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CPA Review School of the Philippines
Quality Costs 1. The following activities are typical in production management: 1. Warranty work 2. Labor and overhead incurred for rework of defective products found by an inspector 3. Quality training program 4. The costs of a consumer complaint department 5. In-process inspection costs 6. Reinspection of reworked products 7. Downtime attributed to quality problems 8. Product recalls 9. Lower sales due to poor product performance 10.Quality audits To what classification of quality costs do the foregoing described costs belong? Prevention Appraisal Internal Failure External Failure A. 3,7,10 3,5 2 1,4,8,9 B. 3,10 5 2,6,7 1,4,8,9 C. 10 3 2,5,6 1,4,7,8,9 D. 3,10 5 1,2,10 4,7,8,9 Questions 2 thru 4 are based on the following information. At the beginning of the year, Joshua Corporation initiated a quality improvement program. The program was successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program, the following data was collected for the current and preceding year. Preceding Year Current Year Sales P1,000,000 P 1,000,000 Recruiting 1,000 1,500 Packaging inspections 2,500 4,000 Downtime 20,000 15,000 Reinspection 40,000 25,000 Product inspection 5,000 10,000 Product liability 35,000 27,500 May 9, 2004
2. As a result of quality improvements, profits have increased by A. P32,500 C. P7,500 B. P20,500 D. P5,00
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MANAGEMENT ADVISORY SERVICES
CPA Review School of the Philippines Labor P (825) P 825
Pre-week Quizzer P 625 P625
3. If quality costs had been reduced to 2.5 percent of sales in the current year, profits would have increased by A. P177,000 C. P61,000 B. P58,000 D. P25,000 4. For the current year, the respective percentages based on sales of the different quality costs, respectively, are: Prevention Appraisal Internal External Failure failure A. 0.15% 1.40% 2.50% 1.50% B. 0.15% 1.40% 4.00% 2.75% C. 0.65% 1.00% 1.50% 4.25% D. 0.65% 1.00% 2.50% 1.50% Productivity Measures Questions 5 & 6 are based on the following information. Information about Rose Company is as follows: 2001 Output (units) 80,000 Selling price per unit P25 Input quantities: Materials (pounds) 4,000 Labor (hours) 3,200 Input prices: Materials (per pound) P5.00 Labor (per hour) P7.00
Activity-Based Costing 7. Designing and changing are activities that are classified as: A. Unit-level C. Product-level B. Batch-level D. Facility-level 8. How are the following activities classified using ABC system? 1. Security 2. Product inspections 3. Insurance on the plant 4. Materials handling 5. Modifications made by engineering to the product design of several products 6. Machine-related overhead 7. Set-ups 8. Providing space and utilities 9. Moving of inventory Unit Level Batch Level Product Level Facility Level A. 4,6,8 2,4,7 1,3 10 B. 2,6 4,5 1,7 3,10 C. 6 2,4,7,10 5 1,3,8 D. 2 1,6,7 10 3,4,5,8 9. Protex Company makes two products, X and Z. X is being introduced this period, whereas Z has been in production for 2 years. For the period about to begin, 1,000 units of each product are to be manufactured. The only relevant overhead item is the cost of engineering change orders. X and Z are expected to require eight and two change orders, respectively. X and Z are expected to require 2 and 3 machine hours, respectively. The cost of a change orderis P600. If Protex applies engineering change order cost on the basis of machine hours, the overhead cost per unit to be assigned to X and Z, respectively, are A. P2.40 and P3.60, respectively C. P4.80 and P3.60, respectively B. P3.60 and P2.40, respectively D. P3.60 and P4.80, respectively Page 2 of 36
2002 84,000 P25 4,000 3,250 P5.50 P7.50
5. What are the materials productivity, and labor productivity ratio for 2001? A. B. C. D. Materials 20.00 100.00 25.00 20.00 Labor 25.00 95.45 24.00 24.00 6. By how much did profits change as a result of changes in productivity related to materials, and labor, respectively? A. B. C. D. Materials P(1,100) P1,100 P(625) P625 May 9, 2004
MANAGEMENT ADVISORY SERVICES 10.Zeta Co. is preparing its profit plan. As part of its profitability of individual products, the controller amount of overhead that should be allocated to product lines from the information given as follows: Wall mirrors
CPA Review School of the Philippines analysis of the estimates the the individual
Special windows Units produced 25 25 Material moves per product line 5 15 Direct labor hours per unit 200 200 Budgeted materials handling costs P50,000 Under each of the systems of costing, how much materials handling costs should be allocated to one unit of wall mirrors? A. B. C. D. Based on direct labor P1,000 P 500 P2,000 P5,000 hours Under activity-based P 500 P1,000 P1,500 P2,500 costing
A 10% return on sales is required for new products. Because the proposed products did not have a 10% return on sales, the products were going to be dropped. Relative to Product Y, Product X requires more research and development costs but fewer resources to market the product. Sixty percent of the research and development costs are traceable to Product X and 30 percent of the marketing costs are traceable to Product X. If research and development costs and marketing costs are traced to each product, life-cycle income for Product Y would be A. P35,000 C. P12,000 B. P20,000 D. P7,000 Cost Behavior 12.The following cost functions were developed for manufacturing overhead costs: Manufacturing Overhead Costs Cost Function Electricity P100 + P20 per direct labor hour Maintenance P200 + P30 per direct labor hour Supervisors’ salaries P10,000 per month Indirect materials P16 per direct labor hour
Life-Cycle Costing 11.Richards, Inc. developed the following budgeted life-cycle income statement for two proposed products. Each product’s life cycle is expected to be two years. Product Product Total X Y Sales P200,000 P200,0 P400,000 00 Cost of goods sold ( 120,00 (130,0 ( 250,000) 0) 00) Gross Profit P 80,000 P P150,000 70,000 Period expenses: Research & development ( 70,000) Marketing ( 50,000) Life-cycle income P 30,000
May 9, 2004
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25 per unit. 1. P1. Distribution.000.300 C.000.000. what must the total fixed costs be? A.366 Cost-Volume-Profit Analysis 13. Company has projected its income before taxes for next year as shown below.000.000 D. P0. P99.000. P2.000 units of Tude at P3 a unit. if production and sales are expected to be 40. 1. P3.000 B.000 Fixed manufacturing costs 210. 2004 units) Cost of sales Variable costs P 2. A corporate fixed charge of P20.000 units requiring 1.000 Fixed costs 3. 20. P3. The company will also be absorbing P120.10 D.000 The firm’s salespersons would like to change their compensation from a 10 percent commission to a 5 percent commission plus P20. P12.000 Page 4 of 36 . P4. P80.700 C. wants to sell a product at a gross margin of 20%.000 D. surge protectors for highvoltage electrical flows. The peso sales that must be achieved for Madden to earn a 10 percent after tax return on assets would be A.50 15.000 units during a recent accounting period: Sales P850. Alt and Tude. P7. The selling price should be A. P16. The cost information for the product are: Direct materials.000 Variable selling and administrative expense 45.300 B.00 per unit.000 taxes Madden’s net assets are P36. P109.000.000 C.The following relates to Gloria Corporation. P600.800. P2.000 Income before P 3.538 Decrease 18. 10% of selling price 2. which produced and sold 50.000 17.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer If July production is expected to be 1.071 Decrease D.00. 1. In order to realize a total profit of P160.000 May 9. Madden is subject to a 40% income tax rate. Variable costs are 70% of sales for Alt and 80% of sales for Tude.00 Sales commission.500 direct labor hours.000 units of Alt at P4 a unit and 200.000 5. 1.000. estimated manufacturing overhead costs would be A.10 B. P10.000 units. They now receive only commission.30 16.Brunei Corp.538 Increase B. Sales (160.000 currently absorbed by other products will be allocated to this new product.000 B. P240.000. is developing a new product. P90. The cost of the product is P2. 10.30 D.The following data relate to Homer Company which sells a single product: Unit selling price P 20. P2. the company should anticipate a contribution margin per unit of A.880.00 C.00 Purchase cost per unit 11. How many surge protectors (rounded to the nearest hundred) must Brunei sell at a selling price of P14 per unit to increase after-tax income by P30.000 Income tax rate 40% For the next accounting period. Direct labor.000 Variable manufacturing costs 140. P1.000 D.000? (effective income tax rate is 40%) A.000.40 B.60 C.Madden.000.000 P8.000 14.The Ship Company is planning to produce two products. P6.000 per month in salary.000 Fixed selling and administrative expense 300.75 per unit. P76.000 C.00 Monthly fixed costs P80. P13.000 of additional fixed costs associated with this new product. The change in compensation plan should change the monthly breakeven point by A.071 Increase C. Ship is planning to sell 100. P8.Glow Co.
2004 Page 5 of 36 . P190.000 Fixed costs P300. 30% D. P205.000 B. Variable costs per unit are P6 and total fixed costs are P12. To encourage sales personnel to be aggressive in their sales efforts. By reducing its selling price to P9 per unit. Assume that there are no taxes and that total fixed costs and variable costs per unit remain unchanged. Wilson estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if P100. For the company to increase income by P15.600.Last year.Shoes. the marginal contribution margin rate must be A.000 D.A manufacturer produces a product that sells for P10 per unit.000 D.000.000 B. P4.000 Variable costs P600. the company earns a profit equal to 10% of total peso sales.000 in the coming year.000 22.000. At this selling price. fixed costs are expected to be P120.000 C. 20% C. P6. what should be the operating income from product G? A. The following cost and revenue data relate to Store 21 and are typical of the company’s many sales outlets: Selling price P 800 Variable expenses: Invoice costs P360 Sales commission 140 500 Fixed expenses per year: Rent P1.MANAGEMENT ADVISORY SERVICES B. the company pays a substantial sales commission on each pair of shoes sold. 70% 21. and sales are forecasted at P550. the profit would be A.000 May 9. The stores carry many styles of shoes that are all sold at the same price.000 20. P5. P175. Sales personnel also receive a small basic salary. 12. P3.000 were spent on advertising.000 Based on a market study in December of this year. 28.000 C.Wilson Co. If the selling price were reduced to P9 per unit. the same as last year.000 a 10% increase over last year.300 CPA Review School of the Philippines Pre-week Quizzer 19. 40% B.100 D. prepared the following preliminary forecast concerning product G for next year assuming no expenditure for advertising: Selling price per unit P 10 Units sales 100. Unlimited operates a chain of shoe stores around the country. Assuming that Wilson incorporates these changes in its forecast. This year. P365. the marginal contribution rate of Lamesa Company was 30%. the manufacturer can increase its unit sales volume by 25%.
exclusive of depreciation. 2004 24.000 units D.000 Total P6.000 247.50 per unit and will continue whether or not production ceases.500 May 9. Inc. 550 Page 6 of 36 . Variable costs are $6.000 units Questions 24 through 28 are based on the Statement of Income of Davao. Consider each question’s situation separately. is considering dropping a product. If this change were made.000 Selling 112. if production continues. The manufacturing capacity of Davao’s facilities is 3.500 pairs of shoes are sold in a year? A. which represents the operating results for the current fiscal year ending December 31. Ignoring taxes.930. The selling price is P10 a unit. 36.400. it will be useless at the end of 1 year and will have no salvage value.000.000 Selling costs 180. P2.000 Total variable costs 495. P840. P1. 5.000.500 (63. 1.000 Fixed costs Manufacturing P 90.500 units C. however.000 Salaries 1.500 Advertising 3.000. If production is stopped. what will be the store’s before tax profit or loss assuming 23. the minimum units to be sold in the current year to break even on a cash flow basis is A. 1.000 tons of product.330. 420 C.000 Contribution margin P405. Fixed overhead costs.000) P 94. 4.000 B. have been allocated at a rate of $3. the equipment can be sold for P18.000) C.800 tons of product during the current year. Sales P900.100 B. Davao had sales of 1.000 Variable costs Manufacturing P315.00 per unit. 495 D.800 units B.000 The company is considering paying the store manager a P60 commission on each pair of shoes sold in excess of break-even point.BE&H Co.000 a year. P(360. Depreciation on the equipment is P20.The breakeven volume in tons of product for the year is A.500 P157.000 23.000 D.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Administration Total fixed costs Net income before income taxes Income taxes (40%) Net income after income taxes Pre-week Quizzer 45.
00 D. assume that Davao estimates that the per ton selling price will decline 10% next year.If the sales volume is estimated to be 2.140. 2004 29. P7.5 C. 1.500 26.000 C. P1. the after-tax net income that Davao can expect for the next year is A. Each unit of finished product contains 2 yards of cloth.000 Standard Costing & Variance Analysis May 9.000 D. P1. P1. What sales volume in pesos will be required to earn an after-tax net income of P94.500 annually would need to be undertaken for the next two or three years.500? A. P211. P6. Assume that all of Davao’s costs would be at the same levels and rates as last year. Davao estimates that an advertising and promotion program costing P61. Variable costs will increase P40 per ton and the fixed costs will not change. P825. P252. How many tons would have to be sold in the new territory to maintain Davao’s current after-tax income of P94.500 D. The standard direct material cost for cloth per unit of finished product is: A. 273.Without prejudice to preceding questions. P4.Without prejudice to your answers to previous questions.500 D. uses a standard costing system.000 C.80 C. there is unavoidable waste of 20% calculated on input quantities.500 tons at P450 per ton.000 B.00 B.545 28. and assume that Davao plans to market its product in an new territory. when the cloth is cut for assembly.095 B. P297.000 B.350. a P25 per ton sales commission over and above the current commission to the sales force in the new territory would be required. P135. The cost of the cloth is P3 per yard.100 tons in the next year.33 D.Dahl Company. P110.25 B. 307. and if the prices and costs stay at the same levels and amounts next year.500 C.500 next year? A. What net income after taxes would Davao make if it took this order and rejected some business from regular customers so as not to exceed capacity? A. P283. However. a clothing manufacturer.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer 25.50 Page 7 of 36 .500 27. In addition . P184. P7.Davao has a potential foreign customer that has offered to buy 1. P256. 1.500.
00 B.000 units Standard hours allowed for actual production 10. 1. P5. P25. P500 U C.000.00 D. Compute the spending variance: A.000 underapplied Page 8 of 36 . Favorable P6.00 Labor rate variance P12.400 Questions 31 & 32 are based on the following information.402 B.500 Actual hourly rate paid P61. 12. 1.000 unfavorable 36. P2. 1.000 unfavorable volume variance.000 F D. a P15.000 favorable volume variance.If annual overhead costs are expected to be P1.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines A.000 unfavorable B.000 overapplied C. P26.000 favorable D. the overhead rate based on direct labor hours is A.25 C.STA Company uses a standard cost system.400 U B. 1. The variable overhead spending variance was A.000 favorable fixed overhead budget variance. a P25.000 D. 2004 34. P26.498 D.000 total labor hours are anticipated (80% direct.500 Pre-week Quizzer 30. 10.00 35. P11.000 unfavorable variable overhead spending variance. Rainbow Company uses a standard cost system.000 favorable C.How many direct labor hours were actually worked during the month of January? A.500 favorable flexible budget variance. P1.000 unfavorable variable overhead spending variance.000 favorable D.000 C.600 U 33.000 D. P13.000 U 37. The fixed overhead budget variance was A.000 favorable Actual output 2.600 F D.400 F C.000 unfavorable B.00 Actual direct labor rate per hour P 9.000 hours How many actual labor hours were worked during March for STA Company? May 9. P1. P6.000 Standard variable overhead per standard direct labor hoursP3 Actual variable overhead P28.The following information relates to Ore Company’s 2003 manufacturing activities: Standard direct labor hours per unit 2 Number of units produced 5. P41. 10.000 B. and P12.000 unfavorable 38. P23. 10.000 Unfavorable overhead efficiency variance P 1. a P5.000 total overapplied overhead. P500 F B. P2.ABC had a P28.Bacon had a P28. The following information pertains to direct labor costs for the month of June: Standard direct labor rate per hour P10. 8.000 B.000 and 200. P1.: P39.600 32.000 31.000 underapplied D.000 unfavorable fixed overhead budget variance.00 Labor efficiency variance. P5.500 actual input at budgeted rate. The volume variance was A. P9. P9.500 flexible budget based on standard input allowed for actual output.400 C. 12.Acme had a P22.500 The number of actual direct labor hours are A. P13. P1. and P2. Information about its direct labor costs for Product Lux for the month of January follows: Standard hours allowed for actual production 1. and P22.Given for the variable factory overhead of X Products Inc. P4. 10.00 Standard hourly rate P60. P2. 20% indirect). P1.000 total overapplied overhead.000 overapplied B.000 total underapplied overhead. P11.How much was the direct labor rate variance? A.500 C. P5.000 favorable C. 11.
P18.00 P33.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer 39. Budgeted fixed overhead P10.00 0F B.000 overapplied C.000 P81. P1. P15.500 Units produced 4.000. incurred P315.00 0F C.25 A. P15.500 Budgeted volume (5. STA Company’s standard fixed overhead cost is P3 per direct labor hour based on budgeted fixed costs of P300. D.000 units of product.500 A.000 Total factory overhead rate pre DLH P5.00 0U P30.Aldorp had a P10.000 units x 2 DLH) 10. P15.000 unfavorable fixed overhead budget variance.000 F B. STA produced 55. but applied factory overhead based on the 90 percent capacity level. 2004 A.00 P18.000 favorable volume variance.000 27.300 Actual variable overhead P19. a P6.000 actual hours of direct labor.00 0U P30.000 Variable factory overhead P54.000 U C.000 P60.750 U D.625 P5. Assuming that actual factory overhead was equal to the budgeted amount of overhead. and recorded 106.000 overapplied B.000 underapplied 40. P9. P14.Fidelity Company uses a flexible budget system and prepared the following information for the year: Fidelity operated at 80 percent of capacity during the year.000 0F F Page 9 of 36 .000 U B.000 of fixed overhead costs.300 U 42.000 unfavorable variable overhead spending variance.750 Fixed factory overhead P81. During 2001. The standard allows 2 direct labor hours per unit. P33.000 DLH Actual direct labor hours (DLH) 9.000 underapplied D.000 Standard variable overhead (2 DLH at P2 per DLH) P4 per unit Actual fixed overhead P10.000 0U U P18. P18. P1. calculate the total overhead spending variance. how much was the overhead volume variance for the year? Percent of Capacity 80 90 Percent Percent Direct labor hours 24. P500 U C. P14. P800 U D. What are the fixed overhead variances? Fixed OH spending (budget) variance Fixed OH Volume variance May 9. P9. P15. and a P2.Using the information presented below.750 F 41. The total overhead was A.
000 hours Standard hours allowed 10.000 U P4.000 Fixed 384.000 B.000 Fixed factory overhead 12.000 is fixed)P40.’s standard cost system contains the following overhead costs: Variable P6 per unit Fixed 8 per unit The following information pertains to the month of March Units actually produced 38. Information for the month of April is as follows: Actual manufacturing overhead costs (P13.) Raff Co.000 U P2.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer Questions 43 and 44 are based on the following information.000 F 45.000 U P4. 2004 Page 10 of 36 .000 U P1.000 direct labor hours Standard cost data at 12.000 U Spending Variable OH P2.000 F D. P6.000 hours Average actual labor cost per hour P9 The factory overhead rate is based on a normal volume of 12. P96.000 Actual direct labor hours worked 80.000 D.000 What are the following overhead variances? A.000 U B.000 C.000 units (100. B.’s monthly normal volume is 50.000 Actual overhead incurred: Variable P250. P22. D.000 U P7. P96. P12.Smile Corporation uses a standard cost system. Variable OH P3.For March. Raff Co.000 direct labor hours. C.For March.000 U Efficiency Fixed OH P4.000 U P3.000 direct labor hours was: Variable factory overhead P24. P10. P80.000 U P4.000 44.000 U P7.000 U P1. the unfavorable variable overhead spending variance was A.000 Direct labor: Actual hours worked 12.000 U Spending May 9.000 43. P80. the fixed overhead volume variance was A.000 Total factory overhead P36.000 U C.
2004 Standard cost and budget information for Roadtrek Company follows: Standard variable overhead rate P9.000 P122. B.000 U Volume P10. The total manufacturing overhead applied during November was P572. C.500 direct labor hours in November at a cost of P433.000 F 48.The fixed manufacturing overhead variances for November are A.000 per year Budgeted output 10.000 fixed and 315. Edney Company employs standard absorption system for product costing.The variable manufacturing overhead variances for November are A. D.000 F P12.000 F P 4. D. Actual manufacturing overhead for the month was P260.000 Fixed 3. Edney planned to produce 25.000 direct labor hours.00 Manufacturing overhead (2 DLH x P11) 22.000 F P10.000 U B.440. The following data are actual results for Roadtrek company for October: Actual output 9. B.00 per MH Standard quantity of machine hours 4 hours per case Budgeted fixed overhead P1.50 Direct labor (2 DLH x P8) 16. The standard cost of its product is as follows: Raw materials P14.000 U P6. C.000 f P10.000. Spending P9.000 variable.000.000 cases per month Page 11 of 36 .000 40.350.000 U D.000 U P1. P12.000 units each month during the year.000 units.000 U P6.000 F P4. The budgeted annual manufacturing overhead is Variable P3.000 U P 9. Edney produced 26.600. Edney used 53. P12.00 The manufacturing overhead rate is based upon a normal activity level of 600.000 F Efficiency P3.000 U P22. P21. 46.000 U Questions 49 thru 53 are based on the following information.000 U 47.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Actual variable overhead Actual fixed overhead Actual machine time Pre-week Quizzer P405.000 U P9.000 F P3.000 cases May 9.500 machine hours Questions 46 thru 48 are based on the following information.The total variance related to efficiency of the manufacturing operation for November is: A.000 During November. Spending P10.000 U C. P9.
000. P8.000.000 pound of Product B each week by incurring a common variable costs of P400.500 F B. P4.000.000 U B. P(6.000 for B.The amount of fixed overhead volume variance is A. and costs are P190. Marginal cost C. An idle facility variation is calculated D. 2003. P150.000).The variable overhead spending variance for the month of October is A. P0.000) B. 2004 Relevant Costing 56. P81. Based on variable costing.000 U C.000 F 50. P6.500 F 51.000 F D. in comparing B to A are respectively A.000).000). then using the basic approach in incremental analysis. P40.000 under alternative A and P216.000 F B. These two products can be sold as is or processed further.000 U D.500 F 52.000 D.000) 59. P40. P8. This concept is called A. direct costs would have been P650.000 C.000 for A and P204. P(6.500 U C.000 F C. Had a different course of action been taken. P(14.000 U 53.000 F B. if sales change by P1.00 P45.000). costs.10 May 9.000 pounds of Product A and 30. P81.An important concept in decision making is described as the contribution to income that is forgone by not using a limited resources in its best alternative use.00 B. P0. a small manufacturing firm has total variable costs equal to 75% of sales and total fixed costs equal to 15% of sales. income will change by A.The overhead efficiency variance is A.500 U D. incremental revenues. Wallace Company produces 15. Product costs include “direct” (variable) administrative costs. P0. P2. In addition. P12. The incremental (decremental) costs was: A.000) C. Data gathering there two products are as follows: Product Product A B Selling price per pound without further P P 9. P45.00 Processing 15. Opportunity costs D.000.000 Further processing 0 Page 12 of 36 . P21.25 C. Potential cost B. P12. and net income. Leba Company incurred direct costs of P800.Which of the following statements is true for a firm that uses variable (direct) costing? A.000) 58. Relevant cost 57. P2.500 U B. P(40.000 U D.12 D. Leba’s fixed costs during the fiscal year were P110. 55. Further processing of either product does not delay the production of subsequent batches of the joint product. P40.000 based on a particular course of action.000 D. P(8.If revenues are P210.000. P14.The amount of fixed overhead controllable variance is A.For the year ended April 30.000 U D.00 Processing 12.At its present level of operations. B.00. P2. P6.00 Total separate weekly variable costs of P50.000. P9. P(150.75 B.500 U C. P0. P42. P12.00 Selling price per pound with further P P 11.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer 49. Profits fluctuate with sales C. P4. P(14. P(8. P42. P14. Zero C. P40. P21.The amount variable overhead volume variance is A.000.000 under alternative B. The cost of a unit of product changes because of changes in the number of units manufactured.250 U Absorption Costing & Variable Costing 54.
000 8. Blue could accept a special order for 1. 42. A special job order’s cost sheet includes the following applied manufacturing overhead costs: Variable costs P56.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer To maximize Wallace Company’s manufacturing contribution margin. how many units could it lose at the regular price before the decision become unwise? A.000 blenders and 15. P95. 1.The Hingis Corporation manufactures two products: X and Y. How many units of X and Y should Hingis Corporation produce? A. and Geary Manufacturing desires to follow an optimal strategy.000 3. 0 units 61. 2004 62. the total separate variable costs of further processing that should be incurred each week are A.000 Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages P10.250 Fixed costs 45.000 electric mixers.000. produce 25. and purchase all other units as needed C. purchase all units as needed May 9.000 D. If 50.000 units C. P50.000 electric mixers. P200 units D. Product X requires 6 machine hours per unit while product Y requires 3 machine hours per unit.Wagner sells product A at a price of P21 per unit.Blue & Company sells a product for P20 with variable cost of P8 per unit. B.Yardley Co. P18 64.000 63. The only selling costs that would be incurred on this order would be P3 per unit for shipping.000 machine hours are available during the year. P14 C.000 Page 13 of 36 .000 units is as follows: Direct materials P 4 Direct labor 5 Overhead (2/3 of which is fixed) 6 P15 A special order offering to buy 20.000 machine hours are available. Machine hours is a scarce resource. produce 20.000 B.000 C. has considerable excess manufacturing capacity. Contribution margin per unit is determined as follows: Product X Product Y Revenue P 130 P80 Variable costs 70 38 Contribution P 60 P42 margin Total demand for X is 16.000 units at P14. Wagner has sufficient existing capacity to manufacture the additional units To achieve an increase in operating income of P40. P45.Geary Manufacturing has assembled the following data pertaining to two popular products. Wagner’s cost per unit based on the full capacity of 200. D. Geary has a policy of filling all sales orders.000 28. it should A. and purchase all other units as needed B.000 7.000 units.000 units was received from a foreign distributor. Product X 16. Wagner should charge a selling price of A. even if it means purchasing units from outside suppliers. P500 units B. C.000 Product Y -04.000 blenders and purchase all other units as needed D. Blender Electric mixer Direct materials P 6 P 11 Direct labor 4 9 Factory overhead @ P16 per 16 32 hour Cost if purchased from an 20 38 outside supplier Annual demand (units) 20. If Blue accepted the order. P15 D. P16 B.000 -08.000 units and for Y is 8. P0 60. produce 20.
000 Less direct fixed expense 60.000 B.000 C. the special job will require the use of external designers costing P13. The product regularly sells for P40. Instead. a P16.000) Page 14 of 36 May 9.000 67. What would be the effect of this discontinuance on Gata’s pretax profit? A. and allocated overhead of P96.000 P120. P70. P 7.000 increase B. A wholesaler has offered to pay P32 a unit for 2. increase of P6.750.000.000 69. all of the direct divisional expenses and P110.000 70.000 Fixed expenses (direct and allocated) 50.000 increase C. Additional information regarding Cosmo’s operation follows the statement. P63.000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses: Net sales P100. P12. increase of P6.000 D. Common expenses allocated to the segment amounted to P45.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer The fixed costs include a normal P6.000 P48.Consider the following portion of a segmented income statement for the year just ended. the effect on operating income would be A.000 D.000 segment margin.00 0 0 Store segment margin P 24. P108.Gata Co.000 B.000 cannot be eliminated if the segment were closed.000 increase B.Condensed monthly operating income data for Cosmo Inc. Assume that the fixed expenses of Division X include P30. P101. decrease by P40. P 7.000 D. decrease of P10.250 B.000 of common expenses can be eliminated.200 65.000.000 increase 68.000 P80.050 C.000 Less Variable costs 116. increase by P90.000 decrease D.00 0 0 Contribution margin P 84.000 Variable manufacturing costs 60.00 32. What is the minimum acceptable price of the job? A.000 C. decrease of P40. although no in-house design will be done. decrease by P90. a P20. If Division B is closed. These facts indicate that closing the division will cause the firm’s operating income to A.000. for November 2000 is presented below.000 C.000 84.MC Industries manufactures a product with the following costs per unit at the expected production of 30. of which P42.800 allocation for in-house design costs. decrease of P48.000 decrease C.000 Loss from operations P (10.000 units. 2004 .000 units.000 Gross profit P 40.000) What would be the effect on the firm’s operating income if Division X were discontinued? A.Pili Company plans to discontinue a segment with a P32.000 units: Direct materials P 4 Direct labor 12 Variable manufacturing overhead 6 Fixed manufacturing overhead 8 The company has the capacity to produce 40. increase of P48. If the firm is at capacity and the special order is accepted. of which P20. increase of P10. Total Hall Town Store Store Sales P200.Division B earns a contribution margin of P200.000 P28. The effect of closing down the segment on Pili Company’s before tax profit would be A. plans to discontinue a department with a P48.000 decrease D.000 B. a P4.000 D. P12. decrease of P100.000 and has a divisional margin of P70.000 40.000 P ( 4.000 P 36. P0 66.000 cannot be eliminated.000 contribution to overhead.00 20. increase by P40.
(P10. 72.800 Page 15 of 36 . Management estimates that closing the Town Store would result in a ten percent decrease in Hall Store. decrease by P3. Peluso’s plant manager is considering making the headlights now being purchased for P1.800 C. Leland’s annual manufacturing overhead budget is one-third variable and two-thirds fixed.000 Materials handling (20% of direct material cost) 200 Direct labor 8.000) One-fourth of each store’s direct fixed expenses would continue through December 31. P40 B. Hall Store would not affect Town Store sales. to close the Town Store would result in a monthly increase (decrease) in Cosmo’s operating income during 2001 of A.000 C. a manufacturer of snowmobiles.000 May 9.100 each. The unit cost to manufacture one unit of KJ37 is presented below. and 40 percent of the overhead is fixed cost.000 CPA Review School of the Philippines Pre-week Quizzer 6. Peluso’s plant overhead rate is 200 percent of direct labor costs.00 0 P 14. 2001. The design engineer estimates that each headlight requires P400 of direct materials and P300 of direct labor. 2004 Manufacturing overhead (150% of direct labor) 12. has offered to supply Part No.000. This is a separate charge in addition to manufacturing overhead. A decision of Cosmo. if either store were closed. increase by P1. The operating results for November 2000 are representative of all months. The Peluso plant has the equipment and labor force required to manufacture the headlights.000) 71. the capacity Leland used to manufacture these parts would be idle.MANAGEMENT ADVISORY SERVICES Less common expenses Operating income fixed 10. a price that is not expected to change in the near future. A decision by Peluso Company to manufacture the headlights will result in a gain (loss) for each headlight of A. (P800) B.000 Material handling represents the direct variable costs of the Receiving department that are applied to direct materials and purchased components on the basis of their cost. is operating at 70 percent of plant capacity.000 P (10. increase by P4. Inc. Direct materials P1. (P6. P4. KJ137 at a unit price of P15. Should Leland decide to purchase the parts from Scott. P(200) C. P280 Questions 72 thru 74 are based on the following information: Leland Manufacturing uses 10 units of Part Number KJ37 each month in the production of radar equipment. the unit cost of KJ37 would A. one of Leland’s reliable vendors.Peluso Company.200 B. Scott Supply.If Leland purchases the KJ37 units from Scott.000 4. P160 D. decrease by P6.200 D.800) D.00 0 P24.
000 C.667 Page 16 of 36 .Company L had its operating asset turnover increased by 50% and the operating income margin increased by 50%. and the manager has asked you to determine how much sales volume the division would need to reach that.76 Contribution margin P19.000) Responsibility Accounting & Transfer Pricing 75.000 B.000 per month. what is the maximum number of units in regular sales that Houston could sacrifice and still maintain its expected residual income? A. A foreign customer has approached Houston’s manager with an offer to buy 10.000 C.000.51 14. Leland’s opportunity cost is A. From the overall company viewpoint. If Leland decided to purchase the 10 units from Scott Supply. P59. respectively? A. 3. P18.The manager of the Queen Division of Pusoy Company expects the following results in 2004 (pesos in millions): Sales P49. decrease P7.032 C. P19. but not for the entire company. What changes are expected for ROI of Company L and Company U.667 B.80% The division has a target ROI of 30 percent. 3. and inventories) should vary closely with sales in the percentage reflected above.871 D.60 Variable costs (60%) 29. P44.000 units.39 ROI P7. He states that the sales mix is relatively constant so variable costs should be close to 60 percent of sales.829.000 The minimum required ROI is 15 percent.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Fixed costs Profit Investment: Plant equipment Working capital Pre-week Quizzer 12.000 per month.000 Unit selling price P 10 Unit variable cost P 4 Total fixed costs P 300. decrease P57. 2.88 P34. maximization 76. D. Inc.000 units and the foreign customer will not accept fewer than 10.00 P 7. suboptimization B. increase P48. Houston Division has capacity of 75.84 May 9.Ace Division of Card.510. goal congruence C. receivables. expects the following result for 2004: Unit sales 70.84 73.000 and investment by P40. centralization D.000 units at P7 each. Accepting the order would increase fixed costs by P10. increase P23. C.590.000) D. 2.333 C.373. Company U had its operating asset turnover increased by 30% and the operating income margin decreased by 30%.000 Total investment P 500.000 78. Company L 50% 125% 225% 125% increase increase increase increase Company U 9% 9% no change no change decrease decrease 77. this decision would lead to A.000 74. (P20.Assume that Leland does not wish to commit to a rental agreement but could use idle capacity to manufacture another product that would contribute P52.333 D.000 D.39 22. fixed cost and plant and equipment should remain constant. (P48. Leland’s monthly cost for KJ37 would A. P4. If Leland elects to manufacture KJ37 in order to maintain quality control. and working capital (cash.322 B. P57.000 B.84/P34. 2004 P19. B. At the price of P7 offered by foreign customer.Assume Leland Manufacturing is able to rent all idle capacity for P25. and divisions are evaluated on residual income. The peso sales that the division needs in order to reach the 30 percent ROI target is A.A management decision may be beneficial for a given profit center.
both plants are operating at 70 percent capacity. is P100 and the foreign plant’s costs to manufacture the component are as follows: Direct materials P10 Direct labor 20 Variable overhead 5 Fixed overhead 25 Which transfer price would be in the best interest of the overall corporation? A. C. The market price of the component.Pacific Company has three plants: one located in Malaysia. Both plants manufactures a component used in a finished product manufactured in the Philippine plant. 2004 Page 17 of 36 . D.The Engine Division provides motors for the Auto Division of a company. Between P50 and P70 D.000 P300. P20. Malaysia P35 P 35 P100 P100 India P35 P100 P100 P 35 82. the corporate income tax rate is 40%. Family Company has two division. P50 is the only acceptable price 81. Any amount less than P50 B.000 D.000. Between P20 and P50 C.000 P50. Ma and Pa. Information for each division is as follows: Net earnings for division Asset base for division Target rate of return Operating income margin Weighted average cost of capital What is the Economic Value Added for Ma and Pa.000. P29.000 18% 20% 12% 80.000 C. P11. P36. In Malaysia the income tax rate is 42% while in India the tax rate 35%. P14. Currently.000 15% 10% 12% Pa P65.000.An appropriate transfer price between two divisions of the Star Corporation can be determined from the following data: Fabrication Division Market price of subassembly P50 Variable cost of subassembly P20 Excess capacity (in units) 1.500. in peso equivalent. in the Philippines.000 B. P12. P29. The standard unit costs for Engine Division are as follows: May 9. P20.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer 79. respectively? A.000 Assembling Division Number of units needed 900 What is the natural bargaining range for the two divisions? A. B.000 Ma P20. one in India and another plant located in the Philippines.
9% Direct 400. Full cost C. a large diversified corporation should base transfer prices on: A. variable costs B.7% 166. replacement cost D.Jakarta Corporation plans to sell 200.000 units of Batik products in October and anticipates a growth in sales of 5 percent per month. 166.000 Gross profit Selling and admin expenses Operating income What are the mark up based on: A. C.000 Direct labor 20. P37. Cost of goods 66.000 Variable Overhead 5. B.Garden Corp.7% 185. P35.000 P125.0% 500.000 Direct labor 75. market price Product Pricing Decision 84. 2004 Page 18 of 36 .The method of budgeting which adds one month’s budget to the end of the plan when the current month’s budget is dropped from the plan refers to A.000 Fixed Overhead 2.7% sold Prime costs 185.7% 42.000 75.0% materials P500. There are 150.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer Direct materials 10.000 B. Incremental budget B. Operations budget D. Long-term budget C.000 300.000 D.500 C. The production requirement in units of Batik for the quarter ending December 31 would be May 9.500 What is the best transfer price to avoid transfer price problems? A. P30.7% 500.000 Overhead 125. The target ending inventory in units of the product is 80% of the next month’s estimated sales. P45.000 units in inventory as of the end of September.500 Market price P45.500 83. Continuous budget 86.000 P200.To avoid waste and maximize efficiency when transferring products among divisions in a competitive economy.0% Master Budget 85.000 D.9% 42.0% 400. had the following information: Revenues Cost of goods sold: Direct materials P100.7% 66.
020. The following beginning and ending inventory levels (in units) are planned for the fiscal year of July 1.000 *Two (2) units of raw material are needed to produce each unit of finished product.925 CPA Review School of the Philippines Pre-week Quizzer Questions 87 & 88 concern Paradise Company. 87. 665. B. 450.000 B.000 Finished goods 80.830. and P6.000 50.000 88.The Pentagon Co. which budgets on annual basis for its fiscal year.000 in August.140.525 C. D.400.279. 2000 June 30. 480. 2004 . On average. 30% of its sales are cash. 675. 1.000. July 1. 510. the units of raw material needed to be purchased would be A.If 500.000 finished units were to be manufactured during the 20002001 fiscal year by Paradise Company.071. 1. the number of units it would have to manufacture during the year would be A.000 C.000 units during the 2002001 fiscal year. 990.084.00 P6.If Paradise Company plans to sell 480.000 in July.00 0 0 0 0 Aug 31 AR P7. 2000 through June 30. and 45% are collected in the second month. The remainder are written off to bad debt in the third month after sale. What are the expected cash inflow for August and expected receivable balance on August 31? A.100. Inc. C. 670. 2001.00 P5.093.000 in June. expects sales of P4.560 B. P5.Dolyar. 440. 1.MANAGEMENT ADVISORY SERVICES A.000 Work-in-process 10.00 Balance 0 0 0 0 90.000 units D.720 D.000 units C.00 P4. 2001 Raw material* 40.000 units B.050.00 P6. 50% of credit sales are collected in one month.000 10.00 P1.300.000 50. Cash Inflow P5.010. prepared the following sales budget: Month Cash Sales Credit Sales Page 19 of 36 May 9. 691.232.50 P7.000 units 89.000 D.
2004 Page 20 of 36 .000 CPA Review School of the Philippines P340.000 100. An increase in the discount rate 93.000 B. P1.500 91.000 D. and the remainder are collected in the following month. 45% in the month following the sale.000 May 70.500 D.000 Minimum cash balance is P50. implicitly assumes that the company is able to reinvest cash flows from the project at the company’s discount rate May 9. A decrease in the initial investment C.MANAGEMENT ADVISORY SERVICES February March April May June P 80.000.000 460.000 380.A weakness of the internal rate of return method for screening investment projects is that it: A. Accounts receivable balance (April 1.325. P1.000 90. P55. has the following sales forecasts for the selected threemonth period in 2004 April P120.000 120. and 10% two months following the sale. P34. P50. 2004) 50. Cash can be borrowed in P10.000 out during April? A.Beta Co.000 400.468.397. A decrease in the income tax rate B. P54. 2004) P100.000 C. P1. The remaining 5% is expected to be uncollectible.Which of the following would decrease the net present value of a project? A.090. What is the cash balance at the end of April. P1.000 Pre-week Quizzer Collection pattern is: 40% percent in the month of sale.000 Seventy percent of sales are collected in the month of the sale. assuming that cash is received only from customers and that P200.000 Cash balance (April 1. does not consider the time value of money B.000 Capital Budgeting 92. An increase in the useful life of the project D.000 increments from the local bank (assume no interest charges).500 B.000 110.000 June 80.000 C.000 370. The company’s total budgeted collection from April to June amounts to A.
P15.Sensitivity analysis. Royal will sell this old equipment for P6.400 B.000 cash.000 97. C. fails to consider the timing of cash flows 94.000 C. show the loan as a cash outflow in the second year of the project’s life D.000 cash. 2004 Page 21 of 36 . The appropriate “end of life” cash flow based on the foregoing information is May 9. if used with capital projects.Flow Industries is analyzing a capital investment proposal for new machinery to produce a new product over the next 10 years.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer C. Royal’s net cash investment at the time of purchase is the old grinder is sold and the new one purchased is A. Assuming a 40% marginal tax rate. A. implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return D.000 with a new one costing P25. The applicable tax rate is 35%. offset the loan against any investment in inventory or receivable required by the project B. show the loan as an increase in the investment C. Is a “what-if” technique that asks how a given outcome will change if the original estimates of the capital budgeting model are changed. The new equipment will be depreciated on a straight-line basis over 10 years to a zero salvage value. the machinery must be disposed of with a net zero book value but with a scrap salvage value of P20.If Sol Company expects to get a one-year loan to help cover the initial financing of capital project. At the end of the 10 years. the analysis of the project should A.Royal Industries is replacing a grinder purchased 5 years ago for P15. ignore the loan 96. Is used extensively when cash flows are known with certainty B. It will require some P30. P19. P17. Is a technique used to rank capital expenditure requests.0000 to remove the machinery. P25. D. Measures the change in the discounted cash flows when using the discounted payback method rather than the net present value method. 95.000 D.000. The original grinder is being depreciated on a straight-line basis over 15 years to a zero salvage value.
Barf is considering a 10-year capital investment project with forecasted revenues of P40.751 .MANAGEMENT ADVISORY SERVICES A.000 Net annual savings in operating costs 9. Cause’s expected rate of return is 10%. Information on the existing machine and the replacement machine follow: Cost of the new machine P40. 12. 4. outflow of P6. 3. P24.621 at 10% Present value of an annuity of P1 at .0% 99. of P150. P11.791 10% May 9. The equipment will be depreciated over 7 years.000 in each of the five years.170 3. outflow of P17. net of income taxes.000 per year.736 2. outflow of P10.67 years D. Information on present value and future amount factors is as follows: 1 2 3 4 5 Present value of P1 . 2.7% B.000 D. the expected net cash flow from the project in the tenth year is A. 16. P32. an investment in a new cheese-cutting machine to replace its existing cheese cutter.3% C.000 Salvage value now of the old machine 6. Brand is considering.78 years 101. The new machine is expected to produce cash flow from operations. Depreciation for tax purposes will be P100. net of income taxes.000 C.000 a year in each of the next six years.487 3.000 B.000 D. Cause Company is planning to invest in a machine with a useful life of five years and no salvage value. P20.000 at its inception and another P5. The machine is expected to produce cash flow from operations.000 Pre-week Quizzer 98. The accounting (book value) rate of return on the initial investment is expected to be A.909 . of P20.826 .000 annually for six years.683 .000. 8. 25.Sarah Company is planning to purchase a new machine for P600.909 1.0% D. 8.000 Salvage value of the old machine in 8 years 0 Salvage value of the new machine in 8 years 5. The initial cost of the equipment of the project is P23.000 B.500 CPA Review School of the Philippines C.000 per year and forecasted cash operating expenses of P29.50 years B.44 years C.000 at the end of year 5.000 Estimated life of the new machine 8 years What is the expected payback period for the new machine? A.000 100.000 and Barfield expects to sell the equipment for P9. 2004 Page 22 of 36 . Using a 40% marginal tax rate. inflow of P30.000 at the end of the tenth year. The project requires a working capital investment of P7.
MANAGEMENT ADVISORY SERVICES Future amount of P1 1. Managers at Highpoint have estimated the cash flows associated with the tangible costs and benefits of automation..225 B. 8.625 104. Alternatively.000 D.236 Questions 105 thru 107 are based on the following information. P18. 7. 2004 Page 23 of 36 . the net present value of the cash flows associated with just the tangible costs and benefits is a negative P184.60478.641 1. The machine has cash operating costs of P20. B.000 C.838 C.000 each and 6% interest on the unpaid balance. Janet is subject to a 40% income tax rate. and will be depreciated using the straight-line method. no salvage value is anticipated.400 with payments due at the beginning of each year.000 103. Principal and interest are due at the end of each year for five years. How many units per year the firm must sell for the investment to earn 12 percent internal rate of return? A.435 C. New equipment costing P1. P190. The firm is in the 40 percent tax bracket and has cost of capital of 12 percent.100 D. 102. A firm must choose between leasing a new asset of purchasing it with funds from a term loan. Highpoint. Straight-line depreciation will be used. Janet Company has a payback goal of 3 years on new equipment acquisitions.220 C. P62. 10. Inc.464 4. P35.210 2. but have been unable to estimate the cash flows associated with the intangible benefits.100 discount rate. A new sorter is being evaluated that costs P450. P37. The present value of 1.820 P122. To meet the company’s payback goal.000 units. the firm can lease the asset for five years at an annual rental cost of P1.33 3.000 per year. P100.100 1. Under the purchase option.105 Pre-week Quizzer P75.350. Expected volume is 20. is considering investing in automated equipment with a ten-year useful life.100 at 10% Future amount of an annuity of P1 at 1.310 CPA Review School of the Philippines 1. P30.000 10% How much will the machine cost? A. the firm will pay five equal principal payments of P1.56743. Moorman Products Company is considering a new product that will sell for P100 and have a variable cost of P60.611 6. end of five periods is 0. How large would the annual net cash inflows from the intangible benefits have to be to make this a financially acceptable investment? A. Using the company’s 10% May 9. The corporate tax rate is 35% and the appropriate after tax cost of capital is 12%.403 D.000 and has a 5-year life. P150. 12. P32.000 B. present value of annuity of 1 for 5 periods is 3. 1. the sorter must generate reductions in annual cash operating costs of A.000 D.000 B.500 and having a fiveyear useful life and no salvage value is needed. P60.
0 years Pre-week Quizzer 105.000. P3. P4. For book and tax purposes. 15% D. P3. 3.0% B. 3.849 B. P453 D. Logo’s desired rate of return on its investments is 12%. P3. 5. 2004 110.Logo’s expected payback period for its investment in this machine is A.0 years D.000 each year for five years. Which of the following is closest to the PV of cost of purchasing the new asset with a term loan? A. 15.694 C.2.474 108. is planning to buy a coin-operated machine costing P40. 30% C.3% Page 24 of 36 . of P12. P3. 3. Which of the following is closest to the PV of the after-tax interest payment? A.952 D. Logo’s accounting rate of return on its initial investment in this machine is expected to be A.0% D. this machine will be depreciated P8. P4. 2.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines B.3 years May 9.779 D. At the following discount rates. P360 C. P726 106.Logo’s expected IRR on its investment in this machine is A.058 B.992 107.153 Questions 108 through 110 are based on the following information: Logo Co.197 16% 708 18% . 12% B.000. P640 B. P3. Which of the following is closes to the present value of cost if leasing the asset? A. net of depreciation and income taxes. P3.3% C.258 14% + 1. 10% 109.0 years C. Logo estimates that this machine will yield an annual cash inflow. the NPVs of the investment in this machine are: Discount rate NPV 12% +P3. 12. 10.777 C.
189 C. 2004 during the upcoming P300.Investor’s Inc. P4. Project Project 2 Project 3 Project 1 4 Initial cash outlay P200.000 90.000. P4.000 Residual value at the end of 5 years 10.276 14.300.000 135.064 14. P11. which requires an investment of P4.000 Year 4 40.000.000.111 D.000 80.000 Present value of an annuity of 1 at 12% for 5 years 3. is expanding its manufacturing plant.000 B.Par Co.Lawton Co. P3.000 0 95. P12.000 65.000 D.000Available Funds Project 3 Projects 3 & 4 Project 2 Projects 2 & 4 Page 25 of 36 . Inc.000 95. P8.000 per year as a result of the expansion.000 Available Restriction Funds A.000 125. Projects 2. Projects 3 & 4 Projects 2 & 4 Pre-week Quizzer 106% 14% 105% 15% 111. P13.000 90.57 What would be the annual savings needed to make the investment realize a 12% yield? A.000 Net present value ( 3. 3 & 4 Projects 3 & 4 B.000 60. select year under each budgeted amount of funds? No Budget P600.000 C.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines 98) Profitability index 98% 101% Internal rate of 11% 13% return Which project(s) should Investors. 3 & 4 Projects 2 & 3 D.7 4.306 B.0 00 0 00 Annual net cash inflows Year 1 P P100. Lawton’s sales are expected to increase by P3. P4.000 112.000 P272.000 P 65.600. is reviewing the following data relating to an energy saving investment proposal: Investment P50. Projects 1.60 Present value of 1 due in 5 years at 12% 0. Projects 1.000 in new equipment and plant modifications. What is the estimated total investment for this expansion? A. 3 & 4 C.00 P248. Cash investment in current assets averages 30% of sales. 2 & 3 Projects 2.00 P 80. accounts payable and other current liabilities are 10% sales.889 113.00 0 Year 3 80. uses a 12% hurdle rate for all capital expenditures and has done the following analysis for four projects for the upcoming year.662 May 9.000 90.400.0 P298.000 Year 2 70.
000 units at a sales price of P40 per unit.920 Page 26 of 36 . Incremental operating costs include P30 per unit in variable costs and total fixed costs of P40. P195. Shipping installation.280 D.751 2. P454. P16. P242.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines B.936 B.487 4 .725 May 9.000 D.800 Pre-week Quizzer Questions 114 thru 117 are based on the following information. P22. P225. P13.Gunning Industries’ discounted annual depreciation tax shield for the year 2002 is A. P20.Gunning Industries’ net cash outflow in a capital budgeting decision is A. In order to increase production capacity.The acquisition of the new production machine by Gunning will contribute a discounted net-of-tax contribution margin of A.000 115. Gunning Industries is considering replacing an existing production machine with a new technologically improved machine effective January 1. P363. 2002. The investment in the new machine will require an immediate increase in working capital of P35. Gunning uses straight-line depreciation for financial reporting and tax reporting purposes. and testing would cost an additional P30.000. P190. The new machine is expected to increase annual sales by 20.826 1. P204. This cash outflow will be recovered at the end or year 5.791 114.525 B. The following information is being considered by Gunning Industries: The new machine would be purchased for P160. The new machine has an estimated useful life of 5 years and zero salvage value Gunning is subject to a 40% corporate income tax rate.000.909 .624 C.000 C.909 2 . Gunning uses the net present value method to analyze investments and will employ the following factors and rates: Period PV of 1 at 10% PV of an ordinary annuity of 1 at 10% 1 .817 C. P303.736 3 .762 D.621 3.000 per year.170 5 .000 in cash. 2004 116.683 3.
000 May 9.080) D. The interest expense for the year was P20.000 C.The overall discounted cash flow impact of Gunning’s working capital investment for the new production machine would be A. Year 2 P4.000 B. P(13. Net income is P40. P(10.0. P1. 115% and 109% D.000 B.2% 122. 1.200.959) C. 115% and 125% C. The difference between average and ending inventory is immaterial.0 Quick ratio 1.000.0% B.000 with a gross profit ratio of 35%. P800. P66. Current ratio 2.000 121.10. 4. Selected data from Sheridan Corporation’s year-end financial statements are presented below. 0. 42.000 and the company’s tax rate is 40%.000 cost of sales) were C.2 and an operating income margin of 0.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Inventory turnover (based on Gross profit margin Sheridan’s net sales for the year A.5 Current liabilities P120.000 D. 23.265) B. P54.000 and at the end of the period was P70.8% C. 115% and 130% B. Inventory at the beginning of the period was P50. the return on investment would be A. Sales (in millions) for a three year period are: Year 1 P4. The times interest earned ratio of McHoggan Company is 4. Inventory turnover is A. respectively A.25 times D. 3. 5 times C. P480.000 D. 420. The company’s net income is: A.000. 2004 Page 27 of 36 . 87% and 80% 119. A company has total sales of P300. P(35.0% D. P(7.5times. Using Year 1 as the base year the percentage increase in sales in Years 2 and 3 are.000 Pre-week Quizzer 8 times 40% 117. P672. If the North Division of Alliance Products Company had an operating asset turnover of 4. and Year 3 P5.000) Financial Statement Analysis 118. P22.6. P42.67 times 120.75 times B.
Gear Inc.000 480.000 Average Collection 30 days 36 days period The pretax cost of carrying the additional investment in receivable. P14.960. Gear has the opportunity to invest the money of 24% per annum.000 U. P120. the company’s after tax profits would increase by A.000 D. using 360-day year would be A. P88. 2004 Working Capital Management 126.000 U B.0 0 00 Gross profit P225. If Lyman should accept this opportunity.760 C.000 P720. P8. P150. The company spends.000 F D.000 F May 9. which sells a single product. P72.000 units.000 units in 2001. P45.The following information regarding a change in credit policy was assembled by the Willis Company.000 unfavorable C.160 B. P6.600 D. P720. P9.000 units during the current year.000 B. P960 129.200 B. The company has a required rate of return of 10% and a variable cost ratio of 60%.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer 123.000 U. what would be the effects of changes in sales price and sales volume. what would be the decrease in gross profit due to change in the selling price? A.000 Cost of goods sold 463.000 F. P60. He estimates the following effects: Sales will increase by at least 20% Accounts receivable turnover will be reduced to 8 times from the present turnover of 10 times Page 28 of 36 .000 125. Garfield Company.000. P40 for every cash conversion to marketable securities.000 which are to be paid uniformly.200 B.000 unfavorable D. on the average. P150. P2. Old Credit Policy New Credit Policy Sales P3. P5.000 D.0 units in 2000) 00 Cost of goods sold 525. P2. The current year’s master budget was based on the production and sales of 700.000 units. What is the optimal cash conversion size? A. Actual production for the current year was 720. P72.0 00 In an analysis of variation in gross profit between the two years. 180. P600. P10. P79.000 Assuming that 2001 selling price was 10% lower. P180. while actual sales amounted to only 600. has a total annual cash requirement of P9.000 C.000 C. P10..000 P750.000 P320. Jade Corporation has a practical production capacity of a million units.400 128. and its effective tax rate is 40%.000 P3. P120. Lyman Company has the opportunity to increase annual sales P100.000 U C. P55. respectively? A.000 Gross profit P328. The uncollectible expense is expected to be 15% and collection costs will be 5%. provided the following data from its income statements for the years 2001 and 2000: 2001 2000 Sales (150.000 D.00 575. The units are sold for P20 each and the contribution margin ratio is 30%. The company’s manufacturing and selling expenses are 70% of sales.400.000 P145. The gross profit of Rea Company for each of the years ended as indicated follow: 2001 2000 Sales P792.000 P800.500 127. The sales director of Lloyd Company suggested that certain credit terms be modified.000 by selling to a new riskier group of customers.600.000 unfavorable B.000 unfavorable 124. P180.075. P150. P150.000 C. P8. The peso amount that best qualifies the Marketing Department’s failure to achieve budgeted performance for the current year is: A.000 F.
P100. 625 cases D.38 percent May 9. The average purchase lead time is 20 working days.167 1. 350 B.The G Corporation purchases 60.78 the most economical order quantity (rounded to the next whole number) is A.133 cases B. because income will increase by P64. P16.000 D.750 1. The estimated annual order costs is A. 884 cases C. If each case costs P0.750 1. and the cost to place one purchase order is P80. No. It pays a broker P50. Should the company allow revision of its credit terms? A.27 percent B.750 5. now at 1% of sales will increase to 1. Yes. 14. The effective interest rate of this loan is A.Bye Company borrows from a bank a certain loan at a stated discount rate of 12 percent per annum.250 6. 28. C. because losses will be increased by P28. 1.00 Unit of carrying cost per year P 4.800 B.000 B.000 130.750 5. Variable cost ratio is 55% and the desired rate of return is 20%.000.21 percent C. D. The corporation works 240 days per year. The bank requires 10 percent of loan as compensating balance in its new checking account.5% Sales before the proposed changes is at P900.A spindle manufacturer uses about 200 cases of raw wood per month.000 headbands per year. P50. because income will be reduced by P13.000 132. P32. 1.000. Safety 1.The Handy Company has the following information available concerning one of its inventory items: Cost of placing an order P 32.800 C.29 percent D. 250 C. Maximum lead time is 27 working days.000. No.Expected annual usage of a particular raw material is 2.000 D. 300 133. B.000 units and the standard order size is 10.000 units.167 Stock Reorder 6.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer Bad debts.00 Annual unit demand 5. The loan is payable at the end of 6 months.00 to locate a supplier and handle the ordering and delivery arrangements. 15. Fixed expenses amount to P150.625 Safety stock 100 Average daily demand 25 Normal lead time in days 10 The reorder point for the inventory item is A.250 Point 134. Yes. because losses will be reduced by P73.000 cases 131. 2004 Page 29 of 36 . 27. The invoice cost of each unit is P500. 600 D. The appropriate safety stock level and the reorder point for the company are: A.02 per case per month.000 C. Storage and handling costs are P0.
80 percent D. an average premium of P30 per bond would be received. 14.The Manunuba Company was recently quoted terms on a commercial bank loan of 7% interest with 20% compensating balance. 25.75% 9. and flotation costs are expected to amount to P5 per share. The Taurus Company’s last dividend was P3. the company can sell unlimited amounts of all instruments.26 percent D. Williams expects to have available P100.000 of retained earnings in the coming year. stock’s beta is .0 percent B. Williams’ common stock is currently selling for P100 per share.50.00.94 percent 138.75% 7. The firm expects to pay cash dividends of P7 per share next year. what is the required rate of return on ABC stock? A. 18.26 percent D.59% 8. 15.16 percent C.ABC Corp.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Risk-free rate The required market return is A. net income after tax increased by 42%.40 per share. is interested in measuring its overall cost of capital and has gathered the following data.53% interest Payable upon 8. 16.81 percent B. 2004 15 percent 1. 15. 14.20 D. 13% B. Williams can raise cash by selling P1.34 percent B. The company is under the 40 percent corporate tax rate. The cost of preferred stock for Mars Company is A.0 percent D. its growth rate is 6 percent and the stock now sells for P36.Williams Co.53% 7. 2.000.69 percent 142. A.0 percent 135.75% 9.59% 8. C.83 percent C. 13.81 percent B.0 percent Pre-week Quizzer 9. The effective cost of borrowing (rounded to the nearest hundredth) for each interest arrangements are: A. The stock will have to be underpriced by P3 per share. 11% C. What is the Taurus Company’s cost of retained earnings? A. and the dividends are expected to remain constant. 8%. 11. 5. and the firm must pay flotation costs of P30 per bond. D. and Mars must pay flotation costs of 5 percent of the market price. 11.The following data are related to WXY stock: Required return on WXY common Beta coefficient May 9.47 B.69 percent 141. 20-year bonds with annual interest payments. New stock can be sold to net the firm P32. its growth rate is 6 percent and the stock now sells for P36. 9.83 percent C. For 2003. Williams can sell 8% preferred stock at P105 per share. Bee Company increased earnings before interest and taxes by 17%.Mars Company plans to issue some P100 preferred stock with an 11 percent dividend. 12% D.40 per share. If the market return is 16%.5 140. 4. 14% 139. The Leonard Company’s last dividend was P3. The cost of issuing and selling the preferred stock is expected to be P5 per share. and the risk-free rate is 6%. 1. once these retained earnings are Page 30 of 36 . 6. The stock is selling on the market for P97. Discounted 9. 15. The degree of financial leverage that existed during 2003 is A.8%. New stock can be sold to net the firm P32.70 C. In selling the issue. The after-tax cost of funds is estimated to be 4.59% maturity Cost of Capital & Risk 136. B.0 percent C. The term of the loan is one year. Under the terms described below. 7. 15.90 137. 9. During the same period.00.
P200.00 and the company pay P2. A box of muffins costs P2 and sells for P3 through regular stores. how many hours should the first batch take? A. The earnings.Reina. dividends.63 hours B.000 8. retained earnings for Larry Technics.5% 9. are expected to grow at 7 percent per year after this year. 16. X because it has the lowest dispersion 148.14 at the end of the current year. The most relevant technique to assist in determining the proper number docks is A. Queuing theory 147.Dough Distributors has decided to increase its daily muffin purchases by 100 boxes. If Soft expects an 80% learning curve. Inc. the risk-free rate is 8 percent. 57. B.Using the dividend growth model.3% P1. Inc.000 4. what will be the firm’s cost of equity using the CAPM approach? A.27 percent D. B.8% 4. To minimize delays in loading and unloading trucks. and the average return on the market is 12 percent. Linear programming D.75. Cost-volume-profit analysis C. its last dividend was P2. A. Williams’ preferred capital structure is Long-term debt 30% Preferred stock 20% Common stock 50% What are the corresponding weighted-average cost of capital under each financing needs? A.000 6. 10.30 percent 17.000 10% 6. X because it has the highest expected profit.000 The product line to obtain maximum utility for a risk-averse decision maker is A.6 hours D. has a target total labor cost of P3.5% 6.50 flotation cost. 140. Any boxes not sold through regular stores are sold through Dough’s thrift store for P1. Dough assigns the following probabilities to selling additional boxes: May 9. an adequate number of loading docks must be built. X and Y: Probabilit X Profit Y Profit y 20% P5.5% 7. 230. C. If the firm’s beta is 1. the firm will use new common stock as the form of common stock equity financing. 143.05 percent C.30 percent D. 14.? 16.1% Questions 143 & 144 are based on the following information.600 for the first four batches of a product. Labor is paid P10 an hour.8% 4. 360 hours C. 14. Larry’s common stock sells for P23 per share. 15. A company is designing a new regional distribution warehouse. and stock price of Larry Technics.4 hours 146.44 percent exhausted. Y because it has the highest dispersion C.00 percent Quantitative Methods 145. PERT/CPM analysis B. D. 2004 Page 31 of 36 .00 percent B. Larry should pay P2.000. 9. Following is a table for two separate product lines.000 6. Y because it has the highest expected profit D.8% 6.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines 144.44 percent C. B. Pre-week Quizzer what is the expected cost of Inc.000 P 500 70% 3.
6 . Make no bid. If the stand sells soft drinks and the weather is hot. if the weather is cold.900.000. D. If the stand sells coffee and the weather is hot.900 Soft drinks P1.900 Perfect P3. it will make P2.200 P1.000.500. The preparation of the bid proposal will cost about P20.A beverage stand can sell either soft drinks or coffee on any given day. The probability of cold weather on a given day at this time is 60%.960 P2. complex projects by determining the critical May 9. if the weather is cold. P28 C.000 C.600 P1. 2004 Page 32 of 36 .000 profit because the expected value of the payoff is P22. P68 149. The expected payoff for either selling coffee or soft drinks and the expected payoff if the vendor has perfect information are A.A construction contractor has been invited to submit a bid on a large and complicated construction project.000.MANAGEMENT ADVISORY SERVICES Additional sales 60 100 CPA Review School of the Philippines Probability . it will make P1. If the company bids high enough to result in a P100.900 P1.000 profit because the expected value of the payoff is P4. P52 B. D. C. What should the company do? A.360 P1. 150. there would be a 60% chance of getting the job.4 Pre-week Quizzer What is the expected value of Dough’s decision to buy 100 additional boxes of muffins? A. Management feels that if the company bids low enough to result in a net profit of P50. the profit will be P2. Bid high enough to allow for a P100.360 P1.960 Information.200 P3.000.000 net profit. 151.000. planning. B.600 P1. P40 D.000 profit because the expected value of the payoff is P20. Bid only high enough to allow for P50. B.000. and scheduling large.000 P2. the chance of getting the contract would be only 20%.Critical Path Method (CPM) is a technique for analyzing. Bid high enough to allow for a P100. the profit will be P1. Coffee P1.
The company is currently 2 weeks behind schedule on Job 181. Is the shortest path from the first event to the last event for a project. EF 2 weeks B. BC 2 weeks D. Is the maximum amount of time an activity may be delayed without delaying the total project beyond its target time. at the same time. the ability to more easily satisfy the unique needs of users C.500-per-week completion penalty. B. Is an activity within the path that requires the most number of time.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer path from a single time estimate for each event in a project.000 P15.000 19. Path A-B-C-F-G-H-I has normal completion time of 20 weeks. DE 1 week and EF 1week Information Systems 153.600 EF 8. report the highest possible income for the year. 2004 Page 33 of 36 . the assurance the programs will be written in a high-level language May 9.800 19. A major advantage of obtaining a package of applications programs from a software vendor is A. The following activities can be crashed: Activities Cost to Crash 1 Week Cost to Crash 2 Weeks BC P 8. The critical path: A. Is the earliest time to complete the project. D. which is subject to a P10.500 Clara desires to reduce the normal completion time of Job 181 and. BC 1 week and EF 1 week C.Clara Building Corporation uses the critical path method to monitor construction jobs. greater operating efficiency from the computer D.000 DE 10. the likelihood of reducing the time span from planning to implementation B. and critical path A-D-E-F-G-H-I has a normal completion time of 22 weeks. C. 152. Clara should crash A.
122. Bond (debt) 2. 123. 90. The company’s investment banker has quoted the following flotation costs to Gasco: P2. 56. A 10. As of the current balance sheet. The expected dividend is P1. 134. 82. A 15. 33. 66. 113. B 98. 68.80. 23. 103. 109. 126. B 51.000 Kads each year at a selling Page 34 of 36 151. 89. 114. Gasco Co. Gasco sees no need to sell either common or preferred stock in the foreseeable future as it generated enough internal funds for its investment needs when these funds are combined with debt financing. 118. 117. 108. 112. 149. B 6. The preferred stock is currently priced at P80 per share. 24. A A C B B C B C D B C C A D A D C A B C CPA Review School of the Philippines Pre-week Quizzer 21. Gasco’s corporate tax rate is 40 percent. 36. Common equity in the form of retained earnings 4. 2004 152. 28. 53. 54. C B A B A C A D D A C A B C C B C A B A C A B D A C A A A D 31. Andres Company has a single product called Kad. B 100. 138. Gasco has kept its debt at 50 percent of assets and its equity at 50 percent. 29. 135. A B A B A B A B A C C D A B B A C D C D 61. 139. B 14. Compute the cost of capital for the following: 1. and it has no intentions of selling any preferred stock at any time in the future. A 20. 55. 37. C May 9. 119.5 percent noncallable preferred stock outstanding. 86. 144. Preferred stock 3. 104. 72. 128. 142. 127. A 19. 50. 75. 101. A 3. 69. 85. 88. 60. 137. and its dividend per share is P7. B A B A B B B C A B 91. 62. 78. 71. 121. D 96. 22. 52. it has three bond issues outstanding: P150 million of 10 percent series 2013 P50 million of 7 percent series 2007 P75 million of 5 percent series 2004 The vice president of finance is planning to sell P75 million of bonds next year to replace the debt due to expire in 2004.1 percent. D 5. 107. C 95. 48. 105. 143. 83. D 141. C 17. 70. 129. D 93. 38. 46. B 16. 80. 59. 140. 125. 49. 32. 115. 124. 74. 81. 58. is a very large company with common stock listed on the Philippine Stock Exchange and bonds traded over the counter. D 153. but its dividends per share have had a very stable growth rate of 8 percent and this will continue. 25. 147. B 12.MANAGEMENT ADVISORY SERVICES Answer Key 1. 26. A B B A A C A D B A B A D A D C D B D C A C A D A C D A A A 41. 132. C 7. 133. C 94. New common stock 5. 116. 65. 131. Weighted average cost of capital 2. 30.20 per share for common stock. 27. 57. 150. 136. 45. 40. A 4.90 per share. A 99. On the advice of its investment banker. Gasco also has P90 million of 7. 106. C 97. A 8. 148. 44. 120. C A C D C D D C B C COMPREHENSIVE: 1. 76. D 9. 35. 111. 87. 73. Present market yields on similar Baa-rated bonds are 12. 43. 102. B 13. 79. 110. D 2. 47. A . 39. 77. 146. 145. The company normally produces and sells 60. 67. 63. 34. The company has had very volatile earnings. 42. C 18. 64.50 per share for preferred stock and P2. 130. B 11. and the common stock is selling for P40 per share. 84. C 92.
Assume that Andres Company has sufficient capacity to produce 90. What would be the peso advantage or disadvantage of closing the plant for the two-month period? May 9. and costs for permits and licenses would be P9.000 Kads each year without any increase in fixed manufacturing overhead costs.000 total) Variable selling expenses 1.000 Kads on hand that have some irregularities and are therefore considered to be “seconds”. If the plant were closed.30 Fixed manufacturing overhead 5. The company has 1. What would be the effect of the increase in both sales and fixed expenses on the company profit? 2.50 Variable manufacturing overhead 2. The only selling costs that would be associated with the order would be P3. What unit costs figure is relevant for setting a minimum selling price? 4.20 Fixed selling expenses 3.000 Kads. fixed overhead costs would continue at 60% of their normal level during the two-month period. A customer in a foreign market wants to purchase 20. it will be impossible to sell these units at the normal price through regular distribution channels. the fixed selling costs would be reduced by 20% while the plant was closed.MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer price of P32 per unit. Each question is independent.00 Direct Labor 4.000 units each year if it were willing to increase the fixed selling expenses by P80. Andres could close its plant down entirely for the two months.70 per unit. Andres Company has enough material on hand to continue to operate at 30% of normal levels for the two-month period. Due to the irregularities.00 (P300. The company could increasein sales by 25% above the present 60. The company’s unit costs at this level of activity are given below: Direct materials P10. 1. 2004 Page 35 of 36 . Import duties on the Kads would be P1. Assume again that Andres Company has sufficient capacity to produce 90. What is the breakeven price on this order? 3.000 total) A number of questions relating to the production and sales of Kads follow. The strike is expected to last for two months. Andres Company is unable to purchase more material for the production of Kads. As an alternative. Due to a strike in its supplier’s plant.50 (P210.000.000 Kads each year.000.20 per unit shipping costs.
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-week Quizzer 5. however. An outside manufacturer has offered to produce Kads for Andres Company and to ship them directly to Andres’ customers. Since the outside manufacturer would pay for all the costs of shipping. What the unit cost figure that is relevant for comparison to whatever quoted price is received from the outside manufacturer? May 9. the facilities that it uses to produce Kads would be idle. fixed overhead costs would be reduced by 75% to their present value. the variable selling costs would be only two-thirds of their present amount. If Andres accepts this offer. 2004 Page 36 of 36 .
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