ReSO-The Review School of (uconaitaney Momagemend Advisory Servicer May 2019 Batch MAS Quiz 1 INSTRUCTIONS: Indicate the letter-choice that corresponds to your best answer at the designated answer sheet found on page 3 of the questionnaire. STRICTLY NO EKASURES ALLOWED. 1. tn the cost formula of the form ¥ =a + bX, “bX"is the a. Cost driver c. Slope of the cost tine b, Intercept of the Y-axis, dd. Variable component of the total costs 2. Breakeven analysis assumes that over the relevant range Total costs are unchanged ¢. Selling prices are unchanged b. Fixed costs are nonlinear 4. Variable costs are nonlinear 3. Which of the following is a characteristic 0/'« contribution income statement? a. Fixed and variable expenses are combined as one line bb. Fixed expenses are listed separately from variable expenses Fixed and. variable manufacturing cosis are combined as one line item, but fixed operating, ‘expenses sie shown separately from variable operating expenses d. Fixed and variable operating expenses are combined as one line item, but fixed ‘manufacturing expenses are shown separaicly from variable manufacturing expenses 4. Which of the following best describes management accounting information? a. Iti reliable and verifiable ‘c. Itis prepared in accordance with GAAP b. Its prepared for shareholders 4. It provides reasonable and timely estimates 5. How do you call a person who is qualified by education, experience. technical ability and temperament to advise businessmen on a professional basis in identifying and solving management problems? a Management Consultant ©. Business Specialist b. Management Accountant 4. Certified Public Accountant 6. Which of the following costs is treated diflerently under absorption costing and variable costing? a. Indirect labor costs = ~ Straight ion of delivery vehicle +b. Annual rental of office building 4d, Straight-line depreciation of assembly machine 7. What equation is used in the least-squares repression method of segregating variable and fixed costs? a Symnatb 3x? y b. Yy=adx + b3x! d. Yay 8. All else constant, ifthe selling price increases, ‘a. Total variable costs will be higher than expected b. Total contribution margin will be lower than expected ¢. Per-unit contribution margin wil! be higher than expected 4d. Contribution margin percentage wili be lower than expected 9. What is most likely an example of a comnmnitted iixed cost? a. Taxes on real estate ¢. Public relations b. Management development programs d. _Advenising programs sement accounting is used by an entity's management for a multitude of purposes that do not include 10, Man: a. Marketing c. Evaluation b. Control 4. Reporting 11, Inventoriable costs ‘a. Are regarded as assets before the products are sold . Include only prime costs of manufcturing « product jon costs of manufacturing a product become part of finished goods inventory cc. Include only the conve 4. Are expensed when produ 12. Cost drivers are a. Accounting techniques used to control costs b. Activities that cause costs to increase as the activity increases ¢. Accounting measurements used (0 evaluate whether or not performance is proceeding according to plan 4. A mechanical basis, su footage of factory. used (0 ass 13. ACPA should reject management advisory servi a. The proposed engagement is nt accounting related b His recommendations are ta be sabe toa review by the © fas machine hours, computer time, size of equipment, or square costs (0 activities '» (MAS) engagement if ient it client of the prospective client It would require him to make tanzgen:ent decistons for an a He audits the financial statements of a subsii Page 1 of 4 pagesReSQ- The Review School of Occowntancy MAS Quiz 1 Coverage: MAS ~ 01, 02, 03, A & B (May 2019 Batch) 14, Under variable costing, which of the following costs are treated as product costs? a Variable selling and administ variable factory overhead costs (YES) ); variable factory overhead costs (NO) istrative costs (NO); variable factory overhead costs (YES) 4. Variable selling and administrative costs (NO); variable factory overhead costs (NO) 15. Multiple regression analysis involves studying how one variable a. Affects another variable ©. Isaffected by another variable b. Affects two or more variables 4. is affected by two or more variables 16. Management is considering replacing an existing fixed salary plan to sales commission compensation plan. Ifthe change is adopted, the company’s Profit must decrease & Margin of safety must increase b. Breakeven point must decrease 4. Operating leverage must decrease 17. How will a\favorablevolume variance affect profit under 1) absorption costing & I) variable costing? a. - 1) no effect Il) increase ©. I) increase Il) no effect b. I) noeffect Il) decrease. 4.1) decrease Il) no effect ~ 18. In 2019, Cat Company decreases its direct manufacturing labor wage rates. Assuming all other factors being the same, how would this affect Cat’s budgeted breakeven point and budgeted margin of safety? a. Budgeted breakeven point increases; budgeted margin of safety increases b. Budgeted breakeven point increases. budgeted marg'n of safety decreases c. Budgeted breakeven point decreases; hudgeted margin of safety decreases 4d. Budgeted breakeven point decreases; budveted margin of safety increases 19. CPAs are in a more advantageous position than met a. The CPA is already familiar with the client's business and enjoys the client's confidence b. Most CPAs are highly educated compared to other business advisors c. ACPA is a person with recognized standing 4. Only CPAs may render MAS. 20. Riona Company sells three chemicals: Petrol, Septine and Tridol. Petrol is the company’s most profitable product while Tridol is the least profitable. Which one of the following events will definitely decrease the firm’s overall breakeven point for the upcoming accounting period? ‘A decrease in Tridol’s selling price ‘An increase in the overall market for Septine c. Installation of new machinery and subsequent layoff of workers d. An increase in anticipated sales of Petrol relative to sales of Septine and Tridol 21. Gray has the following cost components for 100,000 units of product for the year: Raw materials P 200,000 Direct labor 100,000 Manufacturing overhead 200,000 Selling/Administrative expense 150,000 Alll costs are variable except for P 100,000 of manufacturing overhead and P 100,000 of selling and administrative expenses. What are the total costs to produce and sell 110,000 units for the year? a. P 540,000 © P695.000 b. P.650,000 dP 715,060 22. Tondo Company uses an annual cost formula for overhead of P 72,000 + P 1.60 for each direct labor hour worked. For the upcoming month, Tondo plans to manufacture 96.000 units. Each unit required five minutes of direct labor. What is Tondo Companys budgeted overhead for the month? a. P 12,800 c, P 84,800 b. P 18,800 dP 840,000 23. The controller of Silver Co. has requested an estimate of the manufacturing supplies needed for the month of June when production is expected to be 470.000 units to mect the ending inventory requirements and sales of 475,000 units. Silver’s budget analyst has the following netval data for the last 3 months: ‘Month — Production in Units March 72: April 853.560 May 796,560 Using the high-low method, what would be the estimate of the needsd manufacturing supplies for June? a. P652,500 © 749,180 b. P681,500 d. P 752.066 Page 2 of 4 pages &RSA. The Review School of Occowntonvey MAS Quiz 1 Coverage: MAS ~ 01, 02, 03, A & B (May 2019 Batch) 24. For the first year of Lining Company's operations. 20,000 units of its only product remained on hand Manufacturing costs Fixed P'180,000 (Production: 100,000 units) Variable 160,000 Selling and administrative costs Fixed 90,000 (Sales: ??? units) Variable 40,000 How much lower would Lining’s profit be if it used direct costing instead of full costing? 000 a. P 36,000 . P b. P54,000 d. P-94,000 25, Marijuana, Inc. is involved in selling bar soaps. During 2019, 100,000 bars were sold for a price of P 11.20. This amount of sales generated earnings before interest and taxes of P 200,000. Supposed that the 2019 degree of operating leverage is 3.2 times, what should be reported by Marijuana as variable expenses in the Cost-Volume-Profit (CVP) income statement? a. P480,000 cc. P560,000 b. 500,000 dP 640,000 tems 26 to 29 are based on the following information Miss U Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for P 7.50 each, and the variable cost to manufacture them was P 2.25 per unit. The ‘company needed to sell 20,000 shirts to break even. ‘the net after-tax income last year was P 5,040. Miss U's expectations for the coming year include the following. + The sales price of the T-shirts will be P 9 + Variable costs to manufacture will increase by one-third. + Fixed costs will increase by 10%. + The income tax rate of 40% will be unchanged, 26. What is the selling price that would maintain the same contribution margin rate’ss last year’? a. P10.00 cc. P9.00 b. P9.75 d. P85 +27. What is the number of T-shirts Miss U must sell to break even in the coming year? a. 17,500 © 20,000 b. 19,250 4 22,000 28. Sales for the coming year are expected to excced last year’s by 1,000 units, If this occurs, Miss U's sales volume in the coming year will be , a. 23,400 units 21,960 units b. 22,600 units 4. 21,000 units 29. If Miss U Corporation wishes to earn P 22,500 in post-tax income for the coming year, the company volume in pesos must be oan a. P 207,000 cP b. P213,750 d P2 29,500 7.62530. Lava Company sells its single product for P40 per unit and uscs CVP analysis for its planning. The company’s after-tax net income for the past year was P 1,188,000 after applying an effective tax rate of 40%e The proyected costs for manufacturing and selling its single product in the coming year are as follows Variable cost per unit: Direct materials PS.00 Direct labor 4.00 Manufacturing overhead 6.00 Selling and administrative costs __3.00 Total cost per unit P1800 Annual fixed operating costs: Manufacturing overhead P 6,200,000 Selling and administrative cvsts _ 3,700,000 Total annual fixed cost £9,900,000 The company considers buying a new direct material that will increase the quality of its product. The new ‘material will increase the direct materia! costs by P 3 per unit, The company will increase the selling price of the product to P 50 per unit and increase ity marketing costs by P 1,575,000 to advertise the higher: Quality product. How many unit the company has to sell in order to cam a 10% before-tax return on sales? a 337,500 units © 425,000 units: bd. 346,875 units dd. 478.125 units 31. Slums Company manufactures a single product uses a normal activity of 10,000 units to set its standard costs. Variable production costs are P 10 and fixed production costs are P 75,000. For this year, Slums Produced 12,000 units and sold 11,500 units. What is the endi ng inventory under the absorption costing’? a PBI « 5 Ss us b PR7S0 de 26.250 sonk 32. Thailand Company produces and sells only two products, Yang’and Yin, 15)units of Yang are sold for ‘every 10 units of Yin. Variable costs as a percentage of sales in pesos are 60% for Yang and 85% for Yin. Total fixed cost is P 150,000.” If the total fixed cost of Thailand Company will increase by 30% next Period, what amount of sales would be necessary for Vii) to break-even? a P1429 «© P 390,000 b. P 260,000 dF 650,000 33. During 2018, Albay Co. supplied hospitals with a disgnosiic hit for P-120. Ata volume of 80,000 kits Albay had fixed cost of P 1,000,000 and a pretax profit of P 290.009. Due to an adverse legal decision. Albay’s 2019 liability insurance increased by P 1.200.000 over 2018. Assuming volume and all other costs remain unchanged, what should the 2019 selling pricbe it’ Albay is to make the same 2018 pretax profit? a. P 122.50 ce. P 140.00 b. P135.00 dP 240.00 GSEND® Page 4 of 4 pages© may 2019 Batch’s MAS Quiz 1 1.0 7. Dd. 13. C 19. A 25. A 31. B 2.C 8. C 14. C 20. D 26. A 32. B 3. B 2A 15. D 21. C 27. B 33. B 4.D 10. A 16. D 22. B 28. B 5. A It. 4A 17. C 23. D 29. C 6. D 12. B 18. D 24. A 30. D Brief explanations/solutions to selected items 2. “YT is the dependent variable (total costs/mixed costs/semI-variable costs) the y-intercept (Fixed component/constant coefficient) Tb" is the slope of a line (variable coefficient) [X" is the independent variable (cost driver/activity) “bX” is the variable component of the total costs 6. FFOH cost (e.9., straight-line depreciation of assembly machine) is treated as period cost under variable costing, while itis a product cost under absorption costing. 7. Least-squares method uses the following equations: 1) 23y=na+b2x 2) y= ax +b Ext 9. Choices B, C and D are examples of discretionary fixed costs. 12. A cost driver is an activity that causes the incurrence of costs. The usual mistake is choice “D" @ 13. A CPA engaged in MAS shall NOT make management decisions for an audit client. See related item no. 18 on page 4 of MAS - B. 15. Simple Regression vs. multiple regression: {Dependent Variable [Independent Variabie(s) Example [SIMPLE regression 1 1 Y=a+oX MULTIPLE regression 1 many (2 or more) a+ bX + oz 16. Higher variable cost (commission) > lower CM; lower FC (salary) > higher profit. DOL = CM = profit 17. An unfavorable volume variance, which is based on FFOH costs, is added to CGS (i.e., decreases profit) under AC but is ignored under VC, where the entire FFOH costs are simply expensed in period incurred. 18. A decrease in variable cost (direct labor cost) decreases BEP and hence, Increases the margin of safety. 20. Shifting the sales mix to more profitable products decreases break-even point due to higher over-all CM. 21. Unit variable cost: 450,000 + 100,000 = 4.5 YY = 200,000 + 4.5 (110,000) = P 695,000 22. 96,000 units > 480,000 mins > 8,000 hours _ FOH: (72,000 = 12 months) + 1.6 (8,000) = P 18,800 23. Unit variable cost: (853,560 ~ 723,060) + (540,000 ~ 450,000) = 130,500 = 90,000 = P 1.45, Fixed cost = 723,060 - 1.45 (450,000) = P 70,560 _ Y = 70,560 + 1.45 (470,000) = P 752,060 24. A Income = A Inventory x Unit FFOH = (20,000 units ~ 0) x (180,000 = 100,000) = P 36,000 25. CM = DOL x profit = 3.2 (200,000) = P 640,000 VC = 100,000 (11.2) - 640,000 = P 480,000 26. Last year’s CMR: (7.50 ~ 2.25) + 7.50 = 70% (*VCR is thus 30%) Target SP: (2.25 + 0.75) + 30%* 27. Last year's fixed costs: (7.50 ~ 2.25) 20,000 = P 105,000 BEP = 105,000 (1.1) + (9 ~ 3) 28. Last year's pretax income: 5,040 + (1 - 0.4) = P.8,400* Last year’s unit sales: (105,000 + 8,400%) = (7.5 ~ 2.25) = 21,600 (NOTE: plus 1,000 unis for this year) 29. Unit sales: [105,000 (1.1) + (22,500 + 60%)] + (9 ~ 3) = 25,500 units (@ P 9 selling price) 30. CM ratio: (50 ~ 21) = 50 = 58% Sales = (3,900,000 + 1,575,000) + (58% - 10%) = P 23,906,250 Unit sales: 23,906,250 + SO = 478,125 units Based on item no. 17, page 5, MAS Module I: Required sales = Fixed costs + (CMR - target profit ratio) 31. Ending inventory: (12,000 units - 10,500 units) x [10 + (75,000 + 10,000)] = P 26,250 FFOH per unit is based on (in order of priority): 1) Normal (Budgeted) production 2) Actual production > Any difference between normal and actual production is explained by the volume variance. > Volume variance is based on the formula: (AP ~ NP) x unit FFOH 32. Sales mix: Yang > 3 units (60%) vs. Yin > 2 units (40%) Weighted average CM ratio: 40% (60%) + 15% (40%) = 30% Over-all break-even sales: (150,000) 1.30 + 30% = P 650,000 Break-even sales (for product YIN only): P 650,000 x 40% = P 260,000 33, 2018: sales = 9.6 M > CM = 1M + 200,000 = 1.2 M> VC = 8.4 M'= 80,000 units x P 105, 2019: FC = 1M + 1.2M= 2.2M> CM = 2.2 M + 200,000 = 2.4 M = 80,000 units x P 30 Since 2019 volume and all other costs remain unchanged: Selling price = 30 + 105 = P 135 NOTE: Hard copy of MAS Quiz 1 answers and solutions -- available @ the ReSA canteen,