CPAR

CPA Review School of the Philippines

MANAGEMENT ADVISORY SERVICES APRIL 2023

Final Pre-board Examination – SOLUTIONS GUIDE 93RD Batch

1. B 11. B 21. A 31. A 41. B 51. C 61. C

2. A 12. C 22. A 32. A 42. C 52. D 62. A

3. C 13. A 23. D 33. D 43. A 53. B 63. C

4. C 14. B 24. B 34. D 44. C 54. A 64. D

5. D 15. B 25. C 35. C 45. A 55. D 65. C

6. C 16. D 26. C 36. A 46. D 56. A 66. D

7. B 17. A 27. A 37. C 47. B 57. B 67. D

8. C 18. B 28. B 38. D 48. D 58. C 68. D

9. D 19. D 29. B 39. D 49. B 59. C 69. A

10. B 20. B 30. D 40. D 50. A 60. D 70. B

2. ₱40,000 ÷ 10,000 units = ₱4.00

3. Contribution margin (12,000 x ₱4) ₱48,000

Less fixed cost from the master budget 25,000
Operating income ₱23,000

6. (₱195,000 ÷ 100,000) x 75,000 = ₱146,250

8. Sales (18,000 x ₱160) ₱2,880,000

Sales returns 80,000
Net sales ₱2,800,000
Variable costs (₱20 + ₱15 + ₱12 + ₱3) x 18,000 900,000
Contribution margin ₱1,900,000

9. Sales ₱200,000
₱120,000
Less break even sales(₱70,000 ÷ ₱200,000) 116,667
Margin of safety ₱ 83,333

14. Cost Volume

High ₱8,350 520
Low 6,834 364
Difference ₱1,516 156
₱1,516
Variable cost per unit = 156 = ₱9.72
Total cost ₱8,350.00
Var. cost (520 x ₱9.72) 5,054.40
Fixed cost ₱3,295.60
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
Sales with desired profit = 𝐶𝑀 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡−𝑃𝑟𝑜𝑓𝑖𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
₱3,296
= ₱5.28−₱2 = 1,004.78 units
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Final Pre-board Examination – SOLUTIONS GUIDE APRIL, 2023 93RD Batch

15. First, find the amount of current assets:

Current ratio = Current assets/Current liabilities
Current assets = (Current liabilities)(Current ratio)
= ₱375,000(1.2) = ₱450,000.

Next, find the accounts receivables:

DSO = AR/(Sales/365)
AR = DSO(Sales)(1/365)
= (40)( ₱1,200,000)(1/365) = ₱131,506.85.

Next, find the inventories:

Inventory turnover = Sales/Inventory
Inventory = Sales/Inventory turnover
= ₱1,200,000/4.8 = ₱250,000.

Finally, find the amount of cash:

Cash = Current assets - AR - Inventory
= ₱450,000 - ₱131,506.85 - ₱250,000 = ₱68,493.15  ₱68,493.

16. Salaries expense ( ₱210,000 x 1.04) ₱218,400

Insurance expense (₱120,000 x 1.04) 124,800
Supplies expense (₱60,000 x 1.04) 62,400
Depreciation expense 25,000
Interest expense 27,000
Total ₱457,600

18. Cost of goods sold ₱200,000

Add ending inventory 43,000
Total ₱243,000
Less beginning inventory 30,000
Budgeted purchases ₱213,000

Accounts payable, January 1 ₱ 20,000

Purchases on account 213,000
Total ₱233,000
Accounts payable December 31 (₱213,000 ÷ 12) 17,750
Budgeted cash payment for purchases ₱215,250

20. Actual labor cost ₱840,000

Actual time at standard rate (84,000 x ₱9) 756,000
Direct labor price variance - unfavorable ₱ 84,000

21. Actual time at standard rate ₱756,000

Standard cost (20,000 x 4 x ₱9) 720,000
Efficiency variance - unfavorable ₱ 36,000

26. Purchase cost ₱100,000

Installation cost 4,000
Delivery cost 7,000
Net cash outflow in the first year ₱111,000

27. ₱111,000 ÷ 7 years = ₱15,857

28. CM after tax but before depreciation (3,000 x ₱50 x 70%) ₱105,000
Tax savings due to depreciation (₱15,857 x 30%) 4,757
Net cash inflows ₱109,757
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Final Pre-board Examination – SOLUTIONS GUIDE APRIL, 2023 93RD Batch

29. CM after tax (3,000 x ₱50 x 70%) ₱105,000

Salvage value, net of tax (₱4,000 x 70%) 2,800
Net cash inflow, Year 10 ₱107,800

33. Year Net Cash Flows PVF PV Cumulative

of Cash Flows PV of Cash Flows
1 ₱ 9,000 0.943 ₱ 8,487 ₱8,487
2 15,000 0.841 12,615 21,102
3 19,000 0.776 14,744 35,846
4 25,000 0.719 17,975

Cost of investment ₱46,000

Total present value of cash inflows, years 1 to 3 35,846
Balance to be recovered from the year 4 present value ₱10,154

Year 4 fraction = ₱10,154 ÷ ₱17,975 = 0.564

Discounted payback period = 3 years and 0.564 year = 3.564 years

% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑜𝑓𝑖𝑡
34. DOL = % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠

24%
4=
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠

24%
% change in sales = = 6%
4

35. Debt (10% x 75% x 30%) 2.25%

Common stock (10% x 60%) 6.00%
Preferred stock (10% x 10%) 1.00%
Weighted average cost of capital 9.25%

36. Revenue ₱1,000,000

Expenses 600,000
Operating income ₱ 400,000
Desired income (₱2,000,000 x 15%) 300,000
Residual income ₱ 100,000
Bonus rate 25%
Bonus ₱ 25,000
365 𝑑𝑎𝑦𝑠
37. Collection period = 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟

𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 20,000 𝑥 ₱25,000

Accounts receivable turnover = = = 16.67
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 ₱30,000,000

365
Collection period = 16.67 = 21.9 = 22 days

3 360
39. Cost of credit = 97 x 30−10 = 55.62%

50,000
40. Lead time requirement = 52 𝑤𝑒𝑒𝑘𝑠−2 𝑤𝑒𝑒𝑘𝑠 x 4 weeks lead time 4,000
Safety stock 750
Reorder point 4,750

𝑁𝑒𝑡 𝑐𝑟𝑒𝑑𝑖𝑡 𝑠𝑎𝑙𝑒𝑠 ₱105,000

43. AR Turnover = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 = (₱15,000+ ₱13,000)÷2 = 7.50

46. Only the variable selling cost of ₱2 is relevant. All the other costs are sunk costs.
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Final Pre-board Examination – SOLUTIONS GUIDE APRIL, 2023 93RD Batch

47. The maximum amount per unit that should be paid is the savings by not making the product (avoidable costs):

Variable manufacturing cost [25,000 x (₱1.50 + ₱2.50 + ₱0.80)] ₱120,000

Fixed overhead (₱100,000 - ₱90,000) 10,000
Variable selling costs [25,000 x (₱2.00 - ₱0.80)] 30,000
Total cost savings ₱160,000
Number of units ÷ 25,000
Cost savings per unit ₱ 6.40

48. The differential cost includes all the variable manufacturing and selling costs:

Differential cost = [5,000 (₱1.50 + ₱2.50 + ₱0.80 ₱1.00)] = ₱29,000

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
49. Inventory turnover = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

₱259,100+ ₱350,500
Average inventory = 2
= ₱304,800
₱1,500,000
Inventory turnover = = 4.92
₱304,800

50. ₱80,000 ÷ (₱400 - ₱200) = 400 units

𝑄𝑢𝑖𝑐𝑘 𝐴𝑠𝑠𝑒𝑡𝑠 ₱5,000− ₱2,000
52. Acid test ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠

₱5,000− ₱2,000
2 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠

₱3,000
Current Liabilities = 2
= ₱1,500

53. Revenue ₱130,000

Incremental cost if completed (₱40,000 + ₱30,000) 70,000
Benefit if completed ₱ 60,000

57. Actual after-tax income (₱30,000,000 x 60%) ₱18,000,000

Capital charge on invested capital (₱50,000,000 x 10%) 5,000,000
Economic value added ₱13,000,000

59. A B C
Sales revenue ₱12,000 ₱ 48,000 ₱ 40,000
Less variable costs:
Total operating cost ₱11,400 ₱59,800 ₱ 50,500
Less allocated fixed cost 3,000 12,000 10,000
Variable cost ₱ 8,400 ₱47,800 ₱40,500
Segment income (loss) ₱ 3,600 ₱ 500 (₱ 500)

62. [(30,000 x 70%) + (X/10 x 30%)] x 4.833 = X

(21,000 + 0.03X) x 4.833 = X
101,493 + 0.14499X = X
101,493 = 0.855X
X = 118,705

64. Inventory conversion period ₱2,500,000/₱50,000 50 days

Receivable conversion period ₱2,000,000/ ₱100,000 20 days
Operating cycle 70 days
Less payable deferral period 30 days
Cash conversion cycle 40 days
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Final Pre-board Examination – SOLUTIONS GUIDE APRIL, 2023 93RD Batch

65. Calculate debt, equity, and EBIT:

Debt = D/A  TA = 0.35(₱1,000) = ₱350.
Equity = TA - Debt = ₱1,000 - ₱350 = ₱650.
EBIT = TA  BEP = ₱1,000(0.20) = ₱200.

Calculate net income and ROE:

Net income = (EBIT - I)(1 - T) = [₱200 - 0.0457(₱350)](0.6) = ₱110.4.
ROE = ₱110.4/₱650 = 16.99%.
Δ in consumption ₱6,000
67. Marginal propensity to consume = =
Δ in disposable income ₱8,000
= = 0.75

68. Sales – November 3,000

Add ending inventory (30% x 2,100) 630
Total 3,630
Less beginning inventory (30% x 3,000) 900
Budgeted production for November 2,730

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