
Controllable Variance: BASH______ ] ______] ]Capacity
AFOH xxx ] ] ]
-BASH: AH x SR ]Volume ]Volume ______]
Fx (NC x FxOHR) xxx ] ] ]
Var(SH x VOHR) xxx xxx Efficiency
Controllablevar. – UF (F) xxx SH x SR_____] ______] ______]

Volume Variance:
BASH xxx
-SOH xxx 1. Which one of the following is true concerning standard costs?
Vol Variance xxx A. Standard costs are estimates of costs attainable only under the most ideal
conditions, but rarely practicable.
3-way variance (SVV) OR: B. Standard costs are difficult to use with a process costing system.
C. If properly used, standards can help motivate employees.
Budget Spending Variance: Budget D. Unfavorable variance, material in amount, should be investigated, but large
Spending Variance: favorable variance need not be investigated.
AFOH xxx AFOH
xxx
-BAAH: -BAAH: 2. Which of the following is a purpose of standard costing?
Fx (NC x FxOHR) xxx Fx A. Determine breakeven production level.
xxx B. Control costs.
Var(AH x VOHR) xxx xxx Var C. Eliminate the need for subjective decisions by management.
xxx xxx D. Allocate cost with more accuracy.
 could be quoted for a special order that would utilize the capacity with in a
3. A standard cost system may be used in production area.
A. Job-order costing but not process costing. A. Job order
B. Either job-order costing or process costing. B. Standard
C. Process costing but not job-order costing. C. Variable
D. Neither process costing nor job-order costing. D. Process

4. When a manger is concerned with monitoring total cost, total revenue, and net 13. If the total materials variance (actual cost of materials used compared with the
profit conditioned upon the level of productivity, an accountant should normally standard cost of the standard amount of material required) for a given operation is
recommend favorable, why must this variance be further evaluated as to a price and usage?
Flexible Budgeting Standard Costing A. There is no need to further evaluate the total materials variance if it is
A. Yes Yes favorable.
B. Yes No B. Generally accepted accounting principles require that all variances be analyzed
C. No Yes in three stages.
D. No No C. All variances must appear in the annual report to equity owners for proper
disclosure.
5. The absolute minimum cost that would be possible under the best operating D. Determining price and usage variance allows management to evaluate
conditions is a description of which type of standard cost? the efficiency of the purchasing and production functions.
A. Currently attainable (expected)
B. Theoretical 17. The flexible budget variance in operating income is
C. Normal A. Actual operating income minus flexible budget operating income.
D. Practical B. Budgeted unit price times the difference between actual inputs and budgeted
inputs for the actual activity levels achieved.
6. Management scrutinizes variances because C. A flexible budget amount minus a static budget amount.
A. Management desires to detect such variances to be able to plan for promotions. D. Actual unit price minus budgeted unit price times the actual units produced.
B. Management needs to determine the benefits forgone by such variances.
C. It is desirable under conventional knowledge on good management. 18. An efficiency variance equals
D. Management recognizes the need to know why variances happen to be able to A. A flexible budget amount minus a static budget amount.
make corrective actions and fairly reward good performers. B. Actual operating income minus flexible budget operating income.
C. Actual unit price minus budgeted unit price, times the actual units produced.
8 A difference between standard costs used for cost control and the budgeted costs of D. Budgeted unit price times the difference between actual inputs and
the same budgeted inputs for the actual activity level achieved.
manufacturing effort
A. Can exist because standard costs represent what costs should be 19. The budget for a given cost during a given period was P80,000. The actual cost for
whereas budgeted costs are expected actual costs. the period was P72,000. Considering these facts, the plant manger has done a
B. Can exist because budgeted costs are historical costs, whereas standard costs better-than- expected job in
are based on engineering studies. controlling the cost if
C. Can exist because budgeted costs include some slack, whereas standard costs A. The cost is variable and actual production was 90% of budgeted production.
do not. B. The cost is variable and actual production equaled budgeted
D. Can exist because the amounts should be the same. production.
C. The cost is variable and actual production was 90% of budgeted production.
9. The best basis upon which standard cost should be set to measure controllable D. The cost is a discretionary fixed cost and actual production equaled budgeted
production production.
inefficiencies is
A. Engineering standards based on ideal performance Material cost variance
B. Normal capacity
C. Engineering standards based on attainable performance. 20. Which department is customarily held responsible for an unfavorable materials
D. Practical capacity. usage variance?
A. Quality control
12. Which of the following cost allocation methods would be used to determine the B. Purchasing
lowest price that C. Engineering
 D. Production 30. CMP Company had budgeted 50,000 units of output using 50,000 units of raw
materials at a total
21. The standard unit cost is used in the calculation of which of the following variances? material cost of P100,000. Actual output was 50,000 units of product requiring
Material Price Variance Materials Usage Variance 45,000 units of raw materials at a cost of P2.10 per unit. The direct material price
A. No No variance is:
B. No Yes A. P 4,500 unfavorable
C. Yes No B. P 5,000 favorable
D. Yes Yes C. P 5,000 unfavorable
D. P10,000 favorable
23. If a company follows a practice of isolating variances as soon as possible, the
appropriate time to The usage variance is:
isolate and recognize a direct materials price variance is when A. P10,000 favorable
A. Materials are issued B. P10,500 unfavorable
B. Materials are purchased C. P10,500 favorable
C. Materials are used in production D. P4,500 unfavorable
D. The purchase order originates.
31. Information on Good Company’s direct material costs for the month of January 2010
24. An unfavorable price variance occurs because of was as follows:
A. Price increases for raw materials Actual quantity purchased 18,000
B. Price decreases for raw materials Actual unit purchase price P 3.60
C. Less-than-anticipated levels of waste in the manufacturing process. Materials purchase price variance – unfavorable P3,600
D. More-than-anticipated levels of waste in the manufacturing process. Standard quantity allowed for actual production 16,000
Actual quantity used 15,000
25. The Purchasing Manger of AB Company decided to buy 65,000 bags of flour with a
quality rating two grades below that which the company normally purchased. This For January 2010 there was a favorable direct material usage variance of
purchase covered about 90% of the flour requirements for the period. As to the A. P3,360
material variances, what will be the likely effect? B. P3,375
A. Unfavorable price variance, favorable usage variance. C. P3,400
B. Favorable price variance, unfavorable usage variance. D. P3,800
C. No effect on price variance, unfavorable usage variance.
D. Favorable price variance, favorable usage variance. 32. Information on Pretty Company’s direct material costs is as follows:

26. In a standard cost system, the materials price variance is obtained by multiplying Standard unit price P 3.60
the Actual quantity purchased 1,600
A. Actual price by the difference between actual quantity purchased and standard Standard quantity allowed for actual production 1,450
quantity used.
B. Actual quantity purchased by the difference between actual price and What was the actual purchase price per unit, rounded to the nearest cent?
standard quantity used. A. P 3.00
C. Standard price by the difference between standard quantity purchased and B. P 3.11
standard quantity used. C. P 3.45
D. Standard quantity purchased by the difference between actual price and D. P 3.75
standard price.
33. Information on Wise Company’s direct material costs for May 1020 is as follows:
29. A favorable materials price variance coupled with an unfavorable materials usage Actual quantity of direct materials purchased and used
variance would most likely result from 30,000 lbs.
A. Machine efficiency problems. Actual cost of direct materials P
B. Product mix production changes 84,000
C. Labor efficiency problems. Unfavorable direct materials usage variance P
D. The purchase of lower-than-standard-quality materials. 3,000
Standard quantity of direct materials allowed for May production 29,000
lbs.
 B. Quantity
For the month of May, what was wise direct materials price variance? C. Labor efficiency
A. P2,800 favorable D. Labor rate
B. P2,800 unfavorable
C. P6,000 unfavorable 45. A debit balance in the labor efficiency variance indicates that
D. P6,000 favorable A. Standard hours exceed actual hours
B. Actual hours exceed standard hours
Q 35 through 37 are based on the following information. C. Standard rate and standard hours exceed actual rate and actual hours
Excel Company uses a standard costing system in the manufacture of its single D. Actual rate and actual hours exceed standard rate and standard hours
product. The 35,000 units of raw material in inventory were purchased for
P105,000, and two units of raw materials are required to produce one unit of final 47. Which of the following unfavorable variances is directly affected by the relative
product. In November, the company produced 12,000 units of product. The position of a
standard allowed for material was P60,000. And there was an unfavorable quantity production process on a learning curve?
variance of P2,500. A. Material mix
B. Materials price
Excel’s standard price for one unit of materials is C. Labor rate
A. P 2.50 D. Labor efficiency
B. P 3.00
C. P 5.00 49. How is labor rate variance computed?
D. P 6.00 A. The difference between standard and actual rates, times standard hours.
B. The difference between standard and actual hours, times actual rate.
The units of material used to produce November output totaled C. The difference between standard and actual rates, times actual hours.
A. 12,000 units D. The difference between standard and actual hours, times the difference
B. 23,000 units between standard and actual rates.
C. 24,000 units
D. 25,000 units 50. The difference between the actual labor rate multiplied by the actual hours worked
and the standard labor rate multiplied by the standard labor hours is the
The materials price variance for the units used in November was A. Total labor variance
A. P 2,500 unfavorable B. Labor rate variance
B. P15,000 unfavorable C. Labor usage variance
C. P12,500 unfavorable D. Labor efficiency variance
D. P 2,500 favorable
51. Listed below are four names for different kinds of standards associated with a
Direct labor cost variances standard cost system. Which one describes the labor costs that should be incurred
under efficient operating conditions?
43. Which of the following is the most probable reason a company would experience an A. Ideal
unfavorable B. Basic
labor rate variance and a favorable labor efficiency variance? C. Maximum-efficiency
A. The mix of workers assigned to the particular job was heavily D. Currently attainable
weighted towards the use of highly paid experienced individual.
B. The mix of workers assigned to the particular job was heavily weighted 53. Below are Petite Corporation’s standard costs to produce one concrete table:
towards the use of new relatively low paid unskilled workers. Direct raw materials 2 kgs @ P 375 per kg
C. Because of the production schedule workers from other production areas were Direct labor 30 minutes @ P31.25 per hour
assigned to assist this particular process.
D. Defective materials caused more labor to be used in order to produce a In September, Petite produced 250 concrete tables. Five hundred twenty (520) kgs
standard unit. of raw materials were used at a total costs of P193,440. A total of 128 direct labor
hours were used at a cost of p4,096. The direct labor variance is:
44. Excess direct labor wages resulting from overtime premium will be disclosed in A. P22.50
which type of B. P93.00
variance? C. P64.75
A. Yield D. P96.00
54. Remy Company uses a standard cost system. Data relating to direct labor for the For the month of April, actual labor hours amounted to P2,000. In April, Elvie’s
month of August 2010 is as follows: standard direct
Direct labor efficiency variance – favorable P 5,250 labor rate per hour was:
Standard labor rate P 7.00 A. P 5.50
Actual direct labor rate P 7.50 B. P 5.00
Standard hours allowed for actual production 9,000 C. P 4.75
D. P 4.50
What are the actual hours worked for the month of August 2010?
A. 9,750
B. 8,400 58. Aurie Company manufactures one product with a standard direct labor cost of 4
C. 8,300 hours at P12.00 per hour. During June 1,000 units were produced using 4,100
D. 8,250 hours at P12.20 per hour. The unfavorable direct labor efficiency variance was
A. P1,220
55. The information on Ramon Company’s direct labor costs for the month of January B. P1,200
2010 is as C. P 820
follows: D. P 400
Actual direct labor hours 34,500
Standard direct labor hours 35,000 59. Information on Romy’s direct labor costs for the month of January is as follows:
Total direct labor payroll P241,500 Actual direct labor rate P 7.50
Direct labor efficiency variance – favorable P 3,200 Standard direct labor hour allowed 11,000
Actual direct labor hours 10,000
What is Ramon’s direct labor rate variance? Direct labor rate variance – favorable P
A. P17,250 unfavorable 5,500
B. P20,700 unfavorable
C. P21,000 unfavorable The standard direct labor rate in January was
D. P21,000 favorable A. P 6.95
B. P 7.00
56. Francine Company’s direct labor costs for the month of January 2010 were as C. P 8.00
follows: D. P 8.05

Actual direct labor hours 20,000 60. Rose Company uses standard cost system. The following information pertains to
Standard direct labor hours 21,000 direct labor for
Direct labor rate variance – unfavorable P 3,000 Product B for the month of October:
Total Payroll P126,000 Standard hours allowed for actual production 2,000
Actual rate paid per hour P 8.40
What was direct labor efficiency variance? Standard rate per hour P
A. P6,000 favorable 8.00
B. P6,150 favorable Labor efficiency variance P1,600 U
C. P6,300 favorable
D. P6,450 favorable What were the actual hours worked?
A. 1,800
57. For the month of April, Elvie Company’s records disclosed the following data relating B. 1,810
to direct C. 2,190
labor: D. 2,200
Actual cost P10,000
Rate variance P 1,000 61. The following direct labor information pertain to the manufacture of Product Z:
favorable Time required to make one unit 2DLH
Efficiency variance P 1,500 Number of direct workers 50
unfavorable Number of productive hours per week, per worker 40
Standard cost P 9,500 Weekly wages per worker P500
 Worker’s benefits treated as direct labor costs 20% of 66. Under the three-variance method for analyzing factory overhead, the difference
wages between the actual factory overhead and the factory overhead applied to production
is the
What is the standard direct labor cost per unit of Product Z? A. Net overhead variance
A. P 30 B. Controllable variance
B. P 24 C. Efficiency variance
C. P 15 D. Spending variance
D. P 12
67. When using the two-variance method for analyzing factory overhead, the difference
62. Aida Corporation’s direct labor costs for the month of March were as follows: between the
Standard direct labor hours budget allowance based on standard hours allowed and the factory overhead
42,000 applied to production is the
Actual direct labor hours 40,000 A. Net overhead variance
Direct labor rate variance – favorable B. Controllable variance
P8,400 C. Volume variance
Standard direct labor rate per hour P 6.30 D. Efficiency variance

What was Aida’s total direct labor payroll for the month of March? 68. You used predetermined overhead rates and the resulting variances when compared
A. P243,600 with the results using the actual rates were substantial. Production data indicated
B. P252,000 that volumes were lower than the plan by a large difference. This situation can be
C. P264,600 due to:
D. P260,400 A. Overhead being substantially composed of fixed costs.
B. Overhead being substantially composed of variable costs.
C. Overhead cost being recorded as planned.
Overhead cost Variance D. Products being simultaneously manufactured in single runs.

63. Under the two-variance method for analyzing factory overhead and the factory 70. Which of the following standard costing variances would be least controllable by a
overhead applied to production is the production
A. Controllable variance supervisor?
B. Net overhead variance A. Overhead volume
C. Efficiency variance B. Overhead efficiency
D. Volume variance C. Labor efficiency
D. Materials usage
64. Under the two-variance method for analyzing factory overhead, the budget
allowance based on 71. Under the three-variance method for analyzing factory overhead, the difference
standard hours allowed is used in the computation of the between the actual factory overhead and the budget allowance based on actual
Controllable (budget) variance Volume variance input is the
A. Yes Yes A. Efficiency variance
B. Yes No B. Spending variance
C. No No C. Volume variance
D. No Yes D. Idle capacity variance

65. Under the three-variance method for analyzing factory overhead, which of the 72. A spending variance for variable factory overhead based on direct labor hours is the
following is used in the computation of the spending variance? difference
Budget Allowance Based on Standard Hours Factory overhead applied to between actual variable factory overhead and the variable factory overhead that
production should have been incurred for the actual hours worked. This variance results from
A. Yes Yes A. Price and quantity differences for factory overhead costs.
B. Yes No B. Price differences for factory overhead costs.
C. No Yes C. Quantity differences for factory overhead costs.
D. No No D. Differences caused by variations in production volume.
75. Under the two-variance method for analyzing factory overhead, which of the Budgeted Actual
following is used in Production in units 50,000 55,000
the computation of the controllable (budget) variance? Manufacturing overhead P750,000 P800,000
Budget allowance based on actual hours Budget allowance based on standard Sales in units No data 47,000
hours
A. Yes Yes The underapplied or overapplied overhead is:
B. Yes No A. P25,000 underapplied
C. No No B. P25,000 overapplied
D. No Yes C. P75,000 overapplied
D. P75,000 underapplied
76. Under the three-variance method for analyzing factory overhead, which of the
following is used in the computation of spending variance? 85. Rose Company uses a standard cost system and prepared the following budgeted
Actual Factory Overhead Budgeted Allowance Based on Actual Input amounts at normal capacity for the month of January 2010:
A. No Yes Direct labor hours
B. No No 24,000
C. Yes No Variable factory overhead P 48,000
D. Yes Yes Fixed factory overhead P108,000
Total factory overhead per direct labor hour P 6.50
77. Differences in product costs resulting from the application of actual overhead rates
rather than Actual data for January 2010 were as follows:
predetermined overhead rates could be immaterial if Direct labor hours worked 22,000
A. Production is not stable. Total factory overhead P147,000
B. Fixed factory overhead is a significant cost. Standard direct labor hours allowed for capacity attained 21,000
C. Several products are produced simultaneously.
D. Overhead is composed only of variable costs. Using the two-way analysis of overhead variances, what is the budget (controllable)
variance for
82. The fixed factory overhead application rate is a function of a predetermined activity January 2010?
level. If A. P 3,000 favorable
standard hours allowed for good output equal this predetermined activity level for a B. P 5,000 favorable
given period, the volume variance will be C. P 9,000 favorable
A. Zero D. P10,500 unfavorable
B. Favorable
C. Unfavorable 86. Pilipinas Company uses a standard cost system. For the month of April 2010, total
D. Either favorable or unfavorable, depending on the budgeted overhead. overhead is
budgeted at P80,000 based on the normal capacity of 20,000 direct labor hours. At
83. During the current year, a department’s three- variance factory overhead standard standard each
costing system unit of finished product requires 2 direct labor hours. The following data are
reported unfavorable spending and volume variances. The activity level selected for available for the April 2010 production activity:
allocating Equivalent units of production 9,500
factory overhead to the product cost was based on 80% of practical capacity. If Direct labor hours worked 19,500
100% of practical Actual total overhead incurred P79,500
capacity had been selected instead, how would the reported unfavorable spending
and volume What amount should Pilipinas credit to the applied factory overhead account for the
variances have been affected? month of April 2010?
Spending Variance Volume Variance A. P76,000
A. Increased Unchanged B. P78,000
B. Increased Increased C. P79,500
C. Unchanged Increased D. P80,000
D. Unchanged Unchanged
87. Fountain Company uses a flexible budget system and prepared the following
84. The following data are presented: information for 2010:
 Normal Capacity For March 2010, the unfavorable variable overhead spending variance was
Maximum Capacity A. P 6,000
Percent of capacity 80% B. P10,000
100% C. P12,000
Direct labor hours 32,000 D. P22,000
40,000
Variable factory overhead P 64,000 P For March 2010, the fixed overhead volume variance was
80,000 A. P96,000 unfavorable
Fixed factory overhead P160,000 B. P96,000 favorable
P160,000 C. P80,000 unfavorable
Total factory overhead rate per direct labor hour P7 P D. P80,000 favorable
6
91. Standard Company uses a standard cost accounting system. The following overhead
Fountain operated at 90% of capacity during 2010. The actual factory overhead for and production data are available for August:
2010 was Standard fixed overhead rate per DLH P 1
P252,000. What was the budget (controllable) overhead variance for the year? Standard variable overhead per DLH P 4
A. P36,000 unfavorable Budgeted monthly DLH 40,000
B. P20,000 unfavorable Actual DLH worked 39,500
C. P18,000 unfavorable Standard DLH allowed for actual production 39,000
D. P 0 Overall overhead variance – favorable P2,000

88. The following information is available from the Hospicio Company: The applied factory overhead for August should be
Actual factory overhead P15,000 A. P195,000
Fixed overhead expenses, actual P 7,200 B. P197,000
Fixed overhead expenses, budgeted P 7,000 C. P197,500
Actual hours 3,500 D. P199,500
Standard hours 3,800
Variable overhead rate per DLH P 2.50 92. Camel Company uses flexible budget system and prepared the following information
for the year:
Assuming that Hospicio uses a three-way analysis of overhead variances, what is Percent of capacity 80%
the spending 90%
variance? Direct labor hours 24,000
A. P750 favorable 27,000
B. P750 unfavorable Variable factory overhead P 48,000 P 54,000
C. P950 favorable Fixed factory overhead P108,000 P108,000
D. P200 unfavorable Total factory overhead rate per DLH P 6.50 P
6.00

Q 89 and 90 are based on the following data: Camel operated at 80% of capacity during the year but applied factory overhead
Based on a month’s normal volume of 50,000 units (100,000 direct labor hours), was equal to the
Ruffa’s standard cost system contains the following overhead costs: budgeted amount for the attained capacity, what is the amount of overhead
Variable P 6 per unit variance for the year?
Fixed P 8 per unit A. P 6,000 overabsorbed
B. P 6,000 underabsorbed
The following information pertains to the month of March 2010: C. P12,000 overabsorbed
Units actually produced 38,000 D. P12,000 underabsorbed
Actual direct labor hours worked 80,000
Actual overhead incurred: 93. High Tech Company uses predetermined factory overhead application rate based on
Variable P250,000 direct labor
Fixed 384,000 cost. For the year ended December 31, the company budgeted factory overhead
was P600,000, based on budgeted volume of 50,00 direct labor hours, at a standard
 direct labor rate of P6 per hour. Actual factory overhead amounted to P620,000,
with actual direct labor cost of P325,000. For the year, overapplied factory overhead 108. At the end of its fiscal year, Sky Company had several substantial variances from
was standard variable manufacturing costs. The one that should be allocated between
A. P20,000 inventories and cost of sales is the one attributable to
B. P25,000 A. Additional cost of raw material acquired under a speculative purchase contract.
C. P30,000 B. A breakdown of equipment.
D. P50,000 C. Overestimates of production volume for the period resulting from failure to
predict.
Q94 and 95 are based on the following information relates to a given department of D. Increased labor rates won by the union as a result of a strike.
Martomart
Company for the fourth quarter of 2009: 109. What is the normal year-end treatment of immaterial variances recognized in a cost
Actual total overhead (fixed plus variable) P178,500 accounting
Budget formula P110,000 plus P0.50 / system using standard costs?
hr. A. Reclassified as deferred charges until all related production is sold.
Total overhead application rate P1.50 / hr. B. Allocated among cost of goods manufactured and ending work-in-process
Spending variance P 8,000 inventory.
unfavorable C. Closed to cost of goods sold in the period in which they arose.
Volume variance P 5,000 favorable D. Capitalized as a cost of ending finished goods inventory.

The total overhead variance is divided into three variances – spending, efficiency RESPONSIBILITY ACCOUNTING
and volume
What were the actual hours worked in the department during the quarter? 1. Which of these assertions refer to responsibility accounting?
A. 110,000 1. Costs and revenues are identified with individuals for better control and
B. 121,000 performance appraisal.
C. 137,000 2. Performance reports under this concept include variance of actual amounts
D. 153,000 versus plan.
3. Third parties who are external users are the main recipients of information.
What were the standard hours allowed for good output in this department during 4. Only expenses which are directly under the control of managers should ideally
the quarter? be charged to them.
A. 105,000 A. Assertions 1, 2 and 4 only
B. 106,667 B. Assertions 1 and 4 only
C. 110,000 C. Assertions 1 and 2 only
D. 115,000 D. All four assertions.

Variance disposition 2. The basic purpose of a responsibility accounting system is

106. How should a usage variance that is significant in amount be treated at the end of A. Budgeting C. Authority
an accounting B. Motivation D. Variance analysis
period?
A. Reported as a deferred charge or credit. 3. Responsibility accounting
B. Allocated among work-in-process inventory, finished goods inventory, A. Is the most formal communication device within an enterprise
and cost of goods sold. B. Encourages managers and other employees to achieve enterprise goals,
C. Charged or credited to cost of goods manufactured. not just their own individual goals.
D. Allocated among cost of goods manufactured, finished goods inventory, and C. Encourages managers to focus on a single issue of evaluation
cost of goods sold. D. Deals with the reporting of information to facilitate control of operations and
evaluation of performance.
107. Standard costing will produce the same income before extraordinary items as actual
when standard cost variances are assigned to 4 That kind of accounting concerned with providing information to management in
A. Work-in-process and finished goods inventories. making decisions about the operations of the business
B. An income or expense account A. Responsibility accounting C. Management
C. Cost of goods sold and inventories. accounting
D. Cost of goods sold. B. Cost accounting D. Full cost accounting
 B. Absorption of indirect cost. D. Cost allocation.
6 In responsibility accounting, there are two (2) types of reports distinguished as to
goals or objectives Cost centers
A. Trend analysis reporting and comparative reporting
B. Responsibility performances reporting and information reporting. 22. What is the name given to a unit or a function of an organization that is headed by
C. Operations reporting and financial condition reporting. a manger who has direct responsibility for its performance?
D. Horizontal reporting and vertical reporting. A. Responsibility center C. Business
entity
7 When used for performance evaluation, the generated reports in a responsibility B. Cost unit D. Budget center
accounting system should
A. Not be related to the organization structure. 23. Cost centers are
B. Not include variances between actual results and budgeted amounts of A. Units of product or service for which costs are ascertained.
controlled costs. B. Amounts of expenditure attributable to various activities.
C. Not distinguish between controllable and uncontrollable costs. C. Function or locations for which costs are ascertained for control purposes.
D. Not include allocated fixed manufacturing overhead. D. A section of an organization for which budgets are prepared and
control exercised.
14. Costs are accumulated by a responsibility center for control purposes when using
Job-Order Costing Process costing Job-Order Costing 27. Which of the following items of cost would be least likely to appear in a
Process costing performance report based on responsibility accounting techniques for the supervisor
A. Yes Yes C. No of an assembly line in a large
No manufacturing situation?
B. Yes No D. No A. Materials C. Repairs and
Yes maintenance
B. Supervisor’s salary D. Direct labor
15. In deciding how or which costs should be assigned to a responsibility center is the
degree of Profit centers
A. Avoidability C. Controllability
B. Variability D. Relation to 30. In what type of center are managers usually evaluated on the basis of their fixed
department costs and the
contribution margin they provide to the company?
16. In a responsibility accounting a center’s performance is measured by controllable A. Profit center C. Investment
costs. Controllable costs are best described as including: center
A. Differential costs. B. Cost center D. Marketing center
B. Only those costs that the manger can influence in the current time
period. 31. A center that incurs costs and expenses, generates revenue but does not have
C. Incremental and fixed costs. control over idle funds used for investment purposes
D. Only discretionary cost. A. Profit center C. Cost center
B. Investment center D. Responsibility center
18. Among the management accounting concepts is controllability which means
A. It is necessary at all times to identify the responsibilities and key result areas of 33. Which of the following types of responsibility centers has accountability for
the individuals within the organization. revenues?
B. Management accounting must ensure that flexibility is maintained in A. Cost centers and investment centers
assembling and interpreting information. B. Profit centers and investment centers
C. Management accounting identifies elements or activities which C. Cost centers and profit centers
management can or cannot influence, and seeks to arrest risk and D. Expense and investment centers
sensitivity factors.
D. Accounting information must be of such quality that confidence can be placed in 34. Profit centers
it. A. Have responsibility for controlling costs as well as capital
B. Control and reports costs only
19. The process of attributing proportion of items of costs among cost centers is called C. Are the same as investment centers
A. Overhead absorption. C. Cost apportionment. D. Measures income and relate that income to their invested capital
 54. Information concerning Product Z of Pia Corporation for the year ended 2009 is as
40. Jane Cruz is the manager of Profit Center # 8. His unit reported the following for the follows:
period just
ended:
Contribution margin Sales P1,850,000
P350,000 Margin
Period expenses: 10%
Manager’s salary P100,000 Return on investment
Depreciation expense 40,000 20%
Allocated administrative costs 25,000 165,000 Minimum required rate of return on investment 15%
Profit Center #8 income P185,000
The residual income of Product Z is
Of the foregoing, in all likelihood, Ms. Cruz controls A. P138,750 C. P 92,500
A. P165,000 C. P100,000 B. P 46,250 D. P185,000
B. P185,000 D. P350,000
57. Matt, Inc. generated the following results for the period just ended:
Sales P1.0 million
Net income .1 million
Capital investment .5 million
Investment center
To arrive at the return on investment, the following should be used.
A. ROI = (5/10) X (10/1) C. ROI = (5/10)
44. I. The main difference between a profit center and an investment center is X (1/10)
that the emphasis B. ROI = (10/5) X (10/1) D. ROI =
is on the rate of return in the investment center rather than an absolute (10/5) X (1/10)
profit.
II. Marginal cost is the amount of cost increase caused by a unit increase in the 58. Mark Corporation has two divisions A and B. division A is evaluating a project that
output of will earn a rate of return which is more than the imputed interest charge for the
product. invested capital, but less than the division’s historical return on invested capital.
Division A is evaluating a project that will earn a rate of return which is less than
A. False; True C. True; True the imputed interest charge for the invested capital, but is more than the division’s
B. False; False D. True; False historical return on invested capital. If the corporate objective is to maximize
residual income, the division should decide as follows:
48. The invested capital-employed turnover rate would include A. B accept and A reject C. B reject and A
A. Invested capital in the denominator accept
B. Net income in the numerator B. B reject and A reject. D. B accept and A
C. Invested capital in the numerator accept.
D. Sales in the denominator
78. Transfer pricing schemes can be based on
53. Euro Corporation has these selected data: A. Market price C. Negotiated price
B. Cost-based price D. All of the above.
Units to be sold 25,000
Total cost of the units P 500,000 88. In a decentralized company in which decisions may buy goods from one another,
Fixed capital investment 1,000,000 the transfer- pricing system should be designed primarily to
Variable capital on sales 20% A. Aid in the appraisal and motivation of managerial performance.
B. Increase the consolidated value of inventory.
What should be the unit selling price to have a 20% return on investment? C. Allow division managers to buy from outside.
A. P28.00 C. P30.00 D. Minimize the degree of autonomous of division managers.
B. P29.17 D. P31.20
Questions 97 and 98 are based on the following information:
 Maganda Company operates Division A and Division B. division A manufactures
machine tools on special order for outside market. Division B manufactures metal Make or Buy
lathes which are sold to Division A as well as to outside market. Division A has job
order cost system and applies factory overhead at 75% of direct labor, as of June 14. General Electronics is operating at 70% capacity. The plant manager is considering
30, 2010, Division A has only Job Order 1 in process and has been charged with making
factory overhead of P25,200 and work-in-process account consisted of the component 201 now being purchased for P110 each, a price that is projected to
following: increase in the near future. The plant has the equipment and labor force required to
Balance, June 1 P 58,500 manufacture the component. The design engineer estimates that each component
Direct materials, including transferred-in cost 170,000 requires P40 of direct materials and P30 of direct labor. The plant overhead is 200%
Direct labor 125,000 of direct labor peso cost, and 40% of the overhead is fixed cost. A decision to
Factory overhead 95,000 manufacture component 201 will result in a gain or (loss) for each component of
Transferred to finished goods (350,000) A. P28 C. P(20)
B. P16 D. P4
Division B has a process cost system and the cost to manufacture its product is
P12.00 per unit 16. Sunshine manufactures a particular computer component. Manufacturing cost per
which is sold to Division A at 15% less than the selling price to outside market. unit are as
Sales price to follows:
outside market is P20.00. Direct materials P 50
Direct labor 500
How much direct materials were charged to Job Order 1? Variable overhead 250
A. P33,600 C. P73,300 Fixed overhead 400
B. P39,700 D. P64,900 Total manufacturing costs P1,200

How much is the transfer price for the machine lathes? Rainbow, Inc. has contracted Sunshine with an offer to sell 10,000 of the
A. P17.00 C. P20.00 component for P1,100 per unit. If Sunshine accepts the proposals, P2,500,000 of
B. P18.00 D. P12.00 the fixed overhead will be eliminated. Should Sunshine make or buy the component
and why?
A. Buy due to savings of P1,000,000
B. Make due to savings of P500,000
C. Buy due to savings of P2,500,000.
D. Make due to savings of P3,000,000
SHORT-TERM NON-ROUTINE DECISIONS
19. Green Company makes hoses for its sprayers. Unit costs applicable to these hoses
1. The term relevant cost applies to all of the following decision situations except the are:
A. Acceptance of special product order. Direct materials P35.00
B. Determination of product price Direct labor 20.00
C. Manufacture of purchase of a component part. General and administrative cost 16.00
D. Replacement of equipment. Fixed manufacturing overhead 21.00
Variable manufacturing overhead 9.00
7. Among the costs relevant to a make-or-buy decision, include variable manufacturing
costs as well as Five thousand units (5,000) are required for the year. The space that is used for the
A. Unavoidable costs C. Avoidable fixed hoses production can be used as warehouse and will save rental cost of P48,000 per
cost year. The hoses can be bought for P70.00 a piece. Should Green Co. buy or make
B. Plant depreciation D. Real estate taxes the hoses? Why?
A. Buy because there will be savings of P3.60 per hose.
9. What is the opportunity cost of making a component part in factory given no B. Make, there will be a savings of P6.00 per hose.
alternative use of the capacity? C. Make, because there will be savings of P31.00 per hose
A. The total cost of the component. D. Buy, because there will be savings of P31.00 per hose.
B. Zero
C. The fixed manufacturing cost of the component. 20. The White Plain Company is operating at 50% capacity producing 100,000 units
D. The variable manufacturing cost of the component. ceramic plates a year. With the economic boom that the country is expected to have
 in the coming year, the company plans to utilize 75% of capacity. Part of the C. Buy from Mild Oils, Inc. at P1,260,000 against cost to produce of P1,650,000 or
manufacturing process is hand-painting which has a variable cost of material at savings of P390,000.
P4.50 and labor at P5.50 per plate. This painting process has variable overhead at D. Produce 7,500 units from Mild Oil save P240,000.
P1.00 which is 40% of total variable factory overhead. Total factory overhead is set
at P500 per 100 plates. No increase in fixed factory overhead is expected even with 23. Pacific Company manufactures plugs used in its electrical gadgets at a cost of P108
the substantial increase in production. An offer to sub-contract the incremental per unit that
hand painting job was given at P10.50 per plate but the company will have to lease includes P24 of fixed overhead. It needs 30,000 of these plugs yearly, and Euro
an equipment at P10,000 annual rental. The plate sell for P50.00 a piece at a Corp. offers to sell these items to Pacific at P99 per unit. If Pacific decides to
contribution margin rate of 45%. Should White Plain Company sub-contract? Why? purchase the plugs, P180,000 of the annual fixed overhead applied will be
A. No because the company will lose P135,000 eliminated, and the company may be able to rent the facility previously used for
B. Yes, because the company will save P165,000. manufacturing the plugs. If Pacific purchases the plugs but does not rent the
C. Yes, because the company will earn P15,000 more. unused facility, the company would
D. No, because there is no benefit for the company. A. Save P6.00 per unit C. Save P9.00 per unit
B. Lose P18.00 per unit D. Lose P9.00 per unit
21. Part A is a component that Motors Company uses in the assembly of motors. The
cost to produce 24. Joy Inc. has excess production capacity. At times, it buys the same product from
one Part A is presented below: third party. Below are pertinent information:
Direct materials P 4,000 Selling price per unit P70.00
Materials handling (20% of direct materials) 800 Fixed cost per unit* 20.00
Direct labor 32,000 Variable cost per unit 35.00
Overhead (150% of direct labor) 48,000
Total manufacturing costs P84,400 *At present value

Materials handling which is not included in manufacturing overhead, represents the The most it should pay for buying this product it currently makes would be the
direct variable costs of the receiving department that are applied to direct materials A. Selling price of P70.00
and purchased components on the basis of their cost. The company’s annual B. Total variable cost of producing the product of P35.00 per unit.
overhead budget is one-third variable, and two-thirds fixed. Motors Company offers C. Total variable cost per unit of P35.00 plus the reduced fixed cost per unit after
to supply Part A at a unit price of P60,000. Should the company buy or manufacture accounting for the effects of the added volume.
Part A? D. Total cost of production or P55.00 per unit.
A. Buy, due to advantage of P24,800 per unit.
B. Manufacture, due to advantage of P7,200. 25. Plastic Items, Inc. manufactures coolers of 10,000 units that contain a freezable ice
C. Buy, due to advantage of P12,800 per unit. bag. For an
D. Manufacture, due to advantage of P19,200 per unit. annual volume of 10,000 units, fixed manufacturing costs of P500,000 are incurred.
Variable costs per unit are:
22. Botanical Producers, Inc., manufactures various scents out of Philippine flowers and Direct materials P80
plants. It also manufactures exotic oils that it subsequently uses in the scents Direct labor 15
production. The cost per unit of measure for 15,000 units of exotic oils are as Variable overhead 20
follows:
Direct materials P 20 Igloo Corp. offered to supply the assembled ice bag for P40 with a minimum order
Direct labor 34 of 5,000 units. If Plastic accepts the offer, it will be able to reduce variable labor
Variable factory overhead 24 and overhead by 50%. The direct materials for the freezable bag will cost Plastic
Unavoidable fixed factory overhead 32 P20 if it will produce it. Considering Igloo Corp. offer, Plastic should
Total P 110 A. Buy the freezable ice bag due to P150,000 advantage.
B. Produce the freezable ice bag due to P225,000 advantage.
Mild Oils, Inc. offered Botanical to supply 15,000 units of measure of the exotic oil C. Produce the freezable ice bag due to P50,000 advantage.
for P1,260,000. Assuming the facilities for exotic oils have no alternative use, D. Buy the freezable ice bag due to P50,000 advantage.
Botanical Producers, Inc., should
A. Continue to produce exotic oils at P1,170,000 relevant costs against
purchase cost of P1,260,000. Accept or reject a special sales order
B. Produce 7,500 units and buy 7,500 units from Mild Oils to save P300,000.
37. Idle capacity in the interim (normally temporary) will generate short-term benefit in sufficient existing capacity to manufacture the additional units. Wil should consider
accepting sales at price that that the
A. Positively motivate employees. minimum selling price per unit should be
B. Result in less than normal contribution margin. A. P14 C. P16
C. Increase total fixed costs. B. P15 D. P18
D. Reduce the overall operating income to sales ratio.
45. The manufacturing capacity of Yoly Company’s facilities is 30,000 units of product a
39. When only differential manufacturing costs are taken into account for special-order year. A
pricing, an summary of operating results for the year ended December 31, 2009, is as follows:
essential assumption is that Sales (18,000 units @P100) P1,800,000
A. Manufacturing fixed and variable costs are linear. Variable manufacturing and selling costs 990,000
B. Selling and administrative fixed and variable costs are linear. Contribution margin 810,000
C. Acceptance of the order will not affect regular sales. Fixed costs 495,000
D. Acceptance of the order will not cause unit selling and administrative variable Operating income P 315,000
costs to increase.
40. Production of a special order will increase gross profit when the additional revenue A foreign distributor has offered to buy 15,000 units at P90 per unit during 2010.
from the special order is greater than Assume that all of Yoly’s costs would be at the same levels and rates in 2010 as in
A. The direct material and labor cost in producing the order. 2009. If Yoly accepted this offer and rejected some business from regular customers
B. The fixed costs incurred in producing the order. so as not to exceed capacity, what would be the total operating income for 2010?
C. The indirect costs of producing the order. A. P390,000 C. P840,000
D. The marginal cost of producing the order. B. P705,000 D. P855,000

42. Which of the following cost allocation methods is used to determine the lowest price 46. M&R Inc., has an annual capacity of 2,800 units of output. Its predicted operations
that can be for the year as follows:
quoted for special order that will use idle capacity within a production area? Sales (2,000 units @ P760 each) P1,520,000
A. Job order C. Variable Manufacturing costs:
B. Process D. Standard Variable P500 per unit
Fixed P360,000
43. Joy has a stall which specializes in hand-crafted fruit baskets that sell for P60 each. Marketing and administrative costs:
Daily fixed costs are P15,000 and variable costs are P30 per basket. An average of Variable (sales and commissions) P120 per unit
750 baskets are sold each day. Joy has a capacity of 800 baskets per day. By Fixed P40,000
closing day time yesterday, a bus load of teachers whoattended a seminar stopped
by Joy’s stall. Collectively, they offered Joy P1,500 for 40 baskets. Joy should have Assume there would be no effect on regular sales at regular prices and that the
A. Rejected the offer since she could have lost P500. usual sales
B. Rejected the offer since she could have lost P900. commissions will be reduced to half. Should the company accept at one-time only
C. Accepted the offer since she could have lost P300 contribution margin. special order for 600 units at a selling price of P640 each?
D. Accepted the offer since she could have lost P700 contribution margin. A. Yes, due to incremental income of P48,000.
B. Either would do as the net effect would be the same.
44. Wil Company sells product A at a selling price of P21 per unit. Wil’s cost per unit on C. Yes, due to incremental income of P30,000.
the full D. No, due to resulting los of P37,714.
capacity of 200,000 units are as follows:
Direct materials P 4 47. Red and White Co. has an offer for a special order of 100,000 units at a unit price of
Direct labor 5 P6.00
Overhead (2/3 of which is fixed) 6 presented below:
Total P15 1. Present production at 85% capacity, 450,000 units.
2. Fixed factory overhead is P1,250,000 at 100% capacity.
A special order offering to buy 20,000 units was received from a foreign distributor. 3. Variable direct costs per unit are : Materials, P1.80; direct labor P1.40.
The only 4. Variable factory overhead per unit, P0.50.
selling costs that would be incurred on this order would be P3 per unit for shipping. 5. Variable marketing expense per unit, P0.50.
Wil has 6. Fixed general and administrative expenses, P800,000.
 7. Additional lease cost for additional equipment required for the special order, 60% mark-up 36
P10,000. Selling price P96

The accountant estimated that the order will result as follows: Assuming that this special offer will not affect the market for the product, should
the company
Revenue P600,000 accept this special offer?
Differential cost of goods sold: A. Yes, since it will contribute P2.8 million margin.
Direct materials P180,000 B. Yes, since it will contribute P1.8 million margin.
Direct labor 140,000 C. No, it will mean a loss of P1.8 million.
Variable factory overhead 50,000 D. No, it will mean a loss of P1.16 million.
Fixed factory overhead 250,000 620,000
( 20,000)
Variable marketing expenses 50,000 Drop or continue a business segment
Loss on this order P(70,000)

The calculation has these problems: 57. Division A of Division Mix Corporation is being evaluated for elimination. It has
A. Fixed factory overhead has been overapplied. contribution to
B. Fixed general and administrative expenses and incremental lease cost have overhead of P400,000. It receives an allocated overhead of P1 million, 10% of which
been ignored. cannot be
C. Lease cost has been ignored and fixed factory overhead has been overapplied. eliminated. The elimination of Division A would affect a pre-tax income by
D. Fixed factory overhead has been allocated and additional lease cost has A. P400,000 decrease C. P500,000 decrease
been ignored. B. P400,000 increase D. P500,000 increase

48. Rice Milling Co. has a plant capacity of 40,000 units per month. Unit cost capacity 58. Kate Company plans to discontinue a department with P48,000 contribution to
are: overhead, and
Direct materials P100 allocated overhead of P96,000, of which P42,000 cannot be eliminated. What would
Direct labor 150 be the effect of this discontinuance of Kate’s pretax profit?
Variable overhead 75 A. Increase of P48,000 C. Increase of P6,000
Fixed overhead 75 B. Decrease of P48,000 D. Decrease of P6,000
Marketing fixed cost 175
Marketing variable cost 90 61. The Top-notch Corp. produces three products, “Me”, “Mi” and “Mo”. The owner
desires t reduce production load to only one product line due to prolonged absence
Present monthly sales are 39,000 units at P630 each. Jack Corporation contacted of the production manger. Depreciation expense amounts to P600,000 annually.
Rice about Other fixed operating expenses amount to P660,000 per year. The sales and
purchasing 1,000 units at P600 each. The present sales would not be affected by variable cost data of the three products are (000’s omitted):
the special order. Rice should
A. Accept the special order due to P185,000 incremental income Me Mi Mo
B. Accept the special order due to P110,000 incremental income Sales P6,600 P5,300 P10,800
C. Accept the special order due to P215,000 incremental income Variable costs 3,900 1,700 8,900
D. Accept the special order due to P10,000 incremental income
Which product must be retained and what is the opportunity cost of selecting such
49. The Maganda Corp. which has experienced excess production capacity received a product line?
special offer for its product B at P78 per unit for 100,000 units. It has been using A. Retained product “Mi”; opportunity cost is P4.6 million.
the variable costing method and has been pricing its product at P96 per unit based B. Retained product “Mi”; opportunity cost is P3.14 million.
on a mark-up of 60% as follows: C. Retained product “Me”; opportunity cost is P4.04 million.
D. Retained product “Mo”; opportunity cost is P4.48 million.
Overhead materials P30
Direct labor 20 62. Pia Corporation’s Outlet No. 5 reported the following results or operations for the
Variable overhead 6 period just ended:
Variable selling and administrative 4
Total variable expenses P60 Sales P2,500,000
 Less: Variable expenses 1,000,000 A. Product B since it has the higher contribution margin per unit.
Contribution margin P1,500,000 B. Product A since it requires fewer machine hours per unit than does Product B.
Less: Fixed expenses: C. Product B since it has the higher contribution margin per machine hours.
Salaries and wages P750,000 D. Product a since it has the higher contribution margin per machine hour.
Insurance on inventories 50,000
Depreciation on equipment 325,000
Advertising 500,000 1,625,000 Retain or replace an old asset
Net income (Loss) (P 125,000)
74. At December 31, 2010, Francis had a machine with an original cost of P84,000,
The management is contemplating the dropping of Outlet No. 5 due to the accumulated
unfavorable operational results. If this would happen, one employee will have to be depreciation of P60,000, and an estimated salvage value of zero. On December 31,
retained with an annual salary of P150,000. The equipment has no resale value. 2010, Francis
Outlet No. 5 should was considering the purchase of a new machine having a five-year life, costing
A. Not be dropped due to foregone overall income of P850,000. P120,000, and
B. Be dropped due to foregone overall income of P325,000. having an estimated salvage value of P20,000 at the end of five years in its decision
C. Not be dropped due to foregone overall income of P25,000. concerning the possible purchase of the new machine, how much should Francis
D. Be dropped due to overall operational loss of P25,000. consider as sunk cost at December 31, 2010?
A. P120,000 C. P24,000
Optimization of scarce resources B. P100,000 D. P 4,000

67. When a multi-product plant operates at full capacity, quite often decisions must be 75. John Industries, Inc. has an opportunity to acquire a new equipment to replace one
made as to which products to emphasize. These decisions are frequently made with of its existing
a short-run focus. In making such decisions, manager should select products with equipment. The new equipment would cost P900,000 and has a five-year useful life,
the with a zero
A. Highest sales price per unit. terminal disposal price. Variable operating cost would be P1 million per year. The
B. Highest individual unit contribution margin. present equipment has a book value of P500,000 and a remaining life of five years.
C. Highest volume potential. Its disposal price now is P50,000 but would be zero after five years. Variable
D. Highest contribution margin per unit of the constraining resource. operating costs would be P1,250,000 per year. Considering the five years in total,
but ignoring the time value of money and income taxes, John should
68. Joy Company temporarily has excess production capacity. The idle plant capacity A. Replace due to P400,000 advantage.
facilities can be used to manufacture a low-margin item. The low-margin item B. Not replace due to P150,000 disadvantage.
should be produced if it can be sold for more than its C. Replace due to P350,000 advantage.
A. Variable costs plus any opportunity costs of idle facilities. D. Not replace due to P100,000 disadvantage.
B. Indirect costs of the idle facilities.
C. Fixed costs 76. Cherry Foods operates a cafeteria for its employees. The operations of the cafeteria
D. Variable costs require fixed
cost of P470,000 per month and variable costs of 40% of sales. Cafeteria sales are
69. Matt Co. has a limited number of machine hours that it can use for manufacturing currently
two products, A and B. each product has a selling price of P160 per unit but averaging P1,200,000 per month. The company has the opportunity to replace the
product A has 40% contribution margin and product B has a 70% contribution cafeteria with
margin. One unit of B takes twice as many machine hours to make as a unit of A. vending machines. Gross customer spending at the vending machine is estimated to
Assume either product can be sold in whatever quantity is produced, which product be 40% greater than the current sales because the vending machines are available
or products should the limited number of machine hours be used for? a all hours. By replacing the cafeteria with vending machines the company would
A. A C. Either A or B receive 165 of the gross customer spending and avoid cafeteria costs. A decision to
B. Both A and B D. B replace the cafeteria with vending machines will result in a monthly increase
(decrease) in operating income of
70. Product A has a contribution margin of P80 per unit, a contribution margin ratio of A. P182,000 C. P(588,000)
50 percent, and requires 4 machine hours to produce. Product B has a contribution B. P258,800 D. P 18,800
margin of P120 per unit, a
contribution margin ratio of 40 percent, and requires 5 machine hours to produce. If 77. Dennis Corp. produces motherboard at a special economic zone in Central Luzon. It
the company has limited machine hours available, then it should produce and sell is now
 considering to shift to new automated equipment instead of its present facility. A. P95,000 C. P100,000
Management was B. P90,000 D. P190,000
given the mandate to shift it. Its break even point will materially be improved with a
minimum of
10% reduction in volume. Below are the pertinent information: Bid price

Existing With automation 84. Romulo engines company manufactures engines for the military equipment on a
Sales in units 800,000 900,000 cost-plus basis. The cost of a particular machine the company manufactures is
Selling price P 30 shown below:
Variable cost per unit P 15 P 13
Fixed cost P775,000 P892,500 Direct materials P400,000
Direct labor 300,000
The company should Overhead:
A. Not shift since the break even volume will not change. Supervisor’s salary 40,000
B. Shift since the break even volume will even increase by 1% with the Fringe benefits on direct labor 30,000
automation. Depreciation 24,000
C. Shift to automation since the 10% reduction in break even volume could be Rent 22,000
achieved. Total P816,000
D. Shift to automation since the reduction in break even volume will be more than
10%. If the production of the engine were discontinued the production capacity would be
idle, and the
78. n the manufacturing process of Ryan Company, an output called substance “pooz” is supervisor will be laid off. Should there be a next contract for this engine, the
disposed of as waste. Recently, the research Department has discovered a process company should bid a minimum price of
to convert this waste to detergent. The following data are available: A. P816,000 C. P730,000
1. Cost of disposal is P20.00 per liter. B. P700,000 D. P770,000
2. Additional processing cost will be P6.00 per liter.
3. Selling price of the new detergent is P14.00 per liter. 86. Romulo, Inc., has its own cafeteria with the following annual costs:
4. Joint costs to manufacture all products is P1.5 billion, of which P250,000 can be Food P 400,000
allocated to “pooz”. Labor 300,000
Which of the amounts are relevant in the decision to dispose or sell “pooz” as Overhead 440,000
detergent? Total P1,140,000
A. P20, P6, P14, P250,000 C. P1.5 billion, P250,000
B. P20, P6, P14 D. P20, P14, P1.5 billion, The overhead is 405 fixed. Of the fixed overhead, P100,000 is the salary of the
P250,000 cafeteria supervisor.The remainder of the fixed overhead has been allocated from
total company overhead. Assuming the cafeteria supervisor will remain and that
80. Beverly International produces weekly 15,000 units of Product JI and 30,000 units Romulo will continue to pay said salary, the maximum cost Romulo will be willing to
of product JII for which P800,000 common variable costs are incurred. These two pay an outsider firm to service the cafeteria is:
products can be sold as is or A. P1,140,000 C. P700,000
processed further. Further processing of either product does not delay the B. P1,040,000 D. P964,000
production of subsequent batches of the joint products. Below are information:

JI Temporarily shut down the operations or continue it

JII
Unit selling price without further processing P24 P18 88. Dennis Corp. contemplates the temporary shutdown of its plant facilities in a
Unit selling price with further processing P30 P22 provincial area which are economically depressed due to natural disasters. Below
Total separate weekly variable costs of further processing P100,000 are certain manufacturing and selling expenses:
P90,000 1. Depreciation 5. Sales commissions
2. Property tax 6. Delivery expenses
To maximize Beverly’s manufacturing contribution margin, the total separate 3. Interest expense 7. Security of premises
variable costs of 4. Insurance of facilities
further processing that should be incurred each week are
 Which of the following expenses will continue during the shut down period? C. Cola’s contribution margin is higher than that of Orange hence more profitable
A. All expense in the list C. Items 1,2 and 3 only to produce.
B. All except items 5 & 6 D. Items 1, 2, 3, 4, 6 D. It is more profitable to produce Cola.
and 7 only
116. Pia Computers Inc. has unutilized plant capacity which it could use to produce a
Scrap or rework defective units low-margin item. It should produce the low-margin item if the same can be sold for
more than its
92. Marjorie Corporation is considering to keep or dispose P1 million obsolete inventory A. Indirect costs plus fixed cost.
acquired B. Variable costs plus any opportunity cost of the unutilized plant
several years ago, this cost is capacity.
A. Discretionary cost C. Relevant cost C. Fixed costs plus variable cost.
B. Sunk cost D. Prime cost D. Variable cost.

Gross Profit Variation Analysis

Misc. topics
3 From the records of Dennis Co. the following were taken:
109. Marc Corporation sells product T at a unit price of P5 deriving annual gross sales of
P50,000. The variable cost to produce T is P4.50 per unit and total fixed costs is Quantity Sales
P10,000. If Marc increases T’s unit price to P8 a decrease of sales to only 4,000 Cost of Sales
units would result. The effect of the price increase on Marc’s net income from the Product Budget Actual Budget Actual
sales of product T will be a: Budget Actual
A. P9,000 increase C. P4,000 increase Green 45,000 45,800 450,000 458,000 270,000
B. P18,000 decrease D. No effect. 274,800
Red 30,000 26,700 180,000 186,900 108,000
113. Data covering John Corporation’s two product lines are as follows: 96,120
White 5,000 9,300 25,000 55,800 15,000
Product “W” Product “Z” 27,900
Sales P36,000 P25,200 80,000 81,800 655,000 700,700 393,000
Income before income tax 15,936 (8,388) 398,820
Sales price per unit 30 14
Variable cost per unit 8.50 15 The Sales Price variance:
A. P9,700 favorable C. P36,000
The total units sold of “W” was 2,400 and that “Z” was 3,600 units. If product “Z” is unfavorable
discontinued and this results in a 400 units decrease in sales of Product “W”, the B. P5,820 favorable D. P36,700 favorable
total effect on income will be:
A. P13,600 decrease C. P8,600 decrease The Sales Volume variance:
B. No effect D. P5,000 decrease A. P36,000 favorable C. P9,700 unfavorable
B. P 0 D. P5,820 favorable
114. Kim Bottling Corporation makes and sells two softdrinks COLA and ORANGE. The
comparative data for the two shows: The Cost Price variance:
COLA ORANGE A. P5,820 favorable C. P 0 favorable
Selling price per bottle P9.50 P9.80 B. P36,700 favorable D. P 0 unfavorable
Variable cost 6.50 7.20
Production capacity per hour 250 bottles 300 bottles The Cost Volume variance:
A. P 0 unfavorable C. P5,820 unfavorable
There are 500 available production hours per month. Based on the above B. P9,000 favorable D. P9,000 unfavorable
information
A. Orange and Cola unit contribution margin is the same hence, it is equally
profitable to produce either FINANCIAL STATEMENTS ANALYSIS
B. It is more profitable to produce Orange.
 1. Which of the following does not belong to the list?
A. Common-size financial statements 14. When compared to a debt-to-equity ratio would
B. Peso and percentage changes on financial statements. A. Be lower than the debt-to-asset ratio.
C. Financial ratios. B. Be higher than the debt-to-asset ratio.
D. Long-form report. C. Be about the same as the debt –to-asset ratio.
D. Have no relationship at all to the debt-to-asset ratio.
2. When a balance sheet amount is related to an income statement amount in
computing a ratio: 15. If the ratio of total liabilities to stockholders equity increases, a ratio that must
A. The income statement amount should be converted to an average for the year. would also increase is
B. Comparison with industry ratios is not meaningful. A. Time interest ratio C. Total liabilities to
C. The balance sheet amount should be converted to an average for the total assets.
year. B. The current ratio. D. Return on
D. The ratio loses its historical perspective because a beginning of the year stockholders equity
amount is combined with an end of the year amount.
16. A measure of the company’s long-term debt paying ability is
4 In 2009, MDG Corporation’s net income was P800,000 and in 2010 it was A. Return on assets C. Dividend payout.
P200,000. What B. Times interest earned. D. Length of the
percentage increase in net income must MDG achieve in 2011 to offset the 2010 operating cycle.
decline in net
income? 17. All of the following statements are correct except:
A. 60% C. 400% A. The matching of asset and liability maturities is considered desirable because
B. 600% D. 300% this strategy minimizes interest rate risk.
10. Horizontal, vertical, and common-size analyses are techniques that are used by B. Default risk refers to the inability of the firm to pay off its maturing obligations.
analysts in C. The matching of assets and liability maturities lowers default risk.
understanding the financial statements of companies. Which of the following is an D. An increase in the payables deferral period will lead to reduction in the
example of need to non-spontaneous funding.
vertical, common-size analysis?
A. Commission expense in 2010 is 10% greater than it was in 2009. 18. The following situations are descriptive of Euro Corporation. Which would be
B. A comparison in financial ratio between two or more firms in the same industry. considered as the
C. A comparison in financial form between two or more firms in different industry. most favorable for the common stockholders?
D. Commission expense in 2010 is 55 of sales. A. Book value per share of common stock is substantially higher than market
value per share; return on common stockholders’ equity is less than the rate of
11. It refers to the practice of financing assets with borrowed capital. Its extensive use interest paid to creditors.
may impact on the return on common stockholders’ equity to be above or below the B. Equity ratio is high; return on assets exceeds the cost of borrowing.
rate or return on total assets. C. Euro stops paying dividends on its cumulative preferred stock, the price
A. Discounting C. Leverage earnings ratio of common stock is low.
B. Mortgage D. Arbitrage D. Equity ratio is low, return on assets exceeds the cost of borrowing.

12. Securing of funds for investment at a fixed rate of return to fund suppliers to 21. Which of this ratios are measures of a company’s profitability:
enhances the well being of the common stockholders is known as: 1. Earnings per share 5. Return on assets
A. Financial leverage C. Prudent borrowing 2. Current ratio 6. Inventory turnover
B. Fund management D. Financial arbitrage 3. Return on sales 7. Receivables turnover
4. Debt-equity ratio 8. Price earnings ratio
13. In the process of investing of surplus cash, the term “riding the yield curve” refers
to A. All eight ratios.
A. Diversifying securities portfolio so that the firm has an equal balance of long- B. 1, 3, 5 and 8 only.
term versus short-term securities. C. 1, 3, 5, 6, 7 and 8 only.
B. Swapping different maturities of similar quality debt securities in order D. 1, 3 and 5 only.
to obtain higher yield.
C. Purchasing only the longest maturities for given rates of return. 27. If the return on total assets is 10% and if the return on common stockholders’
D. Adherence to the liquidity preference theory of securities investment. equity is 12% then
 A. The after-tax cost of long-term debt is probably greater than 10%. will not change. What new debt ratio, along with the 14% profit margin, is required
B. The after-tax cost of long-term debt is 12%. to double the return on equity?
C. Leverage is negative. A. 0.75 C. 0.65
D. The after-tax cost of long-term debt is probably less than 10%. B. 0.70 D. 0.55

30. Mayo Corporation has stockholders’ equity equal to 60% of total assets and
stockholders’ equity of P120 million. If the return on total assets invested registers Q 38-41 are based on the following information: The management of Lanie
at 9% what is the return on stockholders’ equity? Corporaion is preparing its plans for the year 2011. The average assets to be
A. 10.00% C. 15.00% employed for the year are estimated at P2,600,000 with 20% of this amount
B. 6.00% D. 12.00% borrowed at no interest cost. Materials and labor cost for the year is budgeted at
P4,000,000, while operating costs is estimated at P1,500,000. All sales are to be
31. Financial ratios, which assess the profitability of a company, include all of the billed at 162.5% of materials and labor cost. Income taxes are at an average of
following except the 35% of income before income tax.
A. Dividend yield ratio C. Earnings per share ratio
B. Gross profit percentage. D. Return on sale ratio. 38. The estimated rate of return on sales for 2011 is:
A. 10.00% C. 14.29%
32. Which of the following statements is incorrect? B. 12.50% D. 27.86%
A. Profitability evaluation ratios have a higher power than solvency determination
ratios predicting for performance for both income and solvency. 39. The estimated rate of return on average total assets for 2011 is
B. Gross profit percentages do not vary a great deal among industries. A. 20.00% C. 31.25%
C. It is appropriate to compare a company’s current financial ratio with same B. 25.00% D. 40.50%
financial ratio for (1) that company is prior years and/or (2) the ratio for the
industry in which the company is affiliated. 40. The expected asset turnover for 2011 is
D. Companies where product costs present a high percentage of total costs could A. 1.5 times C. 3.36 times
be expected to have a low gross profit percentage. B. 2.5 times D. 3.75 times

33. This ratio of analytical measurement measures the productivity of assets regardless Growth ratio
of capital
structures. 41. The rate of return on stockholders’ equity for 2011 is
A. Return on total assets C. Current ratio. A. 20.00% C. 31.25%
B. Quick ratio D. Debt ratio B. 25.00% D. 40.50%

34. MG Goods, Inc. has a total asset turnover of 0.30 and a profit margin of 10 percent. 43. Data pertaining to Daz Corp.’s common stock are presented for the fiscal year
The president is unhappy with the current return on assets, and he thinks it could ending May 31, 2010:
be doubled. This could be accomplished (1) by increasing the profit margin to 15 %
and (2) by increasing the total assets turnover. What new asset turnover ratio, Common stock outstanding P750,000
along with the 15% profit margin, is required to double the return on assets? Stated value per share 15.00
A. 35% C. 40% Market price per share 45.00
B. 45% D. 50% 2009 dividends paid per share 4.50
2010 dividends paid per share 7.50
35. A fire has destroyed many of the financial records of M Company. You are assigned Primary earnings per share 11.25
to put together a financial report. You have found the return on equity to be 12% Fully diluted earnings per share 9.00
and the debt ratio was 0.40. What was the return on assets?
A. 5.35% C. 6.60% The price earnings ratio of common stock of Daz Corp. is:
B. 8.4% D. 7.20% A. 3.0 times C. 6.0 times
B. 7.0 times D. 5.0 times
36. G and Company has a debt ratio of 0.50, a total assets turnover of 0.25, and a
profit margin of 10%. The president is unhappy with the current return on equity, 44. Ashley Company paid out one-half of its 2010 earnings by dividends. Its earnings
and he thinks it could be doubled. This could be accomplished (1) by increasing the increased by 20% and the amounts of its dividends increased by 15% in 2009.
profit margin to 14% and (2) by increasing debt utilization. Total assets turnover Ashley dividend payout ratio for 2010 was
A. 51.5 % C. 75.00%
 B. 52.3% D. 47.90% May’s inventory turnover for 2010 is
A. 3.57 times C. 5.36 times
53. Given a year’s end net income of 1.5 million and 50,000 common shares B. 3.85 times D. 5.77 times
outstanding throughout the year with market price per share at year’s being p10,
the price-earning ratio is: 72. During 2010, Lou Company purchased P960,000 of inventory. The cost of goods
A. 2 times C. 4 times sold for 2010 was P900,000, and the ending inventory at December 31, 2010 was
B. 3 times D. 5 times P180,000. What was the inventory turnover for 2010?
A. 6.4 C. 5.3
Liquidity ratio B. 6.0 D. 5.0

58. Mr. Co, the owner of Galaxy Company is arguing with his accountant as to the best 74. The following computations were made from Bay Company’s 2010 books
measure of
liquidity. He was considering the following and you are to advise him which one is Number of days sales in inventory 61
the best. Which one will you choose? Number of days sales in trade accounts receivable 33
A. Current assets minus inventories to current liabilities.
B. Total assets minus goodwill to total liabilities. What was the number of days in Bay’s 2010 operating cycle?
C. Net income minus dividends to interest expense. A. 33 C. 61
D. Sales minus returns to total debt. B. 94 D. 47

59. Zip Corporation has an acid test ratio 1.5 to 1.0. Which of the following will cause 77. Which of the following ratios should be used in evaluating the effectiveness with
this ratio to which the
deteriorate? company uses its assets?
A. Payment of cash dividends previously declared. Receivable turnover ratio Dividend payout ratio
B. Borrowing short-term loan from a bank. A. No No
C. Sale of inventory on account. B. Yes No
D. Sale of equipment at a loss. C. Yes Yes
D. No Yes
63. Che, Inc. has a current ratio of 4:1. Which of the following transactions would
normally increase its current ratio? 82. Dennis Company has a high sales-to-working-capital ratio. This could indicate
A. Purchasing inventory on account. A. The firm is undercapitalized.
B. Purchasing machinery for cash. B. The firm is likely to have liquidity problems.
C. Selling inventory on account. C. Working capital is not profitably utilized.
D. Collecting on account receivable. D. The firm is not profitable.

64. Wil Corporation has current assets totaling P15 million and a current ratio of 2.5 to 83. For the year ending August 31, 2010, Charles Inc. reported the following statistics:
1. What is Wil’s current ratio immediately after it has paid P2 million of its accounts
payable? In thousand Pesos
A. 3.75 to 1 C. 3.25 to 1 2010 2009
B. 2.75 to 1 D. 4.75 to 1 Net credit sales 2,482
Gross receivables 140 128
67. On December 31, 2009, Ilocos Company collected a receivable due from a major Inventory 384 312
customer. Which of the following ratios would be increased by this transaction? Cost of goods sold 1,752
A. Inventory turnover ratio. C. Receivable turnover ratio.
B. Quick ratio. D. Current ratio. For the current year, using a 365-day year, the average number of days to convert
inventory to sales is
70. Selected information from the operating records of May Company is as follows: A. 65.00 days C. 72.56 days
Net sales P1,800,000 B. 51.18 days D. 71.51 days
Cost of goods sold for 2010 1,200,000
Inventory at 12/31/09 360,000 84. If the average age of the inventory is 90 days, the average age of accounts payable
Inventory at 12/31/10 312,000 is 60 days, and the average age of accounts receivables is 65 days, the number of
days in the cash flow cycle is
 A. 95 days C. 215 days 91. On December 31, 2010, Vic Company collected a receivable due from a major
B. 125 days D. 85 days customer. Which of the following ratios would be increased by this transaction?
A. Inventory turnover ratio C. Receivable turnover
85. It is the policy of Marc Corporation that the current ratio cannot fall below 1.5 to ratio
1.0. its current B. Quick ratio D. Current ratio
liabilities are P400,000 and the present current ratio is 2 to 1. How much is the
maximum level of new short-term loans it can secure without violating the policy? 92. Euro Inc.’s financial statements as the year ended December 31, 2010 show
A. P400,000 C. P266,667 accounts receivables, net of P750,000 and sales at P15 million. Accounts receivable
B. P300,000 D. P800,000 remained relatively constant during the year. Euro’s accounts receivable turnover in
days is:
86. Selected data from the year-end financial statements of Vina Cup Corporation are A. 18.25 C. 15.25
presented below. The difference between average and ending inventories is B. 20.25 D. 16.25
immaterial.
Current ratio 2.0 93. Inventory turnover indicates:
Quick ratio 1.5 A. How many times in the course of a year the company is able to sell the
Current liabilities P6,000,000 amount of its average inventory.
Inventory turnover (based on cost of sales) 8 times B. The flow assumption, which provides the most current valuation in the balance
Gross profit margin 40% sheet.
C. The average time period between the purchase of inventory and conversion of
Vina’s net sales for the year were this inventory back to cash.
A. P2.4 million C. P1.2 million D. A pattern of transferring unit cost from the inventory account to the cost of
B. P4.0 million D. P6.0 million goods sold.

95. All of the following statements are valid except.

87. Romulo Corporation made a substantial one time sale to a provincial based A. The short-term creditor is more interested in cash flow and in working capital
customer which was on credit and had been outstanding for six months. Before the management than he is in how much accounting net income is reported.
company could refer the account to a lawyer for collection, the customer paid in B. If the return on total assets is higher than the after-tax cost of long-term debt
full. Which of the following ratios would be increased by the unexpected receipt? then leverage is positive, and the common stockholders will benefit.
A. Acid-test ratio C. Current ratio C. The results of financial statements analysis are of value only when viewed in
B. Receivable turnover ratio. D. inventory turnover ratio. comparison with the results of other periods or other firms.
D. The inventory turnover is computed by dividing sales by average
88. The ratio of sales to working capital is a measure of inventory.
A. Collectability C. Liquidity
B. Operational leverage. D. Financial leverage. 96. Which of the following statements is correct?
A. An increase in a firm’s inventories will call for additional financing
89. John Corporation has a 2 to 1 current ratio. This ratio would increase more than 2 unless the increase is offset by an equal or larger decrease in some
to1 if other asset account.
A. The company wrote off an uncollectible receivable. B. A high quick ratio is always a good indication of a well-managed liquidity
B. The company purchased inventory on open account. position.
C. The company sold merchandise on open account that earned a normal C. A relatively low return on assets (ROA) is always an indicator of managerial
gross margin. incompetence.
D. Previously declared stock dividends were distributed. D. A high degree of operating leverage lowers the risk by stabilizing the firm’s
earnings stream.
90. Dennis & Sons, Inc. has a 2 to 1 acid test (quick) ratio. This ratio would decrease to
less than 2 to 1 if 97. The company issued a new common shares in a three-for-one stock split. Identify
A. The company purchased inventory on open account. the statements
B. The company sold merchandise on open account that earned a normal gross that indicate the correct effect(s) of this transaction.
margin. 1. It reduces equity per share of common stock.
C. The company collected an account receivable. 2. Share of each common stockholder is reduced.
D. The company paid an account payable. 3. The peso amount of capital stock is increased.
4. Working capital and current ratio are increased.
 C. CVOS, relevant and SVNS, irrelevant
A. Statements 1 and 4 only are correct. D. CVOS, relevant and SVNS, relevant
B. Statement 1 only is correct.
C. All four statements are correct. 7 As a capital budgeting technique, the payback period considers depreciation
D. Statements 3 and 4 only are correct. expense (DE) and time value money (TVM) as follows:
A. DE, relevant and TVM, relevant.
98. The following information pertains to Marjo Corporation as of the year ended B. DE, irrelevant and TVM, irrelevant.
December 31, 2010: C. DE, irrelevant and TVM, relevant.
Liabilities P 60,000 D. DE, relevant and TVM, irrelevant.
Stockholders’ equity 500,000
Shares of common stock issued and outstanding 10,000 shares 8 John Movers, Inc. is planning to purchase equipment to make its operations more
Net income P 30,000 efficient. This
equipment has an estimated useful life of six years. As part of this acquisition, a
During 2009, Marjo officers exercised stock options for 1,000 shares of stock at an P150,000
option price of P8 per share. What was the effect of exercising the stock option? investment in working capital is required. In a discounted cash flow analysis, this
A. No ratios were affected. investment in
B. Assets turnover increased to 5.4%. working capital
C. Debt to equity ratio decreased to 12%. A. Should be amortized over the useful life of the equipment.
D. Earnings per share increased by P0.33. B. Should be disregarded because no cash is involved.
C. Should be treated as a recurring annual cash flow that is recovered at the end
CAPITAL BUDGETING of six years.
D. Should be treated as an immediate cash outflow that is recovered at
3. In capital expenditures decisions, the following are relevant in estimating operating the end of six years.
costs except
A. Future costs. C. Differential costs. 9 Depreciation tax shield
B. Cash costs. D. Differential costs A. The expense caused by depreciation.
B. The cash provided by recording depreciation.
4. In capital budgeting decisions, the following items are considered among others: C. A reduction in income tax.
1. Cash outflow for the investment. D. As after-tax cash flow.
2. Increase in working capital requirement.
3. Profit on sale of old asset. 10. If income tax consideration are ignored, how is depreciation used in the following
4. Loss on write-off of old asset. capital budgeting techniques?
A. Internal Rate of Return, Included; Acctg. Rate of Return, Excluded.
For which of the above items would taxes be relevant? B. Internal Rate of Return, Excluded; Acctg. Rate of Return, Included.
A. Items 1 and 3 only. C. All items. C. Internal Rate of Return, Excluded; Acctg. Rate of Return, Excluded.
B. Items 3 and 4 only. D. Items 1, 3 and 4 only. D. Internal Rate of Return, Included; Acctg. Rate of Return, Included.

5 All of the following are methods that aid management in analyzing the expected Net Cost of Investment
result of capital
budgeting decisions, except 11. Dagupan Publishers, Inc. is considering replacing an old press that cost P800,000
A. Accrual accounting rate of return six years ago with a new one that would cost P2,250,000. Shipping and installation
B. Payback method. would cost an additional P200,000. The old press has a book value of P150,000 and
C. Future value cash flow. could be sold currently for P50,000. The increased production of the new press
D. Discounted cash flow rate of return. would increase inventories by P40,000, accounts receivable by P160,000 and
accounts payable by P140,000. Dagupan’s net initial investment for analyzing the
6 The consulting firm of Francis Corporation is considering the replacement of their acquisition of the new press assuming a 35% income tax rate would be
computer system. Taking into account the income tax effect and considering the A. P2,450,000 C. P2,600,000
carrying value of the old system (CVOS) and the salvage value of the new system B. P2,425,000 D. P2,250,000
(SVNS), which combination below applies to the decision making process?
A. CVOS, irrelevant and SVNS, irrelevant. 12. Francis Corp. plans to replace a production machine that was acquired several years
B. CVOS, irrelevant and SVNS, relevant. ago. Acquisition cost is P450,000 with salvage value of P50,000. The machine being
 considered is worth P800,000 and the supplier is willing to accept the old machine  Initial investment outlay is P60,000.
at a trade-in value of P60,000. Should the company decide not to acquire the new  Cost of capital is 18%.
machine, it needs to repair the old one at a cost of P200,000. Tax wise, the trade-
in transaction will not have any implication but the cost to repair is tax-deductible. Determine the payback period for this investment:
The effective corporate tax rate is 35% of net income subject to tax. For purposes A. 2.5 years. C. 3.00 years.
of capital budgeting, the net investment in the new machine is B. 2.17 years. D. 3.17 years.
A. P540,000 C. P660,000
B. P610,000 D. P800,000 11. The payback reciprocal is an estimate of the internal rate of return. The Cherry, Inc.
is considering the acquisition of a merchandise picking system to improve customer
Net returns service. Annual cash returns on investment cost of P1.2 million is P220,000. Useful
life is estimated at 8 years. The company’s cost of capital is 14% and income tax
19. Romulo Inc. currently has annual cash revenues of P2,400,000 and annual rate is 35%. Calculate Cherry, Inc’s payback reciprocal for this investment:
operating costs of A. 20.5% C. 11.9%
P1,850,000 (all cash items except depreciation of P350,000). The company is B. 18.3% D. 22,2%
considering the
purchase of a new machine costing P1,200,000 that would increase cash revenues 15. The following statements refer to the accounting rate of return (ARR):
to P2,900,000 and operating costs (including depreciation) to P2,050,000. The new 1. The ARR is based on the actual basis, not cash basis.
machine would increase 2. The ARR does not consider the time value of money.
depreciation to P500,000 per year. Revenues are expected to increase to 3. The profitability of the project is not considered.
P2,900,000 and assuming a 35% income tax rate, Romulo’s incremental after tax
cash flows from the machine would be: From the above statements, which are considered limitations of the ARR concept?
A. P330,000 C. P295,000 A. Statements 2 and 3 only. C. All the 3 statements.
B. P345,000 D. P300,000 B. Statements 3 and 1 only. D. Statements 1 and 2
only.
Traditional evaluation models 16. A capital budgeting method that provides a rough approximation of an investment’s
profitability as measured with net income from the income statement is known as:
6 Rain, Inc. plans to undertake a capital expenditure requiring P2 million cash outlay. A. Average rate of return method C. Payback period method
Below are the projected after-tax cash inflows for the five-year period covering the B. Net present value method D. Internal rate of return
useful life. The company’s tax rate is 35% method
Year P000
1 600 17. Mel Inc. is planning to spend P600,000 for a machine that it will depreciate on a
2 700 straight-line basis over a ten-year period with no terminal disposal price. The
3 480 machine will generate cash flow from operations of P120,000 a year. Ignoring
4 400 income taxes, what is the accounting rate of return on the net initial investment?
5 400 A. 5% C. 10%
B. 12% D. 15%
The founder and president of the company believes that the best gauge for capital
expenditures is Discounted cash flows model – general concepts
cash payback period and that the recovery period should not be more than 755 of
the useful life of the project or the asset. Should the company undertake the 20. Which of the following methods measures the cash inflows and outflows of a project
project? as if they
A. No, since the payback period is 4 years or 80% of the useful life of the project. occurred at a single point in time?
B. Yes, since the payback period is 3.55 years or 71% of the useful life of A. Cash flow based payback method
the project. B. Capital budgeting
C. No, since the payback period extends beyond the life of the project. C. Payback method
D. Yes, since the payback period is 4 years and still shorter than the useful life of D. Discounted cash flow.
the project.
21. The method of project selection which considers the time value of money in a
9 Given these data: capital budgeting
 Net after tax infows are: P24,000 for year1 P30,000 for year 2, P36,000 for decision is accomplished by computing the
year 3, and P30,000 for year 4. A. Accounting rate of return on initial investment.
 B. Payback period 32. You are the treasurer of the Elite Corporation. The company is considering a
C. Accounting rate of return on average investment. proposed project,
D. Discounted cash flow. which has an economic life of seven years. Net present value is the capital
budgeting technique the president wants you to use. Salvage value of the project
24. When using one of the discounted cash flow methods to evaluate the desirability of would be:
a capital A. Treated as cash inflow at estimated salvage value.
budgeting project, which of the following factors generally is not important? B. Treated as cash inflow at its present value.
A. The method of financing the project under consideration. C. Irrelevant cash flow item.
B. The impact of the project on income taxes to be paid. D. Treated as cash inflow at the future value.
C. The timing of the cash flows relating to the project.
D. The amount of cash flows relating to the project. 33. Depreciation tax shield is
A. The expense caused by depreciation.
28. Your company is purchasing a transport equipment as part of its territorial B. The cash provided by recording depreciation.
expansion strategy. The technical services department indicated that this equipment C. A reduction in income tax.
needs overhauling in year 4 and 5 of its useful life. The overhauling cost will be D. An after- tax cash flow.
expected during the year the overhauling is done. The Finance Officer insist that the
overhauling be done in year 4, not in year 5. The most likely reason is: 34. Sensitivity analysis, if applied in capital budgeting evaluation,
A. There is lower tax rate in year 5. A. Is used extensively when cash flows are known with certainty.
B. There is higher tax rate in year 5. B. Is “what if” techniques that ask how a given outcome will change if the
C. The time value of money is considered. original estimates of the capital budgeting model are changed.
D. Due to statements A and C above. C. Measures the amount of time it will take for a project to recover its initial
capital outflow.
29. Several proposed capital projects, which are economically acceptable, may have to D. Is a technique used to rank capital expenditures request.
be ranked due to constraints in financial resources. In ranking those projects, the
least pertinent in this statement 35. You just passed the CPA licensure examination and took your oath. As you started
A. If the internal rate of return is used in the capital rationing problem the higher your practice,
the rate the better the project. Faith Inc. came to you for help in establishing a minimum desired rate of return to
B. In selecting the required rate of return, one may either calculate the be used in the
organization’s cost of capital or use a rate generally acceptable in the industry. evaluation of a capital project with a five-year life. The following data were
C. A ranking procedure on the basis of quantitative criteria may be established by provided:
specifying a minimum desired rate of return, which rate is used in calculating Inflation rate for the past 5 years 13%
the net present value of each project. Expected inflation rate for the next 5 years 9%
D. In the net present value method is used, the profitability index is “Risk-free” element 5%
calculated to rank the projects. The lower the index, the better the “Risk” premium demanded for the project 7%
project.
You will advice the client to consider a minimum desired rate of return of
A. 20% C. 16%
30. The “inflation element” refers to the B. 21% D. 25%
A. Impact that future prices increases will have on the original cost of capital
expenditure. 36. The common assumption in capital budgeting analysis that cash inflows occur in
B. Fact that real purchasing power of a monetary unit usually increases over time. lump sums at the end of individuals years during the life of an investment project
C. Future deterioration of the general purchasing power of the monetary when in fact they flow more or less continuously during those years
unit. A. Results in understated estimate of NPV.
D. Future increases in the general purchasing power of the monetary unit. B. Is done because present value tables for continuous flows can not be
constructed.
31. All of the following refer to the discount rate used by a firm in capital budgeting C. Will result in inconsistent errors being made on estimating NPV’s such that
except project cannot be evaluated reliably.
A. Hurdle rate. C. Opportunity cost. D. Results in higher estimates for the IRR on the investment.
B. Required rate of return. D. Opportunity cost of
capital.
37. You have determined the profitability of a planned project by finding the present
value of all cash flows from that project. Which of the following would cause the 60. The net present value of a proposed project is negative therefore, the discount rate
project to look less appealing, that is, have lower present value? must be
A. The discount rate increases. A. Less than the project’s internal rate of return.
B. The cash flows are extended over a longer period of time. B. Less than the risk free rate.
C. The investment cost decreases without affecting the expected income and life C. Greater than the firm’s cost of equity.
of the project. D. Greater than the project’s internal rate of return.
D. The cash flows are accelerated and the project life is correspondingly
shortened.

45. Daz Company plans to invest P2,000 at the end of the next ten years. Assume that 61. You have been consulted to advice Cynth Corporation on the projected acquisition of
Daz will earn another
interest at an annual rate of 6% compounded annually. The future amount of an production line costing P1 million. The line has an expected useful life of 5 years
ordinary annuity of P1 for 10 periods at 6% is 13.181. The present value of P1 for without any
ten periods at 6% is 0.558. the present value of an ordinary annuity of P1 for ten salvage value. The company’s hurdle rate is 20% and the following additional
periods at 6% is 7.360. the investment after the end of ten years would be information were
A. P26,362 C. P14,720 made available to you.
B. P21,200 D. P27,478 Year Estimated Annual Cashflow Present value of P1 at
20%
Net present value 1 P 600,000 0.91
2 300,000 .76
52. Vida & Company is considering an investment proposal for P10 million yielding a net 3 200,000 .63
present value of P450,000. The project has a life of 7 years with salvage value of 4 200,000 .53
P200,000. The company uses a discount rate of 12%. Which of the following would 5 200,000 .44
decrease the net present value? P1,500,000 3.27
A. Extend the project life and associated cash inflows.
B. Increase the discount rate to 15%. Assuming that the cash flow is generated evenly during the year, your advice is
C. Decrease the initial investment amount to P9.0 million. A. To invest due to net present value of P94,000.
D. Increase the salvage value. B. To invest due to net present value of P541,280.
C. To invest due to net present value of P635,000.
53. A disadvantage of the net present value method of capital expenditure evaluation is D. To invest due to net advantage of P500,000.
that it
A. It is difficult to apply because it uses a trial and error approach. 62. Cherry Corporation is considering the purchase of a new machine that will cost
B. Does not provide the true rate of return on investment. P320,000. It has an estimated useful life of 305 in the first year, 40 % in the second
C. Is calculated using sensitivity analysis. year, and 30% in the third year. It has a resale value of P20,000 at the end of its
D. Computes the true rate of return. economic life. Savings are expected from the use of machine estimated at P170,000
annually. The company has an effective tax rate of 40%. It uses 16% as hurdle rate
59. It is the start of the year and Dennis Company plans to replace its old sing-along in evaluating capital projects. Should the company proceed with the P320,000
equipment. These information are available: capital investment?
Old New
Equipment cost P70,000 P120,000 Discount factors at 16%
Current salvage value 10,000 Year Present value of 1 Present value of an ordinary
Salvage value, end of useful life 2,000 16,000 annuity of P1
Annual operating costs 56,000 38,000 1 .862 .862
Accumulated depreciation 55,300 2 .743 1.605
Estimated useful life 10 years 10 years 3 .641 2.246

The company’s income tax rate is 35% and its cost of capital is 12%. What is the A. Yes, due to NPV of P6,556.
present value of all the relevant cash flows at time zero? B. Yes, due to NPV of P11,684.
A. (P54,000) C. (P120,000) C. Yes, due to NPV of P61,820.
B. (P110,000) D. (P124,000) D. No , due to negative NPV of P1,136.
63. Annie has P750,000 in a bank account as of the end of the last year. If she deposits A. P3,651,200 C. P2,404,000
P10,000 in the account at the end of each of the next three years, and all amounts B. P3,524,000 D P3,778,400
in the account can earn 8% per annum, will she become a millionaire by the end of
the said period? (disregard income tax 67. The General Manager of John Mill Inc. is considering the purchase of some new
implications). machines. The
machine would cost P4,000,000 with an economic life of 8 years without any
Below are the factors that may be used: salvage value. Once set up, they would generate P12,500,000 additional revenues
8% Interest rate factors but yearly expenses for additional labor and materials would also increase by
Period Future value of Future value on annuity of P1 P11,500,000.assume the company uses straight-line depreciation for taxes and that
1 1.08 1.00 the appropriate tax rate is 35%. The required after-tax rate on return is 14%.
2 1.17 2.08
3 1.26 3.25 The following data are an interest rate of 15% and 8 periods:
4 1.36 4.51 Present value of P1 0.3506
Future value of P1 2.8526
A. Yes, with P1,075,000. C. Yes, with P1,200,000. Present value of an annuity of P1 4.6389
B. No, with only P870,000. D. No, with only P880,000. Future value of annuity of P1 13.2328

64. The net present value method of investment analysis assumes that the projects The company should
cash flows are A. Purchase the machines due to positive NPV of P638,900.
invested at the B. Not purchase the machines due to negative NPV of P984,715.
A. Computed internal rate of return. C. Not purchase the machines due to negative NVP of P172,907.50.
B. Discounted rate in the NPV calculation. D. Be indifferent as the option does not bring about any advantage nor
C. Firm’s average rate of return. disadvantage.
D. Risk free interest rate.
68. Marc Assembly Inc. is considering the purchase automatic wirebonder which costs
65. Ina Foundation, Inc., a non stock, nonprofit and tax exempt foundation, invested P1 P750,000. It has ten-year life without any salvage value. Marc would save P200,000
million in a in labor cost annually as a result of the use of the new machine. Power cost would
five-year project at the beginning of the year. The foundation estimates that the however increase by P25,000 annually. The cost of capital is 16%. The present
annual savings from the project will amount to P325,000. The P1 million asset is value factor for 10 years at 16% is 4.8332. the present value of the net annual cost
depreciable over five (5) years on a straight-line basis. The foundation’s hurdle rate savings is:
is 12%. To facilitate computations, below are present value factors: A. P845,810 C. P745,810
12% B. P575,000 D. P966,640
14% 16%
Present value of P1 for 5 periods 0.57 0.52 74. Cherry and Company is considering an investment proposal for P10 million yielding
0.48 a net present value of P450,000. The project has a life of 7 years with salvage value
Present value of an annuity of P1 for 5 period 3.6 3.4 3.3 of P200,000. The company uses a discount rate of 12%. Which of the following
would decrease the net present value?
The net present value of the project is A. Extend the project life and associated cash inflows.
A. P170,000 C. P182,000 B. Increase the discount rate to 15%.
B. P625,000 D. P450,000 C. Decrease the initial investment amount to P9.0 million.
D. Increase the salvage value.
66. Dennis Corporation bought a major equipment which is depreciable over 7 years on
a straight line basis without any salvage value. It is estimated that it will generate Internal rate of return
cash flow from operations, net of income taxes, of P800,000 in each of the seven
years. The company’s expected rate of return is 12%. Based on estimates, the 79. MDG Corporation is evaluating the purchase of P500,000 die attach machine. The
project has a net present value of P127,200. What is the cost of the equipment? To cash inflows
facilitate the computation, below are present value factors: expected from the investment is P145,000 per year for five years with no
Present value of P1 and 12% for seven periods is equipment salvage value. The cost of capital is 12%. The net present value factor
0.452 for five (5) years at 12% is 3.4331. The internal rate of return for this investment
Present value of an ordinary annuity of P1 for seven periods is4.564 is:
 A. 3.45% C. 13.80% Your advice is
B. 2.04% D. 15.48% A. To proceed due to an estimated IRR of less than 14% but not more than 12%.
B. To proceed due to an estimated IRR of less than 16% but not more than 14%.
80. A number of techniques are commonly used in the analysis of capital budgeting C. Not to proceed due to an estimated IRR of less than 12%.
decisions. Each D. To proceed due to an estimated IRR of not more than 16%.
method involves the measurement of cash flows, except the:
A. Internal rate of return C. Average rate of return method. 88. Which of the following statements is false?
B. Payback period method D. Net present value method. A. The net present value (NPV) of a project with cash flows that comes in
relatively slowly is more sensitive to changes in the discount rate than is the
81. Marjorie, Inc. is considering an investment that has a positive net present value NPV of a project with cash flows that come in rapidly.
based on its 16% B. Other things held constant, a decrease in the cost of capital (discount
hurdle rate. The internal rate of return would be rate) will cause an increase in a project’s internal rate of return (IRR).
A. More than 16%. C. 16%. C. The IRR method can be used in place of the NPV method for all independent
B. Less than 16%. D. Zero. projects because the two methods then result in identical decisions.
D. The NPV method is preferred over the IRR method because the NPV method’s
84. The following data pertain to Romulo Corporation whose management is planning to reinvestment ate assumption is the correct assumption.
purchase
automated tanning equipment: 89. You are engaged by the Jon Company to evaluate the introduction of a new product
1. Economic life of equipment: 8 years. line with an
2. Disposal value after 8 years: nil. innovative packaging. You computed the net present value (NPV) and internal rate
3. Estimated net annual cash inflows for each of the 8 years: P81,000. of return (IRR). If you client would reduce the estimate for its sales of the new
4. Time-adjusted internal rate of return: 14%. product and increase the projected cost of capital, what would be the impact of
5. Cost of capital of Romulo Corporation: 16%. these revisions in the estimates on NPV and IRR?
6. The table of present values of P1 received annually for 8 years has these A. NPV will increase, IRR will increase.
factors: at 14%= 4.639, at 16%= 4.344. B. NPV will decrease, IRR will increase.
7. Depreciation is approximately P46,970 annually. C. NPV will increase, IRR will decrease.
D. NPV will decrease, IRR will decrease.
Find the required increase in annual cash inflows in order to have the time-adjusted
rate of return approximately equal the cost of capital. 96. Euro Corporation is reviewing a capital budgeting decision regarding the acquisition
A. P5,501 C. P4,344. of a capital
B. P6,501 D. P5,871 equipment. Below are the relevant information:
Investment P300,000
86. The internal rate of return (IRR) is the Excess PV of net cash inflows 200,000
A. Rate of return for which the net present value is greater than 1.0. Cash-flow tax shield from depreciation 100,000
B. Rate of return for which the net present value is equal to 0.
C. Rate of return generated from the operational cash flows. The company is used to have as benchmark for similar projects an excess present
D. Hurdle rate. value index of
0.50, that is, the project’s index should be no less than 0.50. Should this project be
87. A tax-exempt foundation, Kapuso Foundation, Inc. intends to invest P1 million in a pursued?
five-year A. No, since the excess present value index is 0.33.
project. The foundation estimates that the annual savings from the project will B. Yes, since the excess present value index is 0.67.
amount to P325,000. The P1 million asset is depreciable over five (5) years of C. No, since the excess present value index is less than 0.50.
straight-line basis. The foundation’s hurdle rate is 12% and as a consultant of the D. Yes, since the excess present value index is 1.50.
foundation, you are asked to determine the internal rate of return and advise if the
project should be pursued. To facilitate computations, below are the present value 102. Payback period (PP) profitability (present value) index (PI), and simple accounting
factors: rate of return
12% (SARR) are some of the capital budgeting techniques. What is the effect of an
15% increase in the cost of capital on these techniques?
Present value of p1 for 5 periods 0.57 0.52 A. PP will increase, PI will decrease, and SARR will increase.
Present value of an annuity of P1 for 5 periods 3.6 3.4 B. PP will have no change, PI will decrease, and SARR will have no
change.
 C. PP will have no change, PI will increase, and SARR will decrease. 5 113 100 150
D. PP will decrease, PI will have no change, and SARR will have no change. 150

103. UFO Corporation’s Project Sky has a net investment of P1.2 million. The present Net present value P7,540 P59,654 P54,666 P(15,708)
value of all future net cash inflows is P2.4 million. The company’s tax rate is Internal rate of return 12.7% 17.6% 17.2%
40%the profitability index is 10.6%
A. 0.50 C. 0.83 Excess present value index 1.02 1.13 1.14
B. 1.20 D. 2.00 0.96

104. MJ Company uses a 12% hurdle rate for all capital expenditures. It has lined up four The company will choose
projects and A. Projects M, N, and O C. Projects L and N
below is the summary thereof. B. Projects M and N D. Projects L and M
Projects in thousand pesos
1 2 3 4 106. A capital budgeting decision model has provided the following information:
Initial cash inflows 400 596 496 544 Proposal A Proposal B
Annual cash inflows: Investment P1,000,000 Investment
Year 1 130 200 160 190 P1,800,000
2 140 270 190 250 Profitability index 1.2 Profitability index
3 180 180 180 2.1
4 130 160 120 Net present valueP 600,000 Net present valueP
300,000
Net present value (7.5) 8.552 28.128 29.324
Profitability index 98% 101% 106% 105% The better project is
Internal rate of return 11% 13% 14% 15% A. Proposal A because it has the higher net present value.
B. Proposal B because it has the higher profitability index.
If the company has no budgetary limitations, which projects should be pursued? C. Proposal B because its profitability index is over 2.0..
A. Project 1. C. Project 2, 3 and 4. D. Proposal A because it has the higher net present value even though its
B. Project 3 and 4. D. All of the four projects. investment base is smaller.

105. Television Corporation is contemplating four projects: L, M, N and O. the capital cost 107. Information on three (3) investment projects is given below:
for the
initiation of each mutually exclusive project and its estimated after-tax net cash Project Investment NPV
flow are listed X P150,000 P34,005
below. The company’s desired after-tax opportunity costs is 12%. It has P900,000 C 100,000 22,670
capital budget W 60,000 13,602
for the year. Idle funds cannot reinvest at greater than 12%.
In Thousand pesos Rank the projects in terms of preference:
A. 1st W, 2nd C, 3rd X C. 1st X, 2nd C, 3rd W
L M N B. 1st C, 2nd W, 3rd X D. The ranking is the
O same.
470 380 400
420 111. The profitability index approach to investment analysis
Annual cash flows: A. Considers only the project’s contribution to net income and does not consider
Year 1 113 180 90 cash flow effect.
80 B. Always yield the same accept/reject decision for mutually-exclusive project as
2 113 170 110 the net present value method.
100 C. Always yield the same accept/reject decision for independent project
3 113 150 130 as the net present value method
120 D. Always yield the same accept/reject decision for dependent project as the net
4 113 110 140 present value method
130
112. The capital budgeting technique known as internal rate of return uses: D. Cash sales less cash operating costs less taxes paid.
A. Cash flow over entire life of project – No
Time value of money – Yes 6 Which of the following is not a use of working capital?
B. Cash flow over entire life of project – Yes A. Repurchase of common stock.
Time value of money – Yes B. Purchase of inventory on account.
C. Cash flow over entire life of project – No C. Purchase of equipment on account.
Time value of money – No D. Repayment of long-term debt.
D. Cash flow over entire life of project – Yes
Time value of money – No 7 Determining the appropriate level of working capital of the firm requires
A. Evaluating the risk associated with various levels of fixed assets and the types
NPV Index of debt used to finance those assets.
B. Changing the capital structure and dividend policy of the firm.
113. What is the effect of changes in cash flows, investment cost and cash outflows on C. Maintaining a high proportion of liquid assets to total assets in order to
profitability maximize the return on total investment.
(present value) index (PI). D. Offsetting the profitability of technical insolvency.
A. PI will increase with an increase in cash flows, a decrease in
investment costs, or a
decrease in cash outflows 8 The amortization of goodwill appearing in the income statement is
B. PI will increase with an increase in cash inflows, a increase in investment costs, A. Deducted from net income to obtain “Funds provided by operations”.
or a increase in cash outflows B. Added to net income to obtain “Funds provided by operations”.
C. PI will decrease with an increase in cash flows, a decrease in investment costs, C. A source of working capital separate from net income.
or a decrease in cash outflows D. A use of working capital.
D. PI will decrease with an increase in cash outflows, an increase in investment
costs, or an increase in cash inflows 9 Compared to other firms in the industry, a company that maintains a conservative
working capital policy will tend to have a
124. Which of the following statements is correct? A. Greater percentage of short-term financing.
A. One key shortcoming of discounted cash flow method is that they ignore the B. Greater risk of needing to sell current assets to repay debt.
recovery of original investment. C. Higher ratio of current assets to fixed assets.
B. Although a cash outlay for non-current assets such as a machine would be D. Higher total assets turnover.
considered, in a capital budgeting analysis, a cash outlay for working capital
item such as inventory would not be considered. 10. Which of the following account changes would be classified as a use of funds?
C. To be acceptable, a project’s time adjusted rate of return cannot be A. An increase in accounts payable.
less than the company’s cost of capital. B. An increase in retained earnings.
D. If the net present value of an investment is zero, then the project should be C. A decrease in bonds payable.
rejected since it is not providing any return on the investment. D. A decrease in accounts receivable.

131. In the capital budgeting, these techniques are applied: payback (PB) , net present 11. Which of the following would reduce the additional funds required if all other things
value (NPV), and time adjusted rate of return (TARR) method. PB has this in are held
common with NPV and TARR methods: constant?
A. Use of cash flows. A. A decrease in the company’s tax rate.
B. Consideration of time value of money. B. An increase in the expected sales growth rate.
C. Use of discounting. C. An increase in the dividend payout ratio.
D. Use of accrual method of accounting. D. A decrease in the profit margin.

GENERAL WORKING CAPITAL CONCEPTS 14. Dennis Company used the working capital basis of preparing its Fund Flow
Statement. The
5. The fundamental analysis of cash flow generated from operations may be following data are presented for the year just ended:
determined using any of the following except Depreciation expense P48,500
A. After tax income plus depreciation. Amortization of patents 12,000
B. Net income less depreciation plus taxes Cash dividends declared 27,000
C. Net income plus depreciation. Cash dividends paid 34,000
 Bonds payable issued 90,000 C. To enable a company to have cash to meet emergencies that may arise
Sale of common stock 175,000 periodically.
Amortization of bonds discount 1,500 D. To avoid having to use the various types of lending arrangements available to
Gain on sale of equipment 9,500 cover projected cash deficits.
Working capital provided by operations 121,000
Purchase of land 310,000 4. The following practices will impact the cash flow of the company:
Decrease in deferred income taxes 18,000 1. Sales personnel are unequivocally responsible for collecting their credit
sales.
Calculate the net income or loss for the period from the above data. 2. Sales commissions are based on collected invoices.
A. P68,500 C. P113,500 3. Statements of accounts receivable are reconciled with customers and
B. P86,500 D. P351,500 regularly sent for confirmation.
4. Automatic transfer of funds is arranged with banks regarding deposits of
15. The working capital of Cherry Company at December 31, 2009 was P10,000,000. branches.
Selected
information for the year 2010 for Cherry Company is as follows: Of the above, which will result to better cash flow?
Working capital provided from operations P1,700,000 A. All statements C. Statements 3 and 4
Capital expenditure 3,000,000 only.
Proceeds from short-term borrowings 1,000,000 B. Statements a, 3, and 4 only. D. Statement 4 only.
Proceeds from long-term borrowings 2,000,000
Payments on short-term borrowings 500,000 10. Given the following events, which affect cash flows from operations?
Payments on long-term borrowings 600,000 1. Cash sale
Proceeds from issuance of common stock 1,400,000 2. Cash dividend paid
Dividends paid on common stock 800,000 3. Purchase of a long-term asset
4. Paid employees
What is Cherry’s working capital at December 31, 2010?
A. P11,200,000 C. P10,700,000 A. 1 and 5 C. 1, 2, and 5
B. P11,500,000 D. P12,000,000 B. 1, 3, 4, and 5. D. 1, 4, and 5

12. Marc and John’s Store is on the cash basis of preparing its funds statement. These
Cash and marketable securities management data are available:
1. Which of the following actions would not be consistent with good management?
A. Increased synchronization of cash flows. Decrease in working capital P50,000
B. Minimize the use of float. Depreciation 13,000
C. Maintaining an average cash balance equal to that required as a compensating Increase in cash 25,000
balance or that which minimizes total cost. Repairs and maintenance 19,500
D. Use of checks and drafts in disbursing funds. Total uses of cash 454,000

2. Which of the following investments is not likely to be a proper investment for Calculate the total sources of cash of Marc and John’s Store.
temporary idle cash? A. P472,500 C. P479,500
A. Initial public offering of an established profitable conglomerate. B. P492,000 D. P467,000
B. Commercial paper.
C. Treasury bills. 28. Resto-bar Inc. has been very successful. It is the newest fast food outlet at the
D. Treasury bonds due within one year. Greenbelt of Makati featuring ordinary Filipino food packed with banana leaves.
After six months of operations, it needs to expand. The owner, Mr. Pert Garcia
3. A precautionary motive for holding excess cash is estimates that 2.4 million will be required to put up another outlet in the Ortigas
A. To enable a company to meet the cash demands from the normal flow of area.
business activity.
B. To enable a company to avail itself of a special inventory purchase before prices Financing was offered by a friendly banker at 10 percent discounted interest.
rise to higher levels. Alternatively, Mr.
Garcia is thinking of just delaying payment to its suppliers. All his sales are on cash
basis. The
 company purchases under terms of 2/10, net 40 but Mr. Garcia believes that he B. The extent (in terms of money) to which a firm will go to collect an
could delay account.
payments by another 30 days without any problem. This means of payment could C. The length of time for which credit is extended.
be made in 70 D. The size of the discount that will be offered.
delays. Assuming 360days a year, Rest-bar Inc. should opt for
A. Bank loan since its cost of 11.11 % is cheaper than the cost of delaying 3. In a set of comparative financial statements, you observed a gradual decline in the
payments of 12.24%. net to gross ratio, (i.e., between net sales and gross sales). This indicates that:
B. Delaying payments since it has no cost compared to the 10% discounted bank A. There is stiffening in the grant of discounts to the customers.
interest. B. The discount period is being lengthened.
C. Bank loan since its cost of 10% is cheaper than the cost of delaying payments C. There is adherence to the collection policies of the company.
of 12%. D. Sales volume is decreasing.
D. Delaying payments since it cost 2% compared to the 10% discounted bank
interest. 4 The level of accounts receivable will most likely increase as:
A. Cash sales increase and number of days sales.
29. Bohol Company recently received a commercial bank loan of 16% discounted rate B. Credit limits are expanded, credit sales increase, and credit terms
with a 20% remain the same.
Compensating balance. The term of the loan in one year. The effective cost of C. Credit limits are expanded, cash sales increase and aging of the receivables
borrowing is: improved.
A. 19.05% C. 22.85% D. Cash sales increase, current receivables ratio to past due increase, credit limits
B. 20.00 % D. 25.00% remain the same.

30. Euro obtained a short-term bank loan for P1 million at an annual interest of 12%. 5 A strict credit and collection policy is in place in Sun Company. As Finance Director
As a condition of the loan, the company is required to maintain a compensating you are asked to advise on the propriety of relaxing the credit standards in view of
balance of p200,000 in its savings account which earns interest at an annual rate of stiff competition in the market. Your advise will be favorable if:
6%. The company would otherwise maintain only P100,000 on the savings account A. The competitor will do the same thing to prevent lost sales
for transactional purposes. The effective cost of the loan is B. There is a decrease in the distribution level of your product and a more
A. 13.20% C. 12% aggressive stance is necessary to retain market share.
B. 12.67% D. 13.5% C. The projected margin from increased sales will exceed the cost of
carrying the incremental receivables.
31. Dennis, Inc. signed a loan agreement subject to the following terms: D. The account receivable level is improving so the company can afford the
1. Stated interest rate of 18% on a one-year discounted loan; and carrying cost of receivables.
2. 15% compensating non-interest bearing checking account balance to be
maintained by Dennis Inc., with Manila Commercial Bank. 6 A change in credit policy has caused an increase in sales, an increase in discounts
The net proceeds of the loan was P1 million. The principal amount of the loan was taken, a reduction in the investment in accounts receivables, and a reduction in the
A. P1,176,471 C. P1,492,537 number of doubtful accounts. Based on this information we know that
B. P1,000,000 D. P1,219,512 A. The net profit has increased.
B. The bad debt percentage has increased.
Receivables Management C. The size of the discount offered has decreased.
D. The average collection period has decreased.
Credit and collection policy
7 If a firm had been extending trade credit on a 2/10, net/30 basis, what change
1. The goal of credit policy is to would be expected on the balance sheet of its customer if the firm went to a net
A. Extend credit to the point where marginal profits equal marginal costs. cash 30 policy?
B. Minimize bad debt losses. A. Increased payables and increased bank loan.
C. Minimize collection expenses. B. Increased receivables.
D. Maximize sales. C. Decreased receivables.
D. Decreased in cash.
2. It is held that the level of accounts receivable that the firm has or holds reflects
both the volume of the firm’s sales on account and a firm’s credit policies. Which 8 The credit and collection policy of Green Company provides for the imposition of
one of the following items is not considered as part of the firms’ credit policies? credit block when the credit line is exceeded and/or the account is past due. During
A. The minimum risk group to which credit should be extended. the month, because of the campaign to achieve volume targets, the general
 manager has waived the credit block policy in a number of instances involving big
volume accounts. The likely effect of this move is
A. Deterioration of aging of receivables only.
B. Increase in the level of receivables only.
C. Deterioration of aging of receivables and increase in the level of
receivables.
D. Decrease in collections during the month the move was done. 21.
customers. It has been estimated that uncollectible expenses would be 15% and
collection costs, 5%. The manufacturing and selling costs are 70% of sales and
corporate tax is 35%. If they pursue this opportunity, the after-tax profit will:
A. Increase by P35,000 C. Increase by P65,000
B. Increase by P97,500 D. Remain the same.
May Corporation plans to tighten it credit policy. Below is the summary of changes

12. The sales director of Red Company suggests that certain credit terms be modified. Old New
He estimates the following effects: Average number of days collection 75 50
 Sales will increase by at least 20%. Ratio of credit to total sales 70% 60%
 Accounts receivable turnover will be reduced to 8 times from the present
turnover of 10 times. Projected sales for the coming year is P100 million and it was estimated that the
 Bad debts, now at 1% of sales will increase to 1.5%. Sales before the new policy will be a 5% less if the new policy is implemented. Assuming a 360-day
proposed changes is at P900,000. Variable cost ratio is 55% and desired year, what is the effect of the new policy on accounts receivable?
rate of return is 20%. Fixed expenses amount to P150,000. A. Decrease of P13 million. C. Decrease of P5 million.
B. No change. D. Decrease of P6,666,667
Should the company allow the revision of its credit terms?
A. Yes, because income will increase by P64,800. 22. The Green sales Company’s budgeted sales for the coming year are P30 million of
B. Yes, because losses will be reduced by P78,800. which 80% are expected to be made on credit. The company wants to change its
C. No, because income will be reduced by P13,000. credit terms from n/30 to 2/10, n/30. If the new credit terms are adopted, the
D. No, because losses will be reduce by P28,000. company estimates that cash discounts would be taken on 40 % of the credit sales
and the uncollectible amount would be unchanged. The adoption of the new credit
14. Cherry Inc. sells on terms 3/10, net 30 days. Gross sales for the year are terms would result in expected discount availed of in the coming year of
P2,400,000 and the A. P600,000 C. P480,000
collections department estimates that 30 percent of the customers pay on the tenth B. P288,000 D. P192,000
day and take
discounts; 40 percent pay on the thirtieth day; and the remaining 30 percent pay, 23. Mr. R. Sim assumed the presidency of Green Corp. he instituted new policies with
on the average, 40 days after the purchase. Assuming 360 days per year, what is respect to credit policy. Below is a summary of relevant information:
the average collection period? Credit policy
A. 40 days C. 20 days Old New
B. 15 days D. 27 days Sales P1,800,000
P1,980,000
16. Dennis, Inc. has an inventory conversion period of 60 days, a receivable conversion Average collection period 30 days 36 days
period of 35
days, and a payment cycle to 26 days. If its sales for the period just ended The company requires a rate of return of 10% and a variable cost ratio of 60%.
amounted to P972,000, Using a 360-day
what is the investment in accounts receivable? (Assume 360 days in a year). year, the pre-tax cost of carrying the additional investment in receivables under the
A. P85,200 C. P94,500 new policy
B. P72,450 D. P79,600 would be
A. P4,800,000 C. P3,000,000
17. Mar & Company buys on terms 2/10, net 30, but generally does not pay until 40 B. P2,880,000 D. P4,080,000
days after the
invoice date. Its purchases total P2,160,000 per year. Assuming 360 days a year, 24. Cherry Resource Company has annual credit sales of P4 million. Its average
the amount of collection period is 40 days, and bad debts are 5% of sales. The credit and
“non-free” trade credit used by the company on the average collection manager is considering instituting a stricter collection policy, whereby bad
A. P180,000 C. P 60,000 debts would be reduced to 2% of total sales, and the average collection period
B. P240,000 D. P120,000 would fall to 30 days. However, sales would also fall by an estimated P500,000
annually. Variable cost is 60% of sales and the cost of carrying receivables is 12%.
20. Pert Company has the opportunity to increase annual sales by P1 million by selling Assuming a tax rate of 35% and 360 days a year, the incremental change in the
to new riskier profitability of the company if stricter policy would be implemented would be
 A. Zero as the positive and negative effects offset each other. The company uses a 360-day year. Assumes that all of the suppliers can supply any
B. A reduction in net income by P70,000. and all of the
C. A reduction in net income by P38,350. requirements of software and can provide unlimited credit line to the company and
D. A reduction in net income by P35,400. that the company can have only one supplier. With a cost of bank borrowing of 18%
per annum, which supplier should Matt will choose?
Effective discount rate A. EF Co. due to the longest credit term of 120 days.
B. CD Co. due to cost to trade credit of 36.7%.
34. Three suppliers of Joy Corporation offer different credit term. A Co. offers term of 1 C. EF Co. due to the highest trade discount at 5%.
½ /15, net 30. B Co. offers terms of 1/10, net 30. C Co. offers terms of 2/10, net D. AB Co. due to no discount policy.
60. Joy Corporation would have to borrow from a bank at an annual rate of 12% in
order to take any cash discounts. Which of the following would be the most 39. Pia Corporation purchased an item on credit with terms 3/10, n/45. Using 360-day
attractive for Joy Corp.? (Assume 360 days a year). year, the
A. Purchase from A Co., pay in 15 days and borrow any money needed company’s annual interest cost of foregoing the cash discount and making payment
from the bank. on the last day of the credit period is
B. Purchase from A Co., pay in 30 days and borrow any money needed from the A. 30.93% C. 24.74%
bank. B. 31.81% D. 30.86%
C. Purchase from C Co., pay in 60 days and borrow any money needed from the
bank. 40. On cash discounts, all of the following statements do not apply except
D. Purchase from B Co., pay in 30 days. A. If a firm buys P10,000 of goods on terms of 1/10, net 30 and pays within the
discount period, the amount paid would be P9,000.
35. Dennis, Inc. purchased an item on credit with terns of 3/10, net 45. Based on a B. The cost of not taking the cash discount is always higher than the cost of a
360-day year, the bank loan.
company’s interest cost of foregoing the cash discounts and making payment on the C. With trade terms of 2/15, net 60, if the discount is taken the buyer
last day of the credit period is: receives 45 days of free credit.
A. 24.00% C. 24.74% D. The cost of not taking the discount is higher for terms of 2/10, net 60 than for
B. 31.81% D. 30.86% 2/10, net 30.

36. The official terms of purchases of Z Company are 2/10, net/30 but generally the 43. Mark Corporation intends to acquire a new equipment to increase its capacity. It is
company does not pay until 40 days after the invoice date. The purchases total estimated to cost P2.4 million. A bank loan can finance the acquisition at ten
P3,600,000 per year. Assuming 360 days a year, the approximate cost of the non- percent (10%) discounted interest. Alternatively, the company may adjust delay
free trade credit amounts to payment to its suppliers. Presently, the company buys under terms 2/10, net 40,
A. 18.36% C. 21.90% but management believes payment could be delayed 30 additional days, without
B. 24.50% D. 19.40% penalty, that is, payment could be made in 70 days.

37. If a firm purchases raw materials form its suppliers on a 2/10, n/60 cash discount Assuming 360 days a year, the company should
basis, the A. Borrow since it is cheaper by 1.13% than delaying payment to
equivalent annual interest rate (using a 36-day year) of foregoing the cash discount suppliers.
and making B. Borrow since it is cheaper by 2.5% than delaying payment to suppliers.
payment on the 60th days is C. Delay payments to suppliers since it would cost 12% as against bank loan of
A. 36.7% C. 73.5% 10%.
B. 14.7% D. 12.2% D. Delay payments to suppliers since it does not cost anything.
38. Matt Center, Inc.’s new controller is reviewing the company’s cash management. Accounts receivable portfolio analysis
Below are relevant information regarding trade credits from the suppliers of the
company: Questions 46 and 47 are based on the following information:
Suppliers Average Monthly Purchases Credit Terms To improve the credit and collection policies of Mine Corporation, the following data
AB Co. P 100,000 net /30 for 2010 were gathered for study:
CD Co. 300,000 2/10, n/30
EF Co. 1,000,000 5/10, net 120 Accounts receivable, January 1 P112,000
GH Co. 600,000 3/10, net 45 Accounts receivable, December 31 140,000
Bad debts losses 6,300
 Allowance for uncollectible accounts, January 1 10,500 A. P 975 C. P5,000
Allowance for uncollectible accounts, December 31 7,000 B. P20,000 D. P4,025
Sales (all sales were made on credit) 630,000
Inventory management
46. What was the total cash collected from customers during 2010?
A. P592,200 C. P599,200 3. Marc & Francis Company’s financial plan for next year shows sales of P72 million
B. P598,500 D. P605,500 and cost of sales of P45 million. It expects short-term interest rate to average 10%
for the coming year. It aims to increase inventory turnover from the present level of
47. What was the accounts receivable turnover (rounded to the nearest centavo)? 9 times to 12 times next year. If its plans and objectives are carried out, how much
A. 5.37 C. 4.70 is the cost savings for the coming year?
B. 5.00 D. 4.68 A. P125,000 C. P375,000
B. P300,000 D. P500,000
48. By the end of this you expect to have a cash balance of P500,000. Which of these
transactions/indicators (not considered in your estimate) will reduce this balance. 14. The production department of a manufacturing company has been plagued with
A. A modification on credit terms to customers will reduce credit sales. excessive number of defective units of standards machine parts that are purchased
B. A dialogue with key suppliers will allow discounts on extended from vendors on a regular basis. The most relevant quantitative management
payment terms. technique for designing a formal inspection system for incoming parts is:
C. A new machine will be bought with proceeds from a bank loan that will carry a A. Economic order quantity methods C. Statistical quality control
17% interest per annum and monthly payments over 2 years. B. Regression analysis D. Standard cost variance analysis
D. The ratio of current trade receivables to total receivables will decrease.
15. Jona Company sells 20,000 radios evenly throughout the year. The cost of carrying
49. Francis Corp.’s account balance at June 30, 2010 for accounts receivable and one unit of
related allowances for doubtful accounts were P600,000 and P3,000, respectively. inventory for one year is P8.00 and the purchase order cost per order is P32. What
Aging of accounts receivable indicated that P48,000 of the June 30, 2010 receivable is the economic order quantity?
may be uncollectible. Net realizable value of accounts receivable were A. 200 C. 283
A. P597,000 C. P539,000 B. 400 D. 625
B. P552,000 D. P540,000
16. Alma company sells 10,000 RTW pants evenly throughout the year. The cost of
50. In preparing its budget for July 2010, Marc Company has the following accounts carrying one unit in inventory for one year is P6.00 and the purchase cost is
receivable P108.00 per order. What is the economic order quantity?
information available: A. 468 C. 1,208
Accounts receivable at June 30, 2010 B. 600 D. 1,000
P350,000
Estimated credit sales for July 17. The following data relate to inventories for a given year of May Company:
400,000 Economic order quantity 7,500 units
Estimated collection in July for credit sales in July and prior months Cost to place one purchase order P 75
320,000 Total cost to place purchase orders for the year P15,000
Estimated write-offs in July for uncollectible credit sales Cost to carry one unit for one year P 6
16,000
Estimated provision for doubtful accounts for credit sales in July The estimated annual usage in units would be
12,000 A. 2,250,000 C. 1,250,000
B. 2,000,000 D. 5,625,000
What is the projected balance of accounts receivable at July 31, 2010?
A. P402,000 C. P414,000 18. State whether the following statements are true or false.
B. P430,000 D. P426,000 I – The two main types of inventory cost relevant to inventory decision-making are
carrying
51. On September 15, 2010, Cherry Corp. accepted from a customer a P100,000, 90- costs and ordering costs.
day 20% interest bearing note dated on the same day. On October 15, 2010, II – The optimal ordering quantity in the EOQ model occurs at the point where the
Cherry discounted the note at the Chinabank at a 23% discount rate. The customer sum of the
paid the note at maturity. Based on the 360-day, what amount should Cherry report carrying costs and ordering costs are minimized.
as net interest revenue from the note transaction?
 A. False; True order quantity of 600 units compare to the respective amounts for an order quantity
B. True; False of 500 units?
C. False; False A. Lower purchase-order cost and lower carrying cost.
D. True; True B. Higher purchase-order cost and higher carrying cost.
C. Lower purchase-order cost and higher carrying cost.
19. In inventory management, the problem of avoiding excessive investment in D. Higher purchase-order cost and lower carrying cost.
inventories and at the
same time avoiding inventory shortages can be solved by applying a quantitative 25. Economic order quantity models and two-bin system are commonly used controls
technique known as for a company’s materials function. Those controls primarily relate to what part of
A. Payback analysis C. Economic order the cycle?
quantity model. A. Materials requirements C. Physical storage.
B. Probability analysis. D. High-low point method. B. Raw materials acceptance. D. Production distribution.

20. The carrying cost pertaining to inventory include: 26. The selling price of the product is relatively high and the purchase cost of the
A. Insurance costs, incoming freight costs and storage costs. product is relatively low. In this situation:
B. Insurance costs, incoming freight costs and setup costs. A. Management must increase the price to cover the cost of carrying higher
C. Setup costs and opportunity cost of capital invested in inventory. inventory.
D. Storage costs and opportunity cost of capital invested in inventory. B. The EOQ model will indicate frequent larger orders.
C. The EOQ of the product is affected by the selling price.
21. The order size determined by the economic order quantity formula minimizes the D. The selling price has nothing to do with the EOQ of the product.
annual inventory cost which is comprised of ordering costs and
A. Safety stock cost C. Stock out cost 28. A decrease in inventory cost will
B. Carrying cost D. No answer. A. Increase the reorder point.
B. Decrease the economic order quantity.
22. You computed the economic order quantity of the main raw material of Sun C. Have no effect on the economic order quantity.
Company at 10,000 D. Decrease the holding cost percentage.
units. However, the chief purchasing officer decided to order in quantities of 12,000
units. What is the probable effect of this decision on the company’s annual purchase 29. An increase in inventory holding costs will
order cost compared with those amounts had the order been made at the economic A. Have no effect on the economic order quantity.
order quantity? B. Increase the economic order quantity.
A. Lower purchase order cost and higher carrying cost. C. Decrease the number of orders issued per year.
B. Lower purchase order cost and lower carrying cost. D. Decrease the economic order quantity.
C. Higher purchase order cost and lower carrying cost.
D. Higher purchase order cost and higher carrying cost. 30. If one optimizes the inventory turnover ratio, which costs will not increase?
A. Total reorder costs. C. Unit reorder costs.
B. Stockout costs. D. Carrying costs.
23. In the Economic Order Quantity (EOQ) model, some of the underlying assumptions
are: 31. In computing the economic order quantity (EOQ), which of the following costs
A. Unlimited production capacity, declining demand, decreasing ordering cost, should be included?
decreasing carrying cost, and unlimited inventory capacity. A. The shipping cost to deliver the products to the customer.
B. Constant demand, constant ordering cost constant carrying cost, B. Capital cost.
unlimited production and inventory capacity. C. Purchasing staff’s salaries.
C. Limited production capacity, declining demand, constant ordering cost, constant D. Expected value analysis.
carrying cost, and unlimited inventory capacity.
D. Increasing demand, limited production capacity, increasing ordering cost, 32. GG Distributors, which buys in a pre-sell basis, is discussing with the route
increasing carrying cost, and limited inventory capacity. salesmen on the proper cases to be ordered and the frequency of call. From the
route book and other records, the following are available: prior year’s purchases,
24. Minnie Company has correctly computed its economic order quantity at 500 units. 50,000 cases; carrying cost per case of inventory, P1.20; distributor’s discount, 1
However, case for every 10 cases bought; cost of placing an order, P3.00; weekly demand is
management feels it would rather order in quantities of 600 units. How should approx. 952 cases. Safety stock required is 140 cases. No change in demand is
Minnie’s total annual purchase-order costs and total annual carrying cost for an expected this year. (Use a 365-day, 52-week year).
 55. Dong Company sells 200 units of discs per week purchase order lead-time is 3
Determine the economic order quantity (EOQ) weeks and the
A. EOQ is 482 cases C. EOQ is 962 cases economic order quantity is 450 units. What is the reorder point?
B. EOQ is 500 cases D. EOQ is 250 cases A. 425 units C. 600 units
B. 1,750 units D. 2,250 units
Determine the reorder point assuming a two-day lead-time.
A. Reorder point is 500 cases C. Reorder point is 275 cases. 56. M & R Company has the following information on inventory:
B. Reorder point 414 cases D. Reorder point is 280 cases Sales 20,000 units per year
Order quantity 4,000 units
33. One of the products Health-s-Wealth Products sells is a magnetic back support. The Safety stock 2,600 units
ordering costs related to this product is P12.50 per order. The cost of carrying one Lead-time 4 weeks
item of inventory for one year is P16.00. The business sells 40,000 of this type of
product evenly throughout the year. How much is the total ordering costs per year What is the re-order point? (For calculation purposes, use 50-week year)
and total carrying costs per year at the economic order quantity? A. P4,200 units. C. 2,600 units
B. 5,600 units D. 1,600 units
Total Ordering costs
A. P1,562.50 C. P1,500.50 57. Assorted Discs sells 200 discs per week. Purchase order lead-time averages three
B. P2,000.00 D. P4,000.00 weeks. Based on most updated calculation, the economic order quantity is 450
units. The reorder point is
Total Carrying costs A. 600 discs C. 1,750 discs
A. P1,562.50 C. P2,560.00 B. 425 discs D. 2,250 discs
B. P2,000.00 D. P4,000.00
59. The Chinese Store sells 100,000 tea bags a year. Additional data are presented
34. Marta works for a local ceramic company. She just completed her accountancy below:
degree and learned the EOQ model in one of her subjects. She suggested to her 1. Selling price per bag P2.50
employer to adopt it. The company sells 20,000 pieces of specialty ceramic items 2. Purchase cost per bag P1.50
each year. Traditionally they have produced these items four times a year, making 3. Ordering cost: P5.40 an order
5,000 pieces at a time. They carry no safety, as customers do not mind waiting for 4. Carrying cost: 20% of unit cost
orders. The average piece of ceramic items cost P400 to make and cost the 5. Number of days the comp[any operates in a year : 250
company P20 to carry in inventory for a year. The setup costs for each production 6. Average lead time on purchases: 6 days
run total P80. The company should
A. Adopt EOQ due to savings of P35,675. What is the reorder point if the company will keep a 10-day safety stock of
B. Continue the existing system due to P38,950 advantage. inventory?
C. Adopt EOQ due to savings of P42,320. A. 2,400 bags C. 6,400 bags
D. Continue the existing system due to P41,820 advantage. B. 5,400 bags D. 8,800 bags.

35. Euro, Inc., currently places orders for a particular stock item at quarterly intervals. Safety stock
Information
concerning these items is as follows: 62. The costs of stock-out do not include
Cost of placing an order P10 A. Depreciation and obsolescence. C. Loss of sales.
Annual demand 20,000 units B. Loss of customer goodwill. D. Disruption of production schedules.
Purchasing price per unit P1.00
Carrying cost rate 10% 63. When a specific level of stock is carried for an item in inventory, the average
inventory level for that item
What annual cost saving would result if Euro used the economic order quantity for A. Is not affected by the safety stock.
order sizes instead of their current policy? B. Increase by the amount of the safety stock.
A. P80 C. P150 C. Increase by the one-half the amount of the safety stock.
B. P90 D. P240 D. Decrease by the amount of the safety stock.

Reorder point 64. For a 300-day year Wilvina corp. consumes 420,000 units of an inventory item. The
usual lead-time for the inventory item is six (6) days; however, at times, the leas-
 time has gone high as eight (8) days. Wilvina now desires to adjust its safety stock C. True ; False
policy. The likely effect on stockout costs and carrying costs, respectively, would be D. False ; True
A. Increase and decrease C. Increase and increase
B. Decrease and decrease D. Decrease and increase 86. In inventory control system which employs mathematical models as an aid in
making inventory
65. Each stockout of product T sold by XTM Inc. costs P8,750 per occurrence. The decisions is known as
carrying cost per A. Order cycling system. C. Statistical inventory control
unit of inventory is P250 per year, and the company orders 1,500 units of product systems.
24 times a year at a cost of P5,000 per order. The probability of stockout at various B. Two-bin system. D. Mini-max system.
levels of safety stock is

Units of safety stock Probability of stockout Quantitative techniques in business

1 .50
100 .30 20. A quantitative technique used to discover and evaluate possible cause-and-effect
200 .14 relationship is
300 .05 A. Correlation analysis C. Program evaluation review
400 .01 techniques(PERT)
B. Linear programming D. Poisson distribution models.

The optimal safety stock level for the company is 28. Regression analysis is superior to other cost behavior analysis techniques because it
A. 0 units C. 200 units A. Examines only one variable.
B. 100 units D. 300 units B. Produces measures of probable error.
C. Proves a cause and effect of relationships.
66. Miles Company uses 840,000 units of component M in manufacturing Product Z over D. Is not a sampling technique.
a 300-day
work year. The usual lead-time for the part is six days, however at times, the lead 55. In evaluating projects, a popular approach to recognize uncertainty about individual
time has gone high as eight days. Miles now desires to adjust its safety stock policy. items and to
The increase in safety stock size is: obtain an immediate financial estimate of the consequences of possible predicting
A. 6,800 units. C. 7,200 units. errors is?
B. 2,800 units. D. 5,600 units. A. Exponential analysis C. Learning curve analysis.
B. Sensitivity analysis. D. Expected value analysis.
67. Francis Corporation consumes 300,000 units of spare part X per year. The average
purchase lead-time is 20 working days while maximum is 27 working days. The 63. A quantitative technique used for selecting the combination of resources that
company’s annual operations cover 240 days allowing for shutdowns for plant maximized profits or minimized costs is
maintenance, holidays and Sundays. The company would like to keep safety stock A. Curvilinear analysis C. Linear programming
or extra stock to guard against stockouts. How much is the safety stock? B. Queuing theory D. Dynamic programming
A. 25,000 units. C. 33,750 units.
B. 1,250 units. D. 8,750 units. 64. A transportation Model is a special case of
A. Dynamic programming model C. Linear programming model.
85. Indicate whether the following statements are true or false. B. PERT/CPM. D. Economic order quantity.
I - The cost of warehousing and storage, property taxes, insurance of inventory,
losses from 65. Given the basic equations for maximization of profits in linear programming model,
spoilage are examples of ordering costs. what
II – One of the relevant costs in inventory management is “ carrying cost” which quantitative techniques would generally be employed to arrive at an optimal
refers to the solution?
total effect of the failure of a company to service customers or conduct A. Markov analysis. C. Monte-Carlo analysis.
manufacturing B. Regression analysis. D. Simplex-method analysis.
operations smoothly because goods, raw material and/or suppliers are out of
stock. 68. Dagupan Company manufactures two types of electronic components, both of which
must pass
A. True; True through the Assembly and Finishing departments. The following constraints apply:
B. False ; False
 C. Variable costs.
Product Sales price / unit Contribution per Unit Hours required / unit D. Marginal contributions per unit.
Assembly
Finishing 81. The “LR” Company manufactures lacquered jewelry boxes (L) and lacquered mirrors
A P120 P30 3 (R). These
4 data are presented to you as financial consultant:
B 180 45 4 1. The L’s need 3 kilos of material and 3 hours of labor; the R’s need 1.5 kilos
6 of material and 1 hour of labor.
2. Materials costs P4.00 a kilo and labor costs P20.00 an hour.
Demand for Prod A far exceeds the company’s capacity, but the company can only 3. P20,000 in fixed factory overhead is expected for the month’s population.
sell 60 units of Prod. B each week. Workers in the Assembly department work a 4. To be available is 400 kilos of material and 240 hours of labor.
total of 200 hours per week, and workers in the Finishing department work a total 5. Contribution margin ration for L is 40% and 20% for R.
of 250 hours per week. The company wants to know how many units of each of
each products to produce to maximize profit. If X represents the number of units of The objective function for “LR” Company will be:
Prod A and Y represents the Prod. B, the objective function would be A. Maximize: Contribution Margin = P.4L + P.2R.
A. Maximize 120X + 180 Y C. Minimize 90X + 135Y. B. Maximize: Contribution Margin = P48L + P6.5R – P20,000.
B. Maximize 30X + 45Y. D. Minimize 30X +45Y. C. Maximize: Contribution Margin = P48L + P6.5R.
D. Maximize: Contribution Margin = P2.8L + P5.2R.
69. Quantitative technique used for selecting the combination of resources that
maximizes profits or Network models (Project scheduling)
minimizes profits or minimizes cost is:
A. Linear programming C. Economic order quantity. 93. When using the PERT method for network analysis, the critical path through the
B. PERT/CPM. D. Correlation analysis. network is
A. The longest path through the network.
70. Linear programming is used most commonly to determine B. The shortest path through the network.
A. The fastest timing. C. The path with most slack.
B. The best use of scarce resources. D. The least cost path.
C. The most advantageous prices.
D. The mix of variable that will result in the largest quantity. 94. Which of the following statements is the least to the Project Evaluation Review
Technique (PERT).
71. A mechanized system of handling parts from one assembly line to another is being A. It is a system, which uses network analysis and critical path method.
contemplated by the Sunshine Co. the technical evaluation indicated that the B. It is more useful for analyzing the relationships of time and activities to
system will reduce labor and waiting time costs substantially. An assessment has to discover potential bottlenecks.
be made of cost/benefit relationships including the effects of interest. The most C. It involves measuring progress in relation to schedule, evaluating changes to
relevant quantitative technique to evaluate the project is: schedule, forecasting future progress and predicting and controlling costs.
A. Regression analysis. C. Time adjusted rate of return D. Time, is the primary consideration and this technique is particularly
analysis. suited for problems, which involve the combination of resources that
B. PERT/CPM. D. Payback period analysis. maximize profits or minimize costs.

72. Linear programming models are mathematical techniques in which an objective 98. Of these statements, which is the least pertinent to the concept of “slack” in relation
function is to the Project Evaluation and Review Technique (PERT)?
maximized or minimized subject to constraints. These constraints must be fully A. The least the amount of slack time, the more critical an activity or path.
specified before a linear programming problem can be solved, and generally B. Slack time information is useful for planning and continuous monitoring.
describe: C. It is computed by subtracting the earliest expected time from the earliest
A. Costs C. Inefficiencies. allowable time.
B. Resources. D. Dependent variables. D. If not exceeded, non-critical activities can be delayed without delaying the
project’s completion time.
73. In a linear programming maximization problem for business problem solving, the
coefficient of the objective function usually are 99. Which of the following statements best describes a difference between basic PERT
A. Usage rates for scarce resources. and the Critical Path Method (CPM) of network analysis?
B. Profit based on allocations of overhead and all indirect costs.
 A. PERT uses probability distributions on the activity times while CPM uses point D. Personnel information system, finished goods inventory, general
estimates for the activity times. ledger, non-trade receivables modules.
B. PERT does not allow for slack times on the activities while CPM does.
C. PERT does not consider activity cost while CPM does. 6. The advent of computers has far reaching impact on the accountancy profession.
D. PERT determines the least-cost path through a network while CPM determines Whenever
the least-time path through a network. considered, computerized demands extreme care to avoid the “horror stories” that
may have
experienced. Among the critical areas for careful study is systems designs. Which of
INFORMATION AND COMMUNICATIONS SYSTEMS the following is not related to system design?
A. It considers unnecessary emphasis on accuracy of certain types of economic
data where the costs to generate exceed the benefits produced.
1. The time interval between the instant at which as instruction control unit initiates a B. If there is too much breaking down of job functions, there will be time-
call for data and the instant at which delivery of the data is completed is: consuming rereading of data that must be understood before it can be
A. Access time. C. Compliance time. processed.
B. Idle time. D. Throughput time. C. It is a symbolic presentation of the decision making process showing
alternative solutions to a problem and the possible consequences.
2. In computer operations, data is encoded before processing can be done by the D. If identical information should be shown on different documents, it must be
computer. These captured only once simultaneously.
statements refer to batch processing except:
A. The processing of data collected in advance so that each accumulation is 7. There are different levels of business application systems in computerized
processed in the same run. operations in many cases, the applications involve the integration of the transaction
B. The technique of executing a set of computer programs such that each level of processing with such business functions as production, marketing, human
completed before the next program of the set is started. relations and finance to provide the different levels of people with required
C. The processing of related transactions that have been grouped together. information for planning and control. This is called
D. The method of using the computer system that allows a number of A. Transaction level.
users to execute programs currently and to interact with the programs B. Management information system level.
during execution. C. Decision support system level.
D. Office automation system level.
3. In computer data processing systems, these are the basic elements and
components except: 8. The process of developing specifications for hardware, software, manpower, and
A. Input/output devices. C. Graphic card and data resources, and information products required to develop a system is referred
adaptor. to as
B. Central processing unit D. Software, procedures, and A. System feasibility study. C. System design.
personnel. B. System implementation. D. System analysis.

4. Basically, in order to boot program in a computer, one would need: 9. Which of the following shows a logical diagram of the flow of data through all parts
A. PC tools. C. User’s manual of the data
B. Disc operating system. D. File manager. processing system?
A. Document flow chart. C. Program flow chart.
5. You are working with a task force which has been mandated to develop an B. Systems flow chart. D. Activity flow chart.
integrated information system. The objective is to be able to harness computer
power to make information available to the right person in the company at the right 10. An operating system is
time at the most cost effective manner. Your present assignments is to determine A. All hardware and software needed to operate the computer system.
the proper grouping of the applications. What applications are not appropriately B. The programs that manages the processing operations of the computer.
grouped? C. The assembler program including the source and object programs.
A. Sales, accounts receivable, salesmen’s commission, cash receipts, marketing D. The input/output control system for a computer system.
equipment modules.
B. Production planning and scheduling, raw materials inventory and container 11. Program documentation is a control designed primarily to ensure that
management, purchasing, sales forecasting modules. A. Programs are kept up to date and perform as intended.
C. Bank reconciliation, accounts payable, disbursements, fixed assets, general B. Programs do not make mathematical errors.
ledger, payroll modules. C. Programmers have access to the tape library or information on disk files.
 D. Data have been entered and processed. C. An IAS is control oriented and MIS is used exclusively for planning.
D. An IAS deals with financial information and MIS handles all other information.
12. A system with several computers that are connected for communications and data
transmission 19. Feedback, feedforward, and preventive controls are important types of control
purpose, but were each computer can also process its own data, is known as a systems and
A. Hybrid system. C. Distributor data procedures for accounting information systems. Which of the following is in the
processing network. correct order of
B. Multitask network. D. Decentralized and computer feedback, feedforward, and preventive control systems?
operators. A. Inventory control, capital budgeting, and cash budgeting.
B. Cost accounting, variances, separation of duties, and cash planning.
13. The most critical aspect regarding separation of duties within information system is C. Cash budgeting, capital budgeting, hiring qualified employees.
between D. Cost accounting variances, cash budgeting, and organizational
A. Programmers and systems analyst. independence.
B. Project leaders and programmers.
C. Data control and file librarian. 20. Edit checks in a computerized accounting system
D. Programmers and computer operators. A. Must be installed for the system to be operational.
B. Should be performed immediately prior to output distribution.
14. Preventive controls are an integral part of virtually all accounting processing C. Should be performed on transactions prior to updating a master file.
systems, and much of the information generated by the accounting system is used D. Are easier to install after a system is operational.
for preventive control purposes. Which of the following is not an essential element
of a sound preventive control system? 21. Euro Corporation operates in several regions, with each region performing its data
A. Documentation of policies and procedures. processing in a region data center. The corporate Management Information System
B. Sound personnel practices. (MIS) staff has developed a
C. Separation of responsibilities for the recording, custodial and authorization database management system to handle customer service billing. The director of
functions. MIS recommended that the new system be implemented in Region 4 to ascertain if
D. Implementation of state-of-the-art software and hardware. the system operates in satisfactory manner. This type of conversion is called a
A. Crash conversion. C. Pilot conversion.
15. In a manual system, records of current activity are posted from a journal to a B. Parallel conversion. D. Direct conversion.
ledger. In a computer system, current records from a (n)
A. Transaction file are updated to a master file. 22. Block coding does
B. Index file are updated to a master file. A. Allow a user to number item sequentially.
C. Master file are updated to a year-to-date file. B. Are randomly calculated groups of number used as a control check.
D. Current balance file are updated to an index file. C. Allow a user to assign meaning to particular segments of coding
schemes.
16. Some of the more important controls that relate to automated accounting D. Use solely numeric coding techniques.
information systems are
validity checks, limit checks, and sign tests. These are classified as 23. The process of developing specifications of hardware, software, manpower, data
A. Input validation routines. C. Control total validation routines. resources, and
B. Data process validation routines. D. Output controls. information products required to develop a system is referred to as
A. System design. C. System implementation.
17. A network of computers located throughout an organization’s different facilities to B. Systems analysis. D. System feasibility study.
fulfill
information processing needs is called: 24. While systems analysis focuses on information needs and objectives, system design
A. Interactive processing. C. On-line processing. concentrates on
B. Local area network. D. Distributed data processing. A. Writing programs. C. Testing completed
modules.
18. How is an Accounting Information System (AIS) distinguished from a Management B. What to do and how to do it. D. Providing for controls.
Information
System (MIS)? 25. A decision support system (DSS) is best characterized as
A. An IAS may either be manual or computer-based, an MIS is computer based. A. Interactive system.
B. An IAS is a subsystem within an MIS. B. Computer-integrated manufacturing system.
 C. Transaction processing system. C. Planning assumptions can be changed with cost and profit implications
D. Data base management system. estimated before commitments are made.
D. Plans can be continuously updated and planning horizons can be extended way
26. This concept advocates that information is valuable resource and must therefore be beyond current period.
managed like
other factors of production, manpower, materials and money. This is 32. Decision support systems in computerized environment have certain desirable
A. Integrated information system. C. Information resource characteristics except
management. A. Flexible enough to accommodate a variety of management styles.
B. Systems audit. D. Systems security B. Supports decision-makers at all levels but is most effective at the tactical and
management. strategic levels.
C. Executed according to pre-established production schedule.
27. Giving the following items D. Is capable of interfacing with corporate database.
1. Input 4. Storage
2. Processing 5. Data 33. A function-based information system is designed for the exclusive support of a
3. User 6. Output specific application area and its database and procedures are often independent of
other systems. Hence, certain data for an accounting system for instance, would be
What items do not count as fundamental components of a computer system? duplicated in an inventory system. Data redundancy in such cases is expensive. The
A. Items 3 and 5. C. Items 3, 4 and 5. information system which shares a common database, minimizes data redundancy
B. Items 1, 2 and 5. D. Items 1, 2 and 4. and enhances interdepartmental activity coordination is
A. Communication connectivity. C. Wide working area
28. The technology that permits a computer in one company, an application examples B. Time-sharing system. D. Integrated information system.
of which is
computerized billings and payments among companies is 34. It is both a technological and an organizational concept based on the premise that
A. Transfer system method. C. Electronic data information
interchange. systems can be made more responsive to users by placing computer hardware and
B. Integrated information systems. D. Local area network. personnel
physically close to the people who use them.
29. In an integrated computerized system, the following modules are logically linked A. Distributed data processing. C. Close-ties computing.
with the B. Customer-oriented processing D. Departmental computing.
purchasing module except
A. Personnel database and compensating administrative modules. 35. An example of this management information system is the airline reservation
B. Accounts payable, cash disbursement and bank reconciliation modules. system where all
C. General ledger and fixed assets and modules. transactions are recorded as they occur to render the system continuously up-to-
D. Inventory and production and planning modules. date.
A. Network system. C. Real time information
30. The general ledger system is considered the “hub” of all the systems because system.
A. All the other system capture their data through the general ledger system. B. Online information system. D. Batch system.
B. The general ledger system is the central system that provides all the vital
reports to management and other interested parties. 36. Which of the following does not achieve systems control over source data?
C. All the other system use the same documents and forms as the general ledger A. Registration at point of entry. C. Prevention of the
system. nonprocessing of data.
D. All the other system produce output that become inputs to the general B. Grouping with control totals. D. Sequential numbering.
ledger system.
37. Which of the following does not relate to data processing?
31. One of the most useful applications of the computer technology is computerized A. Summarizing. C. Calculating.
budgeting. These are some of its benefits except B. Sorting. D. Math co-processor.
A. Significant reduction in time required in preparation and assembly is achieved
through the use of modeling techniques. 38. Which of the following represents a lack of internal control in a computer based
B. There is no need to be precise in understanding the discipline and information system?
relationships in the organization and its accounting system. A. Any and all changes in application programs have the authorization and
approval of management.
 B. Provision exist to protect data files from unauthorized access, modification, or 44. What type of EDP system is characterized by data that are assembled from more
destruction. than one location and records that are updated immediately?
C. Both computer operators and programmers have unlimited access to A. On-line real-time system. C. Batch processing system.
the programs and data files. B. Microcomputer system. D. Minicomputer system.
D. Provisions exist to ensure the accuracy and integrity of computer processing of
all files and reports. 45. A system that permits suppliers and buyers to have direct access to portions of each
others
39. An on-line access control that checks whether the user’s code number is authorized databases, including date, to enhance service and deliveries is
to initiate a A. Cooperative processing. C. Electronic data
specific type of transactions or inquiry is called interchange.
A. Compatibility test. C. Password. B. Interactive processing. D. Electronic mail.
B. Limit check. D. Field check.
46. An auditor used data to verify the existence of controls in a certain computer
40. Systems analysts are fundamentally responsible for the development of an program. Even though the program performed well on the test, the auditor may still
organization’s have a concern that
information system. Which of the following is/are the least likely function to be A. Generalized audit software must have been a better tool to use.
performed by the system analyst? B. Data entry procedures may change and render the test useless.
A. Examining user information requirements. C. The text data will not be relevant in subsequent audit periods.
B. Developing, coding and testing computer programs. D. The program tested is the same one used in regular production runs.
C. Design of computer application.
D. Developing systems flowchart. 47. All of the following are included in the systems implementing process except
A. Training C. Testing.
41. An executive information system (EIS) focuses on long range objective and gives B. Documentation. D. Systems design.
immediate
information about an organization’s critical success factors. It can be used on
computers of all sizes. It is normally used by executives at the highest organizations
levels. All of the following statements apply to EIS except
A. It is likely to be one of the most widely used and the large part of the 117. JIT manufacturers are more likely than conventional manufacturers to
information subsystems in a business organization. A. Use static budget allowances for manufacturing costs.
B. It provides top executives with immediate and easy access to information in a B. Prepare production budgets without a sales forecast.
highly interactive format. C. Budget unit production equal to budgeted unit sales.
C. It provides information in a highly aggregated form. D. Experience budget variances.
D. It helps executives monitor business combinations in general and
assist in strategic planning to control and operate the entity. 154. Which cost is most likely to be mixed for a manufacturer?
A. Raw materials
42. The concept of timeliness of data availability is most relevant to B. Direct labor
A. Computerized systems. C. Online systems. C. Manufacturing overhead
B. Packaged software. D. Microsystems. D. Insurance

43. To control purchasing and accounts payable, an information system must include 251. he controller of a company or other organization is
certain source A. A staff manger.
documents. For a manufacturing concern like Fruit Processors Inc. these documents B. An operating manager.
should include C. An accountant, not a manger.
A. Purchase requisitions, purchase orders, receiving reports, and suppliers D. A natural manger.
invoices.
B. Purchase orders, receiving reports, and inventory reports of goods 254. Managerial accounting is similar to financial accounting in that
needed. A. Both are governed by generally accepted accounting principles.
C. Purchase requisitions, purchase orders, inventory reports of goods needed and B. Both deal with economic events.
suppliers invoices. C. Both concentrate on historical costs.
D. Purchase orders, receiving reports, and suppliers invoices. D. Both classify reported information in the same way.
255. Managerial accounting differs from financial accounting in that it is
A. More concerned with the future. 263. Income statements classifying costs by object show such items as
B. More concerned with segments of a company. A. Tax expense, wages expense, depreciation expense
C. Less constrained by rules and regulations. B. Cost of goods sold, selling expenses, administrative expenses.
D. All of the above. C. Assets, liabilities, owners’ equity
D. All of the above.
256. One of the ways managerial accounting differs from financial accounting is that
managerial 264. The period that begins with the arrival of materials and ends with the shipment of a
accounting completed good is the
A. Is bound by generally accepted accounting principles. A. Cycle time
B. Classifies information in different ways. B. Manufacturing cell
C. Does not use financial statements. C. Computer-integrated manufacturing
D. Deals only with economic events. D. Performance period.

257. Which activity is NOT normally performed by managerial accountants? 265. Which function is most directly related to management by objectives?
A. Assisting managers to interpret data in managerial accounting reports. A. Planning
B. Designing systems to provide information for internal and external reports. B. Control
C. Gathering data from sources other than the accounting system. C. Decision making
D. Deciding the best level of inventory to be maintained. D. Reporting

258. Conventional and just-in-time manufacturers both 267. A just-in-time manufacturer is more likely than a conventional manufacturer to
A. Maintain large inventories of their products. A. Receive more frequent deliveries of materials.
B. Sell only to other manufacturing companies. B. Spend less money on advertising
C. Desire to meet customers’ deadlines. C. Need workers with fewer skills
D. Require about the same amount of space to operate. D. All of the above.

259. Classifying costs behavior is 268. A conventional manufacturer is more likely than a just-in-time manufacturer to
A. Associated primarily with financial accounting. A. Have a short production cycle.
B. Not relevant to a company that has only selling expenses. B. Produce goods in small batches.
C. Common in reports prepared for external readers. C. Hold large inventories to serve as buffers.
D. None of the above. D. None of the above.
260. Which is NOT a common accounting classification of costs? 271. Planning and control are
A. By the method of payment for the expenditure. A. Different names for the same thing.
B. By the objective of expenditure. B. The basic functions of management.
C. By behavior. C. Descried equally well by the terms “decision making” and “performance
D. By the function incurring the expenditure. evaluation”.
D. Exemplified by, respectively, financial statements and budgeting.
261. Which classification of costs is most relevant for income statements to be used
internally? 274. A characteristic of the jus-in-time manufacturing environment is
A. Behavior A. Frequent deliveries of materials.
B. Function B. Manufacturing cells
C. Method of payment C. Little or no inventory of finished product.
D. Object. D. All of the above.
262. The set of processes that transform raw materials into finished products is known as 275. Conventional and just-in-time manufacturers differ in that the conventional
a manufacturer is likely to
A. Differentiation strategy. A. Be anew entrant into its industry.
B. Flexible manufacturing system. B. Need less storage space than its JIT competitors.
C. Lowest cost strategy. C. Give less credibility to management accounting reports.
D. Value chain. D. Have a longer production cycle than its JIT competitors.