NORTHERN CPAR: MANAGEMENT SERVICES – 1ST PRE-BOARD EXAMINATION

NORTHERN CPA REVIEW

4th Floor Pelizloy Centrum, Lower Session Road Baguio City
Mobile Numbers: SMART 09294891758 & GLOBE 09272128204
E-mail: ncpar@yahoo.com
RHAD VIC ESTOQUE, CPA,MBA

6th BATCH – OCTOBER 2011 RCPA Board Exam

MANAGEMENT SERVICES: First Pre-Board Examination
JULY 9-10, 2011

INSTRUCTION: Shade the letter corresponding to the letter of your choice.

Avoid erasures as much as possible. Indicate letter E if your final answer
do not match with the given choices. God bless!

1. In project feasibility studies, accountants are usually involved in

the financial aspect. Included in this portion of the study is a set of
statements expressing projected behaviors of certain variables or
factors, which, in turn, serve as bases for the financial projections.
This set of expressed statements is called:
a. statement of projected costs c. statement of assumptions
b. projected financial statements d. statement of accounts

2. Management accounting is an integral part of the management process.

As such it provides essential information for the following objectives
except
a. maintaining the current level of resource utilization as well as
internal and external communication
b. measuring and evaluating performance
c. planning strategies and controlling current activities of the
organization
d. enhancing objectivity in decision-making

3. Great deal of effort is being exerted on business forms. These are

among the arguments for well designed and properly used forms except
a. it will greatly facilitate the attainment of efficiency
b. it will be a good working tool for administrative and clerical
procedures
c. it will give realistic statistics on financial results
d. it will ensure a proper filing system and a system of check and
balance

4. These are reasons why a project feasibility study is required before

undertaking an economic project, except
a. it is basically a forecast based on the most reasonable and
available information and opinion, and will tally with actual events
b. it enhances the probability of success of a particular
undertaking
c. it is required by the financial institution to be able to decide
on financing requests by project proponents
d. it is guide to action by certain government agencies on such
issue as incentives, taxation, and social desirability.

5. Which of the following is not an activity covered by feasibility

study?
a. Activity based accounting of the endeavor leading to a conclusion
b. Collection of data
c. Evaluation and analysis of data collected
d. Formulation of recommendation

6. Among the following major parts of a project feasibility study, which

grouping is considered critical?
a. Management, financial and social returns
b. Technical, financial and environmental aspects

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c. Economic benefits, management, and financial
d. Marketing, engineering or technical and financial
7. The preparation of a project feasibility study covers various
processes. All of the following are those processes except
a. In-depth technical studies and validation
b. Commissioning up to commercial startup of the business
c. Sensitivity analyses considering various likely scenarios
d. Collection of data

8. A management advisory engagement generally involves the following

activities in what order?
I. Post engagement follow-up
II. Implementing the recommendation
III. Conducting the engagement
IV. Negotiating the engagement
V. Preparing for and starting the engagement
VI. Evaluating the engagement
VII. Preparing and presenting the report and recommendations
a. VII, VI, V, IV, III, II, and, I
b. III, IV, V, VI, VII, I, and II
c. IV, III, V, VI, II, VII, and I
d. IV, V, III, VII, II, VI, and i
9. An advantage of a CPA over members of other professions in management
advisory or consulting work is
a. The CPA provides temporary personnel
b. The CPA is a member of a profession with recognized standing
c. The CPA can properly undertake any work in all areas of
management including those that are restricted by law to other
professions
d. The CPA can certify the financial statements of the firm
10. Which of the following is a controller’s responsibility?
a. Tax planning and accounting
b. Custodian of funds
c. In charge of credit and collection
d. Arranging short-term financing

11. A management information system should emphasize satisfying

a. External demands for information
b. External and internal demands of information
c. Internal demands for information
d. The Accounting Department’s demands for information

12. Who of the following are external users of data gathered by a

management information system?
Creditors Competitors Suppliers
a. yes no yes
b. no no no
c. no yes yes
d. yes yes yes

13. The automatic copying or transcription from one business record to one
or more other records frequently with simultaneous reproduction at the
time the one original records is prepared is
a. Integrated Data Processing c. Accounting system
b. Programming d. Output device

14. It transfers data out of the electronic data equipment in the form of
completed readable printed materials
a. Output device c. Arithmetic unit
b. Source document d. Memory unit

15. What do you call a chart that shows the step-by-step elements of an
activity including time notations and distances traveled? It is also used

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to determine how operations and steps might be eliminated, simplified or
subdivided for greater efficiency.
a. Process flowchart c. Work distribution chart
b. Layout flowchart d. Procedure flowchart

16. Who is primarily responsible in the detection and correction of error

in the processing of data? The
a. Independent public accountant
b. Independent internal control group
c. Machine operator
d. Data processing manager

17. The initial debugging of a computer program should be normally done by

the
a. Programmer c. Machine operator
b. Internal auditor d. Control group

18. An orderly arrangement of procedures, personnel, written records,

equipment and device utilized for the systematic collection, processing
and reporting of financial and other information essential to the
efficient conduct and evaluation of the activities of an enterprise.
a. Accounting system c. Accounting process
b. Accounting cycle d. Management Information System

19. A technique used to code items and collect them into group prior to
processing is called
a. On-line c. Tape sorting
b. Batching d. Coding

20. Two basic methods of processing business data are

a. Machine and manual bookkeeping
b. Computer and punched card processing
c. Daily and weekly processing
d. Batch and on-line processing

21. Dexter Co. has a debt ratio of 0.50, a total assets turnover of 0.25,
and a profit margin of 10%. The president is unhappy with the current
return on equity, and he thinks it could be doubled. This could be
accomplished (1) by increasing the profit margin to 14% and (2) by
increasing debt utilization. Total assets turnover will not change. What
new debt ratio, along with the 14% profit margin, is required to double
the return on equity?
a. 0.75 b. 0.70 c. 0.65 d. 0.55

22. Jones Inc. has a total asset turnover of 0.30 and a profit margin of
10%. The president is unhappy with the current return on assets; and he
thinks it could be doubled. This could be accomplished by (1) increasing
the profit margin to 15% and (2) increasing the total assets turnover.
What new asset turnover ratio, along with the 15% profit margin, is
required to double the return on assets?
a. 35% b. 45% c. 40% d. 50%

23. Buttercup Co. sells on terms 3/10 net 30 days. Gross sales for the
year are P2,400,000 and the collections department estimates that 30% of
the customers pay on the tenth day and take discounts; 40% pay on the
thirtieth day; and the remaining 30% pay, on the average, 40 days after
the purchase. Assuming 360 days per year, what is the average collection
period.
a. 40 days b. 15 days c. 20 days d. 27 days

24. Brain Co. has stockholders’ equity equal to 60% of total liabilities
and stockholders’ equity of P120 million. If the return on total assets
invested registers 9%, what is the return on stockholders’ equity.
a. 10% b. 6% c. 15% d. 12%

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PEC Company registered accelerated increases in its net income, earning
P875,000 in 2015 to P2,520,000 in year 2016. Rate of return on current
assets increased from 25% in 2015 to 30% in year 2016. Current asset
turnover on the other hand, went up to 2.67 turnovers in year 2016 from
2.45 turnovers in 2015.

25. The average investment in current assets for PEC Company in year 2016
is
a. P3,215,000 c. P3,500,000
b. P8,400,000 d. P10,080,000

26. In 2016, MPX Corporation’s net income was P800,000 and in 2017 it was
P200,000. What percentage increase in net income must MPX achieve in 2018
to offset the 2017 decline in net income?
a. 60% b. 600% c. 400% d. 300%

27. OTW Corporation has current assets totaling P15 million and a current
ratio of 2.5 is to 1. What is OTW’s current ratio immediately after it
has paid P2 million of its accounts payable?
a. 3.75 is to 1 c. 3.25 is to 1
b. 2.75 is to 1 d. 4.75 is to 1

The following information pertains to Al Corporation as of and for the

year ended December 31, 2009.
Liabilities P60,000
Stockholders’ equity P500,000
Shares of common stock issued and outstanding 10,000 shares
Net income P30,000

During 2009, Al officers exercised stock options for 1,000 shares of

stock at an option price of P8 per share.

28. What was the effect of exercising the stock option?

a. no ratios were affected
b. asset turnover increased to 5.4%
c. debt to equity ratio decreased to 12%
d. earnings per share increased by P0.33

29. Veronica Co., whose gross sales amounted to P1,200,000 sold on terms
of 3/10, net 30. The collections manager estimated that 30 percent of the
customers pay on the tenth day and take discounts; 40 percent on the
thirtieth day; and the remaining 30 percent pay, on the average, 40 days
after the purchase. If management would toughen on its collection policy
and require that all non-discount customers pay on the thirtieth day, how
much would be the receivables balance?
a. P60,000 b. P80,000 c. P70,000 d. zero

The following common-size income statements are available for STAR CORP.,
for the 2-years ended December 31, 2016 and 2015:
2016 2015
Sales 100% 100%
Cost sales 55 70
Gross profit on sales 45 30
Operating expenses (including income tax) 20 18
25% 12%
The trend percentages are as follows:
2016 130%
2015 100%

30. What should be the trend percentage per gross profit on sales for
2016?
a. 58.5 % b. 130% c. 150% d. 195%

The estimated operating income of Blue Co. for the production of plastic
bags for the year ended December 31, 2015 is arrived as follows:
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Sales P 11,250.00
Cost of Sales
Direct Materials P 1,685.00
Direct Labor 1,575.00
Variable factory overhead 1,125.00
Fixed factory overhead 562.00 4,947.00
Gross income from sales 6,303.00
Selling and administrative expenses
Variable expenses P 2,365.00
Fixed expenses 1,538.00 3,903.00
Net operating income P 2,400.00

31. How much sales would be necessary in order to break-even?

a. P3,500 b. P6,750 c. P4,500 d. P5,250

Presented below are the results of operations of the Acute Co. for 2015:

Sales (150,000) units) P 600,000.00

Cost of goods sold:
Fixed P 150,000.00
Variable 300,000.00 450,000.00
Gross profit 150,000.00
Selling and administrative:
Fixed P 39,000.00
Variable 45,000.00 84,000.00
Income before taxes P 66,000.00

The company is concerned about the expected increase in fixed

manufacturing cost by 50% if it will buy new equipment with a higher
production capacity. However, further study shows that with the expected
increase in production, sales volume will be expected to increase by 40%
while variable-manufacturing costs will decrease from P2 to P1.50 per
unit. The total fixed selling price and administrative expenses and the
variable selling and administrative expenses will remain the same. The
company has been operating at full capacity. If the company will buy the
new equipment,

32. What would be the break-even point in terms of units?

a. 120,000 b. 66,000 c. 176,000 d. 105,600

The following information pertains to Zoe Co.’s cost-volume-profit

relationships:
Breakeven point in units sold 1,000
Variable cost per unit P500
Total fixed costs P150,000

33. How much will be contributed to profit by the 1,001 unit sold?
a. P650 b. P500 c. P150 d. zero

Saber Co. produces two products, Cole and Cane that account for 40% and
60% of the total sales peso of Saber, respectively. Variable costs as a
percentage of sales pesos are 75% for Cole and 60% for Cane. Total fixed
costs are P300,000. There are no other costs.

34. The break-even point in sales pesos for the company is

a. P882,352.94 c. P529,411.76
b. P362,941.17 d. P300,000.00

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35. The current break-even sales of Dream Co. is P700,000 per year. It is
computed that if fixed expenses will increase by P80,000, the sales
revenue required to break-even will also increase to P900,000 without any
change on the variable expenses and selling price per unit. Before the
increase of P80,000, the total fixed expenses of Dream Co. is
a. P160,000 b. P220,000 c. P280,000 d. P360,000
The following information pertains to the two types of products
manufactured by Key Co.
Selling Price Variable Cost
Product Y P120 P70
Product Z 500 200

36. Fixed costs total P300,000 annually. The expected mix in units is 60%
for Product Y and 40% for product Z. How much is Key’s breakeven sales in
pesos?
a. P300,000 b. P420,000 c. P475,000 d. P544,000

37. Helen Co. sells Product E for P5 per unit. The fixed costs are
P210,000 and the variable costs are 60% of the selling price. What would
be the amount of sales if Helen is to realize a profit of 10% of sales?
a. P700,000 b. P525,000 c. P472,500 d. P420,000

38. Doe Co. has fixed costs of P100,000 and breakeven sales of P800,000.
What is the projected profit at P1,200,000 sales?
a. P50,000 b. P150,000 c. P200,000 d. P400,000

39. NTQ Inc. net sales in 2009 were 15% below the 2008 level. NTQ’s semi-
variable cost would
a. Increase in total and increase as a percentage of net sales.
b. Decrease in total and decrease as a percentage of net sales.
c. Increase in total by decrease as a percentage of net sales
d. Decrease in total but increase as a percentage of net sales

40.DC Company wishes to market a new product for P15 per unit. Fixed costs
to manufacture this product are P1 million for less than 500,000 units
and P1,500,000 for 500,000 units or more. The contribution margin is
20%. How many units must be sold to realize net income from this product
of P1,000,000?
a. 333,333 b. 500,000 c. 666,667 d. 833,333

The following operating data are available from the records of Bone
Co. for the month of January

Sales (P70 per unit) P 210,000.00

Direct materials 59,200.00
Direct labor 48,000.00
Manufacturing overhead
Fixed 36,080.00
Variable 24,000.00
Selling and administrative
Fixed 21,000.00
Variable-5% of sales
Production in units 3,280 units
Beginning inventory none

41. The net income for the month under variable costing method would be
a. P19,420 b. P25,500 c. P23,320 d. P22,420

The books of Marie Co. showed the following figures relating to

Product X:

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Beginning and Ending WIP and Fin.
Goods None
No. of units produced 40,000 units
No. of units sold at P15.00 32,500 units
Direct materials cost P 177,500.00
Direct labor cost 85,000.00
Fixed overhead 110,000.00
Variable overhead 61,500.00
Fixed administrative 30,000.00
Ending WIP None

42. Which costing method would show a higher operating income for the year,
and by how much?
a. Variable by P20,625 c. Absorption by P26,250
b. Variable by P26,250 d. Absorption by P20,625

Sales and costs data for Dawson Co.’s new product are as follows:

Sales (P22.50 per unit) P 225,000.00

Variable manufacturing cost per unit of product P 12.00
Variable administrative cost per unit of product P 4.50
Annual fixed costs
Manufacturing P 37,500.00
Administrative and marketing P 22,500.00

There was no inventory at the beginning of the year. Normal capacity

of the plant is 12,500 units. During the year 12,500 units were
manufactured.

43. The total variable cost charged to expense for the year under the direct
costing method shall be
a. P165,000 b. P176,250 c. P206,250 d. P228,750

44. The following information is available for Allan Co.’s product line:
Selling price per unit, P15; Variable manufacturing costs per unit of
product,P8; Total annual fixed manufacturing costs, P25,000; Variable
administrative cost per unit of product, P3. Total annual fixed selling
and administrative expenses, P15,000. There was no inventory at the
beginning of the year. During the year 12,500 units were produced and
10,000 units were sold. The total fixed cost charged against the current
year’s operations, assuming Allan uses absorption costing is
a. P35,000 b. P40,000 c. P25,000 d. P15,000

The following operating data are available from the records of Eve
Co. for the month of February
Sales (P70 per unit) P 210,000.00
Direct materials 59,200.00
Direct labor 48,000.00
Manufacturing overhead
Fixed 36,080.00
Variable 24,000.00
Selling and administrative
Fixed 21,000.00
Variable-5% of sales
Production in units 3,280 units
Beginning inventory none

45. Under the absorption costing, the ending finished goods inventory would
amount to:
a. P12,096 b. P14,280 c. P16,072 d. P16,968
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46. Loner Co. manufactures a single product. Variable production costs are
P10 and fixed production costs are P75,000. Loner uses a normal activity
of 10,000 units to set standard costs. Loner began the year with no
inventory, produced 11,000 units, and sold 10,500 units. The standard
cost of goods sold under variable costing would be
a. P100,000 b. P105,000 c. P183,750 d. P95,000

A company has the following cost data:

Fixed manufacturing cost P 2,000.00

Fixed selling, general, and administrative costs P 1,000.00
Variable selling costs per unit sold P 1.00
Variable manufacturing cost per unit P 2.00
Beginning inventory none
Production 100 units
Sales - at P40 per unit 90 units

47. Variable and absorption costing net incomes are

Variable Absorption
a. P320 P520
b. P520 P520
c. P530 P330
d. P330 P530

48. Boner Co. manufactures a single product. Variable production costs are
P10 and fixed production costs are P75,000. Boner uses a normal activity
of 12,500 units to set standard costs. Boner began the year with no
inventory, produced 10,000 units, and sold 9,500 units. The cost of goods
sold under absorption costing would be
a. P166,250 b. P152,000 c. P170,000 d. P95,000

49. At the end of Kiko Company’s first year of operations, 1,000 units of
inventory remained on hand. Variable and fixed manufacturing costs per
unit were P90 and P20, respectively. If Kiko uses absorption costing
rather than direct (variable) costing, the result would be a higher
pretax income of
a. P20,000 b. P70,000 c. P90,000 d. Zero

50. King Trading had a net income after taxes of P 37,500 using the direct
costing method for a given month. Beginning and ending inventories for
the month are 13,000 and 18,000 units,. respectively. Income tax rate is
25%. The fixed overhead is P200,000 per month at a normal capacity of
100,000 units per month.
What is the net income after tax using absorption costing?
a. P 45,000. b. P50,000 c. P60,000 d. P86,000

--- End of Pre-Board Examination ----

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