Management Advisory Services: The Review School of Accountancy

The Review School of Accountancy
FINAL PREBOARD EXAMINATION

ReSA Batch 42  October 2021 CPALE Batch
25 September 2021 8:00 AM - 11:00 AM
Management Advisory Services

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 ERASURES
ALLOWED. Use pencil no. 2 only.
Set B
1. Net investment  payback period =
D a. No meaningful amount
b. Net income after tax
c. Pre-tax net cash flows
d. Post-tax net cash flows
2. Chippy Corporation has assembled the following data pertaining to

certain costs which cannot be easily identified as either fixed or
variable. Chippy Corporation has heard about a method of measuring cost
functions called the high-low method and has decided to use it in this
situation.
Cost Hours
P 20,000 7,000
12,200 4,000
17,000 5,200
15,640 4,900
18,200 6,000
22,080 7,800
21,200 7,480
18,600 6,760
The total cost at an operating level of 2,850 hours would be

A a. P 9,210
b. P 11,212
c. P 11,763
d. P 14,697
3. Which of the following is a correct adjustment to net income in

calculating operating cash flows under the indirect method?
D a. Add back cash expenses
b. Add increases in inventory
c. Deduct increases in accounts payable
d. Deduct increases in accounts receivable
4. A firm is evaluating the relative riskiness of two capital budgeting

project:
Net Present Value
Probability Project ABC Project XYZ
0.25 -P5,000 0
0.50 4,000 P2,000
0.25 10,000 8,000
What is the difference in the expected net present value for both
projects?
A a. P 250
b. P 500
c. P 2,000
d. P 2,500
MANAGEMENT ADVISORY SERVICES
Final Preboard Examinations (Batch 42 - October 2021 CPALE Batch)
25 September 2021  8:00 AM to 11:00 AM Page 2
5. Jack & Jill, dentists, are in the process of changing their costing
system. Their system currently uses a single direct-cost pool
(professional labor) and a single indirect-cost pool (staff support).
The direct categories in the new, refined costing system include:
• Professional partner labor. Average total annual compensation of the
two partners is P 100,000 each, and each partner has 2,000 hours of
budgeted billable time.
• Dental assistant labor. Average total annual compensation of the

four assistants is P 22,500 each, and each assistant has 2,000 hours
of budgeted billable time.
• Office staff. Average total annual compensation of the two staff

members is P 15,000 each, and each has 2,000 hours of budgeted
billable time.
The indirect category in the new, refined costing system includes

professional liability insurance. The budgeted indirect amount is
P200,000, and the allocation base is budgeted professional labor hours.
The dentist and dental assistants are considered professional labor
hours.
What is the budgeted indirect-cost rate per unit of the allocation base
for the professional liability insurance?
B a. P 1.67
b. P 16.67
c. P 26.67
d. P 100.00
6. Determine the most accurate statement about Management Consultancy.

C a. A person who wants to become a consultant must first pass the
government-sponsored licensure examination given for the
purpose.
b. It is desirable but not necessary that in performing management
advisory services, a practitioner must act with integrity and
confidentiality.
c. The CPA’s competence, coupled with his familiarity with the
client’s finance and control systems, business problems, and
personnel, places him in an advantageous position to perform
management services for that client.
d. MAS engagements usually involve making decisions for the client
and assuming responsibility for the full implementation of the
alternative chose to solve the entity’s problem.
7. V-Cut Company has a total assets turnover of 0.30 and a profit margin
of 20 percent. The president is unhappy with the current return on
assets, and he thinks it could be doubled. This could be accomplished
(1) by increasing the profit margin and (2) by increasing the total
assets turnover. What new total assets turnover ratio, along with the
increased profit margin of 25 percent, is required to double the return
on assets?
C a. 36%
b. 45%
c. 48%
d. 60%
8. Which of the following balanced scorecard factors would include the

critical success factors of market share, quality, and timeliness?
D a. Internal business process
b. Learning and innovation
c. Financial
d. Customer
9. Fishda, Inc. paid a cash dividend to its common shareholders over the
past twelve months of P 2.20 per share. The current market value of the
ordinary shares is P 40 per share and investors are anticipating the
common dividend to grow at a rate of 5 percent annually. The costs to
issue new ordinary shares will be 6 percent of the market value. The
cost of a new ordinary shares issue will be
A a. 11.14%
b. 11.79%
c. 11.83%
d. 12.14%
10. A product’s unit cost doubled when production is reduced to half of its
previous level. Such unit cost is most likely a
A a. Fixed cost
b. Direct cost
c. Variable cost
d. Semi-Variable cost
11. Clover Products Company manufactures applesauce. In order to get the

perfect flavor, color and consistency, the company must mix two types
of apples, red and yellow. Clover Products Company collected the
following direct materials input standards to produce two tons of
applesauce.
Amount of red apples allowed 3.50 tons
Amount of yellow apples allowed 1.50 tons
Price per ton of red apples P 125
Price per ton of yellow apples P 100
During July, 8 tons of applesauce are produced using 18.50 tons of

apples (14 red, 4.5 yellow). All variances are related to direct
materials used. Red apples actually cost P 150 per ton and yellow apples
cost P 100 per ton.
What is the total materials price variance?

A a. P 350 unfavorable
b. P 350 favorable
c. P 25 unfavorable
d. P 0
12. Normal operating cycle – receivable collection period = _______

D a. Net credit purchases  average payable
b. Net credit sales  average receivable
c. Cost of sales  average inventory
d. 360 days  inventory turnover
13. The seller of product A has idle capacity and has no alternative use
for the excess capacity. The seller can sell each unit at P 10. Outlay
cost is P 2. What is the opportunity cost of selling internally?
A a. P 0
b. P 8
c. P 10
d. P 12
14. In macroeconomics, the most common reason why a country devalues its
currency is to
A a. Improve balance of payments
b. Curb inflation by increasing imports
c. Discourage exports without having to impose controls
d. Slow what is regarded as too rapid an accumulation of
international reserves
15. Piattos Company discloses segment financial information for its

operating segments. The following information is available for Year 1:
Operating Segments Sales Traceable Expenses

Segment A P 600,000 P 360,000
Segment B 800,000 600,000
Segment C 400,000 340,000
Total P 1,800,000 P 1,300,000
Nontraceable expenses amounting to P 300,000 are allocated based on the

ratio of a segment’s income before nontraceable expenses. The segment
profit for Operating Segment B is (approximately):
B a. P 120,000
b. P 80,000
c. P 66,668
d. P 61,538
16. Financial accounting provides a historical perspective, whereas

management accounting
A a. emphasizes the future in addition to historical reports.
b. only enables managers to make decisions.
c. emphasizes reports to shareholders.
d. emphasizes a current perspective.
17. Leslie, controller, has gathered the following information regarding

Tortillos Company.
Beginning of the year End of the year
Inventory P 6,400 P 7,600
Accounts receivable 2,140 3,060
Accounts payable 3,320 3,680
Total sales for the year were P 85,900, of which P 62,400 were credit
sales. Inventory turnover ratio for the year was 2.5 times.
The cost of goods sold for the year must have been:
B a. P 19,000
b. P 17,500
c. P 16,000
d. P 8,750
18. A project’s net present value is increased if

C a. straight-line depreciation is used.
b. the longest possible estimated life for depreciation is used.
c. the shortest possible estimated life for depreciation is used.
d. the company’s net income is negative during the life of the
project.
19. Callbee Inc. has a beta of 1.3 and is trying to calculate its cost of
equity capital. If the risk-free rate of return is 8% and the expected
return on the market is 12%, then what is the firm’s after-tax cost of
equity capital if the firm’s marginal tax rate is 40%?
B a. 15.6%
b. 13.2%
c. 10.4%
d. 7.92%
20. A company desiring to achieve dramatic improvements in customer

relationship management would most likely undertake:
D a. Kaizen.
b. Benchmarking.
c. Total quality management.
d. Business process reengineering (BPR).
21. Determine the margin of safety ratio for a company that has an operating
profit of P 15,000, an operating leverage of 4.5 times and a
contribution margin ratio of 33.75%.
B a. 4.47%
b. 22.22%
c. 77.78%
d. Cannot be determined from the given information
22. Assuming that a management accountant wants to maximize reported net

income, which of the following costing methods would show the greatest
net income when the company increases its ending inventory?
D a. Normal costing.
b. Standard costing.
c. Variable costing.
d. Absorption costing.
23. Chiz Curls Company has invested in a machine that cost P 70,000, that
has a useful life of seven years, and that has no salvage value at the
end of its useful life. The machine is being depreciated by the
straight-line method, based on its useful life. It will have a payback
period of four years. Given these data, the accounting rate of return
based on the initial investment on the machine will be
C a. 7.1%
b. 8.2%
c. 10.7%
d. 39.3%
24. Since for a given increase in risk, most managers require an increase
in return, they are said to be
C a. risk-indifferent
b. risk-seeking
c. risk-averse
d. risk-free
25. Nachos Company provided the following information:

Budgeted input 19,500 gallons
Actual input 17,900 gallons
Budgeted production 20,000 units
Actual production 19,000 units
What is the partial productivity ratio?

C a. 0.97 unit per gallon
b. 1.02 units per gallon
c. 1.06 units per gallon
d. 1.12 nits per gallon
26. “A reduction in gasoline prices caused the demand for gasoline to

increase. The lower gas prices also led to an increase in demand for
large cars, causing their prices to rise.” These statements
B a. Are essentially accurate.
b. Contain one error; the lower gasoline prices would cause an
increase in the quantity demanded of gasoline, not an increase
in demand.
c. Contain one error; the lower gasoline prices would increase
the quantity demanded for large cars, not the demand.
d. Contain two errors; the lower gasoline prices would cause the
quantity of gasoline demanded to increase (rather than the
demand to increase), and the lower gasoline price would cause
an increase in quantity demanded (rather than the demand) for
large cars.
27. Cheetos Company produces plastic microwave turntables. Sales for the
next year are expected to be 65,000 units in the first quarter, 72,000
units in the second quarter, 84,000 units in the third quarter, and
66,000 units in the fourth quarter.
Cheetos usually maintains a finished goods inventory at the end of each

quarter equal to one half of the units expected to be sold in the next
quarter. However, due to a work stoppage, the finished goods inventory
at the end of the first quarter is 8,000 units less than it should be.
How many units should Cheetos produce in the second quarter?

A a. 86,000 units
b. 78,000 units
c. 66,000 units
d. 58,000 units
28. Profit maximization as the goal of the firm is NOT ideal because
B a. profits are only accounting measures.
b. profit maximization does not consider risk.
c. cash flows are more representative of financial strength.
d. profits today are less desirable than profits earned in future years.
29. Lays Company drills residential and commercial wells. The company is
in the process of analyzing the purchase of a new drill. Information
on the proposal is provided below:
Initial investment:
Purchase price P 80,000
Shipping costs P 16,000
Operations (per year for four years):
Cash receipts P 80,000
Cash expenditures P 44,000
Disinvestment: Salvage value of drill P 8,000
Discount rate 10%
What is the net present value of the investment? (round-off factors to

three decimal places)
C a. (P 25,540)
b. P 1,496
c. P 26,120
d. P 44,000
30. A financial manager or management accountant must follow the established

policies of the organization when faced with an ethical conflict. If
these policies do not resolve the conflict, the financial manager or
management accountant should
D a. Consult the board of directors immediately
b. Communicate the problem to authorities outside the organization
c. Discuss the problem with immediate superior if he/she is
involved in the conflict
d. Contact the next higher managerial level if initial
presentation to the immediate superior does not resolve the
conflict.
31. Oishi Corporation has sold P 50 million of P 1,000 par value, 12% coupon
bonds. The bonds were sold at a discount and the corporation received
P 985 per bond. If the corporate tax rate is 40%, the after-tax cost
of these bonds for the first year is
C a. 12.18%
b. 12.00%
c. 7.31%
d. 4.87%
32. The best way analysts can calculate more accurate product costs is by
D a. using one large cost pool.
b. using two cost pools, separated for fixed and variable costs.
c. using several smaller cost pools with the same cost driver.
d. using several smaller cost pools with different cost drivers.
33. The following information pertains to Nova Corporation:

Selling price per unit P 41
Standard fixed manufacturing costs per unit P 20
Variable selling and administrative costs per unit P 4
Standard variable manufacturing costs per unit P 1
Fixed selling and administrative costs P 16,000
Units produced 10,000
Units sold 9,600
What is variable costing break-even in units?

D a. 833 units
b. 5,556 units
c. 5,838 units
d. 6,000 units
34. The following groups of ratios primarily measure risk.

C a. liquidity, activity, and profitability
b. liquidity, activity, and common stock
c. liquidity, activity, and debt
d. activity, debt, and profitability
35. Mr. Chips, Inc. has developed a new production process to manufacture
its product. The new process is complex and requires a high degree of
technical skill. However, management believes there is a good
opportunity for the employees to improve as they become more familiar
with the production process. The production of the first unit requires
100 direct labor hours. If a 70% learning curve is used, using the
cumulative average time model, the cumulative direct labor hours
required to produce a total eight units would be:
B a. 196 hours.
b. 274 hours.
c. 392 hours.
d. 560 hours.
36. The flexible-budget variance measures

D a. what the costs and revenues should have been for the budgeted
number of outputs.
b. the difference between budgeted expenditures and actual
expenditures for the budgeted number of outputs.
c. The difference between budgeted and actual variable costs.
d. The difference between expected expenditures for the actual
number of outputs and the actual expenditures for the actual
number of outputs.
37. Granny G. is a manager with Kornetz Company. Granny G. receives a bonus

based on beating the budget for the coming year, Granny G. believes
revenues will be P 250,000 and expenses will be P 140,000. To build a
budgetary slack, Granny G. will most likely budget for which of the
following?
C a. P 260,000 of revenue
b. P 130,000 of expenses
c. P 150,000 of expenses
d. P 120,000 of income
38. Determine the least accurate statement about a feasibility study.

D a. A feasibility study is an analysis that considers all of a
project's relevant factors — including economic, technical,
legal, financial, and scheduling considerations — to ascertain
the likelihood of completing the project successfully.
b. A feasibility study is designed to answer whether or not a
proposed project or idea should go forward by determining
whether the project or plan is practical and doable.
c. A feasibility study should include the level of resources and
technology needed and the return on investment from the
project.
d. A good feasibility study need not include a contingency plan
that would serve as a viable alternative in case the original
plan fails.
39. Peewee Machine Shop used 15,000 machine hours during January. It takes
0.90 machine-hours to produce one unit; 15,000 units were produced
during the month. Budgeted production included 12,000 units, using
10,800 machine hours. Budgeted variable manufacturing overhead costs
per output unit is P 22.50.
What is the variable overhead efficiency variance for Peewee?

D a. P 16,875 favorable
b. P 16,875 unfavorable
c. P 37,500 favorable
d. P 37,500 unfavorable
40. Which one of the following situations would prompt a firm to issue
debt, as opposed to equity, the next time it needs external capital?
B a. High breakeven point
b. High effective tax rate
c. Low fixed-charge coverage
d. Significant percentage of assets under capital lease
41. Sweet Corn collected the following information:

Cost to buy one unit: P 48
Production costs per unit:
Direct materials P 22
Direct labor P 16
Variable overhead P 2
Total fixed overhead P 360,000
Sweet Corn normally needs 25,000 units per year
What production level is required for Sweet Cord to be indifferent

between making or buying the part if P 260,000 of fixed costs can be
eliminated?
A a. 32,500 units
b. 26,500 units
c. 12,500 units
d. 0 units
42. When comparing current year financial ratios to prior years, you find
that Tempura Company has an improving current ratio and a deteriorating
acid test (quick) ratio. Which of the following actions would be a
logical management action step given these results?
C a. Offer cash discounts for early payment on accounts receivable.
b. Increase budget controls so that expenses are reduced.
c. Work with suppliers on reducing inventory levels.
d. Reduce long-term debt by issuing new stock.
43. Snacku Company sells optical equipment, orders 5,200 lens per year, 100
lens per week at P 20 per lens. Snacku Company earns 30% on its cash
investments. The purchase-order lead time is 2.5 weeks. Snacku Company
sells 125 lens per week. The following data is available:
Ordering costs per purchase order P 21.25
Insurance, materials handling, breakage, per year P 2.50
What is the economic-order quantity (rounded to nearest whole lens)?

D a. 325 lens
b. 297 lens
c. 210 lens
d. 161 lens
44. The sales-volume variance is also known as the

C a. contribution variance.
b. production variance.
c. marketing variance.
d. cost variance.
45. Regent Investment Banking is working with the management of Tomi, Inc.
in order to take the company public in an initial public offering.
Selected financial information for Tomi is as follows.
Long-term debt (8% interest rate) P 10,000,000
Common equity: par value (P1 per share) 3,000,000
Additional paid-in-capital 24,000,000
Retained earnings 6,000,000
Total assets 55,000,000
Net income 3,750,000
Dividend (annual) 1,500,000
If public companies in Tomi’s industry are trading at ten times

earnings, what is the estimated value per share of Tomi?
B a. P 5.00
b. P 12.50
c. P 15.00
d. P 30.00
46. What purpose does an internal differentiation analysis serve a firm

conducting a value-chain analysis that assesses competitive advantage?
C a. Diagnoses the cost drivers for each value-creating process.
b. Evaluates opportunities for achieving relative cost advantages.
c. Identifies the customer’s value perceptions of the firm’s
products and services.
d. Determine sources of profitability and the relative cost of
internal processes.
47. Moby manufactures flowerpots. It expects to sell 40,000 flowerpots in

2022. The company had enough beginning inventory of direct materials
to produce 48,000 units. Beginning inventory of finished units totaled
4,000 with a target ending inventory of 5,000 units. The flowerpots
sell for P 6.00 and the company keeps no work-in-process inventory.
Direct materials costs for each flowerpot total P 2.00, while direct
labor is P1.00. Factory overhead is P 0.40 per flowerpot.
How many flowerpots will be produced in 2022?

C a. 48,000 flowerpots
b. 44,000 flowerpots
c. 41,000 flowerpots
d. 39,000 flowerpots
48. Under activity-based costing; unit-level, batch-level, and product-

level manufacturing overhead costs are:
C a. Included in selling and administrative costs.
b. Excluded from estimates of product cost.
c. Included in estimates of product cost.
d. Excluded from inventory costing.
49. Rinbee Industries deals with customers throughout the country and is
attempting to more efficiently collect its accounts receivable. A major
bank has offered to develop and operate a lockbox system for Rinbee at
a cost of P 90,000 per year. Rinbee averages 300 receipts per day at
an average of P 2,500 each, its short-term interest cost is 8% per
year. Using a 365-day year, what reduction in average collection time
would be needed in order to justify the lockbox system?
B a. 1.2 days
b. 1.5 days
c. 1.25 days
d. 0.67 days
50. The decision to prorate standard cost variances in a manufacturing

setting is based upon
B a. the magnitude of variances during the period.
b. the significance of the impact on operating income.
c. the amount of inventory remaining at the end of the period.
d. the amount of inventory remaining at the beginning of the
period.
51. Kirei Company is considering an equipment upgrade. Kirei uses discounted

cash flow (DCF) analysis in evaluating capital investments and has an
effective tax rate of 40%. Selected data developed by Kirei is:
Existing New
Equipment Equipment
Original cost P 50,000 P 95,000
Accumulated Depreciation 45,000 -
Current Market Value 3,000 95,000
Accounts Receivable 6,000 8,000
Accounts payable 2,100 2,500
Based on this information, what is the initial investment for a DCF

analysis of this proposed upgrade?
A a. P 92,800.
b. P 96,200.
c. P 95,800.
d. P 96,600.
52. In comparing the constant growth model and the capital asset pricing
model (CAPM) to calculate the cost of common stock equity,
B a. the constant growth model ignores risk, while the CAPM directly
considers risk as reflected in the beta.
b. the CAPM directly considers risk as reflected in the beta,
while the constant growth model uses the market price as a
reflection of the expected risk-return preference of investors.
c. the CAPM directly considers risk as a reflected in the beta,
while the constant growth model uses dividend expectations as
a reflection of risk.
d. the CAPM indirectly considers risk as reflected in the market
return, while the constant growth model uses dividend
expectations as a reflection of risk.
53. Ridges Products, a start-up company, wants to use cost-based pricing

for its only product, a unique new video game. Finn expects to sell
10,000 units in the upcoming year. Variable costs will be P65 per unit
and annual fixed operating costs (including depreciation) amount to
P80,000. Finn’s balance sheet is as follows:
Assets Liabilities and Equity

Current assets P100,000 Accounts payable P 25,000
Plant and equipment 425,000 Debt 200,000
Equity 300,000
If Ridges wants to earn a 20% return on equity (ROE), at what price

should it sell the new product?
B a. P 78.60 per unit
b. P 79.00 per unit
c. P 75.00 per unit
d. P 81.00 per unit
54. Internal failure costs include

A a. rework.
b. returns.
c. field repairs.
d. warranty expenses.
55. What is the effective annual interest rate on a P 2 million loan with
an interest rate of 7%, a commitment fee of 1/2%, and a compensating
balance of 8%?
C a. 7%
b. 8.5%
c. 8.15%
d. 8%
56. Under the Critical Path Method, the weight assigned to the pessimistic
time in computing the expected time of an activity within a PERT network
is equivalent to the fraction of:
A a. 1/6
b. 2/6
c. 3/6
d. 4/6
57. Marty’s Corporation anticipates the following sales during the last six
months of the year:
July P 460,000
August 500,000
September 525,000
October 500,000
November 480,000
December 450,000
20% of Matry’s sales are for cash. The balance is subject to the
collection pattern shown below:
Percentage of balance collected in the month of sale 40%

Percentage of balance collected in the month following sale 30%
Percentage of balance collected in the second month following sale 25%
Percentage of balance uncollectible 5%
What is the planned net accounts receivable balance as of December 31?

A a. P 294,000.
b. P 312,000.
c. P 198,000.
d. P 367,500.
58. __________ project do not compete with each other, the acceptance of
one ________ the others from consideration.
B a. Capital; eliminates
b. Independent; does not eliminate
c. Mutually exclusive; eliminates
d. Replacement; does not eliminate
59. Patata Bindery has identified two activity cost pools: printing, with
an activity driver of batches processed and binding, with an activity
driver of direct labor hours. For the coming quarter, total factory
overhead of P 140,000 is split such that 65% is allocated to printing
and 35% is allocated to binding. Patata makes two types of books: hard
cover and soft cover. During the quarter, it expects to produce 5,200
hard cover books and 12,000 soft cover books. Hand covers are produced
in batch sizes of 100 and soft covers are produced in batch sizes of
300. A hard cover book requires 0.75 hours of direct labor, while a
soft cover book requires 0.25 hours.
What’s the overhead allocation to hard covers for printing?

D a. P 59,150
b. P 39,565
c. P 27,696
d. P 51,435
60. Under regression analysis, which is an invalid value for the coefficient
of determination?
C a. 0%
b. 25%
c. -25%
d. 100%
61. Crackling Company’s current capital structure is optimal, and the

company wishes to maintain it.
Debt 25%
Preferred equity 5%
Common equity 70%
Management plans to build a P 75,000,000 facility that will be financed
according to this desired capital structure. Currently, P 15 million of
cash is available for capital expansion. The percentage of the P 75
million that will come from a new issue of common stock is
C a. 50.00%
b. 52.50%
c. 56.00%
d. 70.00%
62. Which company is most likely to experience dysfunctional motivation on

the part of its managers due to selected allocation methods?
B a. To allocate depreciation of forklifts used by workers at its
central warehouse, Company A uses predetermined amounts
calculated on the basis of the long-term average use of the
services provided.
b. Company B uses the sales revenue of its various divisions to
allocate costs connected with the upkeep of its headquarters
building. It also uses ROI to evaluate the divisional
performances.
c. Company C does not allow its service departments to pass on
their cost overruns to the production departments.
d. Company D’s MIS is operated out of headquarters and serves its
various divisions. The allocation of the MIS-related costs to
its divisions is limited to costs the divisions will incur if
they were to outsource their MIS needs.
63. Pic-A has P 80,000 to invest and is considering two different projects,
X and Y. The following data are available on the projects:
Project X Project Y
Cost of equipment needed now P 80,000 -
Working capital investment needed now - P 80,000
Annual cash operating inflows 23,000 18,000
Salvage value of equipment in 5 years 6,000 -
Both projects will have a useful life of 5 years; at the end of 5 years,
the working capital investment will be released for use elsewhere. Pic-
A’s required rate of return is 12%.
What is the net present value of project Y? (Round-off factors to three

decimal places)
D a. P 15,110.
b. (P 15,110).
c. P 11,708.
d. P 30,250.
64. For a given level of sales and holding all other financial statement
items constant, a company’s return on equity (ROE) will
B a. decrease as its cost of goods sold as a percentage of sales
decrease
b. decrease as its total assets increase
c. increase as its debt ratio decreases
d. increase as its equity increases
65. Honey Butter Company has net income of P 70,000 during the year.
Dividend payment was P 10,000. The following information is available:
Mortgage repayment P 20,000
Available-for-sale securities purchased 10,000 increase
Bonds payable-issued 50,000 increase
Inventory 40,000 increase
Accounts payable 30,000 decrease
What amount should Honey Butter report as net cash provided by operating
activities in its statement of cash flows for the year?
A a. P 0
b. P 10,000
c. P 20,000
d. P 30,000
66. If a firm’s goal is to keep portfolio risk low, the best strategy would
be to include:
A a. diversified investments with low betas.
b. diversified investments with high betas.
c. investments with high betas and low correlated returns.
d. investments with low betas and highly correlated returns.
67. What is the weighted average cost of capital for a firm using 65% common
equity with a return of 15%, 25% debt with a return of 6%, 10% preferred
stock with a return of 10%, and a tax rate of 35%?
C a. 10.333%
b. 11.275%
c. 11.725%
d. 12.250%
Questions 68 to 70 are based on the following information

Snacks Company has outstanding accounts payable of P 450,000, on terms of
2/10, net/60. Because of a cash shortage, Snacks Company would have to
borrow P 220,000 in order to take advantage of the discount. If Snacks
decides to forego the discount, it will be able to pay off the account in
60 days without borrowing. The P 220,000 loan would be a 30-day note on
which Snacks would have to repay P 223,300.
The following relationships have been established for inventory ordering

and storage costs of Junk Company, which works 50 weeks for one year:
A) Requirements for the year are 10,000 units.
B) The purchase price per unit is P 100.
C) The carrying cost is 20% of the purchase price of the goods.
D) The cost per order place is P 90.
E) The desired safety stock on hand is 400 units.
F) Three weeks are required for delivery.
Chip Electronics needs P 250,000 that can be obtained through a factoring

arrangement. The factor will purchase Chip’s accounts receivable,
advancing the invoice amount less a 4% commission on the invoices purchased
each month. All sales are 30-day term. In addition, the factor will charge
a 15% annual interest rate on the total invoice price, deducted in advance.
Under the factoring arrangement, Chip will be able to reduce its bad debt
losses by 5% on the receivables factored, and will be able to cut the
staff in its credit department for a savings of P 20,000 per month.
68. Should Snacks borrow the funds, or forego the discount?

D a. Forego the discount since it will not cost anything
b. Borrow the funds since it is cheaper by 0.5% than foregoing the
discount
c. Forego the discount since it is cheaper by 0.31% than borrowing
the funds
d. Forego the discount since it is cheaper by 3.31% than borrowing
the funds
69. How frequent should Junk place orders in one year?

A a. About every 1.50 weeks
b. About every 1.56 weeks
c. About every 1.58 weeks
d. About every 2.29 weeks
70. Chip requires what rounded amount of accounts receivable to receive a

net amount of P 250,000?
A a. P 308,642
b. P 294,118
c. P 290,698
d. P 260,417
- END of EXAMINATION -
NOTE: Summary of answers as well as solutions and clarifications to

selected items are found on page 15.
1 D 26 B 51 A
2 A 27 A 52 B 24. Usual mistake is “risk-seeking” (letter B).
Risk-averse persons demand higher returns
3 D 28 B 53 B
for higher risks; risk-seeking persons may
4 A 29 C 54 A settle for lower returns despite higher risks.
5 B 30 D 55 C 25. Actual figures: 19,000 units ÷ 17,900 gallons
6 C 31 C 56 A 27. Q2 ending inv: 50% (84,000) = 42,000
7 C 32 D 57 A Q2 beginning inv: 50% (72,000) – 8,000
8 D 33 D 58 B Q2 production: 72,000 + 42,000 – 28,000
9 A 34 C 59 D 29. PV, Cash IN: 3.170 (80,000 – 44,000) +
PV, Cash OUT: 80,000 + 16,000 – 8,000
10 A 35 B 60 C 31. Current yield (1st year): 12% (1,000) ÷ 985
11 A 36 D 61 C After-cost of debt: 12.18% (1 – 0.4)
12 D 37 C 62 B 33. FC: 16,000 + 20 (10,000) = 216,000
13 A 38 D 63 D BEP: 216,000 ÷ (41-5)
14 A 39 D 64 A 35. 1 unit: 100 (average), 100 (total)
15 B 40 B 65 A 2 units: 70 (average), 140 (total)
4 units: 49 (average), 196 (total)
16 A 41 A 66 A
8 units: 34.3 (average), 274.4 (total)
17 B 42 C 67 C 37. To create a slack: understate budgeted
18 C 43 D 68 D income or overstate budgeted expenses
19 B 44 C 69 A 39. [15,000 – 15,000 (0.9)] 22.50: 33,750 U
20 D 45 B 70 A 41. Indifference point: cost of buy = cost to make
21 B 46 C 48 = 22 + 16 + 2 + (260,000 ÷ production)
43. Usual mistake is ‘B’ which ignores opportunity
22 D 47 C
cost of alternative use of fund in computing the
23 C 48 C unit carrying cost: 2.50 + 30% (20) = 8.50
24 C 49 B EOQ: square root of [2 (5,200) 21.25 ÷ 8.5]
25 C 50 B 45. EPS: 3.75M ÷ 3M = 12.50
Price: 12.5 x 10 times
2. UVC: (22,080 – 12,200) ÷ (7,800 – 4,000) 47. Production: 40,000 + 5,000 – 4,000
FC: 12,200 – 4,000 (2.6) = 1,800 49. 90,000 = 8% (300 x 2,500) x number of days
Total costs: 1,800 + 2.6 (2,850) 50. Usual mistake is ‘A’ while best answer is ‘B’
4. Expected NPV: 3,250 (ABC) vs. 3,000 (XYZ) where materiality of variance is assessed based
5. Total professional labor hours: 12,000 hours on the impact on operating profit.
= (2,000 x 2 dentists) + (2,000 x 4 assistants) 51. Cost: 95,000 + (2,000 – 400) = 96,600
Indirect cost rate per hour: 200,000 ÷ 12,000 Savings: 3,000 + 40% (2,000) = 3,800
7. Return on assets: 20% x 0.30 = 6% 53. 10,000 (SP – 65) – 80,000 = 20% (300,000)
Asset turnover: 6% (2) ÷ 25% 55. EAR: (7% + 0.5%) ÷ (100% - 8%)
8. Timeliness & quality can be critical success 56. Net Accounts Receivable, December 31
factors for both customers & internal business 80% (450,000) x (30%+25%) = 198,000
processes, but market share applies to 80% (480,000) x ÷ 25% = 96,000
customers only. 59. Hard: 5,200 ÷ 100 = 52 batches
9. [2.20 (1.05) ÷ 94% (40)] + 5% Soft: 12,000 ÷ 300 = 40 batches
11. Red’s MPV: 14 (150 – 125) = 350 U Printing: 65% (140,000) x (52/92)
Yellow’s MPV: 4.5 (100 – 100) = 0 61. Common stock financing: 70% (75M – 15M)
13. Since there is an excess capacity, there will be Common stock issue percentage: 42M ÷ 75M
no opportunity cost of selling units internally. 62. Company B will most likely experience
14. A country devalues its currency to boost dysfunctional motivation because:
exports & reduce trade deficits by making local ✓ Divisions with greatest sales are penalized by
goods more affordable to importing countries. receiving the greatest cost allocation.
15. Allocation basis: ✓ Divisional ROI is reduced by a cost item over
A – 240,000 (48%) which a division manager has no control as
B – 200,0000 (40%) → 200,000 ÷ 500,000 costs to upkeep an HQ building have no cause-
C – 60,000 (12%) and-effect relationship with divisional sales.
B: 800,000 – 600,000 – 40% (300,000) 63. PV, Cash IN: 18,000 (3.605) + 80,000 (0.567)
17. CGS: 2.5 x [(6,400 + 7,600) ÷ 2] PV, Cash OUT: 80,000
18. Shorter life → higher depreciation → higher 65. Operating cash flow:70,000 – 40,000 – 30,000
tax shield → higher cash flow → higher NPV 67. WACC: 65% (15%) + 25% (6% x 0.65) +
19. CAPM: 8% + 1.3 (12% - 8%) 10% (10%)
21. CM: 15,000 (4.5) = 67,500 68. Trade credit: (2/98) x (360/50) = 14.69%
Sales: 67,500 ÷ 33.75% = 200,000 Loan EAR: (3,300/220,000) x (360/30) = 18%
FC: 67,500 – 15,000 = 52,500 69. EOQ: square root of [2 (10,000) 90 ÷ 20] = 300
BES: 52,500 ÷ 33.75% = 155,555 No. of orders: 10,000 ÷ 300 = 33.33 times
MSR: (200,000 – 155,555) ÷ 200,000 Frequency: 50 weeks ÷ 33.33 = 1.5 weeks
23. Annual cash flow: 70,000 ÷ 4 = 17,500 70. 250,000 ÷ (100% - 4% -15%)
Annual depreciation: 70,000 ÷ 7 = 10,000
Annual net income: 17,500 – 10,000 = 7,500 - Nothing Follows -
ARR (original): 7,500 ÷ 70,000

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The Review School of Accountancy

FINAL PREBOARD EXAMINATION

Management Advisory Services

2. Chippy Corporation has assembled the following data pertaining to

The total cost at an operating level of 2,850 hours would be

3. Which of the following is a correct adjustment to net income in

4. A firm is evaluating the relative riskiness of two capital budgeting

• Dental assistant labor. Average total annual compensation of the

• Office staff. Average total annual compensation of the two staff

The indirect category in the new, refined costing system includes

6. Determine the most accurate statement about Management Consultancy.

8. Which of the following balanced scorecard factors would include the

11. Clover Products Company manufactures applesauce. In order to get the

During July, 8 tons of applesauce are produced using 18.50 tons of

What is the total materials price variance?

12. Normal operating cycle – receivable collection period = _______

15. Piattos Company discloses segment financial information for its

Operating Segments Sales Traceable Expenses

Nontraceable expenses amounting to P 300,000 are allocated based on the

16. Financial accounting provides a historical perspective, whereas

17. Leslie, controller, has gathered the following information regarding

18. A project’s net present value is increased if

20. A company desiring to achieve dramatic improvements in customer

22. Assuming that a management accountant wants to maximize reported net

25. Nachos Company provided the following information:

What is the partial productivity ratio?

26. “A reduction in gasoline prices caused the demand for gasoline to

Cheetos usually maintains a finished goods inventory at the end of each

How many units should Cheetos produce in the second quarter?

What is the net present value of the investment? (round-off factors to

30. A financial manager or management accountant must follow the established

33. The following information pertains to Nova Corporation:

What is variable costing break-even in units?

34. The following groups of ratios primarily measure risk.

36. The flexible-budget variance measures

37. Granny G. is a manager with Kornetz Company. Granny G. receives a bonus

38. Determine the least accurate statement about a feasibility study.

What is the variable overhead efficiency variance for Peewee?

41. Sweet Corn collected the following information:

Sweet Corn normally needs 25,000 units per year

What production level is required for Sweet Cord to be indifferent

What is the economic-order quantity (rounded to nearest whole lens)?

44. The sales-volume variance is also known as the

If public companies in Tomi’s industry are trading at ten times

46. What purpose does an internal differentiation analysis serve a firm

47. Moby manufactures flowerpots. It expects to sell 40,000 flowerpots in

How many flowerpots will be produced in 2022?

48. Under activity-based costing; unit-level, batch-level, and product-

50. The decision to prorate standard cost variances in a manufacturing

51. Kirei Company is considering an equipment upgrade. Kirei uses discounted

Based on this information, what is the initial investment for a DCF

53. Ridges Products, a start-up company, wants to use cost-based pricing

Assets Liabilities and Equity

If Ridges wants to earn a 20% return on equity (ROE), at what price

54. Internal failure costs include

Percentage of balance collected in the month of sale 40%

What is the planned net accounts receivable balance as of December 31?

What’s the overhead allocation to hard covers for printing?

61. Crackling Company’s current capital structure is optimal, and the

62. Which company is most likely to experience dysfunctional motivation on

What is the net present value of project Y? (Round-off factors to three

Questions 68 to 70 are based on the following information

The following relationships have been established for inventory ordering