MANAGEMENT ADVISORY SEVICES REVIEWERS / TESTBANKS

1. The term "committed costs" refers to costs that

a. are likely to respond to the amount of attention devoted to
them by a specified manager
b. are governed mainly by past decisions that established the
present levels of operating and organizational capacity and
that only change slowly in response to small changes in
capacity
c. fluctuate in total in response to small changes in the rate of
utilization of capacity
d. management decides to incur in the current period to enable
the company to achieve objectives other than the filling of
orders placed by customers

2. Which of the following is likely to be a discretionary cost in most

organizations?
a. managerial training programs c.
managerial labor costs
b. factory utilities d. factory
rent

3. A cost driver
a. causes fixed costs to rise because of
production changes
b. has a direct cause-effect relationship to a cost
c. can predict the cost behavior of a variable, but
not a fixed, cost
d. is an overhead cost that causes distribution
costs to change in distinct increments with changes in
production volume

4. Costs that are incurred for monitoring and inspecting are:

a. prevention costs c. appraisal
costs
 b. detection costs d. failure
costs

5. The cost estimation method that gives the most mathematically

precise cost production equation is
a. The high-low method c. The
scatter-graph method
b. The contribution margin method d.
The regression analysis

6. A local JPIA chapter wants to rent a half for P3,000 a day to

hold a Bingo fund raiser. Every session of bingo requires a
caller for P200. There are supplies that are needed that cost
P3 per person playing bingo. On average each bingo player
spends P20 and 1,000 people attend each session. P10,000 in
prizes are awarded each session. Total cost for 1 session can
be classified as:
Fixed Costs-Variable Costs FixedCosts-Variable
Costs
a. P 13,200-P 3 c. P 3,000-P
13,200
b. P 13,200-P 3,000 d. P 10,000-P
3,200

7. Which is not a common accounting classification of costs?

a. By the method of payment for the expenditure
b. By the objective of expenditure
c. By behavior
d. By the function incurring the expenditure

8. The principal advantage of the scatter-diagram method over the

high-low method of cost estimation is that the scatter-diagram
method
a. includes costs outside the relevant range
b. considers more than two points
c. can be used with more types of costs than the high-low
method
 d. gives a precise mathematical fit of the points to the line

9. Which statement is true?

a. A variable cost remains constant on a per-unit basis as
production increases
b. A fixed cost remains constant on a per-unit basis as
production changes
c. The relevant range is valid for all levels of activity
d. An indirect cost can be easily traced to a cost object.

Pure Foods wishes to analyze the fixed and variable

components of the semi-variable costs. The following
information is available:
Output
Output
Month Units Costs Month Units Costs
January 1,000 P 12,000 April 800 P 11,000
February 700 10,000 May 1,400 18,750
March 1,100 14,000 June 1,200 15,000

10. Using the high-low method, which one of the following is

correct. application
a. Variable costs is P 15 per unit c. Fixed costs is
P 1,250 per month
b. Variable costs is P 10 per unit d. Fixed costs is
P 1,000 per month

11. BSP Company earned P 100,000 on sales of P 1,000,000. It

earned P 130,000 on sales of P 1,100,000. Total fixed costs are
a. P 0 b. P 200,000 c. P 420,000
d. P 900,000

12. Which of the following is a prevention cost?

a. Inspecting and testing materials c. quality audits
b. Packaging inspection d. cost of recalls

13. Which of the following costs is an internal failure cost?

a. Packaging inspection c. quality engineering
 b. Rework d. lost sales

14. One of the ways managerial accounting differs from financial

accounting is that managerial accounting
a. is bound by generally accepted accounting
principles
b. classifies information in different ways
c. does not use financial statements
d. deals only with economic events

15. Managerial accounting places considerable weight on:

a. generally accepted accounting principles
b. the financial history of the entity
c. ensuring that all transactions are properly recorded
d. detailed segment reports about departments, products and
customers

16. The cost management function is usually under

a. the chief information officer c. purchasing
manager
b. controller d. treasurer

17. Planning is a function that involves

a. hiring the right people for a particular job
b. coordinating the accounting information system
c. setting goals and objectives for an entity
d. analyzing financial statements

18. The treasurer function is usually not concerned with

a. investors relation c. financial
reports
b. short-term financing d. credit
extension and collection of bad debts

19. The following characterized management advisory services,

except
a. It involves decision for the future
b. It broader in scope and varied in nature
 c. It utilizes more junior staff than senior members
of the firm
d. It relates to specific problems where expert help
is required

20. Under which ethical standard of conduct does the managerial

accountant have the responsibility to disclose fully all relevant
information that could reasonably be expected to influence an
intended user’s understanding of the reports, comments and
recommendations presented?
a. Objectivity b. competence c.
confidentiality d. integrity

Hanson Company manufactures two different types of

receivers, a regular Model R and a special features Model S.
The company has limited resources. On an annual basis it has
a total of 480 direct labor-hours and a total of 300 lbs. of
material available for use in the manufacture of these receivers.
The company uses linear programming to determine a
production schedule that will maximize the company’s profit.
Based on the company’s current data on selling prices and
production costs, it is estimated that the sale of Model R will
contribute P7 profit per unit and the sale of Model S will
contribute P10 profit per unit. Resources used in the production
of the two receivers are as follows. (Let Model S = S and Model
R = R.)
Model S
Model R
Raw materials used per unit 5 lbs.
3 lbs.
Labor used per unit 6 hours
4 hours
21. The objective function for Hanson Company can be expressed
as
a. 5S + 3R < = 300 c. 6S + 4R
< = 480
b. Max = 7R + 10S d. Min = 5S
+3R
22. A beverage stand can sell either softdrinks or coffee on any
given day. If the stand sells softdrinks and the weather is hot; it
will make P2,500; if the weather is cold, the profit will be
P1,000. If the stand sells coffee and the weather is hot, it will
make P1,900; if the weather is cold, the profit will be P2,000.
The probability of cold weather on a given day at this time is
60%. The expected payoff if the vendor has perfect information
is:
a. P3,900 b. P1,360 c. P2,200 d. P1,960

23. Soft Inc. has a target total labor cost of P 3,600 for the first four
batches of a product. Labor is paid P10 an hour. If Soft expects
an 80% learning curve, how many hours should the first batch
take?
a. 360 hours b. 140.63 hours c. 57.6
hours d. 230.4 hours

24. Critical Path Method (CPM) is a technique for analyzing,

planning, and scheduling large, complex projects by
determining the critical path from single time estimate from
each event in a project. The critical path:
a. Is the shortest path from the first event to the last event for a
project
b. Is an activity within the path that requires the most number of
time
c. Has completion that reflects the earliest time to complete the
project
d. Is the maximum amount of time an activity may be delayed
without delaying the total project beyond its target
completion time

25. A company is designing a new regional distribution warehouse.

To minimize delays in loading and unloading trucks, an
adequate number of loading docks must be built. The most
relevant technique to assist in determining the proper number
docks is
 a. Cost-volume-profit analysis c. PERT / CPM
analysis
b. Queuing theory d. Linear programming

AJ Construction Inc. is considering a three-phase research

project. The time estimates for completion of Phase 1 of the
project are:
Pessimistic 29 weeks
Most likely 25 weeks
Optimistic 15 weeks
26. Using the program evaluation and review technique (PERT),
the expected time for completion of Phase 1 should be
a. 20 weeks b. 19 weeks c. 18 weeks
d. 24 weeks

Moon, Inc. manufactures product X and product Y, which are

processed as follows:
Type A machine Type B machine
Product X 6 hours 4 hours
Product Y 9 hours 5 hours
27. The contribution margin is P12 for product X and P7 for product
Y. The available time daily for processing the two products is
120 hours for machine Type A and 80 hours for machine Type
B. What is the best combination of product that will maximize
profit?
a. 10X, 10Y b. 15X, 5Y c. 20X, 0Y d.
0X, 20Y

28. Linear programming is used most commonly to determine

a. The fastest timing
b. The best use of scarce resources
c. The most advantageous prices
d. The mix of variable that will result in the largest quantity

The network below describes the interrelationships of several

activities necessary to complete a project. The arrows represent
the activities. The numbers between the arrows indicate the
number of months to complete each activity.
 2 2
4
4
4
1 5
Start 6 End
2
3 5
6 4

29. The shortest time to complete the project is

a. 10 months b. 12 months c. 16 months
d. 28 months

30. Super Company is preparing 2011 budget and, taking into

consideration the recent pace of economic recovery, has
developed several sales forecasts and the estimated probability
associated with each sales forecasts. To determine the sales
forecasts to be used for 2011 budgeting purposes, which of the
following techniques should Super use?
a. Expected value analysis c. Monte Carlo
simulation
b. Continuous probability simulation d. Sensitivity
Analysis

31. The expected value of perfect information is the

a. Difference between the expected profit under certainty and
the expected monetary value of the best act under
uncertainty.
b. Difference between the expected profit under certainty and
the expected opportunity loss
c. Sum of the conditional profit (loss) for the best event of each
act times the probability of each events occurring
d. Same as the expected profit under certainty

A dough distributor has decided to increase its daily muffin

purchases by 100 boxes. A box of muffins costs P 2 and sells for
P 3 through regular stores. Any boxes not sold through regular
stores are sold through Dough’s thrift store for P 1. Dough
assigns the following probabilities to selling additional boxes.
Additional sales probabilities
60 .40
 100 .60
32. What is the expected value of Dough’s decision to buy 100
additional boxes of muffins?
a. P 28 b. P 40 c. P 52
d. P 68

33. As a company becomes more conservative with respect to

working capital policy, it would tend to have a(n)
a. Increase in the operating cycle.
b. Decrease in the operating cycle.
c. Increase in the ratio of current assets to current liabilities.
d. Increase in the ratio of current liabilities to noncurrent
liabilities.

34. Temporary working capital supports

a. The cash needs of the company c. Payment
of long term debt.
b. Acquisition of capital equipment d. Seasonal
peaks

35. Zap Company follows an aggressive financing policy in its

working capital management while Zing Corporation follows a
conservative financing policy. Which one of the following
statements is correct?
a. Zap has a low current ratio while Zing has a high current
ratio.
b. Zap has less liquidity risk while Zing has more liquidity risk.
c. Zap finances short-term assets with long term debt while
Zing finances short-term assets with short-term debt.
d. Zap has low ratio of short-term debt to total debt while Zing
has a high ratio of short-term debt to total debt.

36. All of these factors are used in credit policy administration,

except:
a. Credit standards c. Terms of trade
b. Peso amount of receivables d.
Collection policy
37. The use of safety stock by a firm will:
a. Reduce inventory costs c. Increase
inventory costs
b. Have no effect on inventory costs d. None of
the above

38. Which of the following statements is correct for a firm that

currently has total costs of carrying and ordering inventory that
is 50% higher than total carrying costs?
a. Current order size is greater than optimal c. Current
order size is less than optimal
b. Per unit carrying costs are too high d. The
optimal order size is currently being used

39. The Spades Company has an inventory conversion period of 75

days, a receivables conversion period of 38 days, and a
payable payment period of 30 days. What is the length of the
firm’s cash conversion cycle?
a. 83 days b. 113 days c. 67 days d. 45 days

40. Samaritan Supplies, Inc. has P5 million in inventory and P2

million in accounts receivable. Its average daily sales are
P100,000. The company has P1.5 million in accounts payable.
Its average daily purchases are P50,000. What is the length of
the company’s inventory conversion period?
a. 120 days b. 90 days c. 50 days d. 40 days

41. Rawson Corporation’s order quantity for Material T is 5,000 lbs.

If the company maintains a safety stock of T at 500 lbs., and its
order point is 1,500 lbs. What is the lead time assuming daily
usage is 50 lbs.?
a. 30 days b. 100 days c. 10 days d. 20
days

42. Refer to # 16; what would be the total annual carrying costs
assuming the carrying cost per unit is P8.40?
a. P 42,000 b. P 25,200 c. P 4,200 d. P 46,200
 43. Simile Inc. has a total annual cash requirement of P 9,075,000
which is to be paid uniformly. Simile has the opportunity to
invest the money at 24% per annum. The company spends, on
the average, P40 for every cash conversion to marketable
securities. What is the optimal cash conversion size?
a. P55,000 b. P60,000 c. P45,000 d. P75,500

44. Palm Company’s budgeted sales of the coming year are P

40,500,000 of which 80% are expected to be credit sales at
terms of n/30. Palm estimates that a proposed relaxation of
credit standards will increase credit sales by 20% and increase
the average collection period from 30 days to 40 days. Based
on a 360-day year, the proposed relaxation of credit to
standards will result in an expected increase in the average
accounts receivable balance of
a. P540,000 b. P900,000 c.P2,700,000
d. P1,620,000

45. If a firm is given a trade credit terms of 2/10, net 30, then the
cost to the firm failing to take the discounts and pay instead its
obligation at the end of the maturity date is:
a. 2% b. 30% c. 36.7%
d. 10%

46.) Depreciation is incorporated explicitly in the discounted cash flow

analysis of an investment proposal because it

A. Is a cash inflow.
B. Is a cost of operations that cannot be avoided.
C. Reduces the cash outlay for income taxes.
D. Represents the initial cash outflow spread over the life of the
investment.

47.) Assume that the old equipment must be sold in order to purchase
the new equipment. Given a constant effective corporate income tax
rate and straight-line depreciation on both disposed and newly
purchased pieces of equipment, the depreciation tax shield during the
later years of a capital project, assuming the old equipment was not
yet fully depreciated when it was disposed of, is generally

A.) Less than that during the earlier years.

B.) Not determinable from the information given.
C.) Greater than that during the earlier years.
D.) The same as that during the earlier years.

48.) Future, Inc. is in the enviable situation of having unlimited capital

funds. The best decision rule, in an economic sense, for it to follow
would be to invest in all projects in which the

a.) Internal rate of return is greater than zero.

b.) Net present value is greater than zero.
c.) Accounting rate of return is greater than the earnings as a percent
of sales.

d.) Payback reciprocal is greater than the internal rate of return.

49.) Kore Industries is analyzing a capital investment proposal for

new equipment to produce a product over the next 8 years. The
analyst is attempting to determine the appropriate "end-of-life" cash
flows for the analysis. At the end of 8 years, the equipment must be
removed from the plant and will have a net book value of zero, a tax
basis of P75,000, a cost to remove of P40,000, and scrap salvage
value of P10,000. Kore’s effective tax rate is 40%. What is the
appropriate "end-of-life" cash flow related to these items that should
be used in the analysis?

a. P27,000 inflow
b. P18,000 outflow
c. P45,000 outflow
d. P12,000 inflow

50.) Barker, Inc. has no capital rationing constraint and is analyzing

many independent investment alternatives. Barker should accept all
investment proposals
a. That provide returns greater than the before-tax cost of debt.
b. That have a positive net present value.
c. If debt financing is available for them.
d. That have positive cash flows.

51.) The rankings of mutually exclusive investments determined using

the internal rate of return method (IRR) and the net present value
method (NPV) may be different when

a. The lives of the multiple projects are equal and the size of the
required investments is equal.
b. The required rate of return equals the IRR of each project.
c. The required rate of return is higher than the IRR of each
project.
d. Multiple projects have unequal lives and the size of the
investment for each project is different.

52. All of the following items are included in discounted cash flow analysis
except

a. Future operating cash savings.

b. The future asset depreciation expense.
c. The current asset disposal price.
d. The tax effects of future asset depreciation.

53.) A firm is considering a capital project for which the following

information is available: An existing piece of equipment that would be
disposed of to make room for new equipment has a historical cost of
P370,000. It has a salvage value of P10,000 and has been
depreciated on a straight-line basis for 16 of the estimated 18 years
of its useful life. The new equipment has a cost of P500,000 and the
firm expects it will have to devote P20,000 in cash and P24,000 in
accounts receivable to the new project. The firm’s effective tax rate is
40%. The required net initial investment in the new project is

a. P534,000
b. P518,000
c. P544,000
d. P498,000

54.) If income tax considerations are ignored, how is depreciation

handled by the following capital budgeting techniques?

A. Excluded...Included...Excluded
C. Included...Excluded...Included
B. Excluded...Excluded...Included
D. Included...Included...Included

55. The following are inherent to management accounting:

1. External report
2. Historical information
3. Contribution approach income statement
4. Generally accepted accounting principle
5. prospective financial statements
a. All of them b. 2,3,5 c. 3,5
d. 1.2,5

56. What is the study of the need for activities and whether they are
operating efficiently called?
a. Direct and indirect cost management
b.Activity-based management
c. Variable and fixed cost management
d. Total quality management

57. Which of the following is the appropriate procedure to apply

overhead to production using normal costing?
a. Assign actual direct material and direct labor costs plus an
amount representing “normal” manufacturing overhead to
products.
b. Assign “normal” direct material and direct labor costs plus an
amount representing “normal” manufacturing overhead to
products.
c. Assign actual direct material and direct labor costs plus an
amount representing “normal” manufacturing overhead to
products.
 d. All of the above answers are correct.

58. PJ Company’s direct labor is 30% of its conversion cost. If the

direct materials costs last week was P52,500 and the
manufacturing overhead cost was P21,000, compute the cost of
the direct labor for the week.
a. P75,000 b. P9,000 c. P30,000 d. P6,300

Questions 5 through 8 are based on the following information: Elvin

Corporation manufactures and sells T-shirts inspired with college
names and slogans. Last year, the shirts sold for P7.50 each, and the
variable expenses was P2.25 per unit. The company needed to sell
20,00 shirts to breakeven. The net operating income last year was
P8,400. Elvin’s expectations for the coming year include the
following:
- The selling price of the t-shirts would be P9.00
- Variable expenses would increase by one-third.
- Fixed expenses will increase by 10%.

59. The number of t-shirts Elvin Corporation must sell to breakeven

in the coming year is:
b. 17,500 b. 19,250 c. 20,000 d.
22,000

60. Sales for the coming year are expected to exceed last years by
1,000 units. if this occurs, Elvin’s sales volume in the coming year
will be:
c. 22,600 units b. 21,960 units c. 23,400 units d.
21,000 units

61. If Elvin wishes to earn P22,500 in net operating income for the
coming year, the company’s sales volume in pesos must be:
d. 217,750 b. P257,625 c. P207,000
d. P229,500

62. The selling price needed next year to maintain the same
contribution margin ratio as last year is:
e. P9.00 b. P8.25 c. P10.00 d.
P9.75
63. W Company had a net operating income of P75,000 using
variable costing and a net operating income of P57,000 using
absorption costing. Variable production costs were P15 per unit.
Total fixed manufacturing overhead was P120,000 and 10,000
units were produced. During the year, the inventory level:
f. Increased by 1,200 units. c. Decreased by
1,500 units.
g. Increased by 1,500 units. d. Decreased by
1,200 units.

64. An activity-based costing system that is designed for internal

decision-making will not conform to generally accepted accounting
principles because:
h. Some manufacturing costs (the cost of idle capacity and
organization sustaining costs) will not be assigned to products.
i. Some nonmanufacturing costs are assigned to products.
j. First-sage allocation may be based on subjective interview
data.
k. All of the above are reasons why an activity-based costing
system that is designed for internal decision-making will
not conform to generally accepted accounting principles.
65. JKL Company has a standard of 15 parts of component X
costing P1.50 each. JKL purchases 14,010 units of component X
for P22,125. JKL generated a P220 favorable price variance and a
P3,375 favorable quantity variance. If there were no changes in
the component inventory, how many units of finished product were
produced?
a. 994 units b. 1,650 units c. 1,000 units
d. 1,160 units

66. Shown below is the sales forecast for C Inc., for the first four
months of the coming year:
Jan Feb Mar Apr
Cash Sales P15,000 P 24,000 P 18,000 P 14,000
Credit Sales 100,000 120,000 90,000
70,000

On average, 50% of credit sales are paid for in the month of the
sale, 30% in the month following sale, and the remainder is paid
 two months after the month of the sale. Assuming there are no
bad debts, the expected cash inflow in March is:
l. P138,000 b. P122,000 c. P119,000
d. P108,000

67. T Company budgeted sales on account of P120,000 for July,

P211,000 for August, and P198,000 for September. Collection
experience indicates that none of the budgeted sales will be
collected in the month of the sale, 60% will be collected the month
after the sale, 36% in the second month, and 4% will be
uncollectible. The cash receipts from accounts receivable that
should be budgeted for September would be:
a.P169,800 b. P147,960 c. P197,880
d.P194,860

68. P Company budgets on an annual basis for its fiscal year. The
following beginning and ending inventory levels (in units) are
planned for the next year:
Beginning Ending
Raw Materials 40,000 50,000
Finished goods 80,000 50,000

Three pounds of materials are needed to produce each unit of

finished product. If P Company plans to sell 480,000 units during
next year, the number of units it would have to manufacture during
the year would be
m. 440,000 units b. 480,000 units c. 510,000 units
d. 450,000 units

69. B Company is preparing its budget for 2006. For 2005, the
following were reported:

Sales (100,000 units) P1,000,000

Cost of goods sold 600,000
Gross profit 400,000
Operating expenses* 240,000
Net Income P 160,000
*including depreciation of P40,000
 Selling prices will increase by 10% and sales volume in units will
decrease by 5%. The cost of goods sold as a percent of sales will
increase to 62%. Other than depreciation, all operating costs are
variable. B will budget a net income for 2006 of
a. P167,100 b. P167,500
c. P168,000 d. P176,000

Questions 16 through 19 are based on the following information: A

Industries employs a standard cost system in which direct materials
inventory is carried at standard cost. A has established the following
standards for the prime costs of one unit of product.
Standard Quantity Standard Price
Standard Cost
Direct materials 8 pounds P1.80 per pound
14.40
Direct labor 0.25 hour P8.00 per hour
2.00

During May, A purchased 160,000 pounds of direct materials at a

cost of P304,000. The total direct labor for May were P37,800. A
manufactured 19,000 units of product during May using 142,500
pounds of direct materials and 5,000 direct labor hours.
70. The direct materials price variance for May is
a. P16,000 F b. P16,000 UF c. P14,250 F d.
P14,250 UF

71. The direct materials quantity variance for May is

a. P14,400 UF b. P1,100 F c. P17,100 UF
d. P17,100 F

72. The direct labor rate variance for May is

a. P2,200 F b. P1,900 UF c. P2,000 UF
d. P2,090 F

73. The direct labor efficiency variance for May is

a. P2,200 F b. P2,000 F c. P2,000 UF
d. P1,800 UF
F Glass Works uses a standard cost system in which manufacturing
overhead is applied to units of product on the basis of direct labor-
hours. Each unit requires two standard hours of labor for completion.
The denominator activity for the year was based on budgeted
production of 200,000 units. Total overhead was budgeted at
P900,000 for the year, and the fixed overhead rate was P3.00 per
unit. The actual data pertaining to the manufacturing overhead for the
year are presented below:
Actual production 198,000 units
Actual DLH 440,000
Actual variable overhead P352,000
Actual fixed overhead P575,000
74. The standard hours allowed for actual production for the year
total
a. 247,500 b. 396,000 c. 400,000 d.
495,000

75. F’s variable overhead efficiency variance for the year is

a. P33,000 UF b. P35,200 F c. P35,200
UF d. P3,000 F

76. F’s variable overhead spending variance for the year is

a. P20,000 UF b. P22,000 F c. P22,000
UF d. P20,000 F

77. F’s fixed overhead budget variance for the year is

a. P19,000 F b. P25,000 F c. P25,000 UF
d. P19,000 UF

78. The fixed overhead applied in F’s production for the year is
a. P484,200 b. P575,000 c. P594,000
d. P800,000

79. F’s overhead volume variance for the year is

a. P6,000 UF b. P19,000 F c. P25,000 F
d. P55,000 UF

80. Following is information relating to K Company’s X Division last

year:
Sales P500,000
 Variable expenses 300,000
Traceable fixed expenses 50,000
Average operating assets 100,000
Minimum required rate of return 6%
X’s residual income was
a. P144,000 b. P150,000 c. P156,000
d. P200,000

81. CDE Company manufactures communication satellites used in

TV in signal transmission. The firm currently purchases one
component for its satellite from a European firm. A CDE
engineering team has found a way to use the company’s own
component, namely Part No. A200 instead of the European
component. However, the CDE component must be modified at a
cost of P500 per part. The European component costs P8,900 per
part. CDE’s part no A200 costs P5,100 before it is modified. CDE
currently uses 10 of the European component per year. How much
is the annual differential cost between CDE’s two production
alternatives?
a. P33,000 b. P37,000 c.P34,000 d.
P35,000

82. M Company plans to discontinue a department that has a

contribution margin of P24,000 and P48,000 in fixed costs. Of the
fixed costs, P21,000 cannot be eliminated. The effect of this
discontinuance on M’s net operating income would be a(n)
a. Decrease of P3,000 c. Decrease of
P24,000
b. Increase of P3,000 d. Increase of
P24,000

The T Company has 500 obsolete microcomputers that are carried in

inventory at a total cost of P720,000. If these microcomputers are
upgraded at a total cost of P100,000, they can be sold for a total of
P160,000. As an alternative, the microcomputers can be sold in their
present condition for P50,000.
83. The sunk cost in this situation
a. P720,000 b. P160,000 c. P50,000
d. P100,000
84. What is net advantage or disadvantage to the company from
upgrading the computers rather than selling in their present
condition?
a. P110,000 advantage c. P10,000
advantage
b. P660,000 disadvantage d. P60,000
advantage
85. Suppose the selling price of the upgraded computers has not
been set. At what selling price per unit would the company be as
well off upgrading the computers as if it just sold the computers in
their present condition?
a. P100 b. P770 c. P300 d.
P210

86. F Caterers quotes price of P60 per person for a dinner party. This
price includes the 6% sales tax and the 15% service charge. Sales
tax is computed on the food plus service charge. The service
charge is computed on the food only. At what amount does F
Caterers price the food?
a. P55.40 b. P50.00 c.P47.40
d. P49.22

87. Which is NOT a common accounting classification of costs?

a. By the method of payment for the expenditure.
b. By the objective of expenditure.
c. By behavior.
d. By the function incurring the expenditure.

88. Introducing income taxes into cost-volume-profit analysis

a. raises the break-even point.
b. lowers the break-even point.
c. increases unit sales needed to earn a particular target
profit.
d. decreases the contribution margin percentage.

89. The principal advantage of the scatter-diagram method over the

high-low method of cost estimation is that the scatter-diagram
method
a. includes costs outside the relevant range.
b. considers more than two points.
 c. can be used with more types of costs than the high-low
method.
d. gives a precise mathematical fit of the points to the line.

90. Looking at the following scatter diagrams we can conclude that

$ $
| ** | **
| * ** | ** *
| *** * | * *
| * * | **
| |
| |
|__________________ |__________________
activity activity
Cost A Cost B
a. cost A will be easier to predict than cost B.
b. cost B will be easier to predict than cost A.
c. cost A is out-of-control.
d. cost B has no fixed component.

91. The cost to repair a unit of product that fails after it is sold is
a(n)
a. appraisal cost.
b. external failure cost.
c. internal failure cost.
d. prevention cost.

92. Genco manufactures two versions of a product. Production and

cost information show the following:
Model A Model B
Units produced 200 400
Material moves (total) 20 80
Direct labor hours per unit 1 2

Material handling costs total $200,000. Under ABC, the material

handling costs allocated to each unit of Model A would be:
a. $10
b. $200
c. $333
d. Some other number
93. Buchanan Company currently sells 4,000 units of product Q for
$1 each. Capacity is 5,000 units. Variable costs are $0.40 and
avoidable fixed costs are $400. A chain store has offered $0.80
per unit for 400 units of Q. If Buchanan accepts the order, the
change in income will be a
a. $60 decrease.
b. $80 decrease.
c. $160 increase.
d. $480 increase.

94. An imposed budget

a. is the same as a static budget.
b. can lead to poor performance.
c. is best for planning purposes.
d. eliminates the need for a sales forecast.

95. If the present value of the future cash flows for an investment
equals the required investment, the IRR is
a. equal to the cutoff rate.
b. equal to the cost of borrowed capital.
c. equal to zero.
d. lower than the company's cutoff rate of return.

96. Which of the following combinations is possible?

Profitability Index
------------------- --------
a. greater than 1 positive
b. greater than 1 negative
c. less than 1 negative
d. less than 1 positive
NPV IRR
-------------------------
equals cost of capital
less than cost of capital
less than cost of capital
less than cost of capital

97. Altoona Company is considering replacing a machine with a book

value of $200,000, a remaining useful life of 4 years, and
annual straight-line depreciation of $50,000. The existing
machine has a current market value of $175,000. The
replacement machine would cost $320,000, have a 4 year life,
and save $100,000 per year in cash operating costs. If the
replacement machine would be depreciated using the straight-
 line method and the tax rate is 40%, what would be the
increase in annual income taxes if the company replaces the
machine?
a. $28,000
b. $40,000
c. $42,000
d. $64,000

98. Direct, step-down, and reciprocal are names for

a. the allocation methods most likely to produce goal congruence.
b. transfer-pricing methods.
c. methods for allocating costs of service departments to
operating departments.
d. alternative organizational structures.

99. Cascade Company had the following results in June.

Planned Actual
------- -------
Sales $80,000 $78,900
Variable costs 50,000 48,500
------- -------
Contribution margin $30,000 $30,400
======= =======
Planned sales were 10,000 units; actual sales were 9,700 units.
The sales price variance is
a. $1,100 U.
b. $1,000 F.
c. $900 U.
d. $400 F.

100. Alcatraz Division of XYZ Corp. sells 80,000 units of part X to the
outside market. Part X sells for $40, has a variable cost of $22,
and a fixed cost per unit of $10. Alcatraz has a capacity to
produce 100,000 units per period. Capone Division currently
purchases 10,000 units of part X from Alcatraz for $40. Capone
has been approached by an outside supplier willing to supply
the parts for $36. What is the effect on XYZ's overall profit if
Alcatraz REFUSES the outside price and Capone decides to
buy outside?
 a. no change
b. $140,000 decrease in XYZ profits
c. $80,000 decrease in XYZ profits
d. $40,000 increase in XYZ profits

101. Filter Company's budget for overhead costs is:

total overhead cost = $50,000 + ($4 x direct labor hours)
Standard direct labor time is 1.5 hours per unit of product. The
standard wage rate is $6 per hour. Standard variable overhead
cost for a unit of product is
a. $4.00.
b. $6.00.
c. $9.00.
d. $10.00.

102. Chippewa paid $32,225 to direct labor for the production of

1,700 units. Standards allow 3 labor hours per unit at a rate of
$6.50 per hour. Actual hours totaled 5,150. The direct labor rate
variance was
a. $1,250 favorable
b. $925 favorable
c. $325 favorable
d. $325 unfavorable

103. A company using activity-based overhead rates

a. will usually have higher budget variances than one using a
single rate.
b. will usually have higher volume variances than one using a
single rate.
c. cannot compute fixed and variable components of overhead
cost.
d. should have better information for planning and control
than one using a single rate.

104. Variable costing and absorption costing will show the same
incomes when there are no
a. beginning inventories.
b. ending inventories.
c. variable costs.
d. beginning and ending inventories.
105. Madison Industries manufactures a single product using
standard costing. Variable production costs are $26 and fixed
production costs are $250,000. Madison uses a normal activity
of 12,500 units to set its standard costs. Madison began the
year with 1,000 units in inventory, produced 11,000 units, and
sold 11,500 units. The standard cost of goods sold under
variable costing would be

a. $230,000.
b. $299,000.
c. $506,000.
d. $529,000.

106. Backflushing, or backflush costing

a. requires significantly less recordkeeping than other
methods.
b. can be used by any company.
c. ignores inventories.
d. does not distinguish between materials and conversion
costs.

107. Which of the following will not impair the independence of a

CPA in the rendition of Management Services?
a. The CPA performs decision-making services for his client.
b. The CPA performs services wherein he is in effect, acting as
an employee of the client.
c. The CPA loses his objectivity and acts in a manner as if he is
advocating for the interest of his client.
d. The CPA does not extend his services beyond the
presentation of recommendations or giving of advice.

108. The type of data processing in which remote terminals provide

direct access to the computer is
a. On-line processing c. Batch
processing
b. Remote processing d. Central processing

109. Sequential access means that

a. Data are stored on magnetic tape.
b. The address of the location of data is found through the
use of either an algorithm or an index.
c. Each record can be accessed in the same amount of
time.
d. To read record 500, records 1 through 499 must be
read first.