CPAR CPA REVIEW SCHOOL OF THE PHILIPPINES Manila MANAGEMENT ADVISORY SERVICES ‘Saturday, July 28,2018 First Pre-board Examination 4:30 pm to 4:30 pm Set A Instructions. Choose the BEST answer for each of the following items. Mark only one answer for each item on the Special Answer Sheet provided, Strictly no erasure allowed. Use Pencil No. Loniy. A. All of the folowing are compiementary goods except x a. Margarine and butter ¢. Toothbrush and toothpaste b. Pen and paper d. Razors and razor blades Items 2 and 3 are based on the following information: Keren Panday wents to establish an environmental testing company that would specialize in evaluating the quality of water found in rivers and streams. However, Panday has discaverad that she needs either certification or approval from five separate local and state agencies before she can commence business. Also, the necessary equipment to begin would cost several million dollars. Nevertheless, Panday believes that if she is able to obtain capital Tesources, she can gain market share from the two major competitors. 2, The large capital outlay necessary for the equipmentiis an example of a(n) a. Entry barrier. ¢, Created barrier, b. Minimum efficient scale. d.) Production possibility boundary. 3. ‘The market structure Karen Panday is attempting to enter Is best described as a. A natural monopoly. <. Anoligopoly b. Acartel. 4, Monopolistic competition 4. Sam Company has fixed costs of P280,000. It produces two products, R and M. Product R has @ variable cost percentage equal to 60% of its P10 per unit selling price. Product M has 2 variable cost percentage equal to 70% of its P30 selling price. For the pest several years, sales of Product R averaged 66 2/3% of the sales nf Product M. The ratio is not expected to change. How many units of Product M will Sam sell at the break-even point? 5 a. 40,000 units ¢. 16,520 units x b. 16,000 units dy 24,000 units Ve ee ITEMS 5 10 7 ARE BASED ON THE FOLLOWING: Mr. Aldito Antonio is considering investing in @ vending machine operation involving 50 vending machines located in various malls around the city. The machine manufacturer reports that similar vending machine routes have produced a sales volume ranging from 500 ‘to 1,000 units per machine per month. The following information is made avallable to Mr. Antonio in evaluating the possible profitability of the operation, a. An investment of 25,000 will be required, P7,000 for merchandise and P18,000 for the 50 machines, i} b. The machines have a service life of five years and no salvage value at the end of that period. Depreciation will be computed on the straight line basis. c. The merchandise (candies) retalls for an average of P0.15 per unit and will cost Antonio an average of PO.06 per unit, d, Ovmers of the building in which the machines are located are paid @ commission of 0.03 per unit of candy sold. One man will be hired to service the machines. He will be paid P700 per month. Other expenses are estimated at P200 per month. These expenses do not vary with the number of units sold, =oMANAGEMENT ADVISORY SERVICES ‘Saturday, July 28, 2018 First Preboard Examination Page 2of 12 © 5. The estimated break-even point in units per month is a, 75,000 _ 20,000 b, 10,000 d, 240,000 6. What sales volume per mont will be necessary to produce a retum of 12% before taxes on Antonio's investment during his first year of operations? a. 70,000 < 24,167 b. 9,667 d., 125,000 _-7 Iintonio is considering offering the building owners a flat rental of P15 per machine per month in lieu of the commission of F0.03 per unit sold. What effect would this change in ‘commission have on his monthly break-even volume in terms of units? a, Break-even point will increase by 1,667 units, ®, Break-even point will decrease by 1,667 units. ¢, Break-even point will not change. d, Cannot be determined from the given information 8.“An MS client asked for intemal contro! system evaluation. During eveluation, the practitioner suggests that certain changes are necessary in hardiing some accounts. The dient agrees. However, he (the client) reouests that his former consultant supervise the installation, ‘The practitioner knows that such former consultant lacks sufficient experience to provide the necessary technical direction and supervision, In this case, the practitioner should a. tell the cient everything he knows about the former consultant so he could be prevented frorn supervising the instaltation. b. prevent the former corgultent to supervise the installation, but he should not tell the dient anything about his (former consultant's) capabilities. ¢. should encourage the former consultant to ettend 2 seminar/ workshop to learn the basics of engagement supervision, d)) cecline the engagement if the client insists that the former consultant supervise the instatiation, an¢ the necessary technical conipetence would not be provided even through other means. 9,AN financial accounting, certain sules and reoulations niust be followed on how financial statements inust be presented to readers. In managerial accounting, no such restrictions generally apply because it is a. an entirely different fieki that reed not observe the broad guidelines in financial accounting. b. designed to provide management with non-fiencta information for decision-making. €2) designed to provide accounting and other Fnencial data to assist management in —" making business decisions, d. adiscipline that does not require preparation of financial staternents. 10. An-activity that adds costs to the product or service, but does not make such product or service more veluubie to customers is called (2) non-alue edding activity. 6 costly activity, D. value-adding activity. 4, valuable activity. 11, Product costs or inventorlable costs a) are charged to expense when products become part of the finished goods inventory. B. Include only the prime costs of producing 4 product. Cc. are treated as assors before tiie products are sold. . include only the conversion costs of producing th products, 12, For decision-making ourpeses, relevant costs are a, variable past costs.MANAGEMENT ADVISORY SERVICES ‘Saturday, July 26, 2018 Firet Pro-board Examination Page 3 of 12 , all fixed and variable costs. ¢ anticipated future costs that will differ among various alternatives. costs incurred within the relevant range of production. ITEMS 13 to 15 ARE BASED ON THE FOLLOWING INFORMATION: ‘AS part of a cost study, the cast accountant of Shinly Corporation has recorded the cost of ‘operations at seven different levels of materials usage. The records show the following: Kilos of Materials Costs of ic 80 P 800 60 480 20. 320 = 120 1,200 = 140 1/280 4 40 480 100 4,040 + ‘Sum of the kilos (2x) 560 ; ‘Sum of the costs (Zy) 5,600 » ‘Sum of the kilos multiplied by the costs (Zy)P545,600 \we Sum of the Kilos squared (3x?) 56,000 13: Using the high and low points method, the cost formula may be expressed as: ? “a. Total cost = 320 + 16x €. ) Total cost = 160 + 8x b. Total cost = 103 + 8.71x . Total cost = 206 + 10x 14, Under the method of least squares, the cost formula is expressed as: a, Total cost = 320+ 16« ¢.. Total cost = 160 + 8x = b. Total cost = 103 + &.71x @. Total cost = 206 + 10x) °° 15. The projected cost of operations for 90 kilos af materials is 2, 886,90 if the high-low points method is used. b,. P880.00 if the method of least squares is used. $ ¢.) P886.90 if the method of least squares is used. ~d. P8B0.00 regardless of the method used, 16:In ABC system, costs are grouped in cost pools and then allocated by a common allocation ~~ base, which ordinarily is the cost’s cost driver. Such allocation base is the common denominator for systematically correlating indirect costs and a cost object. In @ homogeneous cast pool, the allocation base should 2, be a non-financial measure so that the allocation may be more objective. b. be a financial measure so that the allocation may be more objective. () have @ cause-and-effect relationship with the cost items in the cost pool, G. assign the costs in the pool uniformly to cost objects even if the cost objects do not Use resources Uniformly, 17<1n cost behavior analysis, the linearity assumption states that 2. in all cases, there is a strict linear relationship between the cost and cost driver. b, within the relevant range, there is a strict relationship between the cost end the cost driver. ‘ c. within the relevant range, there is a strict linear relationship between the cost and cost driver. . within the relevant range, all costs are fixed and may be crawn graphically as straight lines.