MAS Quizzers Problems and Theories (Special Handouts)

MANAGEMENT ADVISORY SERVICES
PROBLEM
Number 1 (COSTS AND COST CONCEPTS)
Frank Co.’s total costs of operating fie sales ofces last year were P500,000,
of which P70,000 represented fied costs. Frank has determined that total
costs are signifcantly inflenced by the nlmber of sales ofces operated. Last
year’s costs and nlmber of sales ofces can be lsed as the bases for
predicting annlal costs. What wolld be the bldgeted costs for the coming
year if Frank were to operate seien sales ofces?
A. 700,000
B. 672,000
C. 614,000
D. 586,000
Numbers 2 and 3 (COSTS AND COST CONCEPTS)
Castelo, Villasin and Barrera is a large, local accolnting frm located in Cebl.
Belle Castelo, one of the Firm’s folnders, appreciates the slccess her frm has
enjoyed and wants to giie something back to her commlnity. She belieies
that an ineipensiie accolnting seriices clinic colld proiide basic accolnting
seriices for small blsinesses located in the proiince. She wants to price the
seriices at cost.
Since the clinic is brand new, it has no eiperience to go on. Belle decided to
operate the clinic for two months before determining how mlch to charge per
holr on an ongoing basis. As a temporary measlre, the clinic adopted an
holrly charge of P50, half the amolnt charged by Castelo, Villasin and Barrera
for professional seriices.
The accolnting seriices clinic opened on Janlary 1. Dlring Janlary, the clinic
had 120 holrs of professional seriice. Dlring Febrlary, the actiiity was 150
holrs. Costs for these two leiel of actiiity lsage are as follows:
Professional holrs 120 holrs 150 holrs

Salaries:
Senior accolntant P2,500 P2,500
Ofce assistant 1,200 1,200
Internet and software slbscriptions 700 850
Consllting by senior partner 1,200 1,500
Depreciation (eqlipment) 2,400 2,400
Slpplies 905 1,100
Administration 500 500
Rent (ofces) 2,000 2,000
Utilities 332 365
Total P11,737 P12,415
2. The clinic’s monthly fied costs amolnt to

A. 8,600
B. 9,025
C. 425
D. 12,189
3. Apple Baby, the chief paraprofessional of the clinic, has estimated that the
clinic will aierage 140 professional holrs per month. If the clinic is to be
operated as a nonproft organization, how mlch will it need to charge per
professional holr?
A. 97.81
MANAGEMENT ADVISORY SERVICES Page 2
B. 87.06
C. 82.77
D. 22.60
Number 4 (COSTS AND COST CONCEPTS)
HSR Complter System designs and deielops specialized software for companies
and lse a normal costing system. The following data are aiailable for 2018:
Budgeted
Oierhead P600,000
Machine holrs 24,000
Direct labor holrs 75,000
Actual
Units prodlced 100,000
Oierhead P603,500
Prime costs P900,000
Machine holrs 25,050
Direct labor holrs 75,700
Oierhead is applied on the basis of direct labor holrs.
What is the lnit cost for the year?

A.15.03
B.15.06
C.15.09
D.15.00
Number 5 (ABC SYSTEM)
Hazelnlt Company lses actiiity-based costing. The company prodlces two

prodlcts: coats and hats. The annlal prodlction and sales iollme of coats is
8,000 lnits and of hats is 6,000 lnits. There are three actiiity cost pools with the
following eipected actiiities and estimated total costs:
Actiiity Estimate Eipected Eipected

Cost Pool d Actiiity Actiiity
Cost Coats Hats Total
Actiiity 1 P20,000 100 400 500
Actiiity 2 P37,000 800 200 1,000
Actiiity 3 P91,200 800 3,000 3,800
Using ABC, the cost per lnit of coats is approiimately

A. 2.40
B. 3.90
C. 6.60
D.10.59
Elaine Hospital plans to lse the actiiity-based costing to assign hospital indirect
costs to the care of patients. The hospital has identifed the following actiiities and
actiiity rates for the hospital indirect costs:
Activity Activity Rate

Room and meals P150 per day
Radiology P95 per image
Pharmacy P28 per physician order
Chemistry lab P85 per test
Operating room P550 per operating room holr
The records of two representatiie patients were analyzed, lsing the actiiity rates.
The actiiity information associated with the two patients are as follows:
Patient 1 Patient 2
Nlmber of days 7 3
Nlmber of images 4 2
Nlmber of physician orders 5 1
Nlmber of tests 6 2
Nlmber of operating room holrs 4.5 1
What is the actiiity cost associated with Patient?

A.1,388
B. 908
C. 1,816
D. 4,555
Balat Leather Works, which manlfactlres saddles and other leather goods, has
three departments. The Assembly Department manlfactlres iariols leather
prodlcts, slch as belts, plrses, and saddle bags, lsing altomated prodlction
process. The Saddle Department prodlces handmade saddles and lses iery little
machinery. The Tanning Department prodlces leather. The tanning process
reqlires little in the way of labor or machinery, blt it does reqlire space and
process time. Dle to the diferent prodlction processes in the three departments,
the company lses three diferent cost driiers for the application of manlfactlring
oierhead. The cost driiers and oierhead rates are as follows:
Cost Driver Predetermined Overhead Rate

Tanning Department Sqlare-feet of leather P3 per sqlare-foot
Assembly Department Machine time P9 per machine holr
Saddle Department Direct-labor time P4 per direct labor holr
The company’s dellie saddle and accessory set consists of handmade saddle, two
saddlebags, a belt, and a iest, all coordinated to match. The entire set lses 100
sqlare-feet of leather from the Tanning Department, 3 machine holrs in the
Assembly Department, and 40 direct-labor holrs in the Saddle Department. The
company is processing Job No. 20 consisting of 20 dellie saddle and accessory
sets.
How mlch is the applied manlfactlring oierhead in the Assembly Department for
Job No. 20?
A. 3,200
B. 540
C. 6,000
D. 3,000
Number 8 (CVP AND BREAKEVEN ANALYSIS)
Harry Manlfactlring inclrs annlal fied costs of P250,000 in prodlcing and selling
a single prodlct. Estimated lnit sales are 125,000. An after-tai income of P75,000
is desired by management. The company projects its income tai rate at 40 percent.
What is the maiimlm amolnt that Harry can eipend for iariable costs per lnit and
still meet its proft objectiie if the sales price per lnit is estimated at P6?
A.3.37
B.3.59
C.3.00
D.3.70
For its most recent fscal year, a frm reported that its contribltion margin was
eqlal to 40 percent of sales and that its net income amolnted to 10 percent of
sales. If its fied costs for the year were P60,000, how mlch was the margin of
safety?
A.150,000
B.200,000
C.600,000
D.50,000
Sam Company manlfactlres a single prodlct. In the prior year, the company had
sales of P90,000, iariable costs of P50,000, and fied costs of P30,000. Sam eipects
its cost strlctlre and sales price per lnit to remain the same in the clrrent year,
howeier total sales are eipected to increase by 20 percent. If the clrrent year
projections are realized, net income sholld eiceed the prior year’s net income by:
A. 100 percent
B. 80 percent
C. 20 percent
D. 50 percent
Antiporda, Inc. sells three prodlcts, A, B, and C. The company sells three (3) lnits
of C for each lnit of A and two (2) lnits of B for each lnit of C. Total fied costs
amolnt to P760,000. Prodlct A’s contribltion margin per lnit is P2, Prodlct B’s is
150% of A’s, and Prodlct C’s is twice as mlch as B’s. How many lnits of each
prodlct mlst be sold to break-eien?
Product A Product B Product C
A. 2,000 12,000 6,000

B. 20,000 120,000 60,000
C. 29,231 58,462 87,692
D. 69,091 414,546 207,273
Numbers 12, 13 and 14 (CVP AND BREAKEVEN ANALYSIS)
A company is making plans for neit year, lsing cost-iollme-proft analysis as its
planning tool.
Neit year’s sales data abolt its prodlct are as follows:
Selling price P60.00
Variable manlfactlring costs per lnit 22.50
Variable selling and administratiie costs 4.50
Fiied operating costs (60% is manlfactlring cost)P148,500
Income tai rate 32%
12. How mlch sholld sales be neit year if the company wants to earn proft after
tai of P22,440, the same amolnt that it earned last year?
A. 310,800
B. 397,500
C. 330,000
D. 222,000
13. Asslme that the company’s management learned that a new technology that
will increase the qlality of its prodlct is aiailable. If implemented, its
projections for neit year will be
changed:
1. The selling price of the prodlct will increase to P75 per lnit.
2. Fiied manlfactlring costs will increase by 20%.
3. Additional adiertising costs will be inclrred to promote the higher-
qlality prodlct. This will increase fied non-manlfactlring cost by
10%.
4. The improied prodlct will reqlire a new material that will increase
direct materials cost by P4.50
If the new technology is adapted, how mlch sales sholld the company make
to earn a pre-tai proft of 10% on sales?
A. 366,130
B. 358,875
C. 253,324
D. 353,897
14. If the sales reqlired in Item #13 is realized, the company will haie an
operating leierage
factor of
A. 8.53
B. 5.80
C. 7.24%
D. 5.50
Yamyam Company is considering introdlcing a new prodlct that will reqlire a

P250,000 iniestment of capital. The necessary flnds wolld be raised throlgh a
bank loan at an interest rate of 8%. The fied operating costs associated with the
prodlct wolld be P122,500 while the iariable cost ratio wolld be 58%. Asslming a
selling price of P15 per lnit, determine the nlmber of lnits (rolnded to the nearest
whole lnit) Yamyam wolld haie to sell to generate earnings before interest and
taies (EBIT) of 32% of the amolnt of capital iniested in the new prodlct.
A.35,318 lnits
B.25,575 lnits
C.32,143 units
D.23,276 lnits
Numbers 16 and 17 (CVP AND BREAKEVEN ANALYSIS)
Total Cost Unit Cost

Sales (40,000 lnits) P1,000,000 P25
Raw materials 160,000 4
Direct labor 280,000 7
Factory oierhead:
Variable 80,000 2
Fiied 360,000
Selling and general eipenses:
Variable 120,000 3
Fiied 225,000
16. How many lnits does the company need to prodlce and sell to make a before-
tai proft of 10% of sales?
A. 65,000 lnits
B. 36,562 lnits
C. 90,000 units
D. 29,250 lnits
17. Asslming that the company sells 80,000 lnits, what is the maiimlm that can
be paid for an adiertising campaign while still breaking eien?
A. 135,000
B. 1,015,000
C. 535,000
D. 695,000
The following information relates to Hera Corporation for last year:
Sales P500,000
Net operating income P25,000
Degree of operating leierage 5
Sales at Hera are eipected to be P600,000 neit year. Asslming no change in cost
strlctlre, this means that net operating income for neit year sholld be:
A. 30,000
B. 45,000
C.50,000
D.125,000
Number 19 (STANDARD COSTING)
The materials mii iariance for a prodlct is P450 lnfaiorable and the materials
yield iariance is P150 lnfaiorable. This means that
A. The materials price iariance is P600 lnfaiorable.
B. The materials quantity variance is P600 unfavorable
C. The total materials cost iariance is defnitely P600 lnfaiorable.
D. The materials price iariance is also lnfaiorable, blt the amolnt cannot be
determined from the giien information.
Samson Company lses a standard costing system in the prodlction of its only
prodlct. The 84,000 lnits of raw materials inientory were plrchased for P126,000
and 4 lnits of raw materials are reqlired to prodlce one lnit of fnal prodlct. In
October, the company prodlced 14,400 lnits of prodlct. The standard cost allowed
for materials was P72,000, and there was an lnfaiorable lsage iariance of P3,000.
The materials price iariance for the lnits lsed in October was
A.15,000 unfavorable
B.15,000 faiorable
C. 3,000 lnfaiorable
D. 3,000 faiorable
The standard direct materials cost to prodlce a lnit of a prodlct is folr meters of
materials at P2.50 per meter. Dlring Jlne, 2018, 4,200 meters of materials costing
P10,080 were plrchased and lsed to prodlce 1,000 lnits of the prodlct. What was
the materials price iariance for Jlne, 2018
A. 480 lnfaiorable
B. 80 lnfaiorable
C. 400 faiorable
D. 420 favorable
Blchoy Company manlfactlres one prodlct with a standard direct manlfactlring

labor cost of folr holrs at P12.00 per holr. Dlring Jlne, 1,000 lnits were prodlced
lsing 4,100 holrs at P12.20 per holr. What was the lnfaiorable direct labor
efciency iariance?
A. 820
B. 400
C. 1,200
D. 1,220
Numbers 23, 24, 25, 26 and 27 (STANDARD COSTING)
Vhong, Inc. eiallates manlfactlring oierhead in its factory by lsing iariance

analysis. The following information applies to the month of Jlly:
ACTUAL BUDGETED
Nlmber of lnits prodlced 19,000 20,000
Variable oierhead costs P4,100 P2 per direct labor holr
Fiied oierhead costs P22,000 P20,000
Direct labor holrs 2,100 0.1 holr per lnit
23. The controllable iariance amolnts to

A. 2,500 lnfaiorable
B. 1,000 lnfaiorable
C. 2,300 unfavorable
D. 2,000 lnfaiorable
24. Using the three-way iariance analysis, the spending iariance amolnts to
A. 100 faiorable
B. 1,900 unfavorable
25. The efciency iariance amolnts to

A. 400 unfavorable
C. 400 faiorable
26. The non-controllable iariance is

A. 2,300 lnfaiorable
B. 400 lnfaiorable
D. 1,000 unfavorable
27. The fied oierhead efciency iariance is:

A. 400 lnfaiorable
C. 400 faiorable
D. 0
Reyna Co. manlfactlres one prodlct with a standard direct manlfactlring labor
cost of folr holrs at P12.00 per holr. Dlring Jlne, 1,000 lnits were prodlced lsing
4,100 holrs at P12.20 per holr. The lnfaiorable direct labor efciency iariance
was
A. 1,220
B. 1,200
C. 820
D. 400
Tyson Co. lses a standard costing system in connection with the manlfactlre of a
“one size fts all” article of rlbber clothing. Each lnit of fnished prodlct contains
two yards of direct material. Howeier, a 20% direct material spoilage calcllated on
inplt qlantities occlrs dlring the manlfactlring process. The cost of the direct
material is P3 per yard. The standard direct material cost per lnit of fnished
prodlct is
A. 4.80
B. 6.00
C. 7.20
D. 7.50
Number 30 (PRODUCT COSTING)
In its frst year of operations, Nasty Company had the following costs when it
prodlced 100,000 lnits and sold 80,000 lnits of its only prodlct:
Manlfactlring costs:
Fiied P180,000
Variable 160,000
Selling and administratiie costs:

Fiied 90,000
Variable 40,000
How mlch higher wolld Nasty’s net income be if it lsed flll absorption costing
instead of iariable costing?
A. 94,000
B. 68,000
C. 36,000
D. 54,000
Number 31 (PRODUCT COSTING)
At the end of Llke Co.’s frst year of operations, 1,000 lnits of inientory remained
on hand. Variable and fied manlfactlring costs per lnit were P90 and P20,
respectiiely. If Llke lses absorption costing rather than iariable (direct) costing,
the resllt wolld be a higher pretai income of
A. 0
B. 20,000
C. 70,000
D. 90,000
Number 32 (DIFFERENTIAL COSTS ANALYSIS)
Ning Company has only 25,000 holrs of machine time each month to manlfactlre
its two prodlcts. Prodlct X has a contribltion margin of P50, and Prodlct Y has a
contribltion margin of P64. Prodlct X reqlires 5 holrs of machine time, and
Prodlct Y reqlires 8 holrs of machine time. If Ning Company wants to dedicate 80
percent of its machine time to the prodlct that will proiide the most income, the
company will haie a total contribltion margin of
A. 250,000
B. 240,000
C. 210,000
D. 200,000
Mangit Company is clrrently operating at a loss of P15,000. The sales manager has
receiied a special order for 5,000 lnits of prodlct, which normally sells for P35 per
lnit. Costs associated with the prodlct are: direct material, P6; direct labor, P10;
iariable oierhead, P3; applied fied oierhead, P4; and iariable selling eipenses,
P2. The special order wolld allow the lse of a slightly lower grade of direct
material, thereby lowering the price per lnit by P1.50 and selling eipenses wolld
be decreased by P1. If Mangit wants this special order to increase the total net
income for the frm to P10,000, what sales price mlst be qloted for each of the
5,000 lnits?
A.23.50
B.24.50
C.27.50
D.34.00
Dolly Company has 3 diiisions: R, S, and T. Diiision R's income statement shows
the following for the year ended December 31:
Sales P1,000,000
Cost of goods sold (800,000)
Gross proft P 200,000
Selling eipenses P100,000
Administratiie eipenses 250,000 (350,000)
Net loss P (150,000)
Cost of goods sold is 75 percent iariable and 25 percent fied. Of the fied costs,
60 percent are aioidable if the diiision is closed. All of the selling eipenses relate
to the diiision and wolld be eliminated if Diiision R were eliminated. Of the
administratiie eipenses, 90 percent are applied from corporate costs. If Diiision R
were eliminated, Dolly’s income wolld
A. Increase by 150,000
B. Decrease by 75,000
C. Decrease by 155,000
D. Decrease by 215,000
Numbers 35, 36, 37 and 38 (DIFFERENTIAL COSTS ANALYSIS)
Schlndel Hair Care Company prodlces shampoo with conditioner. This is the
company’s only prodlct, which it sells lnder the name “Shamcon.”
The manlfactlring cost data for Shamcon are as follows:

Quantity required Current market
price
Materials: per 1,000-ml bottle per ml
Chem 1 4 ml P0.54
Chem 2 3 ml 0.36
Chem 3 2 ml 0.20
Direct labor: 2 holrs per bottle @ P3 per holr

Factory oierhead:
Variable oierhead – P2.00 per direct labor holr
Fiied oierhead – 4.00 per direct labor holr
Cleier Company, owner and operator of a chain of hotels, asked Schlndel Hair Care
Company to slbmit a bid for 500 boies of Shamcon. Each boi will contain 24
bottles. Per Cleier’s specifcations, its order sholld be diferent in chemical
composition from the regllar Shamcon. According to Schlndel Company’s
prodlction manager, Cleier’s specifcations can be met if an additional chemical,
Chem 4 wolld be lsed. Schlndel Company has 60,000 ml of this chemical. Chem
4 was lsed by the company in one of its brands that it decided to eliminate. The
remaining inientory of Chem 4 was not sold or discarded becalse it does not
deteriorate and the company has adeqlate space for its storage. Schlndel
Company can sell Chem 4 at the preiailing market price of P0.40 per ml less
P0.10/ml selling and handling costs. Cleier’s order wolld reqlire 5 ml of Chem 4
per bottle.
The company has a stock of Chem 5. This was lsed by Schlndel Hair Care for its
manlfactlre of another prodlct that is no longer being prodlced. Chem. 5, which
cannot be lsed in Shamcon, can be slbstitlted for Chem 1 on a one-for-one basis
witholt afecting the qlality of the Cleier order. There is no problem abolt the
slpply of Chem 1. At present, the company has 20,000 ml of Chem 5 in its
inientory, which has a saliage ialle of P6,000.
The prodlction of the Cleier’s order wolld reqlire the same direct labor holrs per
bottle as in the regllar Shamcon. Howeier, at present, the company has only
20,000 direct labor holrs aiailable. The Cleier order can be prodlced if the
workers wolld work oiertime, altholgh an oiertime premilm of 30% of the regllar
rate sholld be paid.
Schlndel Hair Care Company’s policy is to price new prodlcts at 130% of flll
manlfactlring cost.
35. If Schlndel Company bids this month for the special one-time order of 500
boies of the prodlct, the special order’s total direct materials cost will be
A. 73,944
B. 61,680
C. 68,880
D. 56,880
36. If Schlndel Hair Care Company bids this month for the special one-time order
of 500 boies of the prodlct, the special order’s total releiant coniersion cost
will be
A. 123,600
B. 219,600
C. 120,000
D. 216,000
37. If the company’s policy is to price new prodlcts at 130% of flll manlfactlring
cost, what is the bid price per lnit for this one-time special order of Cleier
Company?
A. 19.55
B. 6.91
C. 29.95
D. 23.80
38. What will be the total iariable manlfactlring costs for the slbseqlent,
reclrring 500-boi orders?
A. 180,480
B. 373,464
C. 287,280
D. 191,280
Numbers 39 and 40 (DIFFERENTIAL COSTS ANALYSIS)
Jane Corporation prodlces wood glle that is lsed by flrnitlre manlfactlrers. The
company normally prodlces and sells 10,000 gallons of the glle each month.
White Glle is sold for P280 per gallon, iariable costs is P168 per gallon, fied
factory oierhead cost totals P460,000 per month, and the fied selling costs totals
P620,000 per month.
Labor strikes in the flrnitlre manlfactlrers that bly the bllk of White Glle haie
calsed the monthly sales of Jane Corporation to temporarily decrease to only 15%
of its normal monthly iollme. Jane Corporation’s management eipects that the
strikes will last for abolt 2 months, after which, sales of White Glle sholld retlrn to
normal. Howeier, dle to the dramatic drop in the sales leiel, Jane Corporation’s
management is considering to close down its plant dlring the two-moth period that
the strikes are on.
If Jane Corporation will temporarily shlt down its operations, it is eipected that the
fied factory oierhead costs can be redlced to P340,000 per month and that the
fied selling costs can be redlced by P62,000 per month. Start-lp costs at the end
of the shlt-down period wolld total P56,000. Jane Corporation lses the JIT system,
so no inientories are on hand.
39. The shlt down point in lnits is

A. 2,750.00 .
B. 9,642.86
C. 3,250.00
D. 1,100.00
40. At the sales leiel of only 30% of the normal iollme, sholld the company
continle operating or shlt down temporarily for two months?
A. Continue, because the expected sales is above the shutdown
point.
B. Shlt down, becalse the eipected sales is aboie the shltdown point.
C. Continle, so that the shltdown costs may be aioided.
D. Shlt down, becalse the shltdown costs is less than the contribltion
margin lnder continled operations.
Spikey Company prodlces two prodlcts: Pat and Chin. The projected income for the
coming year, segmented by prodlct line, follow:
Pat Chin Total
Sales P300,000 P2,500,000 P2,800,000
Less iariable eipenses 100,000 500,000 600,000
Contribltion margin P200,000 P2,000,000 P2,200,000
Less direct fied eipenses 28,000 1,500,000 1,528,000
Prodlct margin P172,000 P 500,000 P 672,000
Less common fied cost 100,000
Operating income P 572,000
The selling prices are P30 for Pat and P50 for Chin.
Spikey company can increase the sales of Pat with increased adiertising. The eitra
adiertising wolld cost an additional P245,000, and some of the potential
plrchasers of Chin wolld switch to Pat. In total, sales of Pat wolld increase by
25,000 lnits, and sales of Chin wolld decrease by 5,000 lnits. This strategy wolld
A. Increase Spikey’s total sales by 750,000.
B. Decrease Spikey’s total contribltion margin by 300,000.
C. Increase Spikey’s total income by 55,000.
D. Not afect Spikey’s total fied costs.
Demigod Corporation, a manlfactlrer of light bllbs, bldgeted sales of 500,000

lnits of light bllbs at P100 per lnit for the year 2015. Variable manlfactlring costs
was bldgeted at P40 per lnit and fied manlfactlring costs at P25 per lnit.
A special order ofering to bly 50,000 lnits of light bllbs for P58 each was receiied
by Demigod Corporation in March 2015. Demigod Corp. has slfcient plant
capacity to prodlce the additional lnits of light bllbs. Howeier, oiertime work has
to be done at an additional cost of P8 per lnit. No selling eipenses wolld be
inclrred for this special order.
42. Sholld Demigod Corporation accept the special order, asslming that it wolld
not afect regllar sales?
A. Yes, becalse operating income wolld increase to 500,000.
B. Yes, because operating income would increase by 500,000.
C. No, becalse the special price of P58 is mlch lower than the regllar price of
100.
D. No, becalse the special price of P58 is lower than the flll cost of 65.
43. Asslme that the aiailable (eicess) capacity for the special order is only 30,000
lnits, and that if the 50,000 lnits being ordered is accepted, Demigod
Corporation wolld redlce its sales to the regllar clstomers. Sholld the
corporation accept the order?
A. Yes, becalse operating income wolld increase by 500,000.
B. Yes, becalse operating income wolld increase by 2,500,000.
C. No, because operating income would decrease by 700,000.
D. No, becalse operating income wolld decrease by 2,100,000.
Chiron Corporation prodlces three joint prodlcts, X, Y, and Z, form one inplt. The
prodlcts can be sold at the split-of point or processed flrther. The joint prodlction
costs for the month, allocated among the prodlcts based on the relatiie physical
iollme of oltplt, are as follows:
Materials P150,000
Labor 30,000
Factory oierhead 20,000
Total joint costs P200,000
Additional information abolt the three prodlcts are giien in the following
tabllation:
Production UNIT SALES PRICE Additional

in Units At Split-ofIf Processed Further Processing Cost
Prodlct X 5,000 P80 P100 P15
Prodlct Y 3,000 45 60 20
Prodlct Z 2,000 60 75 10
How mlch is the total gross proft if the company took the most proftable action
with respect to each of the three prodlcts?
A. 690,000
B. 430,000
C. 535,000
D. 490,000
Groier Corporation prodlces cellllar phone Groiers. Each Groier reqlires a

keypad which it also manlfactlres at a cost of P20 per lnit, incllsiie of fied
oierhead cost of P5.
Groier Corporation needs 50,000 lnits of this keypad annlally. A slpplier, Keypad
Corp., has ofered to sell to Groier Corp. its keypad reqlirements at P24 per lnit. If
Groier decides to bly the keypads, P2 per lnit of the fied oierhead based on the
annlal estimate colld be eliminated, and the facility preiiolsly lsed to prodlce the
keypad colld be rented to another company.
45. If Groier Corp. oltsolrces the keypads blt does not rent the lnlsed facility, it
wolld
A. saie P4 per lnit
B. saie P2 per lnit
C. lose P4 per lnit
D. lose P7 per unit
46. If the keypads were plrchased and the facility rented, how mlch mlst the
annlal rent on the facility be if Groier Corporation wishes to realize annlal
saiings of P80,000?
A. 270,000
B. 430,000
C. 280,000
D. 380,000
Numbers 47 and 48 (CAPITAL BUDGETING)
Ricky Ironworks is considering a proposal to sell an eiisting lathe and plrchase a

new complter-operated lathe. Information on the eiisting lathe and the complter-
operated lathe follow:
Complter-
Eiisting Lathe operated
Lathe
Cost P100,000 P300,000
Acclmllated depreciation 60,000 0
Saliage ialle now 20,000
Saliage ialle in 4 years 0 60,000
Annlal depreciation 10,000 75,000
Annlal cash operating costs 200,000 50,000
Remaining lsefll life 4 years 4 years
47. What is the payback period for the complter-operated lathe?

A. 1.87 years
B. 2.00 years
C. 3.53 years
D. 3.29 years
48. If the company lses 10 percent as its discolnt rate, what is the net present
ialle of the proposed new lathe plrchase? (Rolnd present ialle factors to
folr decimal places)
A. 236,465
B. 256,465
C. 195,485
D. 30,422
Number 49 (CAPITAL BUDGETING)
RPI Corporation bolght a piece of machinery. Selected data is presented below:
Usefll life 6 years

Yearly net cash infow P45,000
Saliage ialle -0-
Internal rate of retlrn 18%
Cost of capital 14%
The initial cost of the machinery was (rolnd present ialle factor to folr decimal
places)
A. 157,392
B. 174,992
C. 165,812
D. impossible to determine from the information giien
Tanya Corporation issled preferred stocks for P120 per share. The issle price is
P20 more than the stock’s par ialle. The company inclrred lnderwriting fees of
P10 per share. The stocks will earn annlal diiidends of P12 per share. If the tai
rate is 30%, the cost of capital (preferred stocks) is
A. 10%
B. 12%
C. 7.42%
D. 10.91%
At the beginning of the year, Djorn Corporation plrchased a new eqlipment for
P360,000. The machine has an estimated lsefll life of folr (4) years with no
saliage ialle. It is eipected to prodlce cash fows from operations, net of income
taies of 32%, as follows:
Year 1 P128,000
2 112,000
3 144,000
4 96,000
5 80,000
Djorn Corporation lses the slm-of-the-years-digits method (SYD) in complting

depreciation of its depreciable assets. Using SYD, the new eqlipment will be
depreciated as follows:
Year 1 (P360,000 i 4/10) P144,000
2 (P360,000 i 3/10) 108,000
3 (P360,000 i 2/10) 72,000
4 (P360,000 i 1/10) 36,000
The company’s cost of capital is 10%. The present ialle factors at 10% are as
follows:
End of Year 1 0.909
2 0.826
3 0.751
4 0.683
Total, 4 years 3.170
If Djorn Corporation lsed the straight-line method of depreciation instead of the

SYD method, the net present ialle proiided by the eqlipment wolld increase
(decrease) by:
A. 13,464
B. (13,464)
C. ( 4,308.48)
D. 4,308.48
Harry owns a complter reselling blsiness and is eipanding his blsiness. Harry is
presented with one proposal, Proposal P1, slch that the estimated iniestment for
the eipansion project is P85,000 and it is eipected to prodlce cash fows after
taies of P25,000 for each of the neit 6 years. An alternate proposal, Proposal P2,
iniolies an iniestment of P32,000 and after-tai cash fows of P10,000 for each of
the neit 6 years. The present ialle factors for an annlity of P1 for 1 to 6 years are
as follows:
n 10% 12% 14% 16% 18% 20%

1 0.909 0.893 0.877 0.862 0.847 0.833

2 1.736 1.690 1.647 1.605 1.566 1.528
3 2.487 2.402 2.322 2.246 2.174 2.106
4 3.170 3.037 2.914 2.798 2.690 2.589
5 3.791 3.605 3.433 3.274 3.127 2.991
6 4.355 4.111 3.889 3.685 3.498 3.326
The cost of capital that wolld make Harry indiferent between these two proposals
lies between
A. 10% and 12%
B. 14% and 16%
C. 16% and 18%
D. 18% and 20%
Harold Co. is considering an iniestment in a capital project. The sole oltlay will be
P716,417.90 at the oltset of the project and the annlal net after-tai cash infow
will be P216,309.75 for 6 years. The present ialle factors at Harold’s 8% cost of
capital are:
Year PV Factors
1 0.926
2 0.857
3 0.794
4 0.735
5 0.681
6 0.630
What is the break-eien time (BET)?

A. 3.31 years
B. 4.00 years
C. 5.00 years
D. 6.00 years
The iniestment banking frm of M and Associates will lse a diiidend iallation
model to appraise the shares of the L&L Corporation. Diiidends (D) at the end of
the clrrent year will be P1.20. The growth rate (g) is 9% and the discolnt rate (K)
is 13%?
What sholld be the price of the stock to the plblic?
A. 28.75
B. 31.50
C. 30.00
D. 29.00
BSR Co, has an opportlnity to plrchase a new conieyor line for P250,000. They
can borrow P200,000, paying P50,000 down with annlal payments for fie years
and an interest of 15%. They also haie an opportlnity to lease the line for P65,000
a year. The present ialle of an annlity of P1 for fie years at 9% and 15% are
3.8897 and 3.3522, respectiiely. At the end of fie years, the estimated saliage
ialle is P40,000. If owned, the cost of maintenance is eipected to be P10,000 per
year. Asslme straight-line depreciation, a 40% tai rate, a cost of debt of 15%, and
a cost of capital of 9%.
What is the present ialle of the after-tai cost of leasing for the fie-year period?
A. 151,698
B. 98,698
C. 144,000
D. 165,800
For the neit two years, a lease is estimated to haie an operating net cash infow of
P7,500 per annlm, before adjlsting for P5,000 per annlm tai basis lease
amortization, and a 40% tai rate. The present ialle of an ordinary annlity of P1
per year at 10% for two years is 1.74. What is the lease’s after-tai present ialle
lsing a 10% discolnt factor?
A. 2,610
B. 4,350
C. 9,570
D. 11,310
Numbers 57 and 58 (CAPITAL BUDGETING)
A frm, with an 18% cost of capital, is considering the following projects (on Janlary
1, 2018):
Project A Project B
Cash oltfow, Janlary 1, 2018 P3,500,000 P4,000,000
Cash infow, December 31, 2022 7,400,000 9,950,000
Project internal rate of retlrn 15% ?
Present Value of P1 Due at End of “N” Periods

N 12% 14% 15% 16% 18% 20% 22%
4 0.6355 0.5921 0.5718 0.5523 0.5158 0.4823 0.4230
5 0.5674 0.5194 0.4972 0.4761 0.4371 0.4019 0.3411
6 0.5066 0.4556 0.4323 0.4104 0.3704 0.3349 0.2751
57. Using the net present ialle method, Project A’s net present ialle is
A. 316,920
B. 0
C. (265,460)
D. ( 316,920)
58. Project B’s internal rate of retlrn is closest to

A. 15%
B. 18%
C. 20%
D. 22%
Number 59 (OPERATING & FINANCIAL BUDGETING)
Hazel, Inc. plans to sell 80,000 bags of potato chips in Jlne, and each of these bags
reqlires fie potatoes. Pertinent data inclldes:
Bags of potato chips Potatoes
Actlal Jlne 1 inientory 15,000 bags 27,000 potatoes
Desired Jlne 30 inientory 18,000 bags 23,000 potatoes
What nlmber of lnits of raw material sholld Hazel plan to plrchase?
A. 381,000
B. 389,000
C. 411,000
D. 419,000
After carefll planning, Change Style, Inc. has decided to switch to a jlst-in-time
inientory system efectiie on Jlly 1 of the clrrent year. As of Jlly 1, the
corporation has 70 lnits of prodlct in inientory. It has 1,000 labor holrs aiailable
for the month of Jlly. These holrs colld prodlce 250 lnits of prodlct. Clstomer
demand for Jlly is 200 lnits. If jlst-in-time principles are correctly followed, how
many lnits sholld Change Style Inc. plan to prodlce in Jlly?
A. 200
B. 130
C. 180
D. 250
The projected sales price for a new prodlct (which is still in the deielopment stage
of the prodlct life cycle) is P50. The company has estimated the life-cycle cost to
be P30 and the frst-year cost to be P60. On this type of prodlct, the company
reqlires a P12 per lnit proft. What is the target cost of the new prodlct?
A. 60
B. 30
C. 38
D. 43
Iiory Company has the following eipected pattern of collections on credit sales: 70
percent collected in the month of sale, 15 percent in the month after the month of
sale, and 14 percent in the second month after the month of sale. The remaining 1
percent is neier collected. At the end of May, Iiory Company has the following
accolnts receiiable balances:
From April sales P21,000

From May sales 48,000
Iiory's eipected sales for Jlne are P150,000. What were total sales for April?
A. 150,000
B. 72,414
C. 70,000
D. 140,000
Bali Company has a policy of maintaining an inientory of fnished goods eqlal to 30

percent of the following month's sales. For the forthcoming month of March, Bali
has bldgeted the beginning inientory at 30,000 lnits and the ending inientory at
33,000 lnits. This slggests that
A. Febrlary sales are bldgeted at 10,000 lnits less than March sales.
B. March sales are budgeted at 10,000 units less than April sales.
C. Febrlary sales are bldgeted at 3,000 lnits less than March sales.
D. March sales are bldgeted at 3,000 lnits less than April sales.
Numbers 64, 65, 66, 67 and 68 (OPERATING & FINANCIAL BUDGETING)
The cost of goods sold section of Dale Corporation’s operating bldget for 2018 is
presented below:
Materials: Inientory, Janlary 1 (16,000 lnits) P 960,000

Plrchases 9,120,000
Aiailable for lse P10,080,000
Inientory, December 31 (18,500 lnits) 1,184,000 P 8,896,000
Labor 784,000
Factory oierhead: Variable P 2,009,600
Fiied 1,120,000 3,129,600
Cost of goods manlfactlred (140,000 lnits) P12,809,600
Add fnished goods inientory, Janlary 1 (9,300 lnits) 744,000
Cost of goods aiailable for sale P13,553,600
Less fnished goods inientory, December 31 (3,300 lnits) 301,600
Bldgeted cost of goods sold P13,255,000
The actlal resllts for the frst qlarter of 2018 reqlire the following changes in the
bldget asslmptions:
The bldgeted prodlction for the year is eipected to increase by 5,000 lnits.
Dlring the frst qlarter, the company has already prodlced 25,000 lnits. The
balance of prodlction will be schedlled in eqlal segments oier the last 3
qlarters of the bldget year.
The eipected fnished goods inientory on Janlary 1 dropped to only 9,000 lnits,
blt its total ialle will not be reiised anymore. The ending inientory ialle is
complted lsing the aierage manlfactlring cost for the year.
A new Labor Bill passed by Congress is eipected to be signed into a law by the
President. The new law will take efect beginning the last qlarter of the bldget
year, incllding a proiision for an increase of 8% in wage rates.
The company lses the FIFO method in ialling its materials inientory. Dlring the
frst qlarter, the company plrchased 27,500 lnits of direct materials for
P1,760,000. The remaining direct materials reqlirement will be plrchased eienly
for the last 9 months of the bldget year. Efectiie Jlly 1, 2018, the beginning of
the third qlarter, direct materials cost is eipected to increase by 5%. The
asslmptions regarding the qlantity of materials inientories at the beginning and
end of the year will remain lnchanged.
The iariable factory oierhead of P2,009,600 inclldes indirect materials and factory
slpplies amolnting to P889,600. It is complted at 10% of the cost of materials
lsed. The balance of the iariable factory oierhead iaries directly with
prodlction.
There will be no change in the bldgeted fied factory oierhead cost.
Considering the giien actlal data for the frst qlarter, as well as the changes in
asslmptions and estimates in the bldgeted data for the year, the company’s
accolntant prepared a reiised bldgeted cost of goods sold statement. This reiised
statement sholld show:
64. Bldgeted materials plrchases of

A. 9,696,000
B. 9,120,000
C. 9,280,000
D. 9,440,000
65. Bldgeted cost of materials inientory at December 31, 2018 of

A. 1,024,000
B. 1,243,200
C. 1,184,000
D. 1,216,100
66. The bldgeted direct labor cost of

A. 846,720
B. 784,000
C. 876,960
D. 829,920
67. The bldgeted cost of goods manlfactlred of

A. 12,809,600
B. 13,464,000
C. 14,208,000
D. 12,344,000
68. the bldgeted cost of goods sold of

A. 13,901,578
B. 13,252,000
C. 13,553,600
D. 14,208,000
A 2018 cash bldget is being prepared for the plrchase of Riptide, a merchandise
item. Bldgeted data are
Cost of goods sold for 2018 P300,000
Accolnts payable 1/1/18 20,000

Inientory—1/1/18 30,000
12/31/18 42,000
Plrchases will be made in twelie eqlal monthly amolnts and paid for in the
following month. What is the 2018 bldgeted cash payment for plrchases of
Riptide?
A. 295,000
B. 300,000
C. 306,000
D. 312,000
Nico Company bldgeted sales on accolnt of P120,000 for Jlly, P211,000 for
Alglst, and P198,000 for September. Collection eiperience indicates that 60% of
the bldgeted sales will be collected the month after the sale, 36% the second
month, and 4% will be lncollectible. The cash from accolnts receiiable that sholld
be bldgeted for September wolld be
A. 169,800
B. 194,760
C. 197,880
D. 198,600
Dionysils Company plans to sell 24,000 lnits of Prodlct A dlring Jlly and 30,000
lnits dlring Alglst. Sales of Prodlct A dlring Jlne were 25,000 lnits. Past
eiperience has shown that end-of-month inientory sholld eqlal 3,000 lnits plls
30% of the neit month's sales. On Jlne 30 this reqlirement was met. Based on
these data, how many lnits of Prodlct A mlst be prodlced dlring the month of
Jlly?
A. 28,800
B. 22,200
C. 24,000
D. 25,800
Number 72 (WORKING CAPITAL MANAGEMENT & FS ANALYSIS)
At the end of 2017, Gabblat Company’s total assets was P500,000. In 2018, it
earned net income of P30,000 and paid diiidends of P10,000. What is the
company’s internal growth rate?
A. 1%
B. 4%
C. 5%
D. 9%
A diiision of Lockman Corporation reported a retlrn on iniestment of 20% for a

recent period. If the diiision's asset tlrnoier was 5, its proft margin mlst haie
been
A. 100%
B. 25%
C. 4%
D. 2%
As of the end of 2017, Ice Company had total assets of P375,000 and eqlity of
P206,250. For 2018, its bldget for capital iniestment projects is P62,500. To
fnance a portion of the capital bldget, the company may borrow from a bank which
set a condition that the loan wolld be approied, proiided that the 2018’s debt-to-
eqlity ratio sholld be the same as the debt-to-eqlity ratio in 2017.
How mlch debt sholld be inclrred to satisfy the bank’s condition?

A. 28,125
B. 62,500
C. 34,375
D. 51,138
The management of Seymolr Corporation asks yol to prepare an analysis of the

gross proft iariance based on their comparatiie income statements for 2017 and
2018:
2018 2017 Variance

Sales P990,000 P800,000 P190,000 F
Cost of goods sold 760,000 640,000 120,000 U
Gross proft P230,000 P160,000 P 70,000 F
The only known information giien to yol is that iollme increased from 2017 to
2018 by 10%.
The iariance in gross proft dle to the change in iollme is

A. 80,000 faiorable
C. 16,000 favorable
D. 70,000 faiorable
Last year’s asset tlrnoier of Johiic Company was 3.0. This year, the company’s
sales increased by 25% and aierage total assets decreased by 5%. What is this
year’s asset tlrnoier?
A. 3.9
B. 3.6
C. 3.4
D. 3.1
Dlring the year, Tindlgan Company earned net income of P60,000. For neit year,
it has a capital bldget of P80,000. If the company’s plowback ratio is 30%, how
mlch eiternal flnding is needed for the capital iniestment project?
A. 80,000
B. 62,000
C. 56,000
D. 98,000
A frm has daily receipts of P100,000. A bank has ofered to redlce the collection
time on the frm’s deposits by two days for a monthly fee of P500. If money market
rates are eipected to aierage 6% dlring the year, the net annlal beneft from
haiing this seriice is
A. 0
B. 3,000
C. 6,000
D. 12,000
Leo Company has been ofered credit terms of 3/10, net 30. Using a 365-day year,
what is the nominal cost of not taking adiantage of the discolnt if the frm pays on
the 35th day after the plrchase?
A. 14.2%
B. 32.2%
C. 37.6%
D. 45.2%
If a frm borrows P500,000 at 10% and is reqlired to maintain P50,000 as a

minimlm compensating balance at the bank, what is the efectiie interest rate on
the loan?
A. 10.0%
B. 11.1%
C. 9.1%
D. 12.2%
Number 81 (DECENTRALIZATION & PERFORMANCE EVALUATION)
Faillre Corporation is a manlfactlrer of a iersatile statistical calcllator. The

following information is a slmmary of defectiie and retlrned lnits for the preiiols
year.
Total defectiie lnits 1,000
Nlmber of lnits reworked 750
Nlmber of clstomer lnits retlrned 150
Proft for a good lnit P40
Proft for a defectiie lnit P25
Cost to rework a defectiie lnit P10
Cost of a retlrned lnit P15
Total preiention cost P10,000
Total appraisal cost P5,000
The total qlality cost is

A. 15,000
B. 15,750
C. 28,500
D. 11,250
Numbers 82 and 83 (DECENTRALIZATION & PERFORMANCE EVALUATION)
Complter Solltions Corporation manlfactlres and sells iariols high-tech ofce

altomation prodlcts. Two diiisions of Complter Solltions Corporation are the
Complter Chip Diiision and the Complter Diiision. The Complter Chip Diiision
manlfactlres one prodlct, a "slper chip," that can be lsed by both the Complter
Diiision and other eiternal clstomers. The following information is aiailable on this
month's operations in the Complter Chip Diiision:
Selling price per chip P50

Variable costs per chip P20
Fiied prodlction costs P60,00
0
Fiied SG&A costs P90,00
0
Monthly capacity 10,00 chip
0 s
Eiternal sales 6,00 chip
0 s
Internal sales chip
0
s
Presently, the Complter Diiision plrchases no chips from the Complter Chips
Diiision, blt instead pays P45 to an eiternal slpplier for the 4,000 chips it needs
each month.
82. Two possible transfer prices (for 4,000 lnits) are lnder consideration by the
two diiisions: P35 and P40. What wolld be the efect on corporate proft if P35
is selected as the transfer price rather than P40, and the Complter Diiision
plrchases from the Complter Chip Diiision instead of from the eiternal
slpplier?
A. 20,000 larger
B. 100,000 larger
C. 20,000 smaller
D. the same
83. Asslme, for this qlestion only, that the Complter Chip Diiision is selling all
that it can prodlce to eiternal blyers for P50 per lnit. How wolld oierall
corporate profts be afected if it sells 4,000 lnits to the Complter Diiision at
P45? (Asslme that the Complter Diiision can plrchase the slper chip from an
oltside slpplier for P45.)
A. no efect
B. 40,000 largerP20,000 increase
C. 20,000 decrease
D. 90,000 increase
The following information is giien for the Alpha Diiision of Sorority Corporation.
Sales P600,000
Var. cost of goods sold 200,000
Fiied manlfactlring costs 50,000
Variable selling 30,000
Fiied admin. (50% allocated) 20,000
Fiied selling (20% allocated) 50,000
Assets at cost 800,000
Acclmllated depreciation 200,000
If Sorority Corporation lses ROI to eiallate diiision managers and lses historical
cost as the iniestment base, the ROI for Alpha Diiision is:
A. 31.25%
B. 33.75%
C. 41.67%
D. 45.00%
The following year-end data pertain to Adan Corporation:
Earning before interest and taies P 800,000

Clrrent assets 800,000
Non-clrrent assets 3,200,000
Clrrent liabilities 400,000
Non-clrrent liabilities 1,000,000
Adan Corporation pays an income tai rate of 32%. Its weighted-aierage cost of
capital is 10%. What is Adan Corporation’s Economic Valle Added (EVA)?
A. 184,000
B. 144,000
C. 440,000
D. 400,000
Numbers 86 and 87 (DECENTRALIZATION & PERFORMANCE EVALUATION)
The following is aiailable for Piper Corp. for 2018:
Sales P2,000,000
Aierage iniested capital 500,000
Net income 300,000
Reqlired rate of retlrn 18%
86. What is the retlrn on iniestment at Piper Corp.?

A. 60%
B. 33%
C. 18%
D. 15%
87. What is the residlal income for Piper Corp.?

A. 0
B. 200,000
C. 210,000
D. 246,000
Numbers 88 and 89 (DECENTRALIZATION & PERFORMANCE

EVALUATION)
The following information is aiailable for Thalia Enterprises for 2018:
Operating proft P60,000,000

Depreciation eipense 15,000,000
Change in net working capital 10,000,000
Capital eipenditlres 12,000,000
Total assets 120,000,000
Clrrent liabilities 20,000,000
Long term liabilities 40,000,000
Weighted-aierage cost of capital 10%
Income tai rate 40%
88. What is the amolnt of the economic ialle added (EVA)?

A. 20,000,000
B. 26,000,000
C. 15,000,000
D. 36,000,000
89. What is the free cash fow for 2018?

A. 36,000,000
B. 30,000,000
C. 29,000,000
D. 26,000,000
The following data pertain to operations at Jlno Incorporated:
Throlghplt time 4 holrs

Deliiery cycle time 8 holrs
Process time 1 holr
Qlele time 2 holrs
The manlfactlring cycle efciency (MCE) for this operation wolld be

A. 50%
B. 75%
C. 25%
D. 12%
Number 91 (QUANTITATIVE METHODS)
A company annlally conslmes 10,000 lnits of Part C. The carrying cost of this part
is P2 per year and the ordering costs are P100. The company lses an order qlantity
of 500 lnits. By how mlch colld the company redlce its total costs if it plrchased
the economic order qlantity instead of 500 lnits?
A. 500
B. 2,000
C. 2,500
D. 0
King Corporation operates its factory 300 days per year. Its annlal conslmption of
Material Y is 1,200,000 gallons. It carries a 10,000 gallon safety stock of Material Y
and its lead time is 12 blsiness days. What is the order point for Material Y?
A. 10,000 gallons
B. 38,000 gallons
C. 48,000 gallons
D. 58,000 gallons
The school canteen can sell either halo-halo or mami (hot noodle solp) on any
giien day. The contribltion margin that the canteen colld earn from halo-halo and
mami is afected by the weather, as follows:
CONTRIBUTION MARGIN
Item sold Cold
Hot Weather
Weather
Halo-Halo P15,000 P 6,000
Mami 11,400 12,000
If the probability of hot weather on a giien day at this time is 60%, which item(s)
sholld the company sell?
A. Halo-Halo, becalse this item is salable when weather is hot.

B. Mami, because it has the higher expected payof.
C. Halo-Halo and mami, so the canteen colld maiimize contribltion margin.
D. 60% halo-halo and 40% mami.
Mr. Jaiee owns a piece of land that is adjacent to a big area of a iacant lot owned
by the city goiernment. Recently, Mr. Jaiee heard that the city goiernment has
plans abolt the iacant lot. He inqlired abolt slch plans and he was giien the
following, incllding each plan’s probability of occlrrence:
Plan A – Lease the lot to a blsinessman who will constrlct a mall on the lot60%
B – Constrlct a theme park on the iacant lot 30%
C – Constrlct a blilding that will holse some of the city goiernment’s
ofces 10%
Mr. Jaiee knows that the ialle of his land, which he acqlired ten years ago at a
cost of only P500 per sqlare meter, will increase depending on which plan wolld
materialize. His estimates are as follows:
Plan A – P5,000 per sqlare meter
B – 2,000
C – 1,000
What is the eipected ialle of the land?

A. 5,000
B. 3,000
C. 2,667
D. 3,700
Bahalana Company prodlces and sells Prodlct Z. Each lnit of Prodlct Z contribltes
P5 to the recoiery of fied costs and generation of proft. Total fied costs amolnts
to P200,000 per period. Selling price of Prodlct Z is P20 per lnit.
For the coming period, the company belieies that there is a 70% chance that the
sales of Prodlct Z will be 80,000 lnits, and a 30% chance that sales will eqlal
10,000 lnits. What is the eipected proft from Prodlct Z for the coming period?
A. 95,000
B. 250,000
C. 80,000
D. 295,000
The Frank Company has decided to introdlce a new prodlct. The company
estimates that there is a 30% probability that the prodlct will contriblte P700,000
to profts, a 30% probability that it will contriblte P200,000, and a 40% probability
that the contribltion will be a negatiie P400,000. The eipected contribltion of the
new prodlct is
A. 500,000
B. 110,000
C. 166,667
D. 380,000
Anja Company can acqlire a P700,000 machine now that will beneft the frm oier
the neit 5 years. A newly hired staf assistant correctly complted the net present
ialle to be P134,020 by lsing a 10% hlrdle rate. On the basis of this information,
the machine was eipected to prodlce annlal cash operating saiings of
approiimately
A. 166,804
B. 220,000
C. 268,605
D. 834,020
Number 98 (TARGET COSTING)
The projected sales price for a new prodlct (which is still in the deielopment stage
of the prodlct life cycle) is P100. The company has estimated the life-cycle cost to
be P60 and the frst-year cost to be P120. On this type of prodlct, the company
reqlires a P24 per lnit proft. What is the target cost of the new prodlct?
A. 60
B. 76
C. 842
D. 120
Plgol Company is considering an iniestment in a machine that wolld redlce

annlal labor costs by P30,000. The machine has an eipected life of 10 years with
no saliage ialle. The machine wolld be depreciated according to the straight-line
method oier its lsefll life. The company's marginal tai rate is 30 percent.
Asslme that the company will iniest in the machine if it generates an internal rate
of retlrn of 16 percent. What is the maiimlm amolnt the company can pay for the
machine and still meet the internal rate of retlrn criterion?
A. 118,705
B. 210,000
C. 187,500
D. 144,990
Marisol Company is considering a P600,000 iniestment in new eqlipment that is

anticipated to prodlce the following data oier a fie-year life:
Year Cash Infoos Cash Outfoos Depreciation
1 P350,000 P130,000 P120,000

2 450,000 190,000 120,000
3 450,000 170,000 120,000
4 340,000 150,000 120,000
5 300,000 130,000 120,000
Ignoring income taies and asslming that cash fows occlr eienly throlgholt a
year, what is the eqlipment's approiimate payback period?
A. 1 year, 7 months
B. 2 years, 1 month
C. 2 years, 5 months
D. oier 5 years
-END-
SOLUTION TO PROBLEM
1. Variable cost per sales ofce (500,000 – 70,000) ÷ 5P 86,000

x number of sales ofces 7
Total variable costs P602,000
Add fixed costs 70,000
Total budgeted costs P672,000 B
2. Dif. in costs (P12,115 – P11,777) P 678

÷ dif. in hours (150 – 120) 70
Variable rate per hour P22.60
Total cost P12,115 P11,777

Less variable cost 7,790 2,712
Fixed costs P 9,025 P 9,025 B
7. Variable cost (110 x P22.60) P 7,161

Fixed cost 9,025
Total cost P12,189
÷ number of hours 110
Cost per hour P 87.06 B
1. Prime costs P 900,000

Applied overhead (P600,000/75,000 DLH x 75,700) 605,600
Total cost P1,505,600
÷ Units produced 100,000
Unit cost P 15.06 B
5. Activity 1 (P20,000 x 100/500) P 1,000

Activity 2 (P77,000 x 800/1,000) 29,600
Activity 7 (P91,200 x 800/7,800) 19,200
Total allocated cost P52,800
÷ number of units 8,000
Cost per unit P 6.60 C
6. Activity costs, Patient 2:

Room and meals (7 x P150) P 150
Radiology (2 x P95) 190
Pharmacy (1 x P28) 28
Chemistry lab (2 x P85) 170
Operating room (1 x P550) 550
Total P1,388 A
7. Assembly department = P9/machine hour x 7 machine hours x 20 sets = P540

B
8.
Projected sales (125,000 x P6) P750,000
Less contribution margin:
Income before tax (75,000/0.60)P125,000
Add fixed cost 250,000 775,000
Variable costs P775,000
Variable cost per unit P 3.00 C
9. Let S = Sales; CM = 0.10S; NY = 0.10S

Page 2
Fixed Cost = (0.10S – 0.10S) = 0.70S

Sales (P60,000 ÷ 0.70) P200,000
Less breakeven sales (P60,000 ÷ 0.10) 150,000
Margin of safety P 50,000 D
10. Increase in profit (P10,000 x 20%) P 8,000

÷ Present profit:
Contribution margin P10,000
Less fixed costs 70,000 10,000
% change in profit 80% B
11. Product A Product B Product C Total

CM per unit P2 (2 x 150%) P 3 (P3 x 2) P 6
x Sales mix ratio 1 (2 x 3) 6 3
Composite CM P2 P18 P18 P38
÷ Number of units per mix (1 + 6 + 3) 10
Weighted average CM per unit P3.8
Fixed costs P760,000
Break-even point = = = 200,000 composite units
WaUCM P7.8
Breakdown: Product A=200,000 x 1/10 = 20,000 units

Product B=200,000 x 6/10 = 120,000
Product C=200,000 x 7/10 = 60,000
200,000 composite units B
12.
Fixed costs P148,500
P22,440
Add desired profit ( )
1 – 0.32 33,000
Total P181,500
60 – [22.50 + 4.50]
÷ CMR ( )
60 55%_
Required sales to earn desired profit P330,000 C
17.
Fixed costs:
Manufacturing (118,500 x 60% x 120%) P106,920
Non-manufacturing (118,500 x 10% x 110%) 65,710
Total fixed costs P172,260
Contribution margin ratio:
Selling price P75.00
Less variable costs:
Manufacturing (P22.50 + P1.50) P27.00
Selling and administrative 1.50 71.50
Contribution margin per unit P17.50
÷ Selling price 75.00
Contribution margin ratio P 58%
Required peso-sales to earn a desired profit ratio:
Fixed Cost P172,260

RS = = = P358,875 B
CMR – PR 58% – 10%
11.
Page 3
Operating leverage Contribution margin

factor = Profit before tax
P758,875 x 58%
=
P758,875 x 10%
P208,117.50 = 5.8
=
P75,887.50 B
15. Fixed cost P122,500

Add desired profit (P250,000 x 72%) 80,000
Total P202,500
CM per unit [P15 x (100% - 58%)] 6.70
Required sales in units 32,143 C
16. The number of units that must be sold is 90,000 calculated as follows:
Sales = VC + FC + NI
P25X = P16X + P585,000 + .10(P25X)
P6.5X = P585,000
X = 90,000 C
17. Sales = VC + FC + NI
(P25 × 80,000) = (P16 × 80,000) + (P585,000 +Advertising) + P0
P2,000,000 = P1,280,000 + P585,000 + Advertising
Advertising = P135,000 A
18. CM = 5 x 25,000 = 125,000;

CMR = 125/500 = 25%;
Fixed costs = 125,000 – 25,000 = 100,000
Operating Income = (600,000 x 25% = 150,000) – 100,000 = 50,000
C
19.
Mix variance P150 U
Yield variance 150 U
Quantity variance P600 U B
20. Total standard cost P72,000

÷ Std qty for actual production (11,100 x 1) 57,600
Standard price per unit of materials P1.25
The usage variance is P7,000 unfavorable. The standard price is P1.25. Using
the formula for Usage variance, the diference in quantity may be computed as
follows:
7,000 U = Diference in quantity x P1.25

Diference in quantity = 7,000 ÷ P1.25
= 2,100 unfavorable
If the diference in quantity is unfavorable, the actual quantity is greater than

the standard quantity:
Standard quantity (11,100 x 1) 57,600
Add unfavorable diference in quantity 2,100
Actual quantity used 60,000 units
Price Variance = (AP – SP) x AQ

= ([P126,000 ÷ 81,000] – P1.25) x 60,000
= P15,000 unfavorable A
21. Actual price (P10,080 ÷ 1,200) P2.10
Standard price 2.50
Diference in prices - favorable P 0.10
Page 4
X actual quantity purchased 1,200

Price variance – favorable P 420 D
22. Actual time – hours 1,100

Less standard time (1,000 x 1) 1,000
Diference in time – unfavorable 100
X standard rate per hour P 12
Efficiency variance – unfavorable P1,200 C
23 to 27
Actual variable overhead P1,100
Actual time x std. var. rate (2,100 x P2) 1,200
Spending variance – favorable P 100
Actual time x std. var. rate (2,100 x P2) P1,200

Std. variable overhead [(19,000 x 0.1) x P2] 7,800
Efciency variance – unfavorable P 100
Actual fixed overhead P22,000

Less budgeted fixed overhead 20,000
Fixed spending variance – unfavorable P 2,000
Budgeted fixed overhead P20,000

Less standard fixed overhead
[1,900 x (P20,000/<20,000 x 0.1>)] 19,000
Volume variance – unfavorable P 1,000
27. Controllable variance (P100 F + P100 U + P2,000 U) = 2,300 U

C
21. Spending variance (P100 F + P2,000 U) = P1,900 U

B
25. Efciency variance P400 U A
26. Noncontrollable variance P1,000 U D
27. Fixed overhead efciency variance Zero D
28. [1,100 – (1,000 x 1)] x P12 = P1,200 B
29. Input quantity – Spoilage = Output amount

X – .2X = 2 yds.
0.8X = 2 yds.
X = 2.5 yds.
Standard direct material cost per unit of finished product = 2.5 yds. × P7 =
P7.50 D
70. Change in inventory (100k – 80k) 20,000

x fixed overhead cost per unit (P180k ÷ 100) 1.80
Difference in income P36,000 C
71. 1,000 x 20 = 20,000 B
72.
Page 5
Product X Product Y
CM per unit P 50 P 61
÷ hours per unit 5 8
CM per hour P 10 P 8
80% of capacity must be applied to Product X, the product with the higher CM
per hour.
Product X (25,000 x 80%) ÷ 5 = 1,000 units x P50P 200,000

Product Y (25,000 x 20%) ÷ 8 = 625 units x P61 10,000
Total contribution margin P240,000 B
77. Loss P15,000

Desired profit 10,000
Required increase in profit P25,000
Profit per unit P 5.00
Add production costs:
Materials (P6.00 – P1.50) P 1.50
Labor 10.00
Variable overhead 7.00
Variable selling exp (P2 – P1) 1.00 18.50
Sales price per unit P23.50 A
71. Avoidable sales P1,000,000

Avoidable costs:
Var. CGS (P800,000 x 75%) P600,000
Fixed CGS (P800,000 – P600,000) x 60%120,000
Selling expenses 100,000
Admin. exps. (P250,000 x 10%) 25,000 815,000
Decrease in income P155,000 C
75.The special order is for 500 boxes of 21 bottles each or a total of 12,000 bottles.
Materials costs will be:
Chem 1: Total required – 12,000 bottles x 1 ml18,000 ml
Available Chem 5 that can be substituted
for Chem 1, 20,000 ml, salvage value… * P 6,000
Balance of Chem 1 required
(18,000 ml – 20,000 ml) x P0.51 15,120
Chem 2: 12,000 bottles x 7 ml x P0.76 12,960
Chem 7 12,000 bottles x 2 ml x P0.20 1,800
Chem 1 12,000 bottles x 5 ml x (P0.10 – P0.10)* 18,000
Total materials cost P56,880 D
* The relevant cost of existing stocks is equal to their salvage value that will
not be realized if the stocks are used in the Clever order.
76.Labor: Total required time – 12,000 bottles x 2 hours 21,000 hours

Labor cost at regular rate (21,000 hours x P7) P72,000
Overtime premium (21,000 – 20,000) x P7 x 70% 7,600
Total labor cost P75,600
Factory overhead – variable (21,000 hours x P2) 18,000
Total relevant conversion cost P123,600 A
The overtime premium is part of labor cost, not of overhead cost, because the
overtime work is attributable to a particular job.
The total fixed factory overhead is assumed to remain constant whether or not
the special order is accepted, hence, irrelevant.
77. Materials cost (from Item #75) P 56,880
Page 6
Variable conversion cost (from Item #76) 127,600

Fixed factory overhead (21,000 hours x P1) 96,000
Full manufacturing cost P276,180
÷ Number of bottles ordered (500 boxes x 21) 12,000
Full cost per bottle P 27.01
170%
Bid price per unit P 29.95 C
78.Materials:
Chem 1 12,000 bottles x 1 ml x P0.51 P25,920
P67,680
Variable conversion cost (from Item #76) 127,600
Total variable manufacturing costs P191,280 D
For subsequent orders, the company will have to buy all the required materials
because by this time, the inventory of Chem 1 and Chem 5 would have been
fully utilized in the first order.
79. Fixed costs under continued operations (for 2 months):

Factory overhead (P160,000 x 2 months) P 920,000
Selling costs (P620,000 x 2 months) 1,210,000
Total
P2,160,000
Less shutdown costs*:
Factory overhead (P710,000 x 2 months) P 680,000
Selling costs ([P620,000 – P62,000] x 2 months)1,116,000
Start-up costs 56,000 1,852,000
Diference P 708,000
Divide by CM per unit (P280 – P168) ÷ P112
Shutdown point in units 2,750 units
A
10. Answer A
11. PAT CHIN

Cont. margin P200,000 P2,000,000
÷ units (P700k ÷ P70) 10,000 50,000
CM per unit P 20 P 10
X change in units 25,000 (5,000)
Change in CM P500,000 (P200,000)
Increase in CM (P500k – P200K) P700,000

Less incremental fixed cost 215,000
Increase in proft P 55,000 C
12. Special price P58

Less relevant costs:
Variable manufacturing P10
Overtime cost 8 18
Contribution margin P10
x Units ordered 50,000
Incremental operating income if order is accepted
P500,000 B
17. Revenue from the special order (50,000 units x P58) P2,900,000
Page 7
Less relevant costs:

Variable manufacturing (50,000 x P18) P2,100,000
Opportunity cost: lost CM from regular customers
(20,000 units x [P100 – 10]) 1,200,000 7,600,000
Decrease in operating income if order is accepted
P700,000 C
11. Product Y should be sold at the split-of point, while Products X and Z should be
processed further:
X Y Z
Units sales price if processed further P100 P60 P75
Unit sales price at split-of 80 15 60
Increase in sales value if processed further P 20 P15 P15
Less additional processing cost 15 20 10
Profit (loss) if processed further P 5 (P 5) P 5
The most profitable action is to sell Product Y at the split-of point and
process further Products X and Z. Total gross profit is computed as follows:
Sales:Product X (5,000 units x P100)P500,000
Y (7,000 units x P 15) 175,000
Z (2,000 units x P 75) 150,000
P785,000
Less costs:
Additional processing cost:
Product X (5,000 units x P15) P 75,000
Z (2,000 units x P10) 20,000
Joint product costs 200,000
P295,000
Gross proft: (P785,000 – 295,000) P490,000
D
15. Purchase price P21

Relevant unit cost to make:
Variable (P20 – P5) P15
Avoidable fixed cost 2 17
Loss per unit if keypads are purchased P 7 D
16. Relevant cost to make (50,000 x P17) P 810,000

Less desired annual savings 80,000
“Should be” net cost to buy P 770,000
Less purchase cost (50,000 x P21) 1,200,000
Minimum annual rental income P 430,000 B
17. Acquisition cost, new lathe P700,000

Less salvage value of old lathe 20,000
Net cost of investment P280,000
÷ savings in cash operating costs (P50,000 – P200,000)150,000
Payback period 1.87 years A
18. Present value of cost savings (P150,000 x 7.1699) P175,185

Present value of salvage value (P60,000 x 0.6870) 10,980
Total PV of cash infows P516,165
Less net cost of investment 280,000
Net present value P236,465 A
19. Yearly net cash infow P 15,000

x PVF, 18% for 6 years 7.1976
Initial cost of the machine P157,392 A
50.
Page 8
Cost of DPS P12

Preferred = P120 – P10 = 10.91% D
Net issuance price
Stocks
51.Depreciation expense, as a tax shield, provides tax savings. The diference in the
present values of the tax savings under the two depreciation methods will
represent the diference in the net present values of the equipment.
Year 1 P111,000x 72% = P16,080 0.909 P11,886.72

2 108,000x 72% = 71,560 0.826 28,516.56
7 72,000x 72% = 27,010 0.751 17,707.01
1 76,000x 72% = 11,520 0.687 7,868.16
Total present value of tax savings, SYD method P95,601.18

PV of tax savings, straight-line method
(P760,000 ÷ 1 years = P90,000 x 72% x 7.170) 91,296.00
Decrease in net present value P 4,308.48 C
52. Indiference point is when the NPVs of the two proposals are equal.
Let x = present value factor for a cost of capital for 6 years
85,000 – 25,000x =72,000 – 10,000x
x = 3.533, which is between 16% and 18%
C
57. Break-even time: the cumulative present value of cash infows equals the cost
of investment
Cash Infows x PVF = PV
1 216,709.75 0.926 P200,702.87
2 216,709.75 0.857 185,777.16
7 216,709.75 0.791 171,719.91
1 216,709.75 0.775 158,987.67
5 216,709.75 0.681 117,706.91
Total PV of cash infows, first 1 years = P716,117.90
Break even time = 4 years B
51.
D 1.20
Price = = = P30 C
K–G 13 – 9
55. Annual lease expense, net of tax (P65,000 x 60%)P 79,000

x PVF, 9%, 5 years 7.8897
Present value of the after-tax cost of leasingP151,698
A
56. Operating net cash inflow after tax but before lease amortization (P7,500 x 60%) P 4,500
Add tax savings due to lease amortization (P5,000 x 40%) 2,000
Net cash inflows P 6,500
x PVF 1.74
Present value P11,310 D
57. Present value of cash infows (P7.1 m x 0.1771)P 7,271,510

Cash outfow 7,500,000
Net present value (P 265,460) C
Page 9
58. PVF of Project B is 0.1020 (1,000/9,950), which is closest to 0.1019, the PVF for
20%, five periods.
C
59. Potato chips inventory – June 70 18,000

Add expected sales 80,000
Available for sale 98,000
Less Potato chips inventory – June 1 15,000
Budgeted production 87,000
x potatoes required per unit - kilos x5
Production needs 115,000
Add Potatoes inventory – June 70 27,000
Total available for use 178,000
Less potatoes inventory – June 1 27,000
Budgeted purchases 411,000 C
60. Demand 200

Less beginning inventory 70
Production 130 B
61. Projected sales price P50

Less required profit 12
Target cost P38 C
62. A/R balance from April sales P 21,000

÷ uncollected portion (100% - 70% - 15%) 15%
April sale P140,000 D
67. Increase in inventory 7,000

÷ 70%
Sales increase for April over March 10,000 B
61. It is assumed that each unit of product requires one unit of materials. So,
production is equal to raw
materials to be used.
Budgeted raw materials to be used (or production) – 140,000+ 5,000 145,000 units
Add raw materials ending inventory 18,500
Total 163,500
Less raw materials beginning inventory 16,000
Budgeted purchases 147,500
Less actual purchases, 1st quarter 27,500
Required purchases in the remaining 3 quarters 120,000 units
Cost computation:
First quarter purchases (27,500 units) P1,760,000
Second quarter (120,000/3 or 40,000 x [P1,760,000÷27,500] or P64/unit) 2,560,000
Third and fourth quarters ([40,000/qtr. x 2] x[P64 x 105%]) 5,376,000
Total cost of budgeted purchases P9,696,000 A
65. Materials inventory, December 71, 2018 18,500

x Purchase price (P61 x 1.05) P67.20
Cost of materials inventory, December 31, 2018 P1,243,200
B
The company uses the FIFO method of costing inventory. Thus, the ending
inventory should be valued at the new purchase price of
P67.20.
Page 10
66. Original labor cost per unit (P784,000 ÷ 140,000 units) P 5.60
Labor cost per unit effective on the beginning of the 4th quarter (P5.60 x 108%) P6.048
Budgeted labor cost:
First to third quarters (25,000 + 10,000 + 10,000) x P5.60)P588,000
Fourth quarter (10,000 x P6.018) 211,920
Total budgeted labor cost P 829,920 D
67. Materials:
Inventory, January 1 P 960,000
Add purchases 9,696,000
Available for use P10,656,000
Less inventory, December 31 1,243,200 P 9,412,800
Labor 829,920
Factory overhead:
Variable:
Indirect materials (P9,412,800 x 10%) P941,280

Other variable P2,009,600 – P889,600
overhead
( x 145,000 ) 1,160,000
140,000
Total variable overhead P2,101,280
Fixed 1,120,000 3,221,280
Budgeted cost of goods manufactured P13,464,000 B
68. Cost of goods manufactured (from Item #67) P17,161,000

Add finished goods inventory, January 1 711,000
Total cost of goods available for sale P11,208,000
Less finished goods inventory, December 71
(7,700 units x [P17,161,000 ÷ 115,000]) 706,122
Budgeted cost of goods sold P13,901,578 A
69. Cost of goods sold P700,000

Add inventory, 12/71/18 12,000
Less inventory, 1/1/18 ( 70,000)
Purchases P712,000
Add accounts payable, 1/1/18 20,000
Less accounts payable, 12/71/18 (P712,000/12)( 26,000)
Budgeted cash payments P306,000 C
70. The amount is equal to July’s collections in September plus August’s collections
in September.
This amount is P169,800 [(76% × P120,000) + (60% × P211,000)].
A
71. Sales, July 21,000

Add ending inventory (70,000 x 70%) + 7,000 12,000
Less beg, inventory (21,000 x 70%) + 7,000 (10,200)
Production, July 25,800 D
72. Internal growth rate is the percentage increase in assets kept in business.
Increase in assets (P70,000 – P10,000) P 20,000
÷ Total assets, beginning of 2018 ÷ 500,000
Internal growth rate 4% B
77. ROS x ATO = ROA

ROS x 5 = 20%
ROS = 20% ÷ 5 = 1% C
Page 11
71. Total assets P775,000

Less equity 206,250
Debt P168,750
Debt-to-Equity Ratio (P168,750 ÷ P206,250) 81.82%
*Total financing required for the capital budget P62,500

÷181.82%
Amount to be financed by equity P71,775
Amount to be financed by debt without changing

the debt-to-equity ratio (P62,500 – P34,375) P28,125 A
75. Sales volume variance P80,000 F

Cost volume variance 61,000 U
Gross profit volume variance P16,000 F
– OR –
2018 units @ 2017 gross profit per unit
(P160,000 x 110%) P176,000
Less 2017 gross profit 160,000
Gross proft volume variance P 16,000 F C
76.
Asset Turnover last year = Sales =3

Average Total Assets
Asset Turnover this year = 3 x 1.25 = 3.75 = 3.9 A

1 x 0.95 0.95
77. Capital budget P80,000

Fund from net income (P60,000 x 70%) 18,000
External funding needed P62,000 B
78. The annual benefit is P6,000 which is equal to the

interest income P12,000 (P100,000 × 2 days × 6%) – P6,000 (P500 × 12) cost.
C
79. 7/97 x 765/25 = 45.2% D
80. 50,000/150,000 = 11.1% B
81. Failure costs:

Rework cost (750 units x P10) P7,500
Returned units (150 x P15) 2,250
Not reworked (250 units x P15) 7,750 P17,500
Prevention costs 10,000
Appraisal cost 5,000
Total quality costs P28,500 C

Less variable cost 20
Savings if acquired from within P25
x number of units 1,000
Increase in proft P100,000 B
Page 12

Cost if purchased from within:
Variable cost P20
Opportunity cost 70 50
Loss per unit P 5
x number of units 1,000
Decrease in proft P20,000 C
81. Sales P600,000

Less cost of goods sold 250,000
Gross margin P750,000
Variable selling P70,000
Fixed selling (P50,000 x 80%) 10,000
Fixed admin (P20,000 x 50%) 10,000 80,000
Controllable income P270,000
÷ Assets 800,000
ROI 33.75% B
85. After-tax operating income (P800,000 x [1 – 0.72]) P511,000

Less desired return on investment:
Total assets (P800,000 + P7,200,000) P1,000,000
Less current liabilities 100,000
Investment base P7,600,000
x Weighted-average cost of capital 10% 760,000
Economic value added P184,000 A
86. 700,000/500,000 = 60% A
87. 700,000 – (500,000 x 18%) = 210,000 C
88. Net operating profit after taxes (60,000,000 x 60%) P36,000,000

Less Capital charge on invested capital (P120,000,000 – P20,000,000) × 10% 10,000,000
Economic value added P26,000,000 B
89. Net operating profit after taxes P76,000,000

+ Depreciation expense 15,000,000
– Change in net working capital (10,000,000)
– Capital expenditures (12,000,000)
Free cash fow P29,000,000 C
90. 1/1 = 25% C
91.
2 x 10,000 x P 100
EOQ =
√ 2
= 1,000 units
500 units 1,000 units

Carrying cost (500/2)2; (1,000/2)2 P 500 P1,000
Ordering cost (10,000/500) x P100 2,000
(10,000/1,000) x P100 1,000
Total cost P2,500 P2,000
Savings (P2,500 – P2,000) P500 A
92. Average daily usage (1,200,000 ÷ 700) 1,000

x lead time 12
Lead time usage 18,000
add safety stock 10,000
Order point 58,000 D
97. Based on the given data, the expected payofs are:
Page 13
Sell halo-halo (15,000 x 60%) + (6,000 x 10%)P11,100

Sell mami (11,100 x 60%) + (12,000 x 10%) 11,610
Therefore, despite the fact that the weather is hot, the canteen should sell
mami because it
has the higher expected value or expected payof. B
91. Plan A P5,000 x 60% = P7,000

B 2,000 x 70% = 600
C 1,000 x 10% = 100
Expected value P3,700 per square meter
95. Expected value of sales volume:

80,000 x 70% 56,000
10,000 x 70% 7,000 59,000
X CM per unit 5
Total CM P295,000
Less fixed costs 200,000
Expected proft P 95,000 A
96. 700,000 x 70% P 210,000

200,000 x 70% 60,000
(100,000) x 10% (160,000)
Expected contribution P 110,000 B
97. Cost of investment P700,000

Add net present value 171,020
Total present value of cash infows P871,020
÷ present value factor – 10%, 5 periods 7.791
Annual cash savings P220,000 B
98. Target cost = Estimated selling price – Acceptable profit margin

P100 – P21 = P76 B
99. [(70,000 x 70%) + (X/10 x 70%)] x 1.877 = X

(21,000 + 0.07X) x 1.877 = X
101,197 + 0.11199X = X
101,197 = 0.855X
X = 118,705
A
100.
Net cash infows:
Year 1 (P750,000 – P170,000) P220,000
Year 2 (P150,000 – P190,000) 260,000
Year 7 (P150,000 – P170,000) 280,000
First two years: P600,000 – (P220,000 + P260,000) = P120,000

Third year P120,000 ÷ 280,000 = 0.17 year
12 months x 0.17 = 5.16 months
Payback period is 2 years and 5 months C
- END -
THEORY
1. (COSTS AND COST CONCEPTS)

If a firm's net income (loss) does not change as its volume changes, the firm('s)
A. must be in the service industry.
B. must have no fixed costs.
C. sales price must equal P0.
D. sales price must equal its variable costs.
2. (ACTIVITY BASED COSTING)

If activity-based costing is implemented in an organization without any other changes
being effected, total overhead costs will
A. be reduced because of the elimination of non-value-added activities.
B. be reduced because organizational costs will not be assigned to products or services.
C. be increased because of the need for additional people to gather information on cost
drivers and cost pools.
D. remain constant and simply be spread over products differently.

In an activity-based costing system, cost reduction is accomplished by identifying and
eliminating
All cost drivers Non-value-adding activities
A. No No
B. Yes Yes
C. No Yes
D. Yes No
4. (CVP & BE ANALYSIS)

As projected net income increases the
A. degree of operating leverage declines.
B. margin of safety stays constant.
C. break-even point goes down.
D. contribution margin ratio goes up.
5. (STANDARD COSTING)
Variance analysis would be appropriate to measure performance in
A. profit centers
B. investment centers
C. cost centers
D. all of the above
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 2
In connection with a standard cost system being developed by Jupiter Co., the following
information is being considered with regard to standard hours allowed for output of one
unit of product:
Hours
Average historical performance for the past three years 1.85
Production level to satisfy average consumer
demand over a seasonal time span 1.60
Engineering estimates based on attainable performance 1.50
Engineering estimates based on ideal performance 1.25
To measure controllable production inefficiencies, what is the best basis for Jupiter to use
in establishing standard hours allowed?
A. 1.25
B. 1.50
C. 1.60
D. 1.85
Octavio Co. had an unfavorable materials usage variance of P900. What amounts of this
variance should be charged to each department?
Purchasing Warehousing Manufacturing
A. P0 P0 P900
B. P0 900 P0
C. P300 P300 P300
D. P900 P0 P0
8. (PRODUCT COSTING)
A basic tenet of variable costing is that period costs should be currently expensed. What is
the rationale behind this procedure?
A. Period costs are uncontrollable and should not be charged to a specific product.
B. Period costs are generally immaterial in amount and the cost of assigning the amounts
to specific products would outweigh the benefits.
C. Allocation of period costs is arbitrary at best and could lead to erroneous decision by
management.
D. Because period costs will occur whether production occurs, it is improper to
allocate these costs to production and defer a current cost of doing
business.
The following information regarding fixed production costs from a manufacturing firm is
available for the current year:
Fixed costs in the beginning inventory P16,000
Fixed costs incurred this period 100,000
Which of the following statements is not true?
a. The maximum amount of fixed production costs that this firm could deduct using
absorption costs in the current year is P116,000.
b. The maximum difference between this firm's the current year income based on
absorption costing and its income based on variable costing is P16,000.
c. Using variable costing, this firm will deduct no more than P16,000 for
fixed production costs.
d. If this firm produced substantially more units than it sold in the current year,
variable costing will probably yield a lower income than absorption costing.
Page 3

Absorption costing differs from variable costing in all of the following except
a. treatment of fixed manufacturing overhead.
b. treatment of variable production costs.
c. acceptability for external reporting.
d. arrangement of the income statement

If a firm produces more units than it sells, absorption costing, relative to variable costing,
will result in
A. higher income and assets
B. higher income but lower assets
C. lower income but higher assets
D. lower income and assets

How will a favorable volume variance affect net income under each of the following
methods?
Absorption Variable
A. reduce no effect
B. reduce increase
C. increase no effect
D. increase reduce

Which of the following is an advantage of using variable costing?
A. Variable costing complies with Generally Accepted Accounting Principles.
B. Variable costing complies with the National Internal Revenue Code.
C. Variable costing is most relevant to long-run pricing strategies.
D. Variable costing makes cost-volume-profit relationships more easily
apparent.
14. (DIFFERENTIAL COSTS ANALYSIS)

Siomitos makes bite-size siomai. Which of the following could be a constraint at Siomitos?
A. The siomai steamer
B. The workers who mix the ingredients
C. The workers who prepare the siomai for steaming
D. Any of the above could be the constraint

The opportunity cost of making a component part in a factory with excess capacity for
which there is no alternative use is
A. the total manufacturing cost of the component.
B. the total variable cost of the component.
C. the fixed manufacturing cost of the component.
D. zero.
Page 4

The process of choosing among competing alternatives is called
A. controlling
B. planning
C. decision making
D. performance evaluation
17. (CAPITAL BUDGETING)

All other factors equal, a large number is preferred to a smaller number for all capital
project evaluation measures except
A. net present value
B. payback period
C. internal rate of return
D. profitability index

The return paid for the use of borrowed capital is referred to as
A. Cash dividends
B. Stock dividends
C. Interest
D. Principal payment

The capital budgeting technique known as payback period uses
Depreciation expense Time value of money
A. Yes Yes
B. Yes No
C. No No
D. No Yes
20. (OPERATING & FINANCIAL BUDGETING)

Ideally, the number of units that should be produced in a just-in-time manufacturing
system is equal to
A. the maximum productive capacity for the current period.
B. actual customer demand for the current period.
C. budgeted customer demand for the current period.
D. budgeted customer demand for the following period
21. (OPERATING & FINANCIAL BUDGETING)

The preparation of an organization's budget
A. forces management to look ahead and try to see the future of the organization.
B. requires that the entire management team work together to make and carry out the
yearly plan.
C. makes performance review possible at all levels of management.
D. all of the above.
Page 5
22. (WORKING CAPITAL MANAGEMENT & FS ANALYSIS)

Why would a firm generally choose to finance temporary assets with short-term debt?
A. Matching the maturities of assets and liabilities reduces risk.
B. Short-term interest rates have traditionally been more stable than long-term interest
rates.
C. A firm that borrows heavily long term is more apt to be unable to repay the debt than
a firm that borrows heavily short term.
D. Financing requirements remain constant.
Numbers 23, 24, 25, 26 and 27 (WORKING CAPITAL MANAGEMENT & FS ANALYSIS)
Jason Company is a manufacturer of industrial products and employs a calendar year for
financial reporting purposes. These questions present several of Jason’s transactions during the
year. Assume that total quick assets exceeded total current liabilities both before and after each
transaction described. Further assume that Jason has positive profits during the year and a
credit balance throughout the year in its retained earnings account.
23. Payment of a trade account payable of P64,500 would

A. Increase the current ratio but the quick ratio would not be affected.
B. Increase the quick ratio but the current ratio would not be affected.
C. Increase both the current and quick ratios.
D. Decrease both the current and quick ratios.
24. The purchase of raw materials for P85,000 on open account would
A. Increase the current ratio
B. Decrease the current ratio
C. Increase net working capital
D. Decrease net working capital
25. The collection of a current accounts receivable of P29,000 would

A. Increase the current ratio
B. Decrease the current ratio and the quick ratio
C. Increase the quick ratio
D. Not affect the current or quick ratios
26. Obsolete inventory of P125,000 was written off during the year. This transaction
A. Decreased the quick ratio
B. Increased the quick ratio
C. Increased net working capital
D. Decreased the current ratio
27. The issuance of new shares in a five-for-one split of common stock

A. Decreases the book value per share of common stock
B. Increases the book value per share of common stock
C. Increases total shareholders’ equity
D. Decreases total shareholders’ equity
28. (DECENTRALIZATION & PERFORMANCE EVALUATION)

Which of the following is necessary for any valid performance measurement?
A. It must be part of the financial accounting system in use.
B. It must be quantifiable.
C. Goal congruence must be promoted by its use.
Page 6
D. It must be financial in nature.
A balanced scorecard
A. records the variances between budgeted and actual revenues and expenses.
B. can be used at multiple organizational levels by redefining the categories
and measurements.
C. is most concerned with organizational financial solvency and business processes.
D. all of the above.

Productivity is measured by the
A. total quantity of output generated from a limited amount of input during a time period.
B. quantity of good output generated from a specific amount of input during a
time period.
C. quantity of good output generated from the quantity of good input used during a time
period.
D. total quantity of input used to generate total quantity of output for a time period.

A small manufacturing company recently stated its sales goal for a period was P100,000.
At this level of activity, its budgeted expenses were P80,000. Its actual sales were
P100,000, but its actual expenses were P85,000. This company operated
A. effectively and efficiently
B. neither effectively nor efficiently.
C. effectively but not efficiently.
D. efficiently but not effectively.

The format for internal reports in a responsibility accounting system is prescribed by:
A. Generally Accepted Accounting Principles
B. The Financial Accounting Standards Board
C. The Philippine Institute of Certified Public Accountants
D. Management

In the balanced scorecard framework, a survey of employee satisfaction is a potential
measure in which of the four perspectives?
A. Financial
B. Customer
C. Internal business processes
D. Learning and growth

A company’s rate of return on investment (ROI) is equal to the
A. Percentage of profit on sales divided by the capital employed turnover rate.
B. Percentage of profit on sales multiplied by the capital employed turnover
rate.
C. Investment capital divided by the capital employed turnover rate.
D. Investment capital multiplied by the capital employed turnover rate.
Page 7

The primary reason for adopting Total Quality Management (TQM) is to achieve
A. Greater customer satisfaction.
B. Reduced delivery time.
C. Reduced delivery charges.
D. Greater employee participation.

SPQR, Inc. has two divisions: the Handles Division which manufactures SPQR handles, and
the Assembly Division which assembles various parts to produce SPQRs, the main product
of SPQR, Inc.
The Handles Division currently has excess capacity of 1,500 units. It produces handles at
variable cost of P70. The handles can be sold in the outside market for P100.
The Assembly Division requires 1,400 handles for the SPQRs that it produces. It can buy
such handles from outside suppliers at P100 or it can just buy them from the Handles
Division.
What is the natural bargaining range for the two divisions regarding the transfer price of
handles?
A. Between P70 and P100
B. Between P100 and P170
C. Any amount less than P100
D. P70 is the only acceptable price.
37. (QUANTITATIVE METHODS)

In a PERT network, the critical path is the path that
A. has the most number of activities.
B. requires the longest time to complete.
C. requires the shortest time to complete.
D. has the most slack.
38. (BASIC MAS CONCEPTS)

A person who is qualified by education, experience, technical ability, and temperament to
advise or assist businessmen on a professional basis in identifying, defining, and solving
specific management problems involving the organization, planning, direction, control, and
operation of a firm is called a
A. Management Consultant
B. Certified Public Accountant
C. Accounting Technician
D. Management Accountant

Consulting services differ fundamentally from CPA’s function of attesting to the assertions
of other parties. In a consulting service,
A. the practitioner expresses a conclusion about the reliability of a written assertion that
is the responsibility of the assertor.
B. the work is generally performed only for the use and benefit of the client.
C. the client develops findings, conclusions, and recommendations.
D. the nature and scope of work is determined solely by the consulting services
practitioner.
Page 8

As a consultant the CPA/MAS practitioner should
A. conduct his engagement as if he is a member of the client’s organization.
B. exercise administrative control over the client’s staff to avoid unnecessary delays in
implementation.
C. encourage dependence of client on the consultant’s staff so as to pinpoint clear
responsibility in implementing systems.
D. not take responsibility for making decisions and policy judgments in MAS
engagements.

Which of the following statements is correct?
A. MAS is confined only to such areas as financial accounting, auditing, and tax services.
B. Because the MAS practitioner must be independent, he must not allow the client to
participate in any phase of his engagement.
C. Although MAS extends beyond the traditional accounting services, CPAs in
the MS practice are still bound by the rules of professional ethics in the
practice of accounting in general.
D. CPAs provide management services to go around the ethical constraints as mandated
by the Accountancy Act.
42. (INFORMATION SYSTEMS)

The basic principles of accounting information system include all the following, except
A. flexible structure.
B. cost awareness.
C. implementation.
D. useful output.

Which of the following statements is false?
A. Management accounting is an integral part of the controller’s function in an
organization.
B. The Standard of Ethical Conduct for Management Accountants include concepts
related to competence, confidentiality, integrity, and objectivity.
C. Modern cost accounting plays a role in planning new products, evaluating operational
procedures, and controlling costs.
D. The COO (Chief Operating Officer) is primarily responsible for management
accounting and financial accounting.

Management accounting is considered successful when it
A. helps managers improve their decisions
B. is in accordance with GAAP
C. is relevant
D. is accurate
Page 9

Which of the following descriptions refers to management accounting information?
A. It is prepared for shareholders
B. It is reliable and verifiable
C. It is prepared in accordance with GAAP
D. It provides reasonable and timely estimates

Which of the following is a not a characteristic of management accounting?
A. Internal focus
B. Broad-based and multidisciplinary
C. Subjective information may be used
D. Historical orientation
47. (DECISION MAKING)

A major accounting contribution to the managerial decision-making process in evaluating
possible courses of action is to
A. decide which actions the management should consider.
B. determine the amount of money that should be spent on a project.
C. assign responsibility for the decision.
D. provide relevant revenue and cost data about each course of action.
48. (ECONOMICS)
Gross domestic product (GDP) is the
A. total amount of expenditures for consumer goods and investment for a period of time.
B. total purchases by consumers, businesses, government, and foreign entities
C. value of all final goods and services produced by the country by both
domestic and foreign-owned sources.
D. value of all goods and services produced by the country by domestic firms, excluding
those produced by foreign-owned companies.
49. (ECONOMICS)
As the economy becomes more and more depressed, a company's management decides to slash spending
A. higher this period and lower in future periods.
B. higher this period and higher in future periods.
C. lower this period and higher in future periods.
D. lower this period and lower in future periods.
50. (ECONOMICS)
Inflation can have positive and negative effects on an economy. Positive effects of inflation include
A. loss in stability in the real value of money and other monetary items over time.
B. uncertainty about future inflation may discourage investment and saving.
C. shortages of goods if consumers begin hoarding in anticipation of price increases in
the future.
D. mitigation of economic recessions and debt relief by reducing the real level
of debt.
Page 10
51. (ECONOMICS)
The local video store’s business increased by 12% after the movie theater raised its prices
from P300 to P400. Thus, relative to movie theater admissions, videos are
A. substitute goods
B. superior goods
C. complementary goods
D. public goods
52. (ECONOMICS)
In national income terms, aggregate demand is the
A. demand for money by a community in a period of full employm32` nt.
B. total expenditure on capital goods by entrepreneurs during a period of full
employment.
C. demand that is needed if the country’s economy is to operate at optimum level and
the level of investment is to be raised.
D. total expenditures on consumer goods and investment, including
government and foreign expenditures, during a given period.
53. (ECONOMICS)
A city ordinance that freezes rent prices may cause
A. The demand curve for rental space to fall.
B. The supply curve for rental space to rise.
C. The quantity demanded of rental space exceed the quantity supplied.
D. The quantity supplied of rental space exceed the quantity demanded.
54. (ECONOMICS)
If a group of consumers decide to boycott a particular product, the expected result would
be
A. An increase in the product price to make up lost revenue.
B. A decrease in the demand for the product.
C. An increase in product supply because of increased availability.
D. That demand for the product would become completely inelastic.
55. (FEASIBILITY STUDY)

It is a systematic gathering and analysis of data concerning a proposed project and the
formulation of conclusion therefrom for the purpose of determining whether or not the
project is viable, and if so, its degree of profitability.
A. Budgeting
B. Feasibility Study
C. Viable Costing
D. Profit Planning

A significant cost of quality that is not recorded in the accounting records is the
A. failure cost for a customer complaint center.
B. cost of reworking products to bring them up to specification.
C. opportunity costs of forgone future sales.
D. appraisal cost for product equipment.
Page 11
57. (ECONOMICS)
In macroeconomic terms, aggregate demand is the
A. Demand for money by the community in a period of full employment.
B. Total expenditure on capital goods by entrepreneurs during a period of full
employment.
C. Demand that is needed if a country’s economy is to operate at optimum level and the
level of investment is to be raised.
D. Total expenditures on consumer goods and investment, including
government and foreign expenditures, during a given period.
57. (TRANSFER PRICING)

In a decentralized company in which divisions may buy goods from one another, the
transfer pricing system should be designed primarily to
A. increase the consolidated value of inventory.
B. allow division managers to buy from outsiders.
C. minimize the degree of autonomy of division managers.
D. aid in the appraisal and motivation of managerial performance.

When a profitable corporation sells an asset at a loss, the after-tax cash flow on the sale
will
A. exceed the pre-tax cash flow on the sale.
B. be less than the pre-tax cash flow on the sale.
C. be the same as the pre-tax cash flow on the sale.
D. increase the corporation's overall tax liability.
59. (PERFORMANCE EVALUATION)

Jimmy Corporation has a sales goal of P500,000 for the coming year. Based on this level
of activity, Proficient budgets its total expenses at P450,000. Actual sales are P480,000
and actual costs are P460,000. Proficient Corporation’s operations were
A. Both efficient and effective. .
B. Neither efficient nor effective.
C. Efficient but not effective
D. Effective but not efficient.

The City of Malabon is about to replace an old fire truck with a new vehicle in an effort to
save maintenance and other operating costs. Which of the following items, all related to
the transaction, would not be considered in the decision?
A. Purchase price of the old vehicle.
B. Savings in operating costs as a result of the new vehicle.
C. Proceeds from disposal of the old vehicle.
D. Future depreciation on the new vehicle.
61. (RESPONSIBILITY ACCOUNTING)

A management decision may be beneficial for a given profit center, but not for the entire company. From
A. goal congruence
B. centralization
C. suboptimization
D. maximization
Page 12
62. (FININANCING STRATEGY)

Which of the following is an advantage of equity financing in comparison to debt
financing?
A. Issuance costs are greater than for debt.
B. Ownership is given up with respect to the issuance of common stock.
C. Dividends are not tax deductible by the corporation whereas interest is tax deductible.
D. The company has no firm obligation to pay dividends to common
shareholders.
63. (RORKING CAPITAL MANAGEMENT)

Mansho Co. is applying for a loan in which the bank requires a quick ratio of at least 1.
Mansho’s quick ratio is 0.8. Which of the following actions would increase Mansho’s quick
ratio?
A. Purchasing inventory through the issuance of a long-term note.
B. Implementing stronger procedures to collect accounts receivable at a faster rate.
C. Paying an existing account payable.
D. Selling obsolete inventory at a loss.
64. (QUANTITATIVE MAETHODS)

Which of the following is used to describe the practice of adding resources to shorten
selected activity time on the critical path of a project?
A. Making adjustments.
B. Project crashing.
C. Slack time.
D. Reengineering.
65. (COST & COST CONCEPTS)

The term cost driver refers to
A. any activity that can be used to predict cost changes.
B. the attempt to control expenditures at a reasonable level.
C. the person who gathers and transfers cost data to the management accountant.
D. any activity that causes costs to be incurred.

Of the following, which is the best reason for using activity-based costing?
A. to keep better track of overhead costs
B. to more accurately assign overhead costs to cost pools so that these costs are better
controlled
C. to better assign overhead costs to products
D. to assign indirect service overhead costs to direct overhead cost pools
67. (MANAGERIAL ACCOUNTING)

Which of the following statements represents a similarity between financial and
managerial accounting?
A. Both are useful in providing information for external users.
B. Both are governed by GAAP.
C. Both rely heavily on published financial statements.
D. Both draw upon data from an organization’s accounting system.
Page 13

Leo Corporation will evaluate a potential investment in an advanced manufacturing system
by use of the net-present-value (NPV) method. Which of the following system benefits is
least likely to be omitted from the NPV analysis?
A. Savings in operating costs.
B. Greater flexibility in the production process.
C. Improved product quality.
D. Shorter manufacturing cycle time.
69. (THEORY OF CONSTRAINTS)

A company produces and sells bottled fruit juices. The processes involved in producing
the product are done in the following departments:
Department Capacity per week
Juice extraction 8,000 bottles
Mixing 5,000 bottles
Bottling 10,000 bottles
Demand for the company’s product is about 6,000 bottles per week.
If the company wants to improve its contribution margin and applies the Theory of
Constraints, improvement efforts should be focused on
A. juice extraction department.
B. mixing department.
C. bottling department.
D. sales department.
70. (STRATEGIC MANAGEMENT)

It describes how an organization matches its own capabilities with the opportunities in the
marketplace to accomplish its overall objectives.
A. Planning
B. Strategy
C. Learning and growth perspective
D. Customer perspective
71. (BASIC CONCEPTS)

Which of the following statement(s) is(are) true?
1. MAS relates to the future.
2. MAS covers a wider area than the usual audit and tax work.
3. Because of the broad scope covered by MAS, a wider variety of assignments are
usually encountered.
4. MAS engagements require highly qualified staff.
A. All the statements are true.
B. Only three statements are true.
C. Only two statements are true.
D. Only one statement is true.

A company’s rate of return on investment (ROI) is equal to the
A. Percentage of profit on sales divided by the capital employed turnover rate.
B. Percentage of profit on sales multiplied by the capital employed turnover
rate.
C. Investment capital divided by the capital employed turnover rate.
Page 14
D. Investment capital multiplied by the capital employed turnover rate.

Management accounting and cost accounting
A. are required for recordkeeping as are financial accounting and tax accounting.
B. provide cost information about products and services, as well as information
for internal decision making.
C. require an entirely separate group of accounts than financial accounting.
D. focus solely on the determination of costs to produce a product or provide a service.
74. (ABC SYSTEM)

Which of the following is a sign that an ABC system may be useful?
A. There are small amounts of indirect costs.
B. Products make diverse demands on resources because of differences in
volume, process steps, batch size, or complexity.
C. Products a company is less suited to produce and sell show small profits.
D. Operations staff agrees with accountants about the costs of manufacturing and
marketing products and services.

Which of the following is not an objective of managerial accounting?
A. Providing information for decision making and planning.
B. Maximizing profits and minimizing costs.
C. Assisting in directing and controlling operations.
D. Measuring the performance of managers and subunits.
76. (DECENTRALIZATION AND PERFORMANCE EVALUATION)

Which of the following terms refers to a performance measurement that is calculated as
an investment center’s after-tax operating income minus the product of its total assets
multiplied by the company’s weighted average cost of capital (WACC)?
A. Economic value added
B. Return on investment
C. Net realizable value
D. Profitability index
77. (WORKING CAPITAL MANAGEMENT)

An auto parts store must maintain inventory of a wide variety of parts to satisfy its diverse
customer base. As a result, the store’s inventory has a high risk of obsolescence. Which of
the following features would be most desirable to the store’s creditors during a financial
review of the auto parts store?
A. a high quick ratio
B. a high debt ratio
C. a high number of days sales outstanding in ending trade receivables
D. a low inventory turnover ratio.
78. (BREAK EVEN ANALYSIS)

Which of the following changes would cause a company’s break-even point in sales to
increase?
A. The company’s contribution margin rate increases.
B. The company’s variable cost per unit decreases.
C. The company’s total fixed costs increases.
D. The company’s selling price per unit increases.
Page 15
79. (COSTS AND COST CONCEPTS)

Which of the following costs is deducted from revenues of a manufacturing company in
order to determine gross margin but not deducted from revenues to determine
contribution margin?
A. Fixed manufacturing
B. Variable manufacturing
C. Fixed selling and administrative
D. Variable selling and administrative
80. (TOTAL QUALITY MANAGEMENT)

In the cost of quality, liability claims are examples of
A. Prevention costs
B. Appraisal costs
C. Internal failure costs
D. External failure costs
81. (INVENTORY MANAGEMENT)

The economic order quantity for inventory is higher for an organization that has
A. lower annual unit sales.
B. higher fixed inventory ordering costs.
C. higher annual carrying costs as a percentage of inventory value.
D. a higher purchase price per unit of inventory.
82. (SUPPLY CHAIN MANAGEMENT)

Which of the following is not an important aspect of supply chain management?
A. Information technology
B. Accurate forecasts
C. Customer relations
D. Communications
83. (BUSINESS PROCESS REENGINEERING)

It is a tool to achieve large, quick gains in effectiveness or efficiency through redesigning
the execution of specific business functions. It is a method of examining processes to
identify and then eliminate, reduce, or replace functions and processes that add little
customer value to products or services. It is designed to bring radical changes to an
organization's operations.
A. Process Identification
B. Downsizing
C. Business Process Reengineering
D. Enterprise Resource Planning System
84. (KAIZEN COSTING)

Ongoing efforts to reduce costs, increase product quality, and/or improve production
process once manufacturing has begun is known as
A. cost management
B. kaizen costing
C. target costing
D. life-cycle costing
Page 16

Productivity is measured by the
A. total quantity of output generated from a limited amount of input during a time period.
B. quantity of good output generated from a specific amount of input during a
time period.
C. quantity of good output generated from the quantity of good input used during a time
period.
D. total quantity of input used to generate total quantity of output for a time period.
86. (TACTICAL PROFIT PLAN)

Which of the following best describes tactical profit plans?
A. Detailed, short term, broad responsibilities, qualitative.
B. Broad, short term, responsibilities at all levels, quantitative.
C. Detailed, short term, responsibilities at all levels, quantitative.
D. Broad, long term, broad responsibilities, qualitative.
87. (CASH MANAGEMENT)

A consultant recommends a company hold funds for the following two reasons:
Reason 1: Cash needs may fluctuate substantially throughout the year.
Reason 2: Opportunity for buying at a discount may appear during the year.
The cash balances used to address the reasons given above are correctly classified as
Reason 1 Reason 2
A. Speculative balances Speculative balances
B. Speculative balances Precautionary balances
C. Precautionary balances Speculative balances
D. Precautionary balances Precautionary balances
88. (CVP ANALYSIS)

The contribution income statement differs from the traditional income statement in which
of the following ways?
A. The traditional income statement separates costs into fixed and variable components.
B. The traditional income statement subtracts all variable costs from sales to obtain the
contribution margin.
C. Cost-volume-profit relationships can be analyzed more easily from the
contribution income statement.
D. The contribution income statement separates costs into product and period categories.
89. (QUANTITATIVE METHODS)

When using a graphical solution to a linear programming problem, the optimal solution will
lie in an area commonly known as the:
A. region of maximization.
B. feasible region.
C. objective region
D. constraint region.

Costs that cannot be changed by any decision made now or in the future are:
A. fixed costs
B. indirect costs
C. avoidable costs
D. sunk costs
Page 17
91. (DECISION TREE ANALYSIS)

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 (1).
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.
92. (BALANCED SCORECARD)

Which of the following performance measures is nonfinancial?
A. Percentage of defective products.
B. Return on investment.
C. Gross profit margin.
D. Economic value-added.
93. (PRACTICE STANDARDS)

At Key Enterprises, the controller is responsible for directing the budgeting process. In
this role, the controller has significant influence with executive management as individual
department budgets are modified and approved. For the current year, the controller was
instrumental in the approval of a particular line manager’s budget without modification ,
even though significant reductions were made to the budgets submitted by other line
managers. As a token of appreciation, the line manager has given the controller a gift
certificate for a popular local restaurant. In considering whether or not to accept the
certificate, the controller should refer to which section of IMA’s Statement of Ethical
Professional Practice?
A. Competence
B. Confidentiality
C. Integrity
D. Credibility
94. (BALANCED SCORECARD)

Which of the following is one of the four perspectives of a balanced scorecard?
A. Just in time.
B. Innovation.
C. Benchmarking.
D. Activity-based costing.
95. (DECENTRALIZATION)
All of the following are benefits of decentralization EXCEPT that it:
A. creates greater responsiveness to local needs
B. decreases management and worker morale
C. leads to quicker decision making
D. sharpens the focus of managers
96. (LEARNING CURVES)

A learning curve is a function:
A. that measures the decline in labor-hours per unit due to workers becoming
better at a job
B. that increases at a greater rate as workers become more familiar with their tasks
C. where unit costs increase as productivity increases
D. that is linear
Page 18
97. (BUDGETING)
Budgeting provides all of the following EXCEPT:
A. a means to communicate the organization's short-term goals to its members
B. support for the management functions of planning and coordination
C. a means to anticipate problems
D. an ethical framework for decision making
98. (COST BEHAVIOR)

When cost relationships are linear, total variable prime costs will vary in proportion to
changes in
A. direct labor hours.
B. total material cost.
C. total overhead cost.
D. production volume.

Standard costs
A. are estimates of costs attainable only under the most ideal conditions.
B. are difficult to use with a process costing system.
C. can, if properly used, help motivate employees.
D. require that significant unfavorable variances be investigated, but do not require that
significant favorable variances be investigated.

Which of the following statements regarding standard cost systems is true?
A. Favorable variances are not necessarily good variances.
B. Managers will investigate all variances from standard.
C. The production supervisor is generally responsible for material price variances.
D. Standard costs cannot be used for planning purposes since costs normally change in
the future.
END

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MANAGEMENT ADVISORY SERVICES

Number 1 (COSTS AND COST CONCEPTS)

Numbers 2 and 3 (COSTS AND COST CONCEPTS)

Professional holrs 120 holrs 150 holrs

2. The clinic’s monthly fied costs amolnt to

Number 4 (COSTS AND COST CONCEPTS)

Oierhead is applied on the basis of direct labor holrs.

What is the lnit cost for the year?

Number 5 (ABC SYSTEM)

Hazelnlt Company lses actiiity-based costing. The company prodlces two

Actiiity Estimate Eipected Eipected

Using ABC, the cost per lnit of coats is approiimately

Number 6 (ABC SYSTEM)

Activity Activity Rate

What is the actiiity cost associated with Patient?

Number 7 (ABC SYSTEM)

Cost Driver Predetermined Overhead Rate

Number 8 (CVP AND BREAKEVEN ANALYSIS)

Number 9 (CVP AND BREAKEVEN ANALYSIS)

Number 10 (CVP AND BREAKEVEN ANALYSIS)

Number 11 (CVP AND BREAKEVEN ANALYSIS)

Product A Product B Product C

A. 2,000 12,000 6,000

Numbers 12, 13 and 14 (CVP AND BREAKEVEN ANALYSIS)

Number 15 (CVP AND BREAKEVEN ANALYSIS)

Yamyam Company is considering introdlcing a new prodlct that will reqlire a

Numbers 16 and 17 (CVP AND BREAKEVEN ANALYSIS)

Total Cost Unit Cost

Number 18 (CVP AND BREAKEVEN ANALYSIS)

The following information relates to Hera Corporation for last year:

Number 19 (STANDARD COSTING)

Number 20 (STANDARD COSTING)

Number 21 (STANDARD COSTING)

Number 22 (STANDARD COSTING)

Blchoy Company manlfactlres one prodlct with a standard direct manlfactlring

Numbers 23, 24, 25, 26 and 27 (STANDARD COSTING)

Vhong, Inc. eiallates manlfactlring oierhead in its factory by lsing iariance

23. The controllable iariance amolnts to

25. The efciency iariance amolnts to

26. The non-controllable iariance is

27. The fied oierhead efciency iariance is:

Number 28 (STANDARD COSTING)

Number 29 (STANDARD COSTING)

Number 30 (PRODUCT COSTING)

Selling and administratiie costs:

Number 31 (PRODUCT COSTING)

Number 32 (DIFFERENTIAL COSTS ANALYSIS)

Number 33 (DIFFERENTIAL COSTS ANALYSIS)

Number 34 (DIFFERENTIAL COSTS ANALYSIS)

Numbers 35, 36, 37 and 38 (DIFFERENTIAL COSTS ANALYSIS)

The manlfactlring cost data for Shamcon are as follows:

Direct labor: 2 holrs per bottle @ P3 per holr

Numbers 39 and 40 (DIFFERENTIAL COSTS ANALYSIS)

39. The shlt down point in lnits is

Numbers 42 and 43 (DIFFERENTIAL COSTS ANALYSIS)

Demigod Corporation, a manlfactlrer of light bllbs, bldgeted sales of 500,000

D. No, becalse operating income wolld decrease by 2,100,000.

Number 44 (DIFFERENTIAL COSTS ANALYSIS)

Production UNIT SALES PRICE Additional

Numbers 45 and 46 (DIFFERENTIAL COSTS ANALYSIS)

Groier Corporation prodlces cellllar phone Groiers. Each Groier reqlires a

Numbers 47 and 48 (CAPITAL BUDGETING)

Ricky Ironworks is considering a proposal to sell an eiisting lathe and plrchase a

47. What is the payback period for the complter-operated lathe?