Accountancy Review Center (ARC)

of the Philippines Inc.

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MOCKBOARD EXAMINATION

MANAGEMENT ADVISORY SERVICES BOBADILLA/BULADACO

MOCKBOARD UNIVERSITY OF CEBU

INSTRUCTIONS: Select the best answer for each of the following questions.

1. The primary purpose of management advisory services is

a. To conduct special studies, preparation of recommendations, development of plans and programs,
and provision of advice and assistance in their implementation.
b. To provide services or to fulfill some social need.
c. To improve the client’s use of its capabilities and resources to achieve the objectives of the
organization.
d. To earn the best rate of return on resources entrusted to its care with safety of investment being
taken into account and consistent with the firm’s social and legal responsibilities.

2. A regression equation
a. Estimates the dependent variable
b. Encompasses factors outside the relevant range
c. Is based on objective and constraint functions
d. Estimates the independent variable

3. In regression analysis, which of the following correlation coefficients represents the strongest direct
relationship between the independent and dependent variables?
a. 1.03
b. -0.02
c. -0.89
d. 0.75

4. Corrigon Industries is preparing a bid for a special project requiring the production of 35,000 units. The
engineering personnel have advised that the units can be produced in groups with the first group
consisting of 1,000 units. A review of prior experience indicates that the direct labor time needed per
unit will be progressively smaller a constant percentage rate as experience is gained in the production
process. The quantitative method that would best estimate Corrigon’s total cost for the project is
e. Linear programming
f. Dynamic programming
g. Learning curve analysis
h. Time series analysis

5. If a change is made in one parameter of CVP analysis, it is an example of:

a. Incremental analysis c. Operating leverage
b. sensitivity analysis d. multiple cost drivers

6. In a company with low operating leverage:

a. fixed costs are high and variable costs are low
b. large changes in sales volume result in small changes in net income
c. there is a higher possibility of net loss than a higher-leveraged firm
d. less risk is assumed than in a highly leveraged firm

7. If a company would like to increase its degree of operating leverage it should:

a. increase its inventories relative to its receivables
b. increase its receivables relative to its inventories
c. increase its variable costs relative to its fixed costs
d. increase its fixed costs relative to its variable costs
8. If the unit level of inventory increases during an accounting period, then:
a. less operating income will be reported under absorption costing than variable costing
b. more operating income will be reported under absorption costing than variable costing
c. operating income will be the same under absorption costing and variable costing
d. the exact effect on operating income cannot be determined

9. An unfavorable production-volume variance occurs when:

a. production exceeds the denominator level c. production exceeds unit sales
b. the denominator level exceeds production d. unit sales exceed production

10. Market-based transfer prices are best for

a. the company when the selling division is operating below capacity.
b. the company when the selling division is operating at capacity.
c. the buying division if it is operating at capacity.
d. the buying division.

11. Which perspective links the critical success factors of the other perspectives and ensures an environment
that supports and allows the objectives of the other perspectives to be achieved?
a. Financial perspective
b. Learning and growth perspective
c. Internal business perspective
d. Customer perspective

12. Which of the following situations is most likely to pose a problem for companies that use return on
investment (ROI) as a measure of a manager's performance?
a. Managers may be encouraged to purchase more operating assets than they otherwise should.
b. Managers may be discouraged from purchasing operating assets that could improve overall
profitability.
c. Managers may be discouraged from reducing their division's costs.
d. Managers may be discouraged from paying off debt in order to reduce interest costs.

13. Adriano Company uses a standard cost system. The following budget, at normal capacity, and the actual
results are summarized for the month of May:
Direct labor hours 24,000
Variable factory overhead P 48,000
Fixed factory overhead P108,000
Total factory overhead per DLH P 6.50

Actual data for May were as follows:

Direct labor hours worked 22,000
Total factory overhead P147,000
Standard DLHs allowed for capacity attained 21,000

Using the two-way analysis of overhead variance, what is the controllable variance for May?
a. P 3,000 Favorable c. P 9,000 Favorable
b. P 3,000 Unfavorable d. P 9,000 Unfavorable

14. ABC Company is preparing a flexible budget for 2021 and the following maximum capacity estimates for
the manufacturing division are available:
Direct labor hours 60,000 hours
Variable factory overhead P600,000
Fixed manufacturing overhead P300,000

Assume that ABC’s expected capacity is 80% of maximum capacity. What would be the total factory
overhead rate, based on direct labor hours, in a flexible budget at expected capacity?
a. P18.75 c. P16.25
b. P14.25 d. P15.00

15. Firms with a high degree of operating leverage:

a. will have a more significant shift in income as sales volume changes
b. have lower fixed costs
c. have low contribution margin ratios
d. are less dependent on volume to add profits
16. Which of the following technologies would an organization use to prevent access to its private
network?
a. Digital signature
b. Firewall
c. Web assurance service
d. Encryption

17. Which of the following systems is one where the transactions are posted and the master and open files
are updated, immediately?
a. Microcomputer system
b. Mainframe computer system
c. Batch system
d. Real-time system

18. The basic difference between a master budget and a flexible budget is that a
a. Flexible budget considers only variable costs but a master budget considers all costs.
b. Flexible budget allows management latitude in meeting goals whereas a master budget is based on a
fixed standard.
c. Master budget is for an entire production facility but a flexible budget is applicable to single
department only.
d. Master budget is based on one specific level of production and a flexible budget
can be prepared for any production level within a relevant range

19. The fixed overhead application rate is a function of a predetermined “normal” activity level. If standard
hours allowed for good output equal this predetermined activity level for a given period, the volume
variance will be
a. Zero
b. Favorable
c. Unfavorable
d. Either favorable or unfavorable, depending on the budgeted overhead

20. To measure controllable production inefficiencies, which of the following is the best basis for a company
to use in establishing the standard hours allowed for the output of one unit of product?
a. Average historical performance for the last several years.
b. Engineering estimates based on ideal performance.
c. Engineering estimates based on attainable performance.
d. The hours per unit that would be required for the present workforce to satisfy expected demand over
the long run.

21. Last year, Brown Manufacturing had a contribution margin ratio of 40%. This year, fixed expenses are
expected to remain at P50,000 and sales are expected to increase by P90,000. What should the
contribution margin ratio be this year if the company wishes to increase net income by P31,500?
a. 78.75% c. 35.00%
b. 40.00% d. 55.56%

22. A company's manager estimates that in the upcoming year, decreasing advertising costs by P35,000 will
cause sales revenue to decrease by P80,000. If the company's contribution margin ratio is 40%, what will
be overall effect on net income?
a. Net income will increase by P3,000.
b. Net income will decrease by P3,000.
c. Net income will increase by P18,000.
d. Net income will decrease by P18,000.

23. A review of Mentor Corporation's accounting records found that during the month of January where at a
volume of 30,000 units, the variable and fixed cost per unit amounted to P8 and P4, respectively. The
amount of fixed overhead is expected to be constant every month. On the basis of this information, what
amount of total annual cost would Mentor anticipate at a volume of 375,000 units?
a. P4,440,000 c. P3,120,000
b. P4,500,000 d. P4,380,000

24. Canyon Company reported P106,000 of net income for the year by using variable costing. The company
had no beginning inventory, planned and actual production of 50,000 units, and sales of 47,000 units.
Standard variable manufacturing costs were P15 per unit, and total budgeted fixed manufacturing
overhead was P150,000.
If there were no variances, how much should be the net income under absorption costing?
a. P151,000 c. P 97,000
b. P115,000 d. P160,000
25. Molder Company manufactures and sells three products: Good, Bad, and Ugly. Annual fixed costs are
P3,315,000, and data about the three products follow.

Good Bad Ugly

Sales mix in units 30% 50% 20%
Selling price P250 P350 P500
Variable cost 100 150 250

What is the composite break-even volume?

a. 17,000 c. 2,139
b. 1,700 d. 9,471

26. The Big & Sturdy Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted
cost and revenue data for the "Snooper" are given below, based on sales of 40,000 units.

Sales P1,600,000
Less: Cost of goods sold 1,120,000
Gross margin P 480,000
Less: Operating expenses 100,000
Net income P 380,000

Cost of goods sold consists of P800,000 of variable costs and P320,000 of fixed costs. Operating
expenses consist of P40,000 of variable costs and P60,000 of fixed costs.

What is the margin of safety ratio based on the sale of 40,000 units?
a. 100.00% c. 60.00%
b. 50.00% d. 150.00%

27. A digitized music tuner has been a staple in Smooth Sounds' product line for several years. Annual fixed
costs of production and administration related to this product in the past have been P643,500. Variable
costs of production and sales have been P17 per unit. The selling price in the past has been P28 per unit.
For the year just ended, the company sold 100,000 units. In the coming year, based on the appearance of
competing products on the market, the company expects a decrease of 10 percent in unit sales.

Assuming that the company wants a profit before tax of P405,000, what is the required selling price if it
expects to sell 90,000 units?
a. P28.65
b. P27.95
c. P25.60
d. P30.80

28. If a company's flexible budget formula is P9.50 per unit plus P67,900, what would be the total budget for
evaluating operating performance if 23,850 units were sold and 28,460 units were produced?
a. P294,475
b. P338,270
c. P309,335
d. P226,575

29. Heckman, Inc., has computed direct labor standards for the manufacture of its product to be 4 hours of
labor per unit at a cost of P150 per hour. During March, Heckman produced 45 units in 190 hours and
incurred direct labor costs of P27,200. Heckman's direct labor efficiency variance was
a. P200 (U).
b. P1,300 (U).
c. P1,500 (U).
d. P1,300 (F).

30. Sweet Dreams manufactures candy. Its records revealed the following data:

Number of units produced 4,000

Standard direct labor hours per unit 2
Standard variable overhead rate P2.50 per hour
Standard fixed overhead rate P5.00 per hour
Budgeted fixed overhead costs P40,800
Actual variable overhead costs P16,800
Actual fixed overhead costs P40,400
Actual labor hours 8,200 direct labor
hours
 The total overhead variance is
a. P800 (F).
b. P800 (U).
c. P2,800 (F).
d. P300 (F).

31. Alma Company budgeted that factory overhead for 2020 and 2021 would be P60,000 for each year. The
predicted and actual activity for 2020 and 2021 were 30,000 and 20,000 direct labor hours, respectively.
2014 2015
Sales in units 25,000 25,000
Selling price per unit P10 P10
Direct materials and direct labor per unit P5 P5

The actual factory overhead cost for the end of 2020 and 2021 was P60,000. Assume that it takes one
direct labor hour to make one finished unit.

When the annual estimated factory overhead rate is used, the gross profits for 2020 and 2021,
respectively, are
a. P75,000 and P75,000 c. P75,000 and P55,000
b. P125,000 and P125,000 d. P75,000 and P50,000

32. Lego Company is preparing a flexible budget for 2021 and the following maximum capacity estimates for
the manufacturing division are available:

Direct labor hours 60,000 hours

Variable factory overhead P600,000
Fixed manufacturing overhead P300,000
Assume that Lego’s expected capacity is 80% of maximum capacity. What would be the total factory
overhead rate, based on direct labor hours, in a flexible budget at expected capacity?
a. P18.75 c. P16.25
b. P14.25 d. P15.00

33. Demure Company has the opportunity to increase its annual sales by P125,000 by selling to a new, riskier
group of customers. The uncollectible expense is expected to be 10%, and collection costs will be 10%.
The company’s manufacturing and selling expenses are 70% of sales, and its effective tax rate is 40%. If
Demure were to accept this opportunity, the company’s after tax profits would increase by
a. P 7,500 c. P12,500
b. P 6,000 d. P15,000

34. Orion, Inc. had the following economic data for 2021:
Net sales P400,000
Contribution margin 160,000
Margin of safety 40,000

What is Orion’s breakeven point in 2021?

a. P360,000 c. P288,000
b. P320,000 d. P 80,000

35. TUV Company purchased 340,000 pounds of material at a cost of P510,000. The materials price variance
was unfavorable by P34,000. During the year, 300,000 pounds of this material was requisitioned for
production. The materials quantity variance was unfavorable by P11,200. The standard cost of materials
that should have been used in production was
a. P430,200 c. P555,200
b. P551,500 d. P408,800

36. Somerset Corporation is composed of five divisions, and each division is allocated a share of Somerset
overhead to make divisional managers aware of the cost of running the corporate headquarters. The
following information relates to the Metro Division:
Sales P7,500,000
Variable operating costs 5,100,000
Traceable fixed operating costs 1,900,000
Allocated corporate overhead 300,000
 If the Metro Division is closed, 100% of the traceable fixed operating costs can be eliminated. What will
be the impact on Somerset's overall profitability if the Metro Division is closed?
a. Decrease by P200,000
b. Decrease by P500,000
c. Decrease by P2,100,000
d. Decrease by P2,400,000

37. A technique that is useful in exploring what would happen if a key decision prediction or assumption
proved wrong is termed:
a. sensitivity analysis
b. uncertainty analysis
c. project analysis
d. linear programming

38. Effective planning of variable overhead includes all of the following EXCEPT:
a. choosing the appropriate level of capacity
b. eliminating nonvalue-adding costs
c. redesigning products to use fewer resources
d. redesigning the plant layout for more efficient processing

39. During September, 40,000 units were produced. The standard quantity of material allowed per unit was
5 pounds at a standard cost of P2.50 per pound. If there was a favorable usage variance of P25,000 for
September, the actual quantity of materials used must have been
a. 210,000 pounds.
b. 190,000 pounds.
c. 105,000 pounds.
d. 95,000 pounds.

40. A static budget is best used to

a. measure whether or not a manager accomplishes his or her goals.
b. compare expected costs at the actual level of activity with the actual costs.
c. assess how well costs were controlled during the year.
d. determine managerial efficiency.

41. A decrease in the price of a complementary good will

a. Shift the demand curve of the joint commodity to the left.
b. Increase the price paid for a substitute good.
c. Shift the supply curve of the joint commodity to the left
d. Shift the demand curve of the joint commodity to the right.

42. Economic markets that are characterized by monopolistic competition have all of the following
characteristics except
a. One seller of the product.
b. Economies or diseconomies of scale.
c. Advertising.
d. Heterogeneous products.

43. The term "management by exception" is best defined as:

a. choosing exceptional managers
b. controlling actions of subordinates through acceptance of management techniques
c. investigating unfavorable variances
d. devoting management time to investigate significant variances

44. Rafa Company produces two products, Tennis Balls and Racquet. Tennis balls accounts for 60% percent
of total peso sales; variable cost as a percentage of selling price are 50% for Tennis balls and 40% for
Racquet. Total fixed costs last year were P6,240,000.
If the selling price, sales mix and variable cost ratios will remain unchanged but the amount of fixed costs
will increase by 20 percent in the coming year, what amount of peso sales, rounded to the nearest
thousands, would be necessary to generate a 15 percent return on sales?
a. P16,000,000
b. P13,595,000
c. P11,556,000
d. P13,289,000
45. Darf Company applies overhead on the basis of direct labor hours. Two direct labor hours are required
for each product unit. Planned production for the period was set at 9,000 units. Manufacturing overhead
is budgeted at P135,000 for the period, of which 20% of this cost is fixed. The 17,200 hours worked
during the period resulted in production of 8,500 units. Variable manufacturing overhead cost incurred
was P108,500 and fixed manufacturing overhead cost was P28,000. Darf Company uses variable costing
and a more detailed variance approach for analyzing manufacturing overhead.
The fixed overhead volume variance for the period is
a. P750 unfavorable c. P1,500 unfavorable
b. P2,500 unfavorable d. P0

46. A market with many independent firms, low barriers to entry, and product differentiation is best
classified as
a. a monopoly
b. a natural monopoly
c. Monopolistic competition
d. an oligopoly

47. Solar Co.’s year-end income statement is as follows:

Sales (20,000 units) P360,000

Variable costs 220,000
Contribution margin P140,000
Fixed costs 105,000
Net income P 35,000

Management is unhappy with the results and plans to make some changes for next year. If management
implements a new marketing program, fixed costs are expected to increase by P19,200 and variable costs
to increase by P1 per unit. Unit sales are expected to increase by 15 percent. What is the effect on
income if the foregoing changes are implemented?
a. decrease of P21,200
b. increase of P13,800
c. increase of P 1,800
d. increase of P14,800

48. Because of the existence of economies of scale, business firms may find that
a. Each additional unit of labor is less efficient than the previous unit.
b. As more labor is added to a factory, increases in output will diminish in the short run.
c. Increasing the size of a factory will result in lower average costs.
d. Increasing the size of a factory will result in lower total costs.

49. Historical costs are helpful:

a. for making future predictions
b. for decision making
c. because they are quantitative
d. None of these answers is correct.

50. Simple regression differs from multiple regression in that:

a. multiple regression uses all available data to estimate the cost function, whereas simple regression
only uses simple data
b. simple regression is limited to the use of only the dependent variables and multiple regression can
use both dependent and independent variables
c. simple regression uses only one independent variable and multiple regression uses more than one
independent variable
d. simple regression uses only one dependent variable and multiple regression uses more than one
dependent variable

51. For Carroll Company, labor-hours are 12,500 and wages P47,000 at the high point of the relevant range,
and labor-hours are 7,500 and wages P35,000 at the low point of the relevant range.
What is the slope coefficient per labor-hour?
a. P4.67 c. P2.40
b. P3.76 d. P0.42
52. Roberts, which began business at the start of the current year, had the following data:

Planned and actual production: 40,000 units

Sales: 37,000 units at P15 per unit
Production costs:
Variable: P4 per unit
Fixed: P260,000
Selling and administrative costs:
Variable: P1 per unit
Fixed: P32,000

The gross margin that the company would disclose on an absorption-costing income statement is:
a. P97,500 c. P147,000
b. P166,500 d. P370,000

53. Chicago began business at the start of the current year. The company planned to produce 25,000 units,
and actual production conformed to expectations. Sales totaled 22,000 units at P30 each. Costs incurred
were:

Fixed OH P150,000
Fixed selling & adm cost 100,000
Variable OH per unit 8
Variable selling & adm cost per unit 2

If there were no variances, the company's absorption-costing net income would be:
a. P190,000 c. P208,000
b. P202,000 d. P220,000

54. When using a balanced scorecard, a company's market share is typically classified as an element of the
firm's:
a. financial performance measures.
b. customer performance measures.
c. learning and growth performance measures.
d. internal-operations performance measures.

55. Decentralized firms can delegate authority by structuring an organization into responsibility centers.
Which of the following organizational segments is most like a totally independent, standalone business
where managers are expected to "make it on their own"?
a. Cost center.
b. Revenue center.
c. Profit center.
d. Investment center.

56. Controllable costs, as used in a responsibility accounting system, consist of:

a. only fixed costs.
b. only direct materials and direct labor.
c. those costs that a manager can influence in the time period under review.
d. those costs about which a manager has some knowledge.

57. The following data relate to Department no. 2 of Adams Corporation:

Segment contribution margin P540,000

Profit margin controllable by segment 320,000
manager
Segment profit margin 60,000

On the basis of this information, fixed costs traceable to Department no. 2 but controllable by others are:
a. P160,000 c. P260,000
b. P220,000 d. P480,000

58. Cook Co.’s total costs of operating five sales offices last year were P500,000, of which P70,000
represented fixed costs. Cook has determined that total costs are significantly influenced by the number
of sales offices operated. Last year’s costs and number of sales offices can be used as the bases for
predicting annual costs. What would be the budgeted cost for the coming year if Cook were to operate
seven sales offices?
a. P700,000 c. P672,000
b. P602,000 d. P586,000
Use the following for number 59 & 60
Ramona Company reported the following units of production and sales for June and July:

Units
Month Produced Sold
June 100,000 90,000
July 100,000 105,000

Income under absorption costing for June was P40,000; income under variable costing for July was P50,000.
Fixed costs were P600,000 for each month.

59. How much was income for July using absorption costing?
a. P50,000
b. P20,000
c. P80,000
d. P40,000

60. How much was income for June using variable costing?
a. P40,000
b. P20,000
c. P(40,000)
d. P(20,000)

61. During June, Cisco Company produced 12,000 chainsaw blades. The standard quantity of material
allowed per unit was 1.5 pounds of steel per blade at a standard cost of P8 per pound. Cisco determined
that it had a favorable materials usage variance of P1,000 for June. Calculate the actual quantity of
materials Cisco used.
a. 17,875 pounds
b. 12,125 pounds
c. 11,875 pounds
d. 18,125 pounds

62. Which of the following is NOT true of the balanced scorecard?

a. Different strategies call for different scorecards.
b. Successful implementation requires commitment and leadership from top management.
c. Only objective measures should be used and subjective measures should be avoided.
d. Cause-and-effect linkages may not be precise and should evolve over time.

63. Stewart Corporation plans to grow by offering a sound system, the SS3000, that is superior and unique
from the competition. Stewart believes that putting additional resources into R&D and staying ahead of
the competition with technological innovations is critical to implementing its strategy.
Stewart’s strategy is:
a. product differentiation
b. downsizing
c. reengineering
d. cost leadership

Question Nos. 64 through 66 are based on the following:

Underfoot Products uses standard costing. The following information about overhead was generated during
May:

Standard variable overhead rate P2 per machine hour

Standard fixed overhead rate P1 per machine hour
Actual variable overhead costs P381,000
Actual fixed overhead costs P175,000
Budgeted fixed overhead costs P190,000
Standard machine hours per unit produced 10
Good units produced 18,000
Actual machine hours 200,000

64. Compute the variable overhead spending variance.

a. P19,000 (F)
b. P19,000 (U)
c. P39,000 (F)
d. P49,000 (F)
65. Compute the fixed overhead budget variance.
a. P5,000 (F)
b. P5,000 (U)
c. P10,000 (F)
d. P15,000 (F)

66. Compute the fixed overhead volume variance.

a. P5,000 (U)
b. P10,000 (U)
c. P10,000 (F)
d. P15,000 (F)

Question No. 67 and 68 are based on the following information:

Point Company uses the standard costing method. The company's main product is a fine-quality audio
speaker that normally takes 0.25 hour to produce. Normal annual capacity is 3,000 direct labor hours,
and budgeted fixed overhead costs for the year were P675,000. During the year, the company produced
and sold 8,000 units. Actual fixed overhead costs were P480,000.

67. Compute the fixed overhead budget variance.

a. P300,000 (F)
b. P300,000 (U)
c. P195,000 (F)
d. P195,000 (U)

68. What is the fixed overhead volume variance?

a. P300,000 (F)
b. P300,000 (U)
c. P195,000 (U)
d. P225,000 (U)

Use the following Information for questions 69 - 70.

A local church wants to rent a hall for P3,000 a day to hold a Bingo fundraiser. Every session of bingo requires
a caller for P200. There are supplies that are needed that cost P3 per person playing bingo. On average each
bingo player spends P20 and 1,000 people attend each session. P10,000 in prizes are awarded each session

69. Total costs for 1 session can be classified as:

Fixed Costs Variable Costs
a. P13,200 P 3
b. P 3,000 P13,200
c. P13,200 P 3,000
d. P10,000 P 3,200

70. The church conducts 1 Bingo session per month. Over the course of the year, which cost would not act as
a variable cost based on just holding one more session?
a. Hall Rental
b. Cost of Supplies
c. Caller Salary
d. Prize Money