ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 44  Oct 2022 CPALE  24 Sept 2022  8:00 - 11:00 AM

MANAGEMENT SERVICES FINAL PRE-BOARD EXAMINATION

INSTRUCTIONS: Select the correct answer for each of the 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 A
1. In typical financial markets, money market instruments are mostly:
B a. Long-term debt securities
b. Short-term debt securities
c. Long-term equity securities
d. Short-term equity securities

2. Naksu, Inc., a valued client, wants your advice on which of two alternatives it
should choose. One alternative is to sell an investment now for P 10,000. Another
alternative is to hold the investment for three days, after which it can sell it
for a certain selling price based on the following probabilities:
Selling Price Probability
P 5,000 .4
P 8,000 .2
P 12,000 .3
P 30,000 .1
Using probability theory that ignores aversion to risks, which of the following
is the most reasonable statement?
B a. Naksu shall hold the investment three days because of the chance of
getting P 30,000 for it.
b. Naksu shall hold the investment three days because the expected value
of holding exceeds the current selling price.
c. Naksu shall sell the investment now because the current selling price
exceeds the expected value of holding.
d. Naksu shall sell the investment now because there is a 60% chance
that the selling price will fall in three days.

3. The presence of inventory units usually causes the difference between:

B a. Debt ratio and equity ratio
b. Quick ratio and current ratio
c. Normal operating cycle and cash conversion cycle
d. Inventory conversion period and receivable collection period

4. If the first unit required 100 hours to complete, then how many hours are required
to produce the second unit given a 75% learning curve?
C a. 100 hours
b. 75 hours
c. 50 hours
d. 25 hours

5. Demand-pull inflation is induced by:

C a. Inward shift in the aggregate demand curve
b. Inward shift in the aggregate supply curve
c. Outward shift in the aggregate demand curve
d. Outward shift in the aggregate supply curve

6. A world-class manufacturer considers to introduce a new product that requires a

P 250,000 investment of capital. The necessary funds would be raised through a
bank loan at an interest rate of 8%. The fixed operating costs associated with
the product would be P 122,500, while the contribution margin percentage would
be 42%. Assuming a selling price of P 15 per unit, determine the number of units
(rounded to the nearest whole unit) the manufacturer would have to sell to
generate earnings before interest and taxes (EBIT) of 32% of the amount of
capital invested in the new product.
B a. 35,318 units
b. 32,143 units
c. 25,575 units
d. 23,276 units

7. Which of the following specific budgets is the key driving force of the overall
operational budget?
A a. The sales budget
b. The production budget
c. The capital projects budget
d. The pro forma income statement

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 MANAGEMENT SERVICES
ReSA Batch 44 – October 2022 CPALE Batch
24 September 2022  8:00 AM to 11:00 AM MS Final Pre-Board Exam
8. Business Unit A produces a widget product that can be sold either to external
customers or internally to Business Unit B. Business Unit B is currently
purchasing 15,000 widgets from an external supplier for P 25 per unit. Both
Business Unit A and Business Unit B are evaluated as profit centers. Production
and sales data for Business Unit A are provided below. Assuming that no costs
can be avoided if an internal transfer takes place, should Business Unit A
transfer widgets to Business Unit B? If so, what should the transfer price be?
Business Unit A
Capacity in units 90,000
Number of units being sold to external customers 75,000
Selling price per unit to external customers P 29
Variable costs per widget P 26
Fixed costs per unit (based on capacity) P 2

A a. No transfer should take place.

b. A transfer should take place based on a price of P 25.
c. A transfer should take place based on a price between P 26 and P 29.
d. A transfer should take place based on a price between P 25 and P 29.

9. In economics, scarcity refers to the situation of:

B a. Optimizing with the use of limited information
b. Having more wants than the amount of available resources
c. Rationing of available goods and services by the government
d. Sellers setting the prices of their products too high for people to
be able to afford them

10. 8 weeks of production data from a mobile phone manufacturer are presented below:
Quarter Phones Cost
1 2,331 P 3,245,874
2 2,657 P 3,474,318
3 1,987 P 2,883,675
4 2,412 P 3,287,621
5 2,583 P 3,354,966
6 2,497 P 3,428,752
7 2,285 P 3,152,347
8 2,645 P 3,271,899
The regression analysis results on these data are displayed below.
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept P 1,473,119 P 356,978 4.13 0.01 P 599,625 P 2,346,614
Phones P 738 P 147 5.03 0.00 P 379 P 1,097
Regression Statistics
Multiple R 0.90
R Square 0.81
Adjusted R Square 0.78
Standard Error P 87,127
Observations 8
What is the regression equation (total cost equation) for the above information?
D a. Total costs = P 147(Phones) + P 356,978
b. Total costs = P 1,473,119 (Phones) + 738
c. Total costs = P 356,978 (Phones) + P 147
d. Total costs = P 738(Phones) + P 1,473,119

11. Which of the following correctly represents the management-by-exception concept

in variance analysis?
C a. Only favorable variances provide a signal to management indicating
that something in the organization is out of compliance with budget
standards or performance expectations.
b. Only unfavorable variances provide a signal to management indicating
that something in the organization is out of compliance with budget
standards or budget performance.
c. Both favorable and unfavorable variances provide a signal to
management indicating that something in the organization is out of
compliance with budget standards or performance expectations.
d. Variances by themselves do not provide a signal to management that
something in the organization is out of compliance with budget
standards or performance expectations.

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 MANAGEMENT SERVICES
ReSA Batch 44 – October 2022 CPALE Batch
24 September 2022  8:00 AM to 11:00 AM MS Final Pre-Board Exam
12. When calculating the weighted-average cost of capital (WACC), an adjustment is
made for taxes because:
D a. Equity is risky
b. Preferred stock is used
c. Equity earns higher return than debt
d. The interest on debt is tax-deductible

13. Maidservant Kim, Inc. (MKI) provides contracted bookkeeping services. MKI has
annual fixed costs of P 100,000 and variable costs of P 6 per hour. This year,
the company budgeted 50,000 hours of bookkeeping services. MKI prices its
services based on full cost and uses a cost-plus pricing approach. The company
developed a billing price of P 9 per hour. The company’s markup level would be:
A a. 12.5%
b. 33.3%
c. 50.0%
d. 66.6%

14. The uncertainty in return on assets due to the nature of a firm’s operations is
known as:
A a. Business risk
b. Tax efficiency
c. Financial leverage
d. Financial flexibility

15. Songrim Company’s data on direct labor costs are given below:
Standard direct labor hours 30,000
Actual direct labor hours 29,000
Direct labor usage variance P 4,000 Favorable
Direct labor rate variance P 5,800 Favorable
Total payroll P 110,200
What was standard direct labor rate?
D a. P 3.60
b. P 3.80
c. P 3.67
d. P 4.00

16. Which of the following is best described as unsecured (without collateral),

short-term borrowing by very large, creditworthy firms?
B a. Eurodollars
b. Commercial papers
c. Banker’s acceptances
d. Repurchase agreements

17. Ice Stone Company applies overhead based on machine hours and reported the
following data:
Estimated annual overhead cost P 2,250,000
Actual annual overhead cost P 2,227,500
Estimated machine hours 300,000
Actual machine hours 295,000
The amount of overhead for the period is:
C a. P 22,500 under-applied
b. P 15,000 over-applied
c. P 15,000 under-applied
d. P 22,500 over-applied

18. When purchasing temporary investments, which of the following best describes the
risk associated with the ability to sell the investment in a short time without
significant price concessions?
A a. Liquidity risk
b. Investment risk
c. Interest rate risk
d. Purchasing power risk

19. If the consumer price index is 135 and was 122 a year ago, inflation rate was:
C a. 9.6%
b. -9.6%
c. 10.7%
d. -10.7%

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 MANAGEMENT SERVICES
ReSA Batch 44 – October 2022 CPALE Batch
24 September 2022  8:00 AM to 11:00 AM MS Final Pre-Board Exam
20. An investor owns stock and is concerned that prices may fall in the future. Which
strategy could help the investor hedge against adverse market conditions?
A a. Buy a put option
b. Buy a call option
c. Buy a futures contract
d. Buy an over-the-counter forward

21. Jin Mu Company is considering a change in technology that would reduce fixed
costs from P 800,000 to P 700,000. However, the ratio of variable costs to sales
will increase from 68% to 80%. What will happened to breakeven level of revenues?
A a. Increase by P 1,000,000
b. Decrease by P 1,812,500
c. Decrease by P 500,000
d. Decrease by P 301,471

22. Which ratio must be calculated using an amount external to a company’s financial
statements?
C a. Current ratio
b. Inventory turnover
c. Price-earnings ratio
d. Times interest earned

23. Shaman Choi Company predicts sales of 40,000 units in Q1 at P 5.00 per unit.
Shaman Choi predicts that unit sales will grow by 4% each quarter and that
selling price will increase by 5% each quarter. Each unit costs P 3.00 to produce
in Q1. Costs are expected to grow by 3% each quarter. Using a quarterly sales
budget, sales revenue for the year will be closest to:
A a. P 917,327
b. P 800,000
c. P 383,598
d. P 169,859

24. Most capital market transactions take place in

D a. Primary debt markets
b. Primary stock markets
c. Secondary debt markets
d. Secondary stock markets

25. Crown Prince, Inc. produced and sold 5,000 units during its most recent fiscal
year. Direct materials were P 9 per unit, direct labor costs were P 4 per unit,
and variable overhead costs were 110% of direct labor costs. Fixed overhead was
P 50,000, fixed selling and administrative expenses totaled P 50,000, and
variable selling and administrative expenses were a combined P 8 per unit.
Calculate inventory costs based on using the absorption (full) costing method.
C a. P 87,000
b. P 127,000
c. P 137,000
d. P 227,000

26. Which holds true if the market for PCs is in equilibrium at a price of P 40,000?
A a. The quantity of PCs produced will equal the quantity of PCs bought.
b. Sellers of PCs will have an incentive to charge a price higher than
P 40,000.
c. Buyers of PCs will want to buy fewer PCs than they are purchasing at
equilibrium.
d. If the cost of producing PCs falls below P 40,000 per unit, all
seller will stop supplying PCs.

27. Master Lee issues a P 10 million bond with a 6% coupon rate, 4-year maturity,
and annual interest payments when market interest rates are 7%.
➢ PV of P1 @ 7% for 4 years = 0.7629
➢ PV ordinary annuity @ 7% for 4 years = 3.38721
Using the discounted cash flow technique for bond valuation, what is the initial
carrying value of the bonds?
A a. P 9,661,326
b. P 9,400,000
c. P 10,000,000
d. P 10,338,721

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 MANAGEMENT SERVICES
ReSA Batch 44 – October 2022 CPALE Batch
24 September 2022  8:00 AM to 11:00 AM MS Final Pre-Board Exam
28. Soul Shifter, Inc. (SSI) is an international manufacturer of stylish shoulder
bags. SSI is split up into three regions: Europe Region, Asia Eastern Region,
U.S. Region. The Europe Region is split into three operating units: England
Operations, France Operations, Germany Operations. The France operating unit is
split up into the Sales Division and Manufacturing Division. The France sales
division is set up to focus exclusively on generating sales and revenue, without
responsibility for cost. Which of the following most accurately identifies the
responsibility center for the Sales Division, Manufacturing Division, and France
Operations of SSI?
B a. Sales Division: cost center; Manufacturing Division: revenue center;
France Operations: profit center.
b. Sales Division: revenue center; Manufacturing Division: cost center;
France Operations: profit center.
c. Sales Division: profit center; Manufacturing Division: cost center;
France Operations: cost center.
d. Sales Division: profit center; Manufacturing Division: revenue
center; France Operations: revenue center.

29. Early in 2022, Petrify Company switched to a JIT (Just-In-Time) inventory system.
Financial information for the two most recent years are listed here:
2021 2022
Net sales revenue P 2,000,000 P 1,800,000
Cost of goods sold 800,000 788,000
Beginning inventory 200,000 130,000
Ending inventory 130,000 30,000
How many times did inventory turnover increase as a result of the switch to the
JIT system?
C a. 2.1 times
b. 3.8 times
c. 5.0 times
d. 20.1 times

30. A bank is considering building a branch on a piece of property it already owns.

Which of the following cash flows should not be considered in the capital
budgeting analysis?
A a. Money spent when the property was originally purchased to determine
whether there are any environmental issues regarding the property
b. Cash the firm will forgo from the sale of the property if the company
decides to build
c. Cash flows resulting from several hundred new customers who will
switch from local competitors to the new branch if the bank makes the
investment
d. Shipping and installation charges the bank must spend to get equipment
in the new branch

31. Using the capital asset pricing model, what is the firm’s cost of equity (rounded
to the nearest whole percentage)?
• Risk-free rate of return: 0.05
• Market rate of return: 0.12
• Firm’s beta: 1.2
A a. 13%
b. 15%
c. 18%
d. 19%

32. Which of the following most accurately defines value chain analysis?
B a. An approach used by an organization to allocate capacity costs while
tracking and reporting the fixed costs of idle capacity in the
organization’s production process
b. An approach used by an organization to evaluate its internal
activities determine how essential each activity is strategically
creating and capturing value for the organization’s customers
c. A system based on the idea that inventory is not really an asset in
the production process, but is often a barrier to achieving the
organization’s main goals
d. A system that supports a very specific and extremely short-term
managerial view of an operation – the incremental value from a more
effective employment of a constrained resource

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 MANAGEMENT SERVICES
ReSA Batch 44 – October 2022 CPALE Batch
24 September 2022  8:00 AM to 11:00 AM MS Final Pre-Board Exam
33. Gone Wild Company incurs a cost of P 35 per unit, of which P 20 is variable, to
make a product that normally sells for P 58. A foreign wholesaler offers to buy
6,000 units at P 30 each. Gone Wild has the capacity to take on this order, but
will incur additional costs of P 4 per unit to imprint a logo and to pay for
shipping. Compute the increase (decrease) in net income that will be realized by
accepting the special order.
D a. P 60,000
b. (P 54,000)
c. (P 30,000)
d. P 36,000

34. When evaluating financial risk, which ratios will be most beneficial to the
analyst?
C a. Gross profit margin and the operating profit margin
b. Collection period and inventory turnover
c. Total debt and interest coverage ratios
d. Current and quick ratios

35. Jang-Uk (JU) Company is the leading textbook printer in the country. JU is
starting a new line of Managerial Accounting textbooks this year and would like
to calculate the budgeted total contribution margin for this line for 2023. JU
plans to sell every textbook they manufacture within the year. The following
information is available:
Sales Budget Q1 Q2 Q3 Q4 Total
Sales Volume 1,300 1,600 1,900 1,500 6,300
Budgeted Sales Price per Unit
Sales Price P 200.00
Standard Production Costs per Unit
Variable Production Costs P 47.00 per book
Fixed Production Costs 19.00 per book
Total Production Costs P 66.00 per book
Standard Selling & Admin Costs per Unit
Variable Selling & Admin Costs P 25.00 per book
Fixed Selling & Admin Costs 35.00 per book
Total Selling & Admin Costs P 60.00 per book
Using a contribution margin statement, calculate JU’s budgeted total contribution
margin for the new line of Managerial Accounting textbooks for 2023.
D a. P 74.00
b. P 128.00
c. P 466,200
d. P 806,400

36. Based on economic principles, the problem of “free-riding” refers to the

situation wherein some people (free-riders) do not contribute any but still
benefit from the actions that others undertake. This often happens when people
pursue their own private interests and do not contribute voluntarily to the
public interest. Which of the following is an example of free-riding?
B a. A housekeeper clearing a house
b. A tax evader enjoying national security
c. A consumer paying for pollution control
d. An individual who buys a ticket for a basketball match

37. The following information relates to the production department of the Seo Yul
Company for the first quarter:
Actual variable overhead P 68,500
Variable overhead application rate P 0.50 per hour
Total overhead application rate P 1.50 per hour
Variable spending variance P 8,000 unfavorable
Fixed volume variance P 5,000 favorable
What were the actual hours worked in this department during the quarter?
B a. 137,000
b. 121,000
c. 127,000
d. 119,000

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 MANAGEMENT SERVICES
ReSA Batch 44 – October 2022 CPALE Batch
24 September 2022  8:00 AM to 11:00 AM MS Final Pre-Board Exam
38. Financial managers who require an increase in return for a given increase in
risk are said to be:
C a. risk-indifferent
b. risk-seeking
c. risk-averse
d. risk-free

39. King’s Star Corporation manufactures two products: X and Y. The company has
4,000 hours of machine time available and can sell no more than 800 units of
Product X. Other pertinent data follow.
Product X Product Y
Selling price P 8.00 P 19.00
Variable cost 3.00 5.00
Fixed cost 3.50 6.25
Machine time per unit 2 hours 3 hours
Which of the following is the right objective function?
B a. Maximize Z = 8X + 19Y
b. Maximize Z = 5X + 14Y
c. Maximize Z = 1.50X + 7.75Y
d. Minimize Z = 6.50X + 11.25Y

40. A company is experiencing a sharp increase in sales activity and a steady increase
in production, so management has adopted an aggressive working capital policy.
Therefore, the company’s current level of net working capital.
B a. Would most likely be the same as in any other type of business condition
as business cycles tend to balance out over time.
b. Would most likely be lower than under other business conditions in order
that the company can maximize profits while minimizing working capital
investment.
c. Would most likely be higher than under other business conditions so that
there will be sufficient funds to replenish assets.
d. Would most likely be higher than under other business conditions as the
company’s profits are increasing.

41. Cho-Yeon Corporation is evaluating two mutually exclusive projects with the net
cash flows shown here:
Project X Project Z
0 (P 100,000) (P 100,000)
1 P 50,000 P 10,000
2 P 40,000 P 30,000
3 P 30,000 P 40,000
4 P 10,000 P 60,000
If cost of capital is 15%, which project should be chosen?
C a. Project X should be chosen since it has a better internal rate of
return (IRR).
b. Project X should be chosen since it has a better net present value
(NPV).
c. Neither project should be chosen.
d. Project Z should be chosen since it has the higher IRR.

42. All of the following describe key performance indicators (KPIs) in a balanced
scorecard system, except:
C a. A small set of critical data points
b. A good way to get a quick sense of an organization’s strategy
c. A term describing all the measures used in an organization in the
process of running the business
d. Measures that indicate to the executive team and other stakeholders
whether the organization is on track to accomplishing its strategic
objectives

43. At 40% capacity, overhead cost is computed to be P 1,450; at 75% capacity,

overhead cost is P 2,150. The fixed overhead cost at 80% capacity will be:
B a. P 20
b. P 650
c. P 1,600
d. P 2,250

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 MANAGEMENT SERVICES
ReSA Batch 44 – October 2022 CPALE Batch
24 September 2022  8:00 AM to 11:00 AM MS Final Pre-Board Exam
44. A company is expected to have unsold units on its first year of operations, then:
C a. Sales must be below breakeven point
b. Manufacturing variances are expected to be mostly unfavorable
c. Profit under absorption costing must be higher than the profit under
variable costing
d. Decision to accept or reject a special order on the unsold units
shall include an element of opportunity cost

45. Park Jin Co. has current assets of P 400,000 and current liabilities of P 500,000.
Current ratio will be increased by
A a. The purchase of P 100,000 of inventory on account
b. The payment of P 100,000 of accounts payable
c. The collection of P 100,000 of accounts receivable
d. Refinancing a P 100,000 long-term loan with short-term debt

46. After investing in a new project, Lee Company discovered that its residual income
remained unchanged. Which one of the following must be true about the new project?
B a. The net present value of the new project must have been positive.
b. The return on investment (ROI) of the new project must have been
equal to the firm’s cost of capital.
c. The net present value of the new project must have been negative.
d. The return on investment (ROI) of the new project must have been less
than the firm’s cost of capital.

47. What is the benefit for a firm with daily cash receipts of P 15,000 to be able
to speed up collections by 2 days, assuming an 8% annual return on short-term
investments and no cost to the company to speed up collections?
B a. P 2,400 daily benefit
b. P 2,400 annual benefit
c. P 15,000 annual benefit
d. P 30,000 annual benefit

48. Which of the following correctly describes theoretical capacity?

C a. Theoretical capacity is the level of output that the organization
actually achieves in a period.
b. Theoretical capacity is the amount of capacity that management
predicts the organization will produce in the period.
c. Theoretical capacity represents the level of output if all policy
constraints and scheduling limitations are removed. It also assumes
that no productivity is lost due to breakdowns, errors, etc.
d. Theoretical capacity represents the level of output that can be
realistically achieved based on current management policies, as well
as based on machine and labor scheduling expectations.

49. If a firm pays a constant dividend of P 10 and the required rate of return or
discount rate is equal to 10%, what is the price of the stock using the zero-
growth dividend model?
D a. P 1
b. P 10
c. P 50
d. P 100

50. Workers temporarily unemployed but who normally find jobs quickly are called:
C a. Cyclically unemployed
b. Seasonally unemployed
c. Frictionally unemployed
d. Structurally unemployed

51. Jang Gang Company planned to produce 3,000 units of its single product, S-
Ejector, during November. The standard specifications for one unit of S-Ejector
include 6 pounds of materials at P 0.30 per pound. Actual production in November
was 3,100 units of S-Ejector. The accountant computed a favorable direct
materials purchase price variance of P 120. Based on these variances, one could
conclude that:
C a. More materials were purchased than were used
b. More materials were used than were purchased
c. The actual cost of materials was less than the standard cost
d. The actual usage of materials was less than the standard allowed

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 MANAGEMENT SERVICES
ReSA Batch 44 – October 2022 CPALE Batch
24 September 2022  8:00 AM to 11:00 AM MS Final Pre-Board Exam

52. Which of the following is likely to encourage a firm to increase the amount of
debt in its capital structure?
C a. The firm’s earnings become more volatile
b. The firm’s assets become less liquid
c. The corporate tax rate increases
d. The personal tax rate increases

53. Park Dang Gu (PDG) Company plans to discontinue a department that currently
provides a P 24,000 contribution margin and has allocated overhead of P 48,000,
of which P 21,000 cannot be eliminated. PDG’s average income tax rate is 30%.
The effect of this discontinuance on PDG’s after-tax profit would be a(n):
A a. Increase of P 2,100
b. Increase of P 3,000
c. Decrease of P 24,000
d. Decrease of P 16,800

54. If a company’s cash conversion cycle increases, then the company:

C a. Becomes more profitable
b. Incurs more shortage or stockout costs
c. Increases its investment in working capital
d. Reduces its payable deferral period (age of payable)

55. Jin Ho-Kyung’s Wholesale Flowers produces two types of flower bouquets that it
distributes to retail shops: simple bouquets and upgraded bouquets. Total fixed
costs for the firm are P 184,000. Variable costs and sales data for these bouquets
are presented here.
Simple Bouquets Upgraded Bouquets
Selling price per unit P 24.00 P 40.00
Variable cost per unit P 20.00 P 32.00
Budgeted sales (units) 20,000 30,000

If the product sales mix were to change to three upgraded bouquets sold for each
simple bouquet sold, the breakeven volume for each of these products would be:
D a. 11,500 simple bouquets and 17,250 upgraded bouquets
b. 15,333 simple bouquets and 15,333 upgraded bouquets
c. 27,600 simple bouquets and 9,200 upgraded bouquets
d. 6,571 simple bouquets and 19,714 upgraded bouquets

56. If a capital project has a hurdle rate higher than its internal rate, then its
profitability index is:
D a. Higher than the net present value
b. Higher than the cost of capital
c. Less than zero
d. Less than one

57. If the investment turnover decreased by 20% and profit margin decreased by 30%,
then return on investment would:
C a. Increase by 30%
b. Decrease by 20%
c. Decrease by 44%
d. Decrease by 50%

58. Period costs under variable costing include:

B a. Variable manufacturing and non-manufacturing costs
b. Fixed manufacturing and non-manufacturing costs
c. Variable and fixed manufacturing costs
d. Indirect materials and labor

59. The first order of 500 units incurred P 120,000 of labor costs; the next order
of 500 units required an additional P 72,000 of labor costs. What percentage of
learning occurred?
A a. 80%
b. 85%
c. 90%
d. 95%

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 MANAGEMENT SERVICES
ReSA Batch 44 – October 2022 CPALE Batch
24 September 2022  8:00 AM to 11:00 AM MS Final Pre-Board Exam
60. A well-known manufacturer paid more property tax on their manufacturing facility
this year than they were expecting. This would most likely cause an:
B a. Unfavorable fixed overhead volume variance
b. Unfavorable fixed overhead spending variance
c. Unfavorable variable overhead spending variance
d. Unfavorable variable overhead efficiency variance

61. Short-term objectives, tactics for achieving these objectives, and operational
planning (master budget) must be congruent with what?
C a. The organization’s external environmental factors
b. The organization’s internal environmental factors
c. The organization’s strategic plan and long-term strategic goals
d. The organization’s performance evaluation and incentive compensation
factors

62. So-yi Company is considering a change in collection procedures that would result
in an increase of the average collection period from 28 to 36 days. So-yi
anticipates that next year’s sales to be P 9 million and that 80% of the sales
will be on credit. So-yi estimates short-term interest rates at 6% and uses a
360-day year for decision making. What minimum savings in collection costs would
the procedure change have to generate to offset the increased investment in
accounts receivable?
B a. P 1,200
b. P 9,600
c. P 12,000
d. P 33,600

63. The cost-plus target pricing approach is generally in what formula?

B a. Unit cost ÷ Selling price = Markup percentage
b. Unit cost x (1 + Markup % on unit cost) = Targeted selling price
c. Variable cost + Fixed cost + Contribution margin = Targeted selling
price
d. Cost base + Gross margin = Targeted selling price

64. In which scenario would a horizontal analysis be the best choice?

B a. A bank wishes to compare progress among different companies.
b. A company wishes to market its growth to potential stockholders.
c. A vendor wishes to evaluate financial statement data in a given year.
d. An investor wishes to evaluate financial statement data by expressing
each item in a financial statement as a percentage of a base amount.

Items 65 and 66 are based on the following information

Bu-yeon Company provides the following information based on its accounting
records:
Current assets P 2,000,000
Noncurrent assets 7,000,000
Current liabilities 1,000,000
Noncurrent liabilities 4,000,000
Pretax operating profit 1,500,000
Pretax cost of equity 15%
Pretax cost of debt 5%
Tax rate 40%

The carrying amounts and market values of above amounts do not differ
significantly.

65. What is Bu-yeon Company’s weighted average cost of capital (WACC)?

B a. 6%
b. 9%
c. 10%
d. Cannot be determined from the given information

66. What is Bu-yeon Company’s economic value added (EVA)?

A a. P 180,000
b. P 120,000
c. P 90,000
d. P 0

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Items 67 and 68 are based on the following information

Go Won buys toy guns at P 25 per dozen from its wholesaler. Go Won will sell
35,000 dozens of toy guns evenly throughout the year and it desires a 12% return
on investment (cost of capital) on its inventory investment. In addition, rent,
insurance and related taxes for each dozen toy guns in inventory amounts to P
0.50. The cost per order is P 8. Go Won uses a 350-day year.

67. What is the average number of toy guns does Go Won maintain?
C a. 200 toy guns
b. 400 toy guns
c. 2,400 toy guns
d. 4,800 toy guns

68. How often shall Go Won place the orders within a year?
A a. Every 4 days
b. Every 5 days
c. Every 6 days
d. Every week

Items 69 to 70 are based on the following information

Alchemy of Souls (AOS), Inc. is considering the purchase of a new machine that
costs P 150,000 and saves P 85,000 per year in operating expenses. The machine
has an estimated useful life of 3 years. Assume that 30% of the depreciable base
will be depreciated in the first year, 40% in the second year, and 30% in the
third year. At the end of its useful life, the new machine will have a P 10,000
resale value that is not to be considered in computing the depreciation. AOS
uses a 40% estimated income tax rate and a 16% hurdle rate to evaluate capital
investment projects.

Discount rates for a 16% rate are as follows:

Present Value of an
Present Value of P 1 Ordinary Annuity of P 1
Year 1 0.862 0.862
Year 2 0.743 1.605
Year 3 0.641 2.246

69. What is the net present value of this project?

B a. P 9,432
b. P 13,278
c. P 15,842
d. P 40,910

70. The payback period for this investment would be:

B a. 2.94 years
b. 2.09 years
c. 1.76 years
d. 1.14 years

- END of EXAMINATION -

NOTE: Summary of answers as well as

solutions and clarifications to selected items are found on page 12.

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