Professional Documents
Culture Documents
4. An analyst covering Guilderland Mining Company common stock estimates the following information for the
next year.
Expected return on the market portfolio 12%
Expected return on Treasury securities 5%
Expected beta of Guilderland 2.2
Using the CAPM, the analyst’s estimate of next year’s risk premium for Guilderland’s stock is closed to
a. 7.0% c. 15.4%
b. 10.4% d. 21.4%
5. Gild Company has been offered credit terms of 3/10, net 30. Using a 365-day-year, what is the nominal cost
th
of not taking advantage of the discount if the firm pays on the 35 day after the purchase?
a. 14.2% c. 37.6%
b. 32.2% d. 45.2%
6. A bank wants to motivate its financial services agents. The current salary of the agents is P80,000. To meet its
objectives, the bank is offering the following salaries:
If revenues are < 90% of last year’s level P 65,000
If revenues are between 90% and 110% of last year’s level P 80,000
If revenues are > 110% of last year’s level P 100,000
Assuming that these 3 outcomes are equally probable, what is the expected salary for a financial services
agent?
a. P65,000 c. P81,667
b. P80,000 d. P83,333
7. A company obtaining short-term financing with trade credit will pay a higher percentage financing cost,
everything else being equal, when
a. The discount percentage is lower.
b. The items purchased have a higher price.
c. The items purchased have a lower price.
d. The supplier offers a longer discount period.
8. The degree of operating leverage for Balloon Company is 7 and the degree of operating leverage for Dirigible
Company is 4. The two companies have identical sales levels and net incomes. Which of the following
statements is incorrect?
a. The break-even quantity for Balloon will be more than that for Dirigible.
b. The margin of safety for Balloon will be less than that for Dirigible.
c. The contribution margin for Balloon will be more than that for Dirigible.
d. A 10% reduction is sales will cause net income for Dirigible to be lower than that for Balloon.
9. Panktual Company uses just-in-time inventory methods to manage its inventories. Which of the following
statements is incorrect concerning this company?
a. Inventory costs will fluctuate greatly from month to month because of variability in sales.
b. The net income from the absorption costing method will be approximately equal to the net income from
the variable costing method.
c. There will typically be very low levels of inventories period to period.
d. The cost of a unit of product will be different between the variable and absorption costing methods.
10. Giga-Stuff, Inc. has a number of divisions. One division, Khreishan, makes a component, component X, that is
used in the manufacture of DVD players. Another division, Marshan, makes DVD players that use component
X and needs 60,000 units of component X per year. Khreishan incurs the following costs for one unit of
component X:
Khreishan has capacity to make 400,000 units of component X per year, but due to a soft market, only plans
to produce and sell 320,000 units next year. Marshan currently buys component X from an outside supplier
for P2.50 each (the same price that Khreshan receives).
Assume that Khreishan and Marshan have agreed on a transfer price of P2.20. What is the total benefit for
Giga-Stuff, Inc.?
a. P18,000 c. P69,000
b. P63,000 d. P81,000
11. A data model developed specifically for use in designing accounting information databases is
a. REA data model
b. Data definition language
c. Entity-relationship model
d. Networked model
14. Which of the following is not a widely used disaster recovery approach?
a. Hot site c. Regular backups
b. Firewall d. Cold site
15. The network most frequently used for private operations designed to link computers within a building in a
research park is referred to as a(n)
a. Bulletin board service c. Wide area network
b. Local area network d. Zero base network
16. A Utah hospital decided to streamline its surgical suite operation. In order to speed things up, the nurses in
charge studied what time patients actually spent in various activities. They found that on average, a patient
scheduled for an operation spent about 1 hours waiting, and 1.5 hours in moving from lab to x-ray to the
operating room. The average operation takes 90 minutes. What is the MCE?
a. 100% c. 50%
b. 60% d. 37.5%
17. If the operating asset turnover ratio increased by 30 percent and the margin increased by 20 percent, the
divisional ROI
a. would increase by 56 percent.
b. would decrease by 60 percent.
c. would increase by 20 percent.
d. cannot be determined.
18. During the year, Hawkins produced 10,000 units, used 20,000 direct labor hours, and incurred variable
overhead of P90,000. Budgeted variable overhead for the year was P88,000. The hours allowed per unit are
2.1. The standard variable overhead rate is P4.00 per direct labor hour. The variable overhead spending
variance is:
a. P2,000 F. c. P10,000 U.
b. P6,000 U. d. P2,000 U.
19. Assume that Sunshine Products Inc. has an agreement with Shady Finance Company to factor its receivables.
Shady charges a flat commission of 2 percent of the receivables factored, plus 6 percent a year interest on the
outstanding balance. It also deducts a reserve of 10 percent for returned and damaged materials. Interest and
commission are paid in advance. No interest is charged on the reserve or the commission. If the average level
of outstanding receivables is P700,000, and if they are turned over 4 times a year (hence the commission is
paid 4 times a year), then what is the effective quarterly interest rate charged by Shady for this arrangement?
a. 6.05% c. 7.52%
b. 3.83% d. 9.31%
20. Grogi Corporation uses a standard costing system. Information for the month of May is as follows:
Direct labor:
Actual hours worked 12,000 hrs.
Standard hours allowed for actual production 10,000 hrs.
Average actual labor cost per hour P18
The factory overhead rate is based on a normal volume of 12,000 direct labor hours. Standard cost data at
12,000 direct labor hours were as follows:
21. If actual fixed manufacturing overhead was P54,000 and there was a P1,300 unfavorable spending variance
and a P1,000 unfavorable volume variance, budgeted fixed manufacturing overhead must have been
a. P56,300. c. P53,000.
b. P50,300. d. P52,700.
22. Perfect Builders makes all sorts of moldings. Its standard quantity of material allowed is 1 foot of wood per 1
foot of molding at a standard price of P2.00 per foot. During August, it purchased 500,000 feet of wood at a
cost of P1.90 per foot, which produced only 499,000 feet of molding. Calculate the materials price variance
and the materials usage variance, respectively.
a. P50,000 F and P2,000 U
b. P49,900 U and P2,000 F
c. P50,000 F and P1,900 U
d. P49,900 F and P1,900 U
23. Wilmer Company produces two products: Oldies and Newbies. Budgeted sales for four months are as follows:
Oldies Newbies
May 10,000 40,000
June 20,000 70,000
July 15,000 80,000
August 30,000 90,000
Wilmer's ending inventory policy is that Oldies should have 10% of next month's sales in ending inventory and
Newbies should have 20% of next month's sales in ending inventory. On May 1, there were 1,000 units of
Oldies and 9,000 units of Newbies.
Newbies requires 4 units of component A. (Oldies does not use component A.) There were 2,100 units of
component A in inventory on May 1. Wilmer wants to have 30 percent of the following month's production
needs in inventory for Component A.
24. Cohlmia Company makes all its sales on account. Cohlmia's accounts receivable payment experience is as
follows:
Percent paid in the month of sale 20%
Percent paid in the month after the sale 75%
Percent paid in the second month after the sale
2%
What are the expected cash receipts for the month of November?
a. P200,000 c. P190,000
b. P 40,000 d. P132,000
25. Capitan Company produces a line of salsas. Capitan's estimated production of jars of salsa for the third
quarter of the year is as follows:
July 80,000
August 90,000
September 70,000
Each jar requires 1/4 pound of peppers. Capitan prefers to buy the freshest peppers, so it has a policy to
have just 5% of the following month's production needs in ending inventory. On July 1, the company had
1,200 pounds of peppers in inventory. Capitan pays P0.40 per pound of peppers. It buys all peppers on
account and typically pays 50% of a month's purchases in that month, and the remaining 50% the following
month.
How many pounds of peppers will be purchased during the month of August?
a. 23,375 c. 19,925
b. 22,250 d. 21,950
26. Shape Company, an importer and retailer of Polish pottery and kitchenware, prepares a monthly master
budget. Data for the July master budget are given below:
The June 30th balance sheet follows:
Cash P 25,000 Accounts P 45,000
payable
Accounts 110,000 Capital 300,000
receivable stock
Inventory 54,000 Retained 94,000
earnings
Building and
equipment (net) 250,000
Actual sales for June and budgeted sales for July, August, and September are given below:
June P137,500
July 360,000
August 400,000
September 320,000
Sales are 20 percent for cash and 80 percent on credit. All credit sales are collected in the month following
the sale. There are no bad debts.
The gross margin percentage is 40 percent of sales. The desired ending inventory is equal to 25 percent of the
following month's sales. One fourth of the purchases are paid for in the month of purchase and the others are
purchased on account and paid in full the following month.
The monthly cash operating expenses are P43,000, and the monthly depreciation expenses are P7,000.
28. Activity-based costing (ABC) classifies costs in a hierarchy with 4 levels. Costs related to engineering changes
should be classified as which of the following?
a. Batch-level costs
b. Product-sustaining level costs
c. Unit-level costs
d. Facility-sustaining level costs
29. Which category of costs of environmental work would include using non-toxic alternatives for chemicals used
in a manufacturing process?
a. Appraisal costs c. Internal failure costs
b. External failure costs d. Prevention costs
30. Which of the following represents the flow of services and information from the initiating moment to the final
customer?
a. Customer chain c. Supply chain
b. Demand chain d. Value chain
31. The best model for choosing the best of several competing projects is
a. net present value. c. payback period.
b. internal rate of return. d.accounting rate of return.
32. All of the following relate to the balanced scorecard's learning and growth perspective EXCEPT:
a. How do we achieve greater employee satisfaction?
b. What new products do we create?
c. How do we provide information systems with updated technology?
d. How will we motivate and empower our employees?
Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year. How many tubs should EBP produce?
a. 1,000 c. 410
b. 500 d. 675
35. Autry Company manufactures veterinary products. One joint process involves refining a chemical (dactylyte)
into two chemical, dac and tyl. One batch of 5,000 gallons of dactylyte can be converted to 2,000 gallons of
dac and 3,000 gallons of tyl at a total joint processing cost of P12,000. At the split off point, dac can be sold
for P3 per gallon and tyl can be sold for P4 per gallon. Autry has just learned of a new process to convert dac
into prodac. The new process costs P4,000 and yields 1,700 gallons of prodac for every 2,000 gallons of dac.
Prodac sells for P5 per gallon.
36. Aerotoy Company makes toy airplanes. One plane is an excellent replica of a 737; it sells for P5. Vacation
Airlines wants to purchase 12,000 planes at P1.75 each to give to children flying unaccompanied. Costs per
plane are as follows:
No variable marketing costs would be incurred. The company is operating significantly below the maximum
productive capacity. No fixed costs are avoidable. However, Vacation Airlines wants its own logo and colors
on the planes. The cost of the decals is P0.01 per plane and a special machine costing P1,500 would be
required to affix the decals. After the order is complete, the machine would be scrapped. Should the special
order be accepted?
a. Yes, income will increase by P300
b. No, income will decrease by P180
c. No, income will decrease by P1,500
d. Yes, income will increase by P180
37. Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was
determined as follows:
If the component is not produced by Foster, inspection of products and provision of power costs will only be
10% of the production costs; moving materials costs and setting up equipment costs will only be 50% of the
production costs; and supervision costs will amount to only 40% of the production amount. An outside
supplier has offered to sell the component for P25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?
a. P25,000 increase c. P90,000 decrease
b. P45,000 increase d. P90,000 increase
38. The operations of Smits Corporation are divided into the Childs Division and the Jackson Division. Projections
for the next year are as follows:
Childs Jackson
Division Division Total
Sales P250,000 P180,000 P430,000
Variable costs 90,000 100,000 190,000
Contribution margin P160,000 P 80,000 P240,000
Direct fixed costs 75,000 62,500 137,500
Segment margin P 85,000 P 17,500 P102,500
Allocated common costs
35,000 27,500 62,500
Operating income (loss) P 50,000 P(10,000) P 40,000
Operating income for Smits Corporation as a whole if the Jackson Division were dropped would be
a. P22,500. c. P50,000.
b. P40,000. d. P60,000.
39. Moore Company's net income last year was P56,000 and cash dividends declared and paid to the company
stockholders was P31,000. Changes in selected balance sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable P (8,000)
Inventory (6,000)
Prepaid expenses 12,000
Credit balances:
Accumulated Depreciation 23,000
Accounts payable (10,000)
Accrued liabilities 7,000
Taxes payable 5,000
Bonds payable 40,000
Based solely on this information, the net cash flows from operating activities under the indirect method on
the statement of cash flows would be:
a. P79,000. c. P29,000.
b. P102,000. d. P83,000.
40. Presented below are selected data from the financial statements of Bruce Corp. for 2011 and 2010.
2011 2010
Net income P110,000 P123,000
Cash dividends paid on P 42,000 P 38,000
common stock
Market price per share of
common stock at the end of P16.00 P13.00
the year
Earnings per share P 0.84 P 0.74
Shares of common stock 140,000 100,000
outstanding
42. A firm expects to pay dividends at the end of each of the next four years of P2.00, P1.50, P2.50, and P3.50. If
growth is then expected to level off at 8 percent, and if you require a 14 percent rate of return, how much
should you be willing to pay for this stock?
a. P67.81 c. P31.00
b. P58.15 d. P43.97
43. Helton Company has the following information for the current year:
Beginning fixed manufacturing overhead
in inventory P95,000
Fixed manufacturing overhead in production
375,000
Ending fixed manufacturing overhead in
inventory 25,000
What is the difference between operating incomes under absorption costing and variable costing?
a. P70,000 c. P40,000
b. P50,000 d. P5,000
44. Grant's Kitchens is approached by Ms. Tammy Wang, a new customer, to fulfill a large one-time-only special
order for a product similar to one offered to regular customers. The following per unit data apply for sales to
regular customers:
Grant's Kitchens has excess capacity. Ms. Wang wants the cabinets in cherry rather than oak, so direct
material costs will increase by P30 per unit.
For Grant's Kitchens, what is the minimum acceptable price of this one-time-only special order?
a. P830 c. P 785
b. P930 d. 1,440
45. Cochran Corporation has a plant capacity of 100,000 units per month. Unit costs at capacity are:
It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company
purchases TE456 from the outside supplier. Konrade's Engine Company has the option of purchasing the part from
an outside supplier at P85 per unit.
46. If Konrade's Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs
that will no longer be incurred) total:
a. P 82,000 c. P50,000
b. P98,000 d. P100,000
47. If Konrade's Engine Company purchases 1,000 TE456 parts from the outside supplier per month, then its
monthly operating income will:
a. increase by P2,000 c. decrease by P3,000
b. increase by P80,000 d. decrease by P85,000
48. The maximum price that Konrade's Engine Company should be willing to pay the outside supplier is:
a. P80 per TE456 part
b. P82 per TE456 part
c. P98 per TE456 part
d. P100 per TE456 part
49. Denly Company has three products, A, B, and C. The following information is available:
Product A Product B Product C
Sales P60,000 P90,000 P24,000
Variable costs 36,000 48,000 15,000
Contribution
margin 24,000 42,000 9,000
Fixed costs:
Avoidable 9,000 18,000 6,000
Unavoidable 6,000 9,000 5,400
Operating income
P 9,000 P15,000 P (2,400)
Assuming Product C is discontinued and the space formerly used to produce Product C is rented for P12,000
per year, operating income will:
a. increase by P6,600 c. increase by P12,000
b. increase by P9,000 d. increase by P14,400
50. Shimon Corporation manufactures industrial-sized water coolers and uses budgeted machine-hours to
allocate variable manufacturing overhead. The following information pertains to the company's
manufacturing overhead data:
Budgeted output units 15,000 units
Budgeted machine-hours 5,000 hours
Budgeted variable manufacturing
overhead costs for 5,000 units P161,250
Actual output units produced 22,000 units
Actual machine-hours used 7,200 hours
Actual variable manufacturing
overhead costs P242,000
What is the flexible-budget variance for variable manufacturing overhead?
a. P5,500 favorable c. P4,300 favorable
b. P5,500 unfavorable d. P4,300 unfavorable
51. Kellar Corporation manufactured 1,500 chairs during June. The following variable overhead data pertain to
June:
Budgeted variable overhead cost per unit P 12.00
Actual variable manufacturing
overhead cost P16,800
Flexible-budget amount for variable
manufacturing overhead P18,000
Variable manufacturing overhead efficiency
variance unfavorable P360
52. Jenny's Corporation manufactured 25,000 grooming kits for horses during March. The fixed-overhead cost-
allocation rate is P20.00 per machine-hour. The following fixed overhead data pertain to March:
Production 25,000 units 24,000 units
Machine-hours 6,100 hours 6,000 hours
Fixed overhead
costs for March P123,000 P120,000
53. Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value
of P8,000,000 and an interest rate of 8%, and equity capital with a market value of P12,000,000 and a cost of
equity of 12%. Springfield has two operating divisions, the Blue division and the Gold division, with the
following financial measures for the current year:
Current Operating
Total Assets Liabilities Income
Blue Div. P9,500,000 P2,800,000 P1,055,000
Gold Div. P11,000,000 P2,200,000 P1,200,000
54. Ruth Cleaning Products manufactures home cleaning products. The company has two divisions, Bleach and
Cleanser. Because of different accounting methods and inflation rates, the company is considering multiple
evaluation measures. The following information is provided for 20X5:
ASSETS INCOME
Current Current
Book value value Book value value
Bleach P225,000 P300,000 P150,000 P155,000
Cleanser P450,000 P250,000 P100,000 P105,000
The company is currently using a 15% required rate of return.
What are Bleach's and Cleanser's residual incomes based on book values, respectively?
55. Hawkeye Cleaners has been considering the purchase of an industrial dry-cleaning machine. The existing
machine is operable for three more years and will have a zero disposal price. If the machine is disposed now,
it may be sold for P60,000. The new machine will cost P200,000 and an additional cash investment in working
capital of P60,000 will be required. The new machine will reduce the average amount of time required to
wash clothing and will decrease labor costs. The investment is expected to net P50,000 in additional cash
inflows during the year of acquisition and P150,000 each additional year of use. The new machine has a
three-year life, and zero disposal value. These cash flows will generally occur throughout the year and are
recognized at the end of each year. Income taxes are not considered in this problem. The working capital
investment will not be recovered at the end of the asset's life.
What is the net present value of the investment, assuming the required rate of return is 10%? Would the
company want to purchase the new machine?
a. P82,000; yes c. P(50,000); yes
b. P50,000; no d. P(82,000); no
56. The Zeron Corporation recently purchased a new machine for its factory operations at a cost of P921,250. The
investment is expected to generate P250,000 in annual cash flows for a period of six years. The required rate
of return is 14%. The old machine has a remaining life of six years. The new machine is expected to have zero
value at the end of the six-year period. The disposal value of the old machine at the time of replacement is
zero. What is the internal rate of return?
a. 15% c. 17%
b. 16% d. 18%
57. Lobster Liquidators will make P500,000 if the fishing season weather is good, P200,000 if the weather is fair,
and would actually lose P50,000 if the weather is poor during the season. If the weather service gives a 40%
probability of good weather, a 25% probability of fair weather, and a 35% probability of poor weather, what is
the expected monetary value for Lobster Liquidators?
a. P500,000 c. P267,500
b. P232,500 d. P200,000
63. Assume that operating income for 2011 was P600,000 under variable costing and P800,000 under absorption
costing. The end-of-year cost of the inventory under standard variable costing was P60,000. The beginning-
of year cost of the inventory under standard absorption costing was P25,000 higher than the cost of the
beginning-of-year inventory under standard variable costing.
64. JetSky Airways has three divisions, the Western Division, the Eastern Division, and the Northern Division. The
manager of the Western Division had wanted to purchase replacement airplanes for the division. However,
he decided against it because, although revenues would increase and the new planes would be less expensive
to operate, the initial cost of the planes was quite large. The Western Division is most probably accounted for
as a(n)
a. cost center. c. profit center.
b. investment center. d. revenue center.
65. Which budget should be used to determine managerial efficiency and effectiveness, respectively?
Effectiveness Efficiency
a. Flexible Static
b. Static Flexible
c. Flexible Flexible
d. Static Static
66. Field trials and quality engineering are examples of ____.
a. prevention costs c. failure costs
b. appraisal costs d. quality costs
67. How much are expected cash collections for the month of December 2011?
a. P407,200 c. P424,800
b. P416,000 d. P431,200
68. The amount of budgeted income (loss) before income taxes for December 31, 2011 is
a. P20,000 c. P(367,200)
b. P28,800 d. P(376,000)