Professional Documents
Culture Documents
PART I (THEORIES)
6. To maximize total contribution margin, a firm faced with a production constraint should:
a. promote those products having the highest unit contribution margins.
b. promote those products having the highest contribution margin ratios.
c. promote those products having the highest contribution margin per unit of constrained resource.
d. promote those products have the highest contribution margins and contribution margin ratios.
9. The working capital financing policy that subjects the firm to the greatest risk of being unable to meet the firm’s
maturing obligations is the policy that finances:
a. Fluctuating current assets with long-term debt.
b. Permanent current assets with long-term debt.
c. Permanent current assets with short-term debt.
d. Fluctuating current assets with short-term debt.
11. All of the following statements in regard to working capital are correct except:
a. Current liabilities are an important source of financing for many small firms.
b. Profitability varies inversely wit liquidity.
c. The hedging approach to financing involves matching maturities of debt with specific financing needs.
d. Financing permanent inventory buildup with long-term debt is an example of an aggressive working
capital policy.
12. An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to
a. decrease
b. remain the same
c. either increase or decrease
d. increase
14. The particular analytical measures chosen to analyze a company may be influenced by all but one of the
following. Which one?
a. industry type
b. capital structure
c. diversity of business operations
d. product quality or service effectiveness
15. The Wyeth Company produces three products, A, B, and C, from a single raw material input. Product A can be
sold at the split-off point for ₱40,000, or it can be processed further at a total cost of ₱15,000 and then sold for
₱58,000. Joint product costs total ₱60,000 annually. Product A should be:
a. discontinued since revenues after further processing are less than total joint product costs.
b. sold at the split-off point.
c. processed further and then sold.
d. processed further only if its share of the total joint product costs is less than the incremental revenues from
further processing.
16. The third step in financial statement analysis is to assess the quality of the firm’s financial statements. Which of
the following is a question an analyst should ask when performing this step?
a. Are industry sales growing rapidly or slowly?
b. Do earnings include revenues that appear mismatched with the business model employed by the firm?
c. Does the industry include a large number of firms selling similar products?
d. What is the company’s degree of geographical diversification?
24. When used for performance evaluation, periodic internal reports based on a responsibility accounting system
should not
a. be related to the organization chart
b. include allocated fixed overhead
c. include variances between actual and budgeted controllable costs
d. distinguish between controllable and noncontrollable costs
27. A typical firm doing business nationally cannot expect to accelerate its cash inflow by
a. Establishing multiple collection centers throughout the country.
b. Employing a lockbox arrangement.
c. Initiating controls to accelerate the deposit and collection of large checks.
d. Maintaining compensating balances rather than paying cash for bank services.
28. An increase in sales resulting from an increased cash discount for prompt payment would be expected to cause
a. An increase in the operating cycle.
b. An increase in the average collection period.
c. A decrease in the cash conversion cycle.
d. A decrease in purchase discounts taken.
29. Cost-volume-profit analysis is a technique available to management to understand better the interrelationships
of several factors that affect a firm's profit. As with many such techniques, the accountant oversimplifies the real
world by making assumptions. Which of the following is not a major assumption underlying CVP analysis?
a. All costs incurred by a firm can be separated into their fixed and variable components.
b. The product selling price per unit is constant at all volume levels.
c. Operating efficiency and employee productivity are constant at all volume levels.
d. For multi-product situations, the sales mix can vary at all volume levels.
30. The variable costing method ordinarily includes in product costs the following:
a. Direct materials cost, direct labor cost, but no manufacturing overhead cost.
b. Direct materials cost, direct labor cost, and variable manufacturing overhead cost.
c. Prime cost but not conversion cost.
d. Prime cost and all conversion cost.
31. For most profitable companies, the rate earned on stockholders' equity will be less than
a. the rate earned on total assets
b. the rate earned on total liabilities and stockholders' equity
c. the rate earned on sales
d. the rate earned on common stockholders' equity
32. If a firm has a high current ratio but a low acid-test ratio, one can conclude that:
a. a. the firm has a large outstanding accounts receivable balance.
b. the firm has a large investment in inventory.
c. the firm has a large amount of current liabilities.
d. the firm's financial leverage is very high.
34. Determining the appropriate level of working capital for a firm requires:
a. Evaluating the risks associated with various levels of fixed assets and the types of debt used to finance these
assets.
b. Changing the capital structure and dividend policy for the firm.
c. Maintaining short-term debt at the lowest possible level because it is ordinarily more expensive than long-
term debt.
d. Offsetting the profitability of current assets and current liabilities against the probability of technical
insolvency.
35. A company with ₱60,000 in current assets and ₱40,000 in current liabilities pays a ₱1,000 current liability. As a
result of this transaction, the current ratio and working capital will
a. both decrease.
b. both increase.
c. increase and remain the same, respectively.
d. remain the same and decrease, respectively
37. Considered alone, which of the following would increase a company's current ratio?
a. An increase in accounts payable.
b. An increase in net fixed assets.
c. An increase in notes payable.
d. An increase in accounts receivable.
38. A firm wants to strengthen its financial position. Which of the following actions would increase its quick ratio?
a. Issue new common stock and use the proceeds to acquire additional fixed assets.
b. Offer price reductions along with generous credit terms that would (1) enable the firm to sell some of its
excess inventory and (2) lead to an increase in accounts receivable.
c. Speed up the collection of receivables and use the cash generated to increase inventories.
d. Use some of its cash to purchase additional inventories.
39. A manufacturing firm wants to obtain a short-term loan and has approached several lending institutions. All of
the potential lenders are offering the same nominal interest rate, but the terms of the loans vary. Which of the
following combinations of loan terms will be most attractive for the borrowing firm?
a. Simple interest, no compensating balance.
b. Discount interest, no compensating balance.
c. Simple interest, 20% compensating balance required.
d. Discount interest, 20% compensating balance required.
40. If a firm increases its cash balance by issuing additional shares of common stock, working capital
a. Remains unchanged and the current ratio remains unchanged.
b. Increases and the current ratio remains unchanged.
c. Increases and the current ratio decreases.
d. Increases and the current ratio increases.
PART 2 (PROBLEMS):
41. Harem Corporation consists of two divisions, Mining and Builders. The Mining makes black steel, a product that
can be used in the product that the Builders division makes. Both divisions are considered profit centers. The
following data are available concerning black steel and the two divisions:
Mining Builders
Average units produced 150,000
Average units sold 150,000
Variable mfg cost per unit ₱2
Variable finishing cost per unit ₱5
Fixed divisional costs ₱75,000 ₱125,000
The Mining Division can sell all of its output outside the company for ₱4 per unit. The Builders Division can buy
the black steel from other firms for ₱4. The Builders Division sells its product for ₱12. What is the optimal
transfer price in this case?
a. ₱2 per unit
b. ₱4 per unit
c. ₱7 per unit
d. ₱9 per unit
42. The current income for a subunit is ₱36,000. Its current invested capital is ₱200,000. The subunit is considering
purchasing for ₱20,000 equipment that will increase annual income by an estimated ₱2,800. The firm's cost of
capital is 12%. If the equipment is purchased, the residual income of the subunit will
a. increase by ₱2,800
b. increase by ₱16,000
c. increase by ₱400
d. increase by 4%
43. Putnam Company manufacturers computer stands. What is the beginning balance of Finished Goods Inventory if
Cost of Goods Sold is ₱107,000; the ending balance of Finished Goods Inventory is ₱20,000; and Cost of Goods
Manufactured is ₱50,000 less than Cost of Goods Sold?
a. ₱70,000
b. ₱77,000
c. ₱157,000
d. ₱127,000
44. Harris Manufacturing incurs annual fixed costs of ₱250,000 in producing and selling a single product. Estimated
unit sales are 125,000. An after-tax income of ₱75,000 is desired by management. The company projects its
income tax rate at 40 percent. What is the maximum amount that Harris can expend for variable costs per unit
and still meet its profit objective if the sales price per unit is estimated at ₱6?
a. ₱3.37
b. ₱3.59
c. ₱3.00
d. ₱3.70
45. Franklin Company expected sales were 2,000 units at ₱100 per unit. During 2004, it had actual sales of 1,800
units at ₱110 per unit. Budgeted variable costs were ₱60 per unit. What is Franklin's sales price variance?
a. ₱8,000 (U)
b. ₱20,000 (U)
c. ₱18,000 (F)
d. ₱2,000 (U)
46. A company obtained a short-term bank loan of ₱250,000 at an annual interest rate of 6%. As a condition of the
loan, the company is required to maintain a compensating balance of ₱50,000 in its checking account. The
company's checking account earns interest at an annual rate of 2%. Ordinarily, the company maintains a balance
of ₱25,000 in its checking account for transaction purposes. What is the effective interest rate of the loan?
a. 6.44%
b. 7.00%
c. 5.80%
d. 6.66%
49. Indiana Corporation produces a single product that it sells for ₱9 per unit. During the first year of operations,
100,000 units were produced and 90,000 units were sold. Manufacturing costs and selling and administrative
expenses for the year were as follows:
What was Indiana Corporation's net income for the year using variable costing?
a. ₱181,000.
b. ₱271,000.
c. ₱281,000.
d. ₱371,000.
50. Trumbull Company budgeted sales on account of ₱120,000 for July, ₱211,000 for August, and ₱198,000 for
September. Collection experience indicates that 60% of the budgeted sales will be collected the month after the
sale, 36% will be collected the second month, and 4% will be uncollectible. The cash receipts from accounts
receivable that should be budgeted for September would be
a. ₱169,800
b. ₱147,960
c. ₱197,880
d. ₱194,760
The following questions for numbers 51, 52, & 53:
The condensed balance sheet as of December 31, 2022 of San Matias Company is given below. Figures shown by a
question mark (?) may be computed from the additional information given:
51. The balance of accounts payable of San Matias as of December 31, 2022 is
a. ₱40,000
b. ₱80,000
c. ₱95,000
d. ₱280,000
52. The balance of retained earnings of San Matias as of December 31, 2022 is
a. ₱60,000
b. ₱140,000
c. ₱200,000
d. ₱360,000
54. Great Company has ₱8,000,000 in current assets, ₱3,500,000 of which are considered permanent current assets.
In addition, the firm has ₱6,000,000 invested in fixed assets. Great Company wishes to finance all fixed assets
and permanent current assets plus half of its temporary current assets with long-term financing costing 15%.
Short-term financing currently costs 10%. Great Company’s earnings before interest and taxes are ₱2,200,000.
Income tax rate is 40%. How much would Real Company’s earnings after taxes be under this financing plan?
a. ₱112,500
b. ₱127,500
c. ₱225,000
d. ₱85,000
55. Spartan Sporting Goods has ₱5 million in inventory and ₱2 million in accounts receivable. Its average daily sales
are ₱100,000. The company’s payables deferral period (accounts payable divided by daily purchases) is 30 days.
What is the length of the company’s cash conversion cycle?
a. 100 days
b. 60 days
c. 50 days
d. 40 days
56. On an average day, a company writes checks totaling ₱1,500. These checks take 7 days to clear. The company
receives checks totaling ₱1,800. These checks take 4 days to clear. The cost of debt is 9%. What is the firm's
availability float?
a. ₱10,500
b. ₱7,200
c. ₱1,800
d. None of the above
57. Jumpdisk Company writes checks averaging ₱15,000 a day, and it takes five days for these checks to clear. The
firm also receives checks in the amount of ₱17,000 per day, but the firm loses three days while its receipts are
being deposited and cleared. What is the firm’s net float in dollars?
a. ₱126,000
b. ₱ 75,000
c. ₱ 32,000
d. ₱ 24,000
The following are the Wyeth Company's unit costs of making and selling an item at a volume of 10,000 units per month
(which represents the company's capacity):
Manufacturing:
Direct materials ............ ₱1.00
Direct labor ................ 2.00
Variable overhead ........... 0.50
Fixed overhead .............. 0.90
Selling and administrative:
Variable .................... 1.50
Fixed ....................... 0.60
Present sales amount to 9,000 units per month. An order has been received from a customer in a foreign market for
1,000 units. The order would not affect current sales. Fixed costs, both manufacturing and selling and administrative, are
constant within the relevant range between 8,000 and 10,000 units per month. The variable selling and administrative
costs would have to be incurred for this special order as well as all other sales. Assume direct labor is a variable cost.
58. How much will the company's net operating income be increased or (decreased) if it prices the 1,000 units in the
special order at ₱6 each?
a. (₱500)
b. ₱400
c. ₱2,500
d. ₱1,000
59. Assume the company has 50 units left over from last year which have small defects and which will have to be
sold at a reduced price as scrap. This would have no effect on the company's other sales. What cost is relevant
as a guide for setting a minimum price on these defective units?
a. ₱6.50
b. ₱5.00
c. ₱1.50
d. ₱3.50
60. The SP Company makes 40,000 motors to be used in the production of its sewing machines. The average cost
per motor at this level of activity is:
An outside supplier recently began producing a comparable motor that could be used in the sewing machine.
The price offered to SP Company for this motor is ₱18. If SP Company decides not to make the motors, there
would be no other use for the production facilities and total fixed factory overhead costs would not change. If SP
Company decides to continue making the motor, how much higher or lower would net income be than if the
motors are purchased from the outside suppler? Assume that direct labor is a variable cost in this company.
a. ₱276,000 higher.
b. ₱86,000 higher.
c. ₱92,000 lower.
d. ₱178,000 higher.
61. Average daily cash outflows are ₱3 million for Farms Inc. A new cash management system can add 2 days to the
disbursement schedule. Assuming Farms earns 10% on excess funds, how much should the firm be willing to
pay per year for the cash management system.
a. ₱6,000,000.
b. ₱3,000,000.
c. ₱1,500,000.
d. ₱600,000.
62. What is the benefit for a firm with daily sales of ₱15,000 to be able to reduce the collection period by 2 days,
given an 8% annual opportunity cost of funds?
a. ₱2,400 annual benefit.
b. ₱1,200 annual benefit.
c. ₱600 annual benefit.
d. ₱7,500 annual benefit.
63. Last year, Thomas Lumber Co. had a profit margin of 10 percent, total assets turnover of 0.5, and a debt ratio of
20 percent. (The company finances its assets with debt and common equity; it does not use preferred stock.)
This year, the company’s CFO wants to double ROE. She expects the total assets turnover will remain at 0.5,
while the profit margin and debt ratio will increase enough to double ROE. Assume that the profit margin is
increased to 15 percent, what debt ratio will the company need in order to double its ROE?
a. 0.30
b. 0.33
c. 0.40
d. 0.45
64. The Moss Company presents the following data for 2007.
Net Sales, 2007 ₱3,007,124
Net Sales, 2006 ₱ 930,247
Cost of Goods Sold, 2007 ₱2,000,326
Cost of Goods Sold, 2007 ₱1,000,120
Inventory, beginning of 2007 ₱ 341,169
Inventory, end of 2007 ₱ 376,526
The merchandise inventory turnover for 2007 is:
a. 5.6
b. 15.6
c. 7.5
d. 7.7
66. A firm has daily cash receipts of ₱300,000. A bank has offered to provide a lockbox service that will reduce the
collection time by 3 days. The bank requires a monthly fee of ₱2,000 for providing this service. If money market
rates are expected to average 6% during the year, the additional annual income (loss) of using the lockbox
service is
a. (₱24,000)
b. ₱12,000
c. ₱30,000
d. ₱54,000
67. Randy, Inc. can issue 3-month commercial paper with a face value of ₱1,500,000 for ₱1,450,000. Transaction
costs will be ₱1,500. The effective annualized percentage cost of the financing, based on a 360-day year, will be
a. 3.45%
b. 3.56%
c. 14.22%
d. 13.79%
68. Lombardi Trucking Company has the following data:
Assets: ₱10,000 Interest rate: 10.0%
Debt ratio: 60.0% Total assets turnover: 2.0
Profit margin: 3.0% Tax rate: 40%
What is Lombardi’s TIE ratio?
a. 0.95
b. 1.75
c. 2.10
d. 2.67
69. The Meryl Corporation’s common stock is currently selling at ₱100 per share, which represents a P/E ratio of 10.
If the firm has 100 shares of common stock outstanding, a return on equity of 20 percent, and a debt ratio of 60
percent, what is its return on total assets (ROA)?
a. 8.0%
b. 10.0%
c. 12.0%
d. 16.7%
70. Mason Company's board of directors has determined 4 options to increase working capital next year. Option 1 is
to increase current assets by ₱120 and decrease current liabilities by ₱50. Option 2 is to increase current assets
by ₱180 and increase current liabilities by ₱30. Option 3 is to decrease current assets by ₱140 and increase
current liabilities by ₱20. Option 4 is to decrease current assets by ₱100 and decrease current liabilities by ₱75.
Which option should Mason choose to maximize net working capital?
a. Option 1.
b. Option 2.
c. Option 3.
d. Option 4.