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B7 2nd Monthly Assessment

1. External factors that cause the achievement of company goals are the
a. annual budget.
b. industry price and cost structure.
c. talents possessed by its managers.
d. board of directors.

2. Ineffective budgets and/or control systems are characterized by the use of

a. budgets as a planning tool only and disregarding them for control purposes.
b. budgets for motivation.
c. budgets for coordination.
d. the budget for communication.

3. Which of the following statements is true?

a. All organizations have the same set of budgets.
b. All organizations are required to budget.

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c. Budgets are a quantitative expression of an organization's goals and objectives.
d. Budgets should never be used to evaluate performance.

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4. An example of a recurring short-term plan is

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a. a probable product line change.
b. expansion of plant and facilities.
c. a unit sales forecast.
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d. a change in marketing strategies.

5. It is least likely that a production budget revision would cause a revision in the
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a. capital budget.
b. cash budget.
c. purchases budget.
d. pro forma balance sheet.
C

6. Ball Company has a policy of maintaining an inventory of finished goods equal to 30 percent of the
following month's sales. For the forthcoming month of March, Ball has budgeted the beginning inventory
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at 30,000 units and the ending inventory at 33,000 units. This suggests that
a. February sales are budgeted at 10,000 units less than March sales.
b. March sales are budgeted at 10,000 units less than April sales.
c. February sales are budgeted at 3,000 units less than March sales.
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d. March sales are budgeted at 3,000 units less than April sales.

7. Budgeted sales for the first six months for Porter Corp. are listed below:
JANUARY FEBRUARY MARCH APRIL MAY JUNE
UNITS: 6,000 7,000 8,000 7,000 5,000 4,000

Porter Corp. has a policy of maintaining an inventory of finished goods equal to 40 percent of the next
month's budgeted sales. If Porter Corp. plans to produce 6,000 units in June, what are budgeted sales for
July?
a. 3,600 units
b. 1,000 units
c. 9,000 units
d. 8,000 units
8. Edwards Company has the following expected pattern of collections on credit sales: 70 percent
collected in the month of sale, 15 percent in the month after the month of sale, and 14 percent in the
second month after the month of sale. The remaining 1 percent is never collected.

At the end of May, Edwards Company has the following accounts receivable balances:
From April salesP21,000
From May sales 48,000

Edwards expected sales for June are P150,000. How much cash will Edwards Company expect to collect
in June?
a. P127,400
b. P129,000
c. P148,600
d. P152,520

9. Esterwood Hospital has provided you with the following budget information for April:
Cash collections P876,000
April 1 cash balance 23,000

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Cash disbursements 978,600

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Esterwood has a policy of maintaining a minimum cash balance of P20,000 and borrows only in P1,000
increments. How much will Esterwood borrow in April?

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a. P80,000
b. P79,600
c. P99,000
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d. P100,000

USE THE FOLLOWING INFORMATION FOR THE NEXT THREE QUESTIONS:

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Evita Company, a reseller of women’s fashions, has budgeted its activity for March. The budget
information is presented below:

I. Sales are P550,000. All sales are cash.

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II. Merchandise inventory on February 28 is P300,000

III. Budgeted depreciation for March is P35,000.
IV. Cash in bank on March 1 is P25,000.
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V. Selling and administrative expenses are budgeted at P60,000 for March and are paid in
cash.
VI. The planned merchandise inventory on March 31 is P270,000.
VII. The invoice cost for merchandise purchases represents 75% of sales price. All
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purchases are paid for in cash.

10. The budgeted cash receipts for March are:

a. P412,500 c. P585,000
b. P137,500 d. P550,000

11. The budgeted cash disbursements for March are:

a. P382,500
b. P442,500
c. P472,500
d. P477,500

12. The budgeted net income for December is:

a. P107,500
b. P137,500
c. P 42,500
d. P 77,500
13. In a standard cost system, Work in Process Inventory is ordinarily debited with
a. actual costs of material and labor and a predetermined overhead cost for overhead.
b. standard costs based on the level of input activity (such as direct labor hours worked).
c. standard costs based on production output.
d. actual costs of material, labor, and overhead.

14. A company would most likely have an unfavorable labor rate variance and a favorable labor efficiency
variance if
a. the mix of workers used in the production process was more experienced than the normal mix.
b. the mix of workers used in the production process was less experienced than the normal mix.
c. workers from another part of the plant were used due to an extra heavy production schedule.
d. the purchasing agent acquired very high quality material that resulted in less spoilage.

15. If actual direct labor hours (DLHs) are less than standard direct labor hours allowed and overhead is
applied on a DLH basis, a(n)
a. favorable variable overhead spending variance exists.
b. favorable variable overhead efficiency variance exists.

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c. favorable volume variance exists.
d. unfavorable volume variance exists.

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16. Management would generally expect unfavorable variances if standards were based on which of the

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following capacity measures?
Ideal Practical Expected annual
a. yes no no
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b. no no yes
c. no yes yes
d. no no no
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17. A favorable fixed overhead volume variance occurs if

a. there is a favorable labor efficiency variance.
b. there is a favorable labor rate variance.
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c. production is less than planned.

d. production is greater than planned.
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18. Paramount Company uses a standard cost system and prepared the following budget at normal
capacity for January:
Direct labor hours 24,000
Variable OH P48,000
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Fixed OH P108,000
Total OH per DLH P6.50

Actual data for January were as follows:

Direct labor hours worked 22,000
Total OH P147,000
Standard DLHs allowed for capacity attained 21,000

Using the two-way analysis of overhead variances, what is the controllable variance for January?
a. P3,000 F
b. P5,000 F
c. P9,000 F
d. P10,500 U
19. A total of 6,850 kilograms of a raw material was purchased at a total cost of P21,920. The material
price variance was P1,370 favorable. The standard price per kilogram for the raw material must be:
a. P0.20
b. P3.00
c. P3.20
d. P3.40

20. The direct labor standards for a particular product are:

4 hours of direct labor @ P12.00 per direct labor-hour = P48.00

During October, 3,350 units of this product were made, which was 150 units less than budgeted.
The labor cost incurred was P159,786 and 13,450 direct labor-hours were worked. The direct labor
variances for the month were:
Labor Rate Variance Labor Efficiency Variance
a. P1,614 U P600 U
b. P1,614 U P600 F
c. P1,614 F P600 U
d. P1,614 F P600 F

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21. A company has set a target rate of return of 16% for its investment center. An investment center
manager in this company would

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a. acquire assets that would increase divisional income by more than 16%.
b. sell all assets that do not generate divisional income of more than 16%.
c. acquire assets that would increase sales by more than 16%.
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d. acquire any technologically advanced assets that would cause costs to be reduced by 16% or more.

22. ABC Corp. is composed of three operating divisions. Overall, the ABC Corp. has a return on
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investment of 20%. A Division has a return on investment of 25%. If ABC Corp. evaluates its managers on
the basis of return on investment, how would the A Division manager and the ABC Corp. president react
to a new investment that has an estimated return on investment of 23%?
A Division manager ABC Corp. president
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a. accept accept
b. accept reject
c. reject accept
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d. reject reject

23. A prospective project under consideration by the Telephone Division of Communications Corporation.
has an estimated residual income of P(20,000). If the project requires an investment of P400,000, the
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a. project generates a negative return on investment.

b. project's return on investment is zero.
c. project's return on investment is 5% less than the company's target rate.
d. company's target rate is 15%

24. The Steelrod Division of Metal Products Company is considering an investment in a new project. The
project has an estimated cost of P1,000,000. If Metal Products Company has a target rate of return of
12%, how large does the return on investment on this project need to be to generate P150,000 of residual
income?
a. 15%
b. 12%
c. 25%
d. 27%

25. The Cake Division of Bakery Corporation has the following segment information:
Assets available for use P1,800,000
Target rate of return 10%
Residual income P 270,000

What was Cake Division's return on investment?

a. 15%
b. 10%
c. 25%
d. 20%

26. Compute the June 20xx cost of capital (rounded to nearest percent) for an investment center with the
following information:
Pre-tax operating income for June 20xx P17,500,000
Assets at June 30, 20xx 6,200,000
Current liabilities at June 30, 20xx 4,000,000
Long-term liabilities at June 30, 20xx 1,500,000
Income tax expense for June 30, 20xx 5,000,000
EVA 11,940,000
a. 10 percent
b. 25 percent

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c. 13 percent
d. 17 percent

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27. Division Alpha can purchase a required part from an outside supplier at P35. Division Beta will supply

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the part at a transfer price of P38.50. Division Alpha's manager should
a. pay the P38.50 price to Division Beta.
b. tell his immediate supervisor that Division Beta is being unreasonable.
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d. negotiate an appropriate transfer price with the manager of Division Beta.
d. buy from the outside supplier.
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28. Development of a transfer price involves

a. including only costs allocated from corporate levels when determining semi-finished product line costs.
b. direct upper management intervention if different transfer prices are determined by the selling division
and the buying division.
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c. applying a target profit rate to the unit cost for the semi-finished product.
d. heavy reliance on industry averages.
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29. Calculate and compare the difference in overall corporate net income between Scenario A and
Scenario B if the Assembly Division sells 100,000 pairs of shoes for P120 per pair to customers.
Scenario A: Negotiated transfer price of P30 per pair of soles
Scenario B: Market-based transfer price
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a. P1,000,000 more net income under Scenario A

b. P1,000,000 of net income using Scenario B
c. P200,000 of net income using Scenario A.
d. Overall income will be the same regardless of Scenario

30. You have been provided with the following information for Division X of a decentralized company:
Selling price P45
Variable cost per unit 33
Fixed cost per unit 12
Sales units 22,500
Capacity in units 25,000

Division W would like to purchase all of its units internally. Division W needs 6,000 units each period
and currently pays P42 per unit to an outside firm. What is the lowest price that Division X could accept
from Division W? Assume that Division W wants to use a sole supplier and will not purchase less than
6,000 from a supplier.
a. P45.
b. P42.
c. P40.
d. P38.

31. On a balanced scorecard, which of the following would be most appropriate to measure customer
service?
a. Rapid time-to-market of new products
b. Corporate financial profits
c. On-time delivery
d. Decrease in reworked products

32. On a balanced scorecard, which of the following would be most appropriate to measure production
process integrity?
a. Rapid time-to-market of new products
b. Corporate financial profits
c. Low employee turnover
d. Decrease in reworked products

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33. On a balanced scorecard, which of the following would be most appropriate to measure innovation:
a. Rapid time-to-market of new products

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b. Corporate financial profits
c. On-time delivery

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d. Manufacturing cycle efficiency

33. The ABC Manufacturing Company collected the following information (in days):
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Transporting produce 2.0
Processing product 14.0
Inspecting product 0.5
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Storing product 6.0

What is the manufacturing cycle efficiency?
a. 87.5%
b. 63.6%
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c. 62.2%
d. 42.9%
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34. The Lutsen Machining Co has the following information for last year
Tons of metal input 28,000
Labor hours 10,000
Overhead costs P125,000
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Tons of output produced 20,000

The partial productivity for labor is

a. 2.800
b. 2.000
c. 0.526
d. 0.500

35. Which component of strategy measures the changes in operating income attributed solely to an
increase in the quantity of output between Year 1 and Year 2?
a. the growth component
b. the price-recovery component
c. the productivity component
d. the cost leadership component

36. An operating income analysis of Paul Reynolds Incorporated revealed the following:
Operating income for 20x2 P1,500,000
 Add growth component 75,000
Deduct price-recovery component (45,000)
Add productivity component 60,000
Operating income for 20x3 P1,590,000

Reynolds' operating income gain is consistent with the:

a. product differentiation strategy
b. downsizing strategy
c. reengineering strategy
d. cost leadership strategy

37. An operating income analysis of Deb Nunn Incorporated revealed the following:
Operating income for 20x2 P1,500,000
Add growth component 45,000
Add price-recovery component 200,000
Deduct productivity component (24,000)
Operating income for 20x3 P1,721,000

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Nunn's operating income gain is consistent with the:
a. product differentiation strategy

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b. downsizing strategy
c. reengineering strategy

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d. cost leadership strategy
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Answer the following three questions using the information below:

Meale Company makes a household appliance with model number X500. The goal for 20x2 is to reduce
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direct materials usage per unit. No defective units are currently produced. Manufacturing conversion
costs depend on production capacity defined in terms of X500 units that can be produced. The industry
market size for appliances increased 10% from 20x1 to 20x2. The following additional data are available
for 20x1 and 20x2:
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20x1 20x2
Units of X500 produced and sold 10,000 11,000
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Selling price P100 P95

Direct materials (square feet) 30,000 29,000
Direct material costs per square foot P10 P11
Manufacturing capacity for X500 (units) 12,500 12,000
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Total conversion costs P250,000 P240,000

Conversion costs per unit of capacity P20 P20

38. What is operating income for 20x1?

a. P450,000
b. P1,000,000
c. P750,000
d. P700,000

39. What is operating income for 20x2?

a. P1,045,000
b. P726,000
c. P486,000
d. P476,000

40. Overall, was Meale's strategy successful in 20x2?

a. No, because the selling price per unit decreased.
b. Yes, because operating income increased.
c. Yes, because less direct materials were used.
d. No, because more units were produced and sold.

41. Which two ratios are used in the DuPont system to create return on assets?
a. Return on assets and asset turnover
b. Profit margin and asset turnover
c. Return on total capital and the profit margin
d. Inventory turnover and return on fixed assets

42. A firm has current assets of P100,000 and total assets of P300,000. The firm's sales are P900,000.
The firm's fixed asset turnover is
a. 4.5x
b. 12.0x
c. 2.4x
d. 5.0x

43. A firm's long term assets = P100,000, total assets = P400,000, inventory = P50,000 and current

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liabilities = P200,000.
a. current ratio = 0.5; quick ratio = 1.25

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b. current ratio = 1.0; quick ratio = 2.0
c. current ratio = 1.5; quick ratio = 1.25

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d. current ratio = 2.5; quick ratio = 2.0

44. Investors and financial analysts wanting to evaluate the operating efficiency of a firm's managers
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would probably look primarily at the firm's
a. debt utilization ratios.
b. liquidity ratios.
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c. asset utilization ratios.

d. profitability ratios.

45. An increasing average collection period indicates

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a. the firm is generating more income.

b. accounts receivable are going down.
c. the company is becoming more efficient in its collection policy.
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d. the company is becoming less efficient in its collection policy.

46. If a firm has both interest expense and lease payments,

a. times interest earned will be smaller than fixed charge coverage.
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b. times interest earned will be greater than fixed charge coverage.

c. times interest earned will be the same as fixed charge coverage.
d. fixed charge coverage cannot be computed.

47. If Turnpoint Inc. has net income of P400,000, assets of P5,000,000, sales of P2,000,000, and debt of
2,000,000, what is their ROE?
a. between 13-14%
b. between 10-11%
c. between 14-15%
d. none of these

48. Walter Industries' current ratio is 0.5. Considered alone, which of the following actions would increase
the company's current ratio?
a. Borrow using short-term notes payable and use the cash to increase inventories.
b. Use cash to reduce accruals.
c. Use cash to reduce accounts payable.
d. Use cash to reduce short-term notes payable.
Use the following information for the next two items:
GC Company which sells a single product, produced the following data from its income statement for
the calendar years 20x1 and 20x0
20x1 20x0
Units sold 150,000 180,000
Sales P750,000 P720,000
Cost of sales 525,000 575,000
Gross profit 225,000 145,000

49. In an analysis of variation of gross profit, what would be the effect of changes in sales price?
a. P150,000 F
b. P150,000 U
c. P180,000 F
d. P180,000 U

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50. In an analysis of variation of gross profit, what would be the effect of changes in sales volume?
a. P150,000 F
b. P150,000 U

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c. P120,000 F
d. P120,000 U

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