The Review School of Accountancy Final Pre-Board Examination 12 April 2014 7:00 AM - 10:00 AM “ Monegemert Sewice INSTRUCTIONS: Select the correct answer for each of the following questions. “ Mark only one answer for each item by shading the box corresponding to the letter of your choice on the answer sheet provided. STRICTLY NO BRASURES ALLOWED. Use pencil no. 2 only. SetB D 3. Which of the following ratios is least likely to be used in evaluating the effectiveness of working capital management? a. Average collection period b. Inventory turnover ratio ©. Acid-test ratio d. Debt ratio Itens 2 and 3 are based on the fo Phuket Company presented the following information for its initial Galendar year. ‘There were no work-in-process inventories. Units produced 10,000 units sold 3,000 Direct materials used P 20,000 Direct labor incurred lowing information P 10,000 Fixed factory overhead ~P 12,500 Variable factory overhead - P 6,000 Fixed selling and administrative expenses P 15,000 Variable selling and administrative expenses P 2/950 Finished goods inventory, January 1 None tory cost at December 31 under the variable costing method? a. P 3,600 b. P 3,825 ©. P 4,000 d. P 4,850 Which costing method, absorption or variable costing, higher annual operating income and by what amount? a. Absorption costing, P 1,250 b. Variable costing, P 1,250 €. Absorption costing, P 2,750 d. Variable costing, P 2,750 A 4. In which of the followin training occur? +a. Implementation phase b. Planning phase €. Analysis phase d. Design phase would show a ‘9 Phases of computer system development would Shanghai Company estimates tha Prepare a bid proposal. Shang} an B08 chance of being awa: to result in a net profit of the payoff? a. PO BP ge ee b. P 150,000 tienes €. P 180,000 bee wk (muse 2 a. P 220,000 Ay t it would incur a P 100,000 cost to hai estimates also that there would be scea the contract if the bid is low enough °F P 250,000. What is the expected valveMANAGEMENT SERVICES Final Pre-Board Examination (May 2014 Batch) Page 2 12 Apri 2014 ‘AM to 10:00 AM ——— Kaplan and Norton, under which of ft &tndor ene patanced scorecard concept dovelored bY eprectaper gener oo Weereeay gaa. scow ‘Abu Dhabi Company has daily cash receipts of P 400,000. Abu Dhabi's bank offers a lockbox service that will reduce collection time by te days for a P 2,000 monthly fee. Abu Dhabi can earn 4 annually with any additional funds. What will be the annual increase to incom before taxes from using the lockbox service? a. P 24,000 b. P 32,000 ¢. P 40,000 d. P 64,000 ‘When markets are perfectly competitive, consumers a. Do not receive any consumer surplus unless producers choose to overproduce ~ -B. Have goods and services produced at the lowest cost in the long run ©. Must search for the lowest price for the products they buy d. Are able to avoid the problem of diminishing returns Items 9 to 11 are based on the following information Genting Foundation is a tax-exempt charitable organization. Genting invested ? 400,000 in a five-year project at the beginning of year 1. Genting estimates that the annual cash savings from this project will amount to P 130,000. The P 400,000 of assets will be depreciated over their five-year life on the straight-line basis. On investments of this type, Genting’s desired rate of return is 12%, Information on present value factors is as follow: BY of P 1 for 5 periods PV of an annuity of P 1 for 5 periods & what is the net present value of the project? B 36,000 be b. P 57,000 PB 68,000 d. P 250,000 D 1g¢What is the internal rate of return on the project? a. bess than 128 SoevD >. Less than 14%, but more than 12¢ c, Less than 168, but more than 14% AY More than 16% % 11. For the project’ first year, what would be Genting’s accounting rate ©f zeturn, based on the project’s average book value for year 1? i 12.58 We 13.98 de ip Bee seat fat [eave pone B itnas is caries » spontancous financing source? a. Debentures . aw. Trade credit ©. Notes payable Ey eeliacwek: wean: 96SeeaTCIs (G5) finer Sours rornation (May 2014 Batch) ) Fel Se Boars Bomation SS) Daitaone aaa Wad A Page 3 & \Upwhich one of the following technological elements of computer-based information systems has the least effect in driving the changes that are currently occurring in the workplace? 2. Decision support systems and artificial intelligence (AZ) J. Advances in microcomputer hardware and software ¢. Advances in disaster recovery systens d. Office automation and teleprocessing Items 14 and 15 are based_on the following information BUKLE, Inc. has been manufacturing 5,000 units of Part 12345 which is used’ in the manufacture of one its products. At this level of production, the cost per unit of manufacturing Part 12345 is as follows: Direct materials P2 2 Direct Labor & & 4 g Variable overhead Fixed overhead applied 6h, Total B20 I Bintang Company has offered to sell Bukit 5,000 units of Part 12345 for P19 a unit. Bukit has determined that it could use the facilities presently used to manufacture Part 12345 10 manufacture Product ABC and generate an operating profit of P 4,000. Bukit has also determined that two-thirds of the fixed overhead applied will continue even if Part 12345 is purchased from Bintang. B 14. In deciding whether to make ox buy the part, the total relevant costs to make the part are i a. P 70,000 wb. PB0,000 Mie * Stn) wev0 ©. P 90,000 dP 95,000 in sti A JS. Should Bukit accept Bintang’s offer, and why? a: ‘Wor because it would be ? 11,600 cheaper to maké’ the part B. Hos because it would be P 15,000 cheaper to make the part GL Yes, because it would be P 5,000 cheaper to buy the pace @. Yes, because it would be P 9,000 cheaper to buy the past (1, Grose domestic product (G0P) includes which of the following 2. The size of a population that must share a given output within nation within one year Process of a produced within a nation in one year “I services 7 tontos Company wilch UO ® 30-day calender yer te yer purposes: ne Wonder a: 2/10, 9/35 & way Xt Vendor B: 1/15, n/25 Vendor C: 3/20, 0/50} Which vendor shall be chosen by Mustafa based on the cost of trade credit? Vendor A b. Vendor B ©. Vendor c d. Cannot be determined from the given information lowest annual}) MANAGEMENT SERVICES (CS) Final Pre-oonrd Exanination (ay 2014 Bote Re) Terrany’ parity 2014 bate Page 4 ge 18.Which working capital policy has the greatest likelihood that a firm "WiLL be unable to meet obligations as they become due? Financing all current assets with long-term debt pi Financing ail current assets with short-term debe ‘e. Financing fluctuating current assets with short-term debt and Permanent current assets with equity d. Financing fluctuating current assets with short-term debt and permanent current assets with long-term debt & C, 6m certain manufacturing job 18 subject to a leerning curve. me first batch of units required 0 hours to complete, while the second batch took an additionat 40 hours to complete, what pe:centage of teaening curve occurred? Teed a. 25% 1 @),. w b. 508 2 wey 96 ve. 7588 4. 1008 4 20.4 management accountant performs a linear regression of maintenance “cost vs. production using a computer spreadsheet. The regression output shows an “intercept” value of P 332,897. How should the accountant interpret this information? a. Y¥ has a value of P 322,897 when X equals zero b. X has a value of P 322,897 when Y equals zero c. The residual error of the regression is P 322,897 d. Maintenance cost has an average value of P 322,897 Bem capital structure of a firm includes bonds with a coupon rate of 128 and an effective interest rate of 14%. The corporate tax rate is 308. What is the firn’s cost of debt? a. 8.48 be 9.88 ce. 12.08 4. 14.0% ‘B22. wich rocal commodity whose denand tends to be price-elastic? . Red Horse beer JB. Apple I-Phone 5S ‘c. Absolute distilled drinking water _ a. Lipitor ~ branded maintenance medicine for stroke patients ’ A “231 Penang Company has 5,000 obsolete desk lamps that are carried in inventory at a manufacturing cost of P 50,000. If the lamps are reworked for P 20/000, they could be sold for P 35,000. Alternatively, the lamps could be sold for P 8,000 to a jobber located in a distant city. What alternative is more desirable and what are the total relevant costs for that alternative? a. Neither, since there is an overall loss under either alternative a eege 78. Rework and P 20,000 cc. Rework and P 70,000 I g d. Scrap and P 50,000 A a Which of the following characteristics distinguishes electronic data ‘oearepense (EDI) from other forms of electronic commerce? BDI transactions are formatted using standards that are uniform worldwide ‘< EDI transactions need not comply with generally accepted accounting principles ¢: EDI transactions ordinarily are processed without the Internet 4. EDI transactions are usually recorded without security and privacy concernsB, A ce MANAGEMENT SERVICES Final Pre-Board Examination (May 2014 Batch) 12 April 2014 « 7:00 AM to 10:00 AM Page 5 \25. changmai Company is evaluating a proposed credit policy change. The Proposed policy would change the average number of days for collection from 60 to 27 days and would reduce total sales by 25%, all_of ihe decrease dug to credit seles. Under the current policy, fext year’s sales are estimated at P 128 million, with 75% of them being credit sales. Based on a 360-cay year, what is the decrease in Changmai‘s average accounts receivable balance of implementing the roposed credit policy change? b q eT PAA million aun ist b. P 10.0 million fon gy P 11.2 million @. P 16.0 million /26.T0 address the problem of a recession, the Central Bank most likely would take which of the following actions? a. Sell government bonds in open-market transactions 2. Lower the discount rate it charges banks for loans ¢. Increase the rate charged by banks when they borrow from one another « d. Increase the level of funds a bank is legally required to hold in reserve /27.what is the ‘most likely time’ for a PERT network’s activity based on a certain discrete business project, given that the optimistic time is 6 days, expected time is 9 days and pessimistic time is 16 days? (A. 8.00 days b. 8.67 days é c. 9.33 days d. 9.67 days o Item 28 to 30 are based on the foliowing information esented the following information: Kowloon Company Units actually produced 76,000 Actual direct labor hours worked 160,000 Actual variable overhead incurred P 500,000 Actual fixed overhead incurred 84,000 Based on monthly normal volure of 180,000) units (200,000 dizect lapor hours), Fowloon"s standard cost “system containg the fol sneeey overhead costs Ha variable P 6 per unit Fixed P 4 per unit 7 J SPurcbiing acviat, yan Pied avexkeatguageD Wert aneed 7 fe a. P 8,000 coenen seas Ara CE) 26000, Mesinss b. P 8,000 unfavorable ME) hoon y AICP) € g. P 16,000 favorable d. P 16,000 unfavorable was unfavorable variable overhead spending variance? > 12,000 ey ee 2 20,000 APH go rn PB 24,000 Bae OS“ denen P 44,000 was fixed overhead volume varianc 96,000 favorable P 96,000 unfavorable PASH Jreece C1) yams P 80,000 favorable ; P 80,000 unfavorable 4 Tooar(y) 209% > 96.0r0 ue ge we“nal Pre-Board Examination (May 2014 Batch) 712 Apri 2014 © 7:00 AMO 1000 AM Page 6 @ 73. seou1 company currently has 100/000 shares of common stock outstanding and a price-earnings ratio of seven. Net income for the recently ended year is P 375,000. Seoul's board of directors declared a 15-for-2 split. Jeju owned 100 shares of Seoul before the split. What is the approximate value of Jeju’s investment in Seoul immediately after the split? 4 a. P26 b. P 350 a P 2,625 d. Pp 5,250 A (/A2.Which of the following effects would a lockbox most likely provide for receivable management? a. Minimized collection float ‘>. Maximized collection float c. Minimized disbursement float d. Minimized disbursement float Items 33 to 37 are based on the following information Sentosa is a medical laboratory that performs tests for physicians. Sentosa anticipates performing between 5,000 tests and 12,000 tests during April. Compared to industry averages, at the low range of activity, Sentosa has a lower sales price per test, higher fixed costs, and the same break-even point in number of tests performed. At the high range of activity, Sentosa’s sales price per test and fixed costs are the same as industry averages, and Sentosa’s variable costs are lower. At the low range of activity (0 to 4,999 tests performed), fixed costs are P 160,000. At the high range of activity (5,000 tests to 14,999 tests performed), fixed costs are P 200,000. () <33-How is the cost of electricity to run laboratory equipment categorized? a. Fixed cost b. Direct material cost fe! Overhead cost for testing 1. General and administrative cost ’ f) Siatiow is the oftice manager's salary categorized? a+” Masiabie cost ix Direct Iaber cost ©. Denied croak sie teaibiey d. General and administrative cost B 35.How is the cost of distill: a. Fixed cost b. Direct material cost g. Overhead cost for testing d. General and administrative cost dwater used in tests categorized? 36.What is Sentosa’s break-even point in number of tests at high /activity range? Re oe a. 4,000 me BS pp, bs 5,000 on, NP ce. 8,000 da. 9,000 B 37. Are the contribution margin (cM) and break-even point (BEP) greater or lower than the industry average at the high activity range? a. (GM) greater (BEP) greater * HS. (CM) greater (BER) lower «mT ‘c. (GM) lower (BER) greater a. (CM) lower (BEP) lower— © 10 Page 7 A a. fattaya company’s current ratio is 2.5 to 1. Pattaya’s current abilities are P 252,000. Loan provisions require that Pattaya’s current ratio not drop below 1.5 to 1. what is the maximum additional €grt-term dem that Pattaya may incur? .-B 168, fa, 0G oh Gime Co oe lane gr ©. P 420,000 - rR sil ‘a ALB 630,000 a A 39.Monopolistic competition is charactesized by a. A relatively large group of sellers who produce differentiated : products 2% A relatively small group of sellers who produce differentiated products ©. A relatively large group of sellers who produce homogeneous products 4. A relatively small group of sellers who produce homogeneous Products A ‘AO. Langkawi Corporation currently operates two divisions that had \ operating results for calendar year 1 as follows West Sales P 900,000 P Variable costs 510,000 Divisional fixed costs 110,000 ao.000 x Allocated corporate costs 135,090 ME 45,000. C25) Since the East Division also sustained an ‘cberating loss during year 0, Langkawi’s president is considering the elimination of the division. The East Division fixed costs could be avoided if the division was eliminated. If the East Division had been eliminated on January 1, Year 1, Langkawi’s Year 1 operating income would have been a/ P 20,000 lower b. P 25,000 higher c. P 45,000 lower g P 70,000 higher and wants to maintain the confidentiality of ite information as te 1g tranemitted (e-g. EFT). The company should utilize a. Password codes B. Data encryption ©. Dial-back systems @. Message acknowledge procedures e ok Lumpur Company is considering a P 50,000,000 project in the upcoming year. Lumpur plans to use both debt and equity to finance the project. Lumpur’s beta coefficient is estimated to be(0.95,) Lumpur has a 30% effective income tax rate. The equity. market~fs expected to have.avgrage earnings of 12%. Philippine treasury bonds currently yield @a/™ Funds generated from earnings, P 35,000,000 Additional funds from P 15,000,000, 20-yaer, 68 bonds at a price Of 102, with flotation costs of 38 of par. The capital asset pricing model (CAPM) computes a security's expected return by adding the risk-free rate of return to incremental yield of expected market return, adjusted by the issuer's beta. What is & Lumpur’s expected rate of return using this model? e a. 12.4% * _ Bb. 12.08 4b + (aides » : 2 11.68 3 a. 11.48Seon 5 MANAGEMENT SERVICES Final Pre-Board Examination (May 2014 Batch) 12 April 2014 # 7:00 AM to 10:00 AM Page 8 carry one unit is P 0.50 while cost per order amoun| Assuming that the units are demanded evenly throughout the year, often should the company place an order within a 360-day year? evrg, a. Every 30 days Ww. Every 36 days $e c. Every 45 days a. Every 72 days 44.70 determine the best cost driver of warranty costs Fr breakage during shipments, Beijing Co. used simple li analysis to study the relationship between warranty co: the following variables: type of packaging, A, +The annual demand for a single product is 4,000 units. quantity shipped, The cost to ts to P 10.00. how My * OK rebrand 76m > Go days > elated to glass near regression sts and each of type of The analysis yielded the following carrier, and distance shipped. statistics: Independent Coefficient of Standard Error Variable Determination of Regression Type of packaging 0.60 1,524 Quantity shipped 0.48 1,875 Distance shipped 0.20 ale76 Type of carrier 0.45 2,149 j Based on these analyses, what is the best driver of warranty costs for glass breakage? a. Type of packaging b. Quantity shipped c. Distance shipped » a. Type of carrier 4 A “45-m panking system with a reserve ratio of 208 and a change in reserves | of P 1,000,000 can increase its total demand deposits by a. P 5,000,000 ‘ uf b. P 1,000,000 4 c. P 800,000 d. P 200,000 C 46. tne “coefficient of variation” provides a measure of the relative variability or riskiness of investments. It is calculated by. dividing the standard deviation of the investment by its expected return. j The expected rate of return for the stock of Causeway Enterprise is 20%, with a standard deviation of 15%. The expected return of return for the stock of Mongkok Associates is 108, with a standard deviation of 98. CD angele, Which of the following conclusions can be made? A. Causeway's stock is riskier because of its higher return b. Mongkok’s stock is less risky because of its lower standard deviation Mongkok’s stock is riskier because of its higher coefficient of variation * . d. Causeway’s stock is riskier because of its lower coefficient of variation / ed “a7. Pratunam Company has an average unit cost of P 45 at 10,000 units and P 25 at 30,000 units. Assuming a unit selling price of 40, what is ve the margin of safety at P 1,000,000 sales? HL fereny DRE ISP 21S a. 6,000 units ME x: fowotva HES nn Top RIN Key * ’ BR G81 b. 12,000 units is = £13,000 units : Hey ZAR ‘a4, 20,000 units _ ictNEES 12 April 2014 © 7000 on May 2014 Batch) 2014 # 7:00 AM to 10:00 AM Page 9 48. ya" i A DMZ’ has the following meaningful data taken from its records and A uv D Most recent financial statements: Debt ratio ‘ 788 Current ratio 2x Plowback ratio . fon, = 208 Assets turnover ax» Return on equit aoe” Receivable turnover 4 tines Cash conversion cycle 250 days Times interest earned 3.6 times Economic order quantity 72,000 units Optimal initial cash balance P 100,000 Cost of equity under dividend growth model 12.58 What is DMZ/s profit margin? | 4, a. 2.58 % be 5.08 ane c. 7.58 Val cannot be determined from the given information 49. The greatest financial threat to an organization that implemented the financial accounting module of an enterprise resource planning (ERP) systen from a major vendor exists from errors detected during which of the following times? a. Implementation p. Project initiation ©. Table configuration 4d. Requirements determination Items 50 and 51 are based on the following information pertaining to 1,200,000 papers that were processed by Orchard Company: Total cost P 1,050, 000 Labor cost P 950,000 Labor hours 190,000 hi The following processing STANDARDS have heen set for Orch clerical workers: Number of hours per 1,000 papers processed 150 hours Normal number of papers processed per year 1,609,000 Wage rate per 1,000 papers P 750 variable cost of processing 1,600,000 papers P11, 280, 096 Fixed costs per year P' 200,000 s4 80, Orchard Company's expected total cost to process 1,200,090 papers, assuming standard performance, is a, P 1,480,000 B. P 1,280,000 © P 1,160,000 ‘ad. P 1,100,000 0, (Si )orchard Company!s direct labor variance is eran 50,000 unfavorable aha 7HEPD WS. P 40,000 unfavorable ©. P 10,000 unfavorable a. PO Activity-based costing (ABC) ‘a. Is typically applied to manufacturing prime costs b. Uses multiple cost drivers for a single cost pool , May be applied to selling overhead costs ‘4. Is not compatible with standard costingee pT 2014 ':00 AM to 10:00 AM Page 10 G 42-xwala comporation provides the following information: Pretax operating profit P 300,000,000 Tax rate 408 Capital used (508 debt, 508 equity) —P 1,200,000,000 Cost of equit - 158 Gost of abt ((wost—tax 3 Determine Kuala’s year-end economic value-added amount. a. PO BP -60,000,000 c. P 120,000,000 ‘ oe a. P 180,000,000 A g Gh, the dequee oii tinanetal lewnrage iv Ides’ ansoclaved with a. Interest payments“ b. Common dividend payments c. Preferred dividend payments d. Earnings before interest and taxes . k A%.Given the following information: Current ratio: 2.0 Acid-test ratio: 1.5 Total liabilities: P 2,000,000 (75% non-current) Costs of goods sold: P 1,000,000 Assuming a 360-day year, what is the inventory conversion period? 90 days s dice b. 120 days Ge 5 ‘ ai. c. 150 days : ey, eo 4) a. 180 days : HE Ee qo Re B. 86. The least-square technique of segregating variable and fixed costs a. Is less objective than the scatter diagram method + we Considers the sums of observed costs and activities c. Utilizes the highest and lowest points of activities « d. Cannot be applied to a set of data point where one is considered as an outlier Blla vendor offered Pat Pong Company P 25,000 compensation for losses Le eninee from faulty raw materials. Alternatively, a lawyer offered to represent Pat Pong in a lawsuit against the vendor for a P 12,000 retainer and 508 of any award over’ P 35,000. Possible court awards with their associated probabilities are: Award Probability P 75,000 608 PO 408 Compared to accepting the vendor’s offer, the expected value for pat Pong to litigate the matter to verdict provides a x. P 4,000 loss b. P 18,200 gain ¢. P 21,000 gain d. P 38,000 gain A pA. A company decided to replace an old machine with a new one as part of its rehabilitation plan. In evaluating this capital investment, which of the following is generally considered relevant in determining the Anitial cost of investment for decision making purposes? a. Salvage value of the old machine b. Salvage value of the new machine €. Purchase price of the new machine @. Additional working capital required to support the new machineMANAGEMENT SERVICES mre senices Cote bias aint (ay 2014 acy Page 11 & 59. Bangkok has made changes in its inventory handling policies that are D ql expected to increase turnover from 7 to 8 times per year. Bangkok's budgeted sales and costs of sales for the next year are P 42,000,000 and P 28,000,000, respectively. At a 6% interest rate, what are Bangkok's expected savings from the lower inventory level? a. P 15,000 ay 28e00 . P 30,000 Thi, # iapemen cP 45,000 Inety . Ing d. P 60,000 goon 8 MY b. Actual price of materials purchased ~ conse? Me” ¢, Stendacd price of materials purchased Saxs 4 Standard quantity of materials allowed for actual production Items 65 to 70 are based on the following information ASIA Company Income Statement For the Month ended April 30, 2014 sales (P 10 per unit) Festbu P 900,000 Less: Variable Costs: Variable Cost of Goods Sold: Beginning Inventory P 125,000 Variable Cost of Goods Manufactured __ 400,000 Goods available for Sale 525,000 Less: Ending Inventory _(75,000) Variable Cost of Goods Sold P 450,000, Variable Selling Expense 30. Contribution Margin Less: Fixed Costs: Manufacturing P 240,000 Selling and Administrative 90,000 (330,000) Profit B.30.000 Duing ASet1 2014) 80/000 tits wore namfictuéed, and average capital ce 2,000,000 Hai Mndanteds © Wacisole nvoduction costs nets xentined Sepriaie Sh 2 par uhig BEniy Over the DoaG eevaral months (17c5: me format of incone statenent. indicates that the company is using 3. pul costing @ Direct costing . GAAP costing d. Absorption costing z Aho. ner absorption costing, what is the peso value of the company's davancory on april 39? a8 126, 000 c. P 75,000 BP 30,000 a. 0,000 | Ay. under absorption costing, what is Asia’s profit or loss for the month ended April 302 & Nil amount c. P 30,000 loss ‘b. P 30,000 profit d. P 60,000 profit By 7& uncer variable costing, what would be Asia Company’s total costs at the break-even point? a. P 900,000 ce. P 495,000 BP 825,000 d.- P 412,500 69.Under variable costing, what amount of peso sales is necessary to achieve a Return on Investment (RoI) of 15%? f- P 1,200,000 ¢. P 1,000,000 3 b. P 1,100,000 d. P 950,000 (. 10.1£ sates grow by 4% next month, by how many percent ‘is the Asia’s profit expected to increase? = tue att 48 Paar L488 MS Fa" kn BE bs 128 Some other percentage - END of EXAMINATION - sin