St. Vincent de Ferrer College of Camarin, Inc.

SVFC Compound,
San Vicente Ferrer St., Area D, Brgy. 178, Camarin, Caloocan City
Telephone Number: 668-25-75; Email address: st.vincentdeferrercollegeofccc@yahoo.com
Website: www.stvfc.com

Final Examination
Accounting 13 - Management Accounting 2

Name: _______________________________ Year: ______________

Date:_______________________

Multiple Choice Questions

1. A decision maker is operating in an environment in which all the facts surrounding decision
are known exactly, and each alternative is associated with only the possible outcome. The
environment is known as

a. certainty
b. risk
c. uncertainty
d. conflict

2. A company uses two major material inputs in its production. To prepare its manufacturing
operations budget, the company has to project cost changes of theses material inputs. The
cost changes are independent of one another. The department provides the following
probabilities associated with projected cost changes:

Cost Change Material 1 Material 2

3% increase 0. 3 0.5 0.2 0.5
5 % increase 0.4
10% increase 0.1
The probability of a 3% increase in the cost of both
Material 1 and Material 2 is

a. 15%
b. 40%
c. 80%
d. 20%’

Questions 3 and 4 are based on the following information:

A computer store sells four computer models designated as N201, 1201. C201 and O201. The
store manager has made random number assignments to represent customer choices based on
past sales data. The assignments are shown below:
 Random
Model Numbers
N201 0 -1
1201 2 -6
C201 7 -8
O201 9

3. The probability that a customer will select model N201 is

a. 10%
b. 20%
c. 50%
d. Some percentage other than those given (CMA Adopted)

4. In running a simulation of the computer demand, the following numbers are drawn in
sequence: 2, 8, and 6. The simulation indicates that the third customer will purchase.

a. Model N201
b. Model 1201
c. Model C201
d. Model O201 (CMA Adopted)

5. Rico Buenavista is contemplating whether to investigate a labor inefficiency variance in the

Assembly Department. It will cost P6, 000 to undertake the investigation and another P18,
000 to correct operations if the department is found to be operating improperly. If the
department is operating improperly and Buenavista fails to investigate, operating costs from
the various inefficiencies are expected to amount to P33, 000. Buenavista will be indifferent
between investigating and not investigating the variance if the probability of improper is

a. 0.29
b. 0.40
c. 0.60

d. 0.71 (CMA Adopted)

Questions 6 and 7 are based on the following information.

The probabilities shown in the table represent the estimate of sales for a new product.
Sales (Units) Probability
0-200 15%
201-400 45%
401-600 25%
601-800 15%

6. What is the probability of selling between 201 and 600 units of the product?
 a. 0%
b. 11.25%
c. 70%
d. 25%

7. What is the best estimate of the expected sales of the new product?
a. 480
b. 380
c. 400
d. 800

8. Rain Company has three sales departments, each contributing the following percentages of
total sales: clothing, 50%; hardware, 30%; and household sundries; 20%. Each department
has had the following average annual damaged goods rates: clothing, 2%; hardware, 5%; and
household sundries, 2.5%. A random corporate audit has found a weekly damaged goods rate
of sufficient magnitude to alarm Rain’s management. The probability (rounded) that this rate
occurred in the Clothing Department is

a. 50%
b. 1%
c. 25%
d. 33 1/3%. (CMA Adopted)

9. A quantitative technique useful in projecting a firm’s sales and profits is

a. probability distribution theory

b. Gantt charting
c. learning curves

d. queuing theory (CMA Adopted)

Questions 10 and 11 are based on the following information.

Bora Maintenance Services has been performing technical maintenance service on a wide variety
of business machines for small businesses in a large metropolitan area for many years. Bora has
been considering a change in its free structure. The analysis requires a probability distribution for
each week for the number of anticipated service calls related to each several different types of
equipment.

10. Pedro Bora suggested establishing the distribution using the relative frequency of various
numbers of weekly service calls over the last 4 years. The following tabulation was prepared:

Number of Calls Number of Occurrence 4 10 80

801-850 851-
900 901-950
 951-1,000 40
1,001-1,050 20
1,051-1,100 12
1,101-1,150 12
1,151-1,200 10
1,201-1,250 8
1,251-1,300 4

Based on this probability distribution, the probability of more than 1, 150 calls for service during
a given week is

a. 0.06
b. 0.89
c. 0.17
d. 0.11

11. Bill Bora disagreed with his brother, arguing that the number and size of the companies with
which they held maintenance contacts had changed recently. He concluded that his past
experience was not relevant, and the firm would be better off recognizing their ignorance of
the future in the rate restructuring. Bill proposed the assumption of uniform distribution with
every possible number of calls from 801 to 1,300 being equally likely. Based on this uniform
distribution, the probability of more than 1,150 calls during a week is

a. 0.40
b. 0.30
c. 0.70
d. 0.20

12. Two firms share customers in the same market, Firm A sampled its customer’s buying habits
and found about 70% of its customers were repeat customers each week, while 30% went to
Firm B. Firm B found that 80% of its customers remained loyal each week, while 20%
switched to Firm A. If this retention and loss of customers continues for a long period, the
percentage of customers Firm A will have is

a. 70%
b. 80%
c. 60%
d. 40%

13. Two projects are going to be implemented. The probability for negative cash flows in each
one is 1/2, and the probability for negative cash flows in each one is 1/2. What is the
probability that at least one of the projects will have positive cash flows?

a. 0.5
b. 0.67
c. 0.75
 d. 0.95

14. Pongky Company’s managers are attempting to value a piece of land that they own. One
potential occurrence is that the old road that borders the land gets paved. Another possibility
is that the road does not get paved. A third outcome is that the road might be destroyed and
completely replaced by a new road. Based on the following future states of nature, their
probabilities, and subsequent values of the land, what is the expected value of the land?

Future States of Nature (SN) Probability

SN1: Current road gets paved 0.5
SN 2: Road does not get paved 0.4
SN 3: Current road destroyed and replaced
with new road 0.1

Estimates of land value under each possible future state of nature:

Value if SN 1: P200, 000
Value if SN 2: P100, 000
Value if SN 3: P550, 000

a. P133, 333
b. P195, 000
c. P225, 000
d. P283, 000

15. Sweet Company is preparing its budget and, taking into consideration the recent pace of
economic recovery, has developed several sales forecasts and the estimated probability
associated with each sales forecast. To determine the sales forecast to be used for budgeting
purposes, which one of the following techniques should Sweet use?

a. Expected value analysis

b. Continuous probability simulation
c. Exponential distribution analysis
d. Sensitive analysis

16. Under favorable weather conditions, the management of Forever Farms expects its rice crop
to have a P120, 000 market value. An unprotected crop subject pests has an expected market
value of P80, 000. If Forever protects the rice against pests, the market value of the crop is
still expected to be P120, 000 under pest-free conditions and P180, 000 if pests are present.
What must be the probability of pests for Forever to be indifferent to spending P20, 000 for
tents to provide pest protection?

a. 0.167
b. 0.200
c. 0.250
d. 0.333
17. During the past few years, Winter Company has experienced the following average number
of outages:
Number per month Number of Months
0 3
1 2
2 4
3 3
12
Each power outage results in out-of-pocket costs of P800. For P1, 000 per month, Winter
can lease a generator to provide power during outages. If Winter leases a generator in the
coming year, the estimates savings (or additional expense) for the year will be

a. P(15, 200)
b. P(1,267)
c. P3, 200
d. P7, 200

18. Fil Enterprises, distributor of compact disks (CDs), is developing its budgeted cost of goods
sold for 2013. Fil has developed the following range of sales estimates and associated
probabilities for the year.

Sales Estimate Probability

P60, 000 85,
000 100, 000 40
35
Fil’s cost of goods sold averages 80% of sales. What is the expected value of Fil’s 2013 budgeted
cost of goods sold?

a. P85, 000
b. P84, 000
c. P68, 000
d. P67, 000

19. The modeling technique to be used for situations involving a sequence of events with several
possible outcomes associated with each event is

a. queuing theory
b. dynamic programming
c. the critical path method
d. decision tree analysis

20. Which of the following statements does not apply to decision tree analysis?
 a. The sum of the probabilities of the events is less than one
b. All of the events are mutually exclusive
c. All of the events are included in the decision
d. The branches emanate from a node from left to right

21. The modeling technique to be employed in a situation involving a sequence of events with
several possible outcomes associated with each event is

a. network analysis
b. decision tree analysis
c. Monte Carlo simulation
d. linear programming

Questions 22 through 24 are based on the following information:

A beverage stand can sell either soft drinks or coffee on any given day. If the stands sell soft
drinks and the weather is hot, it will made P2, 500; if the weather is cold, the profit will be P1,
000. If the stand sells coffee and the weather is cold, the profit will be P2, 000. The probability of
cold weather on a given day at this time is 60%

22. The expected payoff for selling coffee is

a. P1, 360
b. P2, 200
c. P3, 900
d. P1, 960

23. The expected payoff if the vendor has perfect information is

a. P3, 900
b. P2, 200
c. P1, 360
d. P1, 960

24. Considering only the information given in the fact pattern, if the probability of hot weather
given a hot weather forecast is 50%, how much would the vendor be willing for the forecast?

a. P600
b. P300
c. P1, 000

d. P500

25. The expected value of perfect information is the

a. same as the expected profit under certainty

b. sum of the conditional profit (loss) for the best event of each act times the probability of
each event occurring
c. difference between the expected profit under certainty and the expected opportunity loss
d. difference between the expected profit under certainty and the expected monetary value
of the best act under certainty.