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18 Final Preboard Examination October 2017

Economics
1. In which of the following situations would there be an inelastic demand
a. A 5% price increase results in 3% decrease in the quantity demanded.
b. A 4% price increase results in a 6% decrease in the quantity demanded.
c. A 4% price increase results in a 4% decrease in the quantity demanded.
d. A 3% price decrease results in a 5% increase in the quantity demanded.

18. (a) The requirement is to identify which of the situations indicate inelastic demand. Elasticity of
demand is measured by the percentage change in the quantity demanded divided by the percentage
change in price. If the quotient is greater than one, demand for product is price elastic, and if it less than
one, demand for the product is price inelastic. A quotient of exactly one indicates unitary elasticity.
Answer (a) is correct
because the price elasticity quotient is equal to 0.6 (3%/5%). Answer (b) is incorrect because the quotient
is 1.5 (6%/4%). Answer (c) is incorrect because the quotient is 1 (4%/4%). Answer (d) is incorrect
because the quotient is equal to 1.67 (5%/3%).

2.In the long run, a firm may experience increasing returns due to
a. Law of diminishing returns.
b. Opportunity costs.
c. Comparative advantage.
d. Economies of scale.

2. (d) The requirement is to identify the reason for
increasing returns. In the long run firms may experience
increasing returns because they operate more efficiently. With growth comes specialization of labor and
related production efficiencies. This phenomenon is called economies of scale and, therefore, answer (d) is
correct. Answer (a) is incorrect because the law of diminishing returns states that at some point firms get
too large and diminishing returns occur. Answer (b) is incorrect because opportunity cost is the benefit
forgone by the use of a particular resource. Answer (c) is incorrect because comparative advantage deals
with the
production choices of countries.

3.During the recessionary phase of a business cycle
a. The purchasing power of money is likely to decline rapidly.
b. The natural rate of unemployment will increase
dramatically.
c. Potential national income will exceed actual national
income.
d. Actual national income will exceed potential national
income.
3. (c) The requirement is to identify a characteristic of the trough of a business cycle. In the trough of a
business cycle, actual output and income are below potential output and income. Therefore, the correct
answer is (c). Answer (a) is incorrect because purchasing power is not directly related to business cycles.
Answer (b) is incorrect because in a recession it is cyclical unemployment that is high, not natural
unemployment. Answer (d) is incorrect because potential income will exceed actual income

4.Government borrowing to finance large deficits
increases the demand for lendable funds and
a. Increases the supply of lendable funds.
b. Exerts downward pressure on interest rates.
c. Has no impact on interest rates.
d. Puts upward pressure on interest rates.
4. (d) The requirement is to identify the true statement
about government borrowing to finance large deficits. The correct answer is (d) because increased
borrowing by the government increases the demand for money, which puts upward pressure on interest
rates. Answer (a) is incorrect because government borrowing reduces the amount of lendable funds; it
does not increases them. Answer (b) is incorrect because government borrowing exerts upward pressure
on interest rates not downward pressure. Answer (c) is incorrect because government borrowing puts
upward pressure on
interest rates.

5.If the central bank of a country raises interest rates sharply, the country’s currency will most
likely
a. Increase in relative value.
b. Remain unchanged in value.

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c. Decrease in relative value.
d. Decrease sharply in value at first and then return to its initial value.
5. (a) The requirement is to describe the effect of an
increase in the interest rate on a currency’s value. The correct answer is (a) because if the interest rate is
increased investors will be able to get a larger return on investment in the country. Therefore, demand for
the currency will increase for investment purposes, and the relative value of the currency will increase.

Overview Bal Scorecard
6 . Which of the following is not a balanced scorecard category?
a. financial measures
b. environmental measures
c. business process measures
d. personnel measures
7. A primary purpose of a balanced scorecard is to give
a. managers a way to judge past performance.
b. stockholders a way to judge current
performance.
c. managers a way to forecast future performance.
d. stockholders a way to tie strategy to profitability.
8. In a balanced scorecard, measurements should be directly linked to
a. organizational strategy and values.
b. the cost management system.
c. current organizational profitability.
d. activity-based management concepts.
9. 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
Texas Division of the Houston Company has the following statistics for its most recent
operations:

Assets available for use (Market Value) P3,600,000
Assets available for use (Book Value) P2,000,000
Texas Division's return on investment 25%
Texas Division's residual income 200,000
Return on investment (entire Houston Company) 20%

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000) 6.000) ANS: D EVA = After Tax Net Income . Inc.100 machine hours Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1.000. ANS: B 7. ANS: C 8.60) . According to the cost formula.(.200 – X) = P3 => P300 = P3 × (1.000 b. If the high level of activity was 1.600 − P7. used the high-low method to derive its cost formula for electrical power cost. where X = low level of activity => P300 ÷ (1.360.000 .200 – X) => P100 = P1. a.300) ÷ (1. what does the “X” represent? A) total cost B) total fixed cost C) units of activity D) variable cost per unit Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking 12.000 * . P 90. In the standard cost formula Y = a + bX.10 x P3. Refer to Houston Company.25) x .(Cost of Capital x Market Value of Assets) EVA = ((P2. P 150. Larson Brothers. Total electrical power cost at the high level of activity was P7.300.000 c..600 and at the low level of activity was P7.000) EVA = P(60.000 machine hours D) 1. the variable cost per unit of activity is P3 per machine-hour. Compute EVA assuming the cost of capital is 10% and the tax rate is 40%. P (60.600.200 machine hours.200 – X => X = P1.10.3 Level: Hard Solution: Variable cost = Change in cost ÷ Change in activity = (P7.000) EVA = P(300.200 − X) = P3. then the low level of activity was: A) 800 machine hours B) 900 machine hours C) 1. ANS: C Cost Behavior 11. ANS: A 9. P0 d.100 3 .

.686 P23.400 − P10..........765 P23..00 per Direct materials..00 per P6...........600........ Supply costs at Coulthard Corporation's chain of gyms are listed below: Client-Visits Supply Cost March..........600.... 12.....000 P6..000 units P4..600.........496 October..13.........50 + P2. P7.742 June.....600....... P4...50 B) P3.850 P23.. P7.. 12.562 September..40 = P9.....90 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1............000) = P7.......493 P23.. Production volume......000 units 2...20 per Manufacturing overhead...90 There are no fixed direct materials or direct labor.018 P23..278 May.........00 P10........ 1.50 per Direct labor...000) = P2...... P3...... 12..................855 P23....400 − (P2.. adapted Solution: First....... 12.794 P23...00 + P3. P9. P9..50 D) P7... calculate the variable manufacturing cost per unit: Total Manufacturing Production Average Overhead Cost (units Volume Cost per × average cost per (Units) Unit unit) High activity level....3 Level: Hard Source: CIMA....104 P23.000) ÷ (2.......000 – 1...50 per unit unit P10....687 4 ..607 July.....20 P12..... 13.. 12.. unit unit The total fixed manufacturing cost and variable manufacturing cost per unit are as follows: A) P3...283 P23......40 × 2. so the total fixed costs would be equal to the fixed cost portion of manufacturing overhead.541 November...600 Total variable cost per unit = Direct material + Direct labor + Variable manufacturing overhead = P4.. 14... 12..000 P10. 1.. 12......... 13.00 per unit unit P3.............598 April. or P7..40 Fixed cost element of manufacturing overhead = Total cost − Variable cost element = P12............ The following production and average cost data for a month's operations have been supplied by a company that produces a single product..............600......................000 Variable manufacturing overhead cost = Change in cost ÷ Change in activity = (P12.400 Low activity level......415 August...... 2..90 C) P7.

50X C) Y = P91. the degree of operating leverage is 10. P16.23X B) Y = P97..57 per client-visit.104) = P16. P557 per month C) P0.85 per client-visit... Using the high-low method to estimate the variable and fixed components of this cost.000 sales level.57X 15.273 + P0. At a P300. 24 4 Using the least-squares regression method.283) = P0. P23.57 Fixed cost element = Total cost − Variable cost element = P23.. those estimates would be closest to: A) P1.. or Y = P16.579 per month D) P0.000. Your boss would like you to estimate the fixed and variable components of a particular cost.....11X Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 5A LO: 5 Level: Hard Solution: The solution using Microsoft Excel functions is: slope = P6. Management believes that supply cost is a mixed cost that depends on client- visits.00 per period CVP 16..547 per month B) P1.. the degree of operating leverage will be: A) 12 B) 10 C) 6 D) 4 5 .. the cost formula for total maintenance cost is P16...742 − (P0. 26 9 P28 Period 2.57 per client visit.00 + P10.273 per month Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Variable cost = Change in cost ÷ Change in activity = (P23. Holt Company's variable expenses are 70% of sales.10 + P5. Actual data for this cost over four recent periods appear below: Activity Cost P26 Period 1.72X D) Y = P99. 29 5 P25 Period 3..273 Therefore.00 + P6.273 per period plus P0.77 per client-visit.55 per client-visit.50 per activity unit intercept = P97.278) ÷ (13.57 × 13. 25 6 P25 Period 4. P16. what is the cost formula for this cost? A) Y = P0.40 + P6. If sales increase by P60.104 − 12.....742 − P23..

......Net operating income P90...........000 P360..000 × 70%)....00 Sales (P300..............000 Contribution margin.... 0 Variable expenses (P300................000 = P81......000 Contribution margin = Fixed expenses .......000 = 4.....000 Contribution margin............... 108..000 ......000 Fixed expenses.....000 Degree of operating leverage = Contribution margin ÷ Net operating income = P108....000 Net operating income. 0 Variable expenses (P360... 81....... 8 Level: Hard Solution: P300. 90.......000 Fixed expenses............ P ? Current degree of operating leverage = Current contribution margin ÷ Current net operating income 10 = P90......000 ÷ Current net operating income Current net operating income = P90.....................................................................Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3....000/P27.......000 = Fixed expenses ..........000 + P60...0 6 ..000 × 70%).............. 210.............P9..... P 27......000 Fixed expenses = P90.....000)...... ? Net operating income................ 252.P9....000 ÷ 10 = P9......00 Sales..................

................000 283.....200 Contribution margin.440 Contribution margin (P738.....000 C) P88.000 per month.........000 units 5.............. Gayne Corporation's contribution margin ratio is 12% and its fixed monthly expenses are P84..900 units Sales (5............. 48 30% Contribution margin.................... 5...900 units × P48).........900 units × P147)..000 units × P48..000 532..900 7 .100 = P8. P 61.....900 C) increase of P99...100 Decrease in net operating income: P61.000 P867............440 B) P654.... P112 70% Fixed expenses are P499........ P160 100% Variable expenses..... 560.........100 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy Solution: 5.............. 5.... 84.........000 P 52....000 Net operating income.000 ...... 88......560 18.....560 Fixed expenses. Cobble Corporation produces and sells a single product... A) P565.. P800.....000 × 12%)....00 Sales.....560 D) P4................ 499.................000.....000 per month...... If the company's sales for a month are P738........ what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change. Data concerning that product appear below: Per Unit Percent of Sales Selling price.17. P 4..........................000...000 units × P160... What should be the overall effect on the company's monthly net operating income of this change? A) increase of P56..............000 × 88%).... 649...P52.... The marketing manager predicts that these two changes would increase monthly sales by 900 units... 240...300 Variable expenses (5.... The company is currently selling 5...........000 units per month..560 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: P738.....000 584.......... The marketing manager would like to cut the selling price by P13 and increase the advertising budget by P33....100 Fixed expenses.100 B) decrease of P8.. 0 Variable expenses (P738..000 Net operating income........300 D) decrease of P56.....

55....000 P 26......) 8 .....000 sets and sold 780.......667 B) P203..295 Q = P308.50Q + P308.. C) whether fixed manufacturing costs and fixed selling and administrative costs should be included as product costs....00 Variable expense per unit... 5 The break-even in monthly unit sales is closest to: A) 2.. In its first year of operations...... P73..000 The break-even sales for the month for the company are: A) P91..000 Fixed expenses..000 148....50 P308.000 Net operating income...00Q = P73...000 P63.. Data concerning that product appear below: Selling price per unit..000 27.000 P130..........030 C) 4. D) none of these..... The principal difference between variable costing and absorption costing centers on: A) whether variable manufacturing costs should be included as product costs.. P150.000 C) P148...... P 93..295 + P0 P76.. 91....29 Fixed expense per month..... Bronfren Corporation produced 800.426 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: Sales = Variable expenses + Fixed expenses + Profit P150........50Q = P308.000 P90....... Borich Corporation produces and sells a single product....000 D) P137.000 Contribution margin....030 units Var Full Costing 21...... B) whether fixed manufacturing costs should be included as product costs.. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20....295 ÷ P76. 19..000 222..50 per unit = 4..055 B) 4..500 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5... The following data are available for the Phelps Company for a recent month: Product A Product B Product C Total P370.. P150....000 0 Variable expenses....000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.........194 D) 3... 9 Level: Medium 20...00 Sales. Ans: B AACSB: Analytic AICPA BB: Critical Thinking 22......000 104....000 sets of artificial tan lines.. P 59.

adapted Solution: Change in inventory × Fixed manufacturing costs per unit = 100 × P2 = P200 decrease 9 . Fleet Corporation produces a single product.00 per unit and fixed manufacturing costs were P2. The company manufactured 700 units last year. What would be the change in the peso amount of ending inventory if variable costing was used instead of absorption costing? A) P800 decrease B) P200 decrease C) P0 D) P200 increase Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CMA. Variable manufacturing costs were P6. The ending inventory consisted of 100 units. There was no beginning inventory.00 per unit. Variable costing Absorption costing A) Increase Increase B) Decrease Increase C) Decrease Decrease D) No effect Decrease Ans: D AACSB: Analytic AICPA BB: Critical Thinking 23.

What investment is required in the project? A) P74.340 B) P77.000 = P55.000 × P3 = P15.200 units D) 11. the company had net operating income of P40. respectively. this means that: A) the net present value of the project is equal to zero.000 cash inflow the first year and a P50. B) the internal rate of return of the project is equal to the discount rate.000 units during the year. then how many units did the company produce during the year? A) 8. D) both A and B above are true.200) units Units produced = Units sold + Change in inventory = 10. If production cost was P11 per unit under absorption costing.) Heap Company is considering an investment in a project that will have a two year life. and is expected to have a P40.000 cash inflow in the second year.000 D) P55. The project will provide a 10% internal rate of return. The company sold 10.660 10 .000 − 22.000 B) P25.200 units B) 8. of which P1 was variable selling expense. Suture Corporation's discount rate is 12%. and its variable costs were P9 per unit.600 lower than under variable costing.000 and 27.000 + P15. Ans: D AACSB: Analytic AICPA BB: Critical Thinking 27.800 Cap Bud 26.00 per unit. (Ignore income taxes in this problem. what was the income using absorption costing? A) P15.200) = 8. Last year. Blake Company produces a single product.800 units Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Hard Solution: Direct material + Direct labor + Variable manufacturing overhead = Variable unit product cost = P9 – P1 = P8 Unit fixed manufacturing overhead = P11 – P8 = P3 Difference in net income between methods ÷ Unit fixed manufacturing overhead = (P3.000) × P3 = 5.800 units C) 11.000 + (1. Swifton Company produces a single product.000 Net income under absorption costing = P40.000 units. Blake's net operating income under absorption costing was P3.000 25. If Suture has a 5-year investment project that has a project profitability index of zero.000 using variable costing. C) the payback period of the project is equal to the project's useful life. 24. If the fixed manufacturing overhead cost was P3. Beginning and ending inventories were 22.000 C) P40. Last year.600) ÷ P3 per unit = (1.000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Solution: Difference between absorption costing net income and variable costing net income = Change in inventory in units × Unit fixed manufacturing overhead = (27.

000 0........ The only cash outflow for this project is the initial investment.000 0.. C) P81.2 Level: Hard 11 .810 D) P90...909 P36.464 C) P50. 1 40.. the initial investment should be equal to the present value of the cash inflows.. What is the net present value of this project? A) P5. (Ignore income taxes in this problem. Congener's discount rate is 16%......826 41...660 For the net present value of this project to be zero. or P77.....300 Net present value.700 D) P55.2 Level: Hard Source: CMA... 2 50....360 Cash inflow−2nd year.... P77.000 per year in each of the 8 years. The project is estimated to have an 8 year life and no salvage value.) Congener Beverage Corporation is considering an investment in a capital budgeting project that has an internal rate of return of 20%. Cash inflows from this project are expected to be P100.831 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1.000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1. adapted Solution: Year(s) Amount 10% Factor PV Cash inflow−1st year. 28.660..215 B) P15..

.000 ) Annual net cash receipts.700 (P383.....200 D) P5.. P 50. Now ) 1.......400 Net present value.....700 Initial investment............ The company makes a contribution margin of P0.700 per year to operate.......837 = Initial investment ÷ P100..02 per donut..000..... an additional 10.700 − P2..... which costs P2..........02 × 10.. 3......000 4... Also...... as opposed to the old machine.... Year(s) Amount 16% Factor PV (P383...837.. P400 12 . the factor is 3..400 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard Solution: Operating cost savings per year (P2..000 and the new machine costs P25.....000 Initial investment = P383....... (Ignore income taxes in this problem.) The Able Company is considering buying a new donut maker..000)... 200 Incremental annual net cash inflows provided by new machine...700 29.... Substituting into the above equation... The incremental annual net cash inflows provided by the new machine would be: A) P200 B) P400 C) P5........... 1-8 P100.500)...... This machine will replace an old donut maker that still has a useful life of 2 years..... Solution: Internal rate of return factor = Initial investment ÷ Annual inflows Look up the factor in the table Present Value of an Annuity of P1 in Arrears for 8 periods..344 434.... P200 Additional contribution margin provided by the new donut maker (P0...... 20% column. The new machine will cost P2.000 donuts a year can be produced...... The old machine can be sold for P5.700.. because of increased capacity.500 a year to operate.....

30..710 C) P25... The estimated cost of common stock equity is (a) 6 percent.... 1-6 ? 3..... the annual cash inflow from the project after the initial investment is closest to: A) P50... ? Salvage value..00 Initial investment....600 − (-P80. (Ignore income taxes in this problem.000 (P80.... A firm has a beta of 1....116 B) P21.... set up table: Year(s) Amount 16% Factor PV Initial investment. (b) 7....400 Cost of Cap 31.60 Net present value............ solve for the annual cash inflow: Annual cash inflow × 3......376 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard Solution: First...... 0 Annual cash inflow...... 16% Based on the data given above........400 D) P38...) Given the following data: P80.................6 percent..2 percent..... (d) 15... P0 P13..... (c) 14 percent...685 = P93.......600 Second...685 ? Net present value....000) Annual cash inflows.000) = P93......600 Finally. solve for the present value of the annual cash inflow: PV of annual cash inflow = P13.000 1........... 6 years Discount rate. The market return equals 14 percent and the risk­free rate of return equals 6 percent....... P13...2.... Answer: D 13 ....600 Annual cash inflow = P25. Now P80... 0 Life of the project.

A firm has determined its cost of each source of capital and optimal capital structure. which is composed of the following sources and target market value proportions: Target Market Source of Capital Proportions After­Tax Cost Long­term debt    40%      6% Preferred stock 10 11 Common stock equity 50 15 The weighted average cost of capital is (a) 6 percent. Given that the cost of common stock is 18 percent. Answer: C 34.50 per share. (c) 11 percent. (d) 15 percent.7 percent. (d) 8 percent. A firm has common stock with a market price of P25 per share and an expected dividend of P2 per share at the end of the coming year. (b) 10. which is composed of the following sources and target market value proportions: Target Market After­Tax Source of Capital Proportions Cost Long­term debt 45%      5% Preferred stock 10 14 Common stock equity 45 22 14 . and the  price of the stock is P12. Answer: D 33. dividends are P1. Answer: C 35. The cost of the firm’s common stock equity is (a) 5 percent. (d) 13 percent. what is the annual growth rate of dividends? (a) 4 percent. (c) 10 percent. The growth rate in dividends has been 5  percent. (b) 5 percent. (c) 6 percent.32.50 per share. (b) 8 percent. A firm has determined its cost of each source of capital and optimal capital structure.

74/(P1. 12.e.95 37. The firm has P10 million in bonds outstanding with a coupon interest rate of 9%.66 EBIT = P32. 4.8 million and its variable cost ratio is 0.83 39. (b) remain unchanged. The firm has revenues of P32.95 d.2 . 26.9) = 2. 5. 29. decreases b. 2.66 = P1.07 c. The firm has P10 million in bonds outstanding with a coupon interest rate of 9%.54 Answer: c Topic: Degree of operating leverage Solution: VC = P32.30.000 shares of common stock outstanding.2 ..000 shares of common stock outstanding.09 d.2 million and its marginal tax rate is 40%.22 b.30) = 9.2(0.P9.07 38. Kermit's Hardware’s (KH) fixed operating costs are P20.9) = 26. Kermit's Hardware’s (KH) fixed operating costs are P20. 1.7 Answer: a Topic: Degree of combined leverage Solution: DCL = 12. Compute KH's degree of combined leverage.74 DOL = (P32.19 c. 1. (d) not be able to be determined. Compute KH's degree of financial leverage.95 x 2.8 b.8 million and its variable cost ratio is 0. 1.66 = P1.P20.P9. a. 5. The firm has revenues of P32. The use of increasing amounts of combined leverage _____ the risk of financial distress.P0.81 b.66)/(P1.04 Answer: b Topic: Degree of financial leverage Solution: EBIT = P32.1 d.8 million and its variable cost ratio is 0.74 = 12.000 shares of common stock outstanding. has no effect on 15 .5 c. a greater percentage of debt in the capital structure). increases c.P20. KH has 200. The firm has revenues of P32. 14. KH has 200.8 .8 .07 = 26. Kermit's Hardware’s (KH) fixed operating costs are P20. a. The firm has P10 million in bonds outstanding with a coupon interest rate of 9%.74 .8 Check: DCL = (P32.66)/P1. (c) decrease. Answer: C Lev and Cap Struc 36. Compute KH's degree of operating leverage. the weighted average cost of capital would (a) increase.2 million and its marginal tax rate is 40%.P9.2 million and its marginal tax rate is 40%.74 . KH has 200.74 DFL = P1. a.30.2 .2 .30. If the firm were to shift toward a more leveraged capital structure (i. 4.P0.P9. a.

No.P33. Yes. what is the increase in the firm's average cash balance? Assume 365 days per year. a. then its cash conversion cycle must be ______ days. EPS resulting from a given percentage change in EBIT Answer: d Mgt CA 41.3 percent? a.756 million 45. savings of P33. What is the increase in the average cash balance if the use of a lock box system is believed to reduce the collection time by 4 days? a.000 and it takes the firm 5 days before it can completely process those checks.000/365)(4) = P4.640 d. and its receivables conversion period is 50 days. 90 c. none of the above Answer: b Topic: Reduction of processing float Solution: Increase in cash balance = P110. 16 .280 d. savings of P44. Lexicon has a daily average check collections of P180. savings of P11. cannot be determined from information given Answer: a Topic: Operating cycle analysis Solution: CCC = 45 + 50 . has annual sales of P434 million. An automated lockbox system that costs P33. creates diversity in Answer: b Topic: DCL 40. If Zycad reduces their processing float by 3 days. Inc.667 b. a policy of holding a relatively ______ proportion of the firm's total assets in the form of current assets will tend to result in a ______ risk of the firm encountering financial difficulties. loss of P10. An average of 12 days elapses between the time a customer mails a payment and the time the funds are available to Jester. P49.6 million c.420 c.000(2)(0. Yes.180 d. 60 b. P 4. EBIT resulting from a given percentage change in EPS d. d. Yes.860 Answer: c Topic: Lockbox Solution: Lockbox savings = P180.110 43. P872.123) .000.35 = 60 days 42. Zycad has sales of P110 million a year. P916.110 c. The degree of financial leverage is defined as the percentage change in a. P904.76 million b.000.280 44.000/365 x 3 = P904. a. P 9. EBIT resulting from a given percentage change in sales b.000 = P11. P633.5 million Answer: a Topic: Lock box Solution: Increase = (P434. EPS resulting from a given percentage change in sales c. If Swatch's inventory conversion period is 45 days. 30 d. Should Lexicon invest in this system if the opportunity cost of short-term funds is 12.280 b. All other things being equal.000 a year would reduce the processing time by 2 days. its payables deferral period is 35 days. Jester.

none of the above Answer: a Topic: Cost of bank loan with compensating balance requirements Solution: AFC = P40.3% 50. Inc. large.1% c.111 47. a.3% b.5% commitment fee on the unused portion of the credit line. a. higher d.005)]/P3. constant.12) + (P6. Determine the annual financing cost of foregoing a cash discount under credit terms of 3/10.600. The firm is required to maintain a 10 percent compensating balance on any funds borrowed under this agreement and to pay a 0. a. Stephens Metals Company has a revolving credit agreement with its bank permitting it to borrow up to P25 million at an annual interest rate of 12%. 24.3)] x 365/(120 . Determine the annual financing cost to Gooden Foods of borrowing P4 million.0% c. 14.8% d. 14.83% b. 3. Melody Dairy has a line of credit with its bank. Syntech is offered credit terms of 2/10. 13. constant.1% b. none of the above Answer: b Topic: Cost of trade credit Solution: AFC = (2/98) x 365/(45 . higher b. 18. Stephens is required to maintain a 10% compensating balance on any funds borrowed under this agreement and to pay a 0. 10.000 at a rate of 10 percent. lower Answer: b Mgt CL 46. Gooden Foods. 30% Answer: a Topic: Cost of trade credit Solution: AFC = [3/(100 .2128 49. 10. 9. Determine the annual financing cost to Melody of this loan.3% b.000 = 0. has a revolving credit agreement with its bank under which it can borrow up to P10 million at an annual interest rate of 12 percent.000(0. net 4 months.000)(0. What is Syntech's cost of foregoing the cash discount? a. small. none of the above Answer: c Topic: Cost of bank loan with compensating balance requirements Solution: AFC =[P4.000 balance at the bank that can be used to meet the 17 .142 48.000 in its account at the bank that can be used to meet the compensating balance requirement. The firm plans to borrow P400.62% d. 11. 21. 11. The bank requires a 15 percent compensating balance and the firm currently maintains P20.7% c.2% d.000. higher c.5 percent commitment fee on the unused portion of the credit line.10) = 0.10) = 10.000 = 0. a. Assume 30 days per month and 365 days per year. The company maintains a P500. net 40.1% d. but decides to forego taking the cash discount and pays on the 45th day.000/P360.000.28% c.

3% b. and a dividend payout ratio of 0.1% d. none of the above Answer: a Problem type: Ratio manipulation Solution: NPM = 15% / 8 = 1.875% 54. 1.000. selling bonds and investing the proceeds in marketable securities c. P42 c.20 per share.20/0. For the coming year.5% d.05% d. sales of P740.0 Price = P/E (EPS) = 14(P3) = P42 52. has a P/E of 14.5% c.000] = 13. a net profit margin of 6. P5 d. 12. No safety stock is maintained. If a firm has a total asset turnover of 8 times and a return on total assets of 15%. Its carrying costs for a year are P2 per ounce. a.1% FS Ana 51. 13.4 = P3. Precious Jewels Corporation produces quality jewelry items for various retailers.000.000. a and b Answer: d Topic: Current ratio 55. 26. its net profit margin must be a. 13. What is the market price of a share of stock for a firm that pays dividends of P1.875% b.9% c. 16.000 . The current ratio would normally be increased by a. and a total asset turnover of 4? a.0% b. 13. P20 c. what is the cost per order? a.95% c. If the EOQ is 100 ounces.10(P20. 000) + P500. Determine the annual financing cost of borrowing P20 million under this revolving credit agreement. P28 Answer: b Problem type: Ratio manipulation Solution: EPS = DPS/payout = P1. 2.4? a.0.0% Answer: c Topic: Cost of revolving credit agreement Solution: AFC = (P2. 1. P25 18 . What is the return on investment for a firm that has a debt ratio of 0. P3 d.000 commitment fee)/ [P20.80 b.5%. P40 b. buying treasury stock d. compensating balance requirement.400.000 interest + P25. none of the above Answer: a Problem type: Return on investment Solution: Return on investment = Total asset turnover times net profit margin 53. paying off some current liabilities with cash b. it has estimated it will consume 500 ounces of gold. 6.65. P16.

.. The remainder is uncollectible.... 245.000 × 20%)...000 D) P292.........000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: April sales (P250... D) the production budget....000 Fourth Quarter. it must a.............000 B) P313........000 × 70%).....000 units..... Betz Company's sales budget shows the following projections for next year: Sales in units First Quarter.00 P250..........000 = 500x P20 = x 56. C) the sales forecast or sales budget.000 × 6%)....... and 6% in the second month following sale..... 60.........000 Total........ decrease its equity multiplier b........ P 50.. increase sales and increase assets d..... 80.000 Third Quarter... The usual starting point for a master budget is: A) the direct materials purchase budget.. increase its equity multiplier c..000 59.......... The finished goods inventory at the end of each quarter is to equal 30% of the next quarter's budgeted unit sales...ANS: B EOQ = 100 = 10..... If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined..000 March sales (P350..... How many units should be produced during the first quarter? 19 .. P313.... 0 0 0 0 Cash collections in April are budgeted to be: A) P321.....00 Budgeted sales..00 P350. B) the budgeted income statement.... Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking 58..... Pitkins Company collects 20% of a month's sales in the month of sale......000 C) P320... 70% in the month following sale.................. 45. Budgeted sales for the next four months are: January February March April P200.. reduce sales and increase assets Answer: b Topic: Return on stockholders’ equity Budgeting 57.00 P300.000 February sales (P300..000 Inventory at the beginning of the year was 18. 55......... 18.000 Second Quarter.

. MJ wants a merchandise inventory balance equal to 30% of the following month's expected sales... MJ Department Store expects to generate the following sales figures for the next three months: July August September P480. adapted Solution: Return on investment = Margin × Turnover = 25% × 0.. adapted Solution: Units produced = Ending inventory + Units sold + Beginning inventory = (30% × 80..00 P560.000) + 60...000 B) 48..000 − 18.000 + P308.000 × 55%) − [(P560..000 D) 72..400 B) P314.5% C) 15.5% 20 .800 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Hard Solution: Inventory cost is 55% of sales pesos (1 – 45% gross profit rate) Inventory purchased = Ending inventory + Sales − Beginning inventory = [(P600...5 times What is Spar's return on investment for this investment center? A) 50.0% D) 25.......000 × 30%) × 55%] = (P180.....000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Source: CPA... 0...000 − 18. stated at cost.000 × 55%) = P99.600 Perf Mea Bal Scorecard 61. 0 0 P600...000 = 24....00 Expected sales.000 = 66... What peso amount of merchandise inventory should MJ plan to purchase in August? A) P257..400 = P314.5 times = 12.. 25% Turnover.000 MJ's gross profit rate is 45% of sales pesos. Spar Company has calculated the following ratios for one of its investment centers: Margin.. A) 24.000 C) 66.000 − P92. At the end of each month.600 C) P320.0% Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Source: CPA.000 60...000 + 60..000 × 55%) + P308.0% B) 12.000 D) P327....000 × 30%) × 55%] + (P560.000 − (P168.

...700............. the Commercial Products Division had average operating assets of P970...... In January....000 = P29 + P10 = P39 ABM 21 ... Data concerning this part appear below: Selling price to outside customers.00 Total fixed costs..... Division A is already selling all of the units it can produce to outside customers. P30 P10. Division B currently purchases a similar part made by an outside company for P38 per unit and would substitute the part made by Division A... Reporting Appendix: 12A LO: 4 Level: Hard Solution: Transfer price ≥ Variable cost per unit + (Total contribution margin on lost sales ÷ Number of units transferred) = (P30 − P1) + [(P40 − P30) × 5. 20...........900 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Residual income = Net operating income − (Average operating assets × Minimum required rate of return) = P143...118 D) -P7...... The company's minimum required rate of return is 14%..900 Resp Acctg Transfer Pricing 63...... What was the Commercial Products Division's residual income in January? A) P7.....700 − (P970.....700 − P135...900 B) -P20..............000] ÷ 5. What is the lowest acceptable transfer price from the standpoint of the selling division? A) P40 B) P39 C) P38 D) P37 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making....000 and net operating income of P143....800 = P7....000 × 14%) = P143.000 units of the part each period... Division A makes a part that it sells to customers outside of the company.. Division B requires 5. P40 Variable cost per unit... 62. the variable cost per unit would be P1 lower.......... If Division A sells to Division B rather than to outside customers.... Mike Corporation uses residual income to evaluate the performance of its divisions...118 C) P20... 0 Capacity in units.........000 Division B of the same company would like to use the part manufactured by Division A in one of its products.........

.......... If the materials handling cost is allocated on the basis of direct labor-hours...........000 DLHs Total..000 units × 9 DLHs per unit........... 6 9 The total materials handling cost for the year is expected to be P6..........449 B) P4............... 6...000 DLHs (a) (b) (a) ÷ (b) Activity Cost Pool Total Cost Total Activity Activity Rate Direct labor-hours P6...000 Total expected material moves................. 63..... adapted Solution: Total Direct Labor-Hours Wall Mirrors: 6..........Use the following to answer questions 64-65: The controller of Hendershot Company estimates the amount of materials handling overhead cost that should be allocated to the company's two products using the data that are given below: Wall Mirrors Specialty Windows Total expected units produced.... 500 100 Expected direct labor-hours per unit.........................60 63. 36.......................... 64.....000 units × 6 DLHs per unit..0972 per DLH 36..499 22 .....062 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3....499 D) P3..000 DLHs P3..60......144 C) P3... 27.000 3......0972 per DLH Materials Handling Cost for Wall Mirrors: (a) (b) (a) × (b) Activity Cost Pool Activity Rate Total Activity ABC Cost Direct labor-hours P.123................. how much of the total materials handling cost would be allocated to the wall mirrors? (Round off your answer to the nearest whole peso...4 Level: Easy Source: CMA.........000 DLHs P....123..........000 DLHs Specialty Mirrors: 3.....) A) P2...

... Lion Company's direct labor costs for the month of January were as follows: Actual total direct labor-hours... 20... 0 What was Lion's direct labor efficiency variance? A) P6...206 per move *500 + 100 = 600 moves Materials Handling Cost for Specialty Mirrors: (a) (b) (a) × (b) Activity Cost Pool Activity Rate Total Activity ABC Cost Material moves P10.000 Direct labor rate variance—unfavorable.062 D) P1.. recorded the following entry in its general ledger: Work in Process 6...206 per move 100 moves P1..123. D) the actual price paid for the materials used in production was greater than the standard price allowed. adapted 23 ......000 Material Quantity Variance 500 Raw Materials 6. 65... how much of the total materials handling cost would be allocated to the specialty windows? (Round off your answer to the nearest whole peso.....150 favorable C) P6..980 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3. Richter Corp.........4 Level: Easy Source: CMA..021 Std Cost Var Ana 66...674 C) P3. B) less materials were used in production during the period than was called for at standard...000 favorable B) P6.....) A) P1. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking 67.... If the materials handling cost is allocated on the basis of material moves.60 600 moves* P10.........000 Standard total direct labor-hours. C) the materials quantity variance for the period was unfavorable...000 P126. adapted Solution: (a) (b) (a) ÷ (b) Activity Cost Pool Total Cost Total Activity Activity Rate Material moves P6.. P3...300 favorable D) P6...00 Total direct labor cost.021 B) P3.....450 favorable Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard Source: CPA. 21.....500 The above journal entry indicates that: A) the materials quantity variance for the period was favorable.

. 29.............. 30...................000 − 29. 5.000 − (30...........000 = 20.......000) = P6..... Information on Rex Co.......000 favorable Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard Source: CPA.000 ÷ 20.......... P3. 6.......... 0 per hour The following data pertain to operations for the last month: Actual hours....... What is the variable overhead spending variance for the month? A) P336 F 24 ...000 Standard quantity of direct materials allowed for May production.......000) Standard price = P3 Materials price variance = (Actual quantity × Actual price) − (Actual quantity × Standard price) = P84...800 unfavorable C) P6... 0 Unfavorable direct materials quantity variance.200 units 69..........32 Actual total variable overhead cost.000 unfavorable D) P6.1 Standard variable overhead rate....... what was Rex's direct materials price variance? A) P2............30 Labor rate variance = Actual hours × (Actual rate − Standard rate) P3.30 − Standard rate) Standard rate = P6..15 Labor efficiency variance = Standard rate × (Actual hours − Standard hours) = P6...........................000 = Standard price × (30..'s direct material costs for May follows: Actual quantity of direct materials purchased and used............ Solution: Actual rate = Direct labor cost ÷ Actual direct labor-hours = P126......... 1..000 pounds For the month of May.00 Actual cost of direct materials...800 favorable B) P2......000 − 21.. adapted Solution: Materials quantity variance = Standard price × (Actual quantity − Standard quantity) P3......000 pounds P84.2 hours P14.000 × (P6....... 0 Actual output.......150 favorable 68.........15 × (20....000 favorable Use the following to answer questions 69-70: The following standards for variable manufacturing overhead have been established for a company that makes only one product: Standard hours per unit of output.....000 × P3) = P6............................000 = P6.................400 hours P88.

10) = P1.920 U Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy Solution: Variable overhead spending variance = (Actual hours × Actual rate) − (Actual hours × Standard rate) = P88.920 F D) P1.400 × P14.320 − (6.B) P336 U C) P1.920 favorable 25 .

70.240) = P2.200 = 6.10 × (6. What is the variable overhead efficiency variance for the month? A) P2.256 unfavorable 26 .2 × 1.400 − 6.208 U Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy Solution: Standard hours = Standard hours per unit × Actual output = 5.256 U C) P1.240 Variable overhead efficiency variance = Standard rate × (Actual hours − Standard quantity) = P14.208 F B) P2.872 U D) P2.