1. Which of the following is not a characteristic of Management Advisory Services?

A. MAS is broad in concept.

B. MAS involves problem solving affecting the future of the client.
C. Beneficiary of service is management.
d. MAS is repetitive as far as the same client is concerned. (rpcpa)

D is the correct answer because it is not the characteristics of Management Advisory Services. It is
not a repetitive once it is resolved the same problem it will not happened again or they will not use
the same solution again, because it shows the lack of skill of the CPA advisor.

2. Which of the following does not relate to management services by CPAs?

A. Design and/or installation of accounting system,
B. Financial analysis for project feasibility studies.
C. Costs analysis of major investment decisions.
d. None of the above. (rpcpa)

D is the correct answer because it is not the characteristic of management services, choices letter
A,B,C are areas related to management services like design and/or installation of accounting
system, financial analysis for project feasibility studies and costs analysis of major investment
decisions.

3. Which of the following is not a characteristics of management services?

A. A wider variety of assignments are encountered in MAS that in audit.
b. MAS engagements are recurring.
C. MAS pinpoint actions to be taken, the benefits of which will be received in the future,
D. In MAS engagement, the nature of work involved requires a lesser need for junior assistance.
(rpcpa)
B is the correct answer because it is not the characteristics of management services because, first,
management services encompasses a wider variety of assignments than in audit. Second,
management services pinpoints action to be taken the benefit of which will be received in the future.
Lastly, management services require a lesser need for junior assistance and MAS engagements are
non-recurring not recurring.

4. The following characterize management advisory services except:

A. Involve decision for the future.
B. Broader in scope and varied in nature,
c. Utilize more junior staff than senior members of the firm.
D. Relate to specific problems where expert help is required. (rpcpa)

C is the correct answer because it is not characterize the management advisory services, because
the it requires lessen need for junior assistance the service they need is from the senior members of
the firm because they know how the company run in the past years.

5. Which of the following does not impair independence of a CPA in the rendition of management
services?
A. The CPA performs decision-making services for his client,
B. The CPA performs services wherein he is in effect acting as an employee of the client.

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 C. The CPA eases its objectivity and acts in a manner as if he is advocating for the interest of his
client.
d. The CPA does not extend his service beyond the presentation of recommendations or giving
of advice. (rpcpa)

D is the correct answer because choices letter A, B and C it shows all the situations that the CPA
looses his independence, such as performs decision-making services for his client, performs services
wherein he is in effect acting as an employee of the client, and eases its objectivity and acts in a
manner as if he is advocating for the interest of his client.

6. Competence in management advisory services is acquired by

A. Education,
B. Auditing and other experience.
C. Actual performance of management advisory services.
d. All of the these. (rpcpa)

D is the correct answer because competence relates more skill of doing with reasonable accuracy. It
can be acquired through formal education. Competence may be acquired from auditing and other
experience, actual performance of management advisory services, researches, studies, and similar
modes of getting knowledge and skills.

7. The term "discretionary costs" refers to

A. Costs that are likely to respond to the amount of attention devoted to them by a specified
manager.
B. Costs that are governed mainly by past decisions the established the present levels of operating
and organizational capacity and that only change slowly in response to small changes in
capacity.
C. Amortization of costs that were capitalized in previous periods.
D. Costs that management decides to incur in the current period to enable the company to
achieve objectives other than the filling of orders placed by customers.
E. Costs that will be unaffected by current managerial decisions.

C is the correct answer, because it indicates that the company to achieve objectives other than the
filling of orders placed by customers and decides to incur the current period.

8. An imputed cost is
A. A cost that may be shifted to the future with little or no effect on current operations.
B. A cost that cannot be avoided because it has already been incurred.
C. A cost that does not entail any peso outlay but which is relevant to the decision-making
process.
D. The difference in total costs that results from selecting one choice instead of another.
E. A cost that continues to be incurred even though there is no activity.

C is the correct answer, because imputed costs are relevant in decision making though there is no
outflow of funds and the other definition for imputed cost is an imputed cost is an invisible cost that
is not incurred directly, as opposed to an explicit cost, which is incurred directly.

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9. The term "committed costs" refers to
A. Costs that are likely to respond to the amount of attention devoted to them by a specified
manager.
B. Costs that are governed mainly by past decisions that established the present levels of operating
and organizational capacity and that only change slowly in response to small changes in capacity.
C. Costs that management decides to incur in the current period to enable the company to achieve
objectives other than the filling of orders placed by customers.
D. Costs that fluctuate in total in response to small changes in the rate of utilization of capacity.
e. Amortization of costs that were capitalized in previous period.

E is the correct answer, is an amortization costs that were capitalized in previous period, it also a
costs which are likely to respond to additional sales volume and it governed the mainly past decision
that established to the present level of capacity/capacities.

10. Common costs are those incurred

A. To produce two or more inseparable products.
B. Routinary in the industry in which the company operates.
C. By every department in an organization.
D. To produce common products beyond their split- off point.
C is the correct answer because, common costs is a shared expense ang it provide a service that
cannot be attributed to a single department or user.

11. Out-of-pocket costs

A. are under the influence of a supervisor.
B. require expenditure of cash.
C. are not recoverable.
D. are committed and unavoidable.
B is the correct answer, because out-of-pocket is used for expenditure of cash payment in the
current period of during a project.

12. Salaries of accounts receivable clerks when one clerical worker is needed for every 750 accounts
receivable is an example of
A. Fixed cost
B. A step-variable cost
C. Mixed cost
D. Curvilinear cost
B is the correct answer, because step variable cost means cost that generally varies with the level of
activity which tends to be incurred at certain discrete points and involve large changes in amounts
when such a point is reached.

13. These are among the methods of segregating fixed cost and variable costs except:
A. Simple regression analysis
B. Scattergraph

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 C. Breakeven method
D. High-low method

C, is the correct answer because choices A,B and D is an examples of how segregating the fixed cost
and variables costs, but breakeven method is not an example method on how to segregate the fixed
and variable cost, because breakeven method used for organization on how to determine the
relationship between a cost revenue and the profit in the different levels of output.

14. Mat Company estimated its material handling costs at two activity levels as follows:
Kilos handled Cost
80,000 P 160,000
60,000 132,000
What is Mat’s estimated cost of handling 75,000 kilos?
A. P 150,000
B. P 153,000
C. P 157,500
D. d. P 132,000 (rpcpa)

B Is the correct answer because the solution :

Variable Cost = Change in Cost / Change in activity

= 28,000 / 20,000
=1.40
Fixed Cost = Total Cost – Variable Cost
= 160,000 – (1.40 – 80,000)
= 48,000

Y= a + bx
= 48,000 + 1.40(75,000)
= 153,000

15. All of the following are assumptions underlying the validity of linear regression output except
A. The errors are normally distributed and their mean is zero.
b. Certainty.
C. The variance of the errors is constant.
D. The independent variables are not correlated with each other. (cma)

B is the correct answer, Linear regression is based on several assumptions it means regression is
only a means of predict

16. In determining cost behavior in business, the cost function is often expressed as
Y = a + bx. Which one of the following cost estimation methods should not be used in estimating
fixed and variable costs for the equation?
A. Graphic method.
B. High-and-low point method.
C. Simple regression
d. Multiple regressions. (cma)

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D is the correct answer, because is not used to generate an equation y = a + bx because multiple
regression has more than one independent variable.

17. Tom Company has developed a regression equation to analyze the behavior of its maintenance costs
(Q) as a function of machine hours (Z). The following equation was developed by using 30 monthly
observations with a related coefficient of determination of 0.90:
Q = P6,000 + P5.25 Z

If 1,000 machine hours are worked in one month, the related point of estimate of total maintenance
costs would be
A. P 11,250
B. P 10,125
C. P 5,250
D. P 4,725

A is the correct answer because the solution is

Q = P6,000 + P5.25 Z
Q = P6,000 + P5.25 (1,000)
Q = P6,000 + 5,250
Q = P 11,250

18. The segregation of fixed costs and variable costs is key to proper cost analysis. Regression analysis is
a technique used for this purpose. Identify the appropriate statements below on regression analysis:
1. It assumes that a change in value of a dependent variable is related to the change in the value of
an independent variable.
2. A linear relationship between direct cost and production volume can cause a problem when using
accounting data for regression analysis.
3. It attempts to find an equation for the linear relationship among variable
4. It establishes a cause and affect relationship
A. All four statements are appropriate.
B. Statements 1, 3 and 4 only.
c. Statements 1 and 3 only.
D. Statements 2 and 4 only. (rpcpa)

C is the correct answer, because statement 1 and 3 identified the regression analysis, because
regression analysis are the two main cost estimation methods used to estimate the amounts of fixed
and variable costs, to find the value of a dependent variable changes when one independent
variable.

19. Simple regression analysis involves the use of

Dependent variables Independent variables
A. One None
B. One One
C. One Two
D. None Two (cma/aicpa)

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 The correct answer is B, because simple regression analysis attempts to determine the strength
and character of the relationship between one dependent variable (usually denoted by Y) and a
series of other variables (known as independent variables).

20. Regression analysis

A. Estimates the independent cost variable.
B. Uses probability assumptions to determine total project costs.
C. Estimated the dependent cost variable.
D. Ignores the coefficient of determination.
E. Encompasses factors outside the relevant range. (cma)

C is the correct answer because the purpose of the formula of regression analysis is to predict
the value of the dependent variable when values for the independent variables are given.

21. Multiple regression analysis

A. Establishes a cause and effect relationship.
B. Is not a sampling technique.
C. Involves the use of independent variable only.
D. Produces measures of probable error.

D is the correct answer because, multiple regression analysis produces measures of a probable error
and this analysis is a kind of a technique that is used for predicting the unknown value of a variable
from the unknown value of two or more variables.

22. Quality control program employs many tools for problem definition and analysis. A scatter diagram
is one of these tools. The objective of a scatter diagram is to
a. Display a population of items for analysis.
B. Show frequency distribution in graphic form
C. Divide a universe of data into homogeneous groups.
D. Show the vital trend and separate trivial items. (cia)

A is the correct answer, because the objective of a scatter diagram is to depict degrees of
correlation. Each observation is represented by a dot on a graph corresponding to specific values of
x and y.

23. The equation(s) required for applying the least squares method of computation of fixed and variable
production costs can be expressed as
A. xy = ax + b x²
B. y = na + b x
C. b = a + bx
D. XY = ax + bx²
E. Y = na + bx (aicpa)

D is the correct answer because, it portrays the equation on how to compute the mixed cost using
the least square method. Instead in the other equation gives.

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24. In regression analysis, the coefficient of determination is a measure of
a. The amount of variation in the dependent variable explained by the independent variables.
B. The amount of variation in the dependent variable unexplained by the independent variables.
C. The slope of the regression line.
E. The predicted value of the independent variable.

A is the correct answer, because it gives a one objective that regression analysis, the amount
variation of dependent and independent variable explained on how to calculate the coefficient in
determining the measures.

25. At breakeven fixed cost is always

A. Less than contribution margin.
B. Equal to contribution margin
C. More than variable cost.
D. More than the contribution margin.

B is the correct answer, because break ‐even point represents the level of sales where net income
equals zero so, the point where sales revenue equals total variable costs plus total fixed costs,
and contribution margin equals fixed costs

26. Cost-volume-profit analysis is a key factor in many decisions, including choice of product lines,
pricing of products, marketing strategy, and use of productive facilities. A calculation used in a CVP
analysis is the breakeven point. Once the breakeven point has been reached, operating income will
increase by the
A. Gross margin per unit for each additional unit sold.
B. Contribution margin per unit for each additional unit sold.
C. Variable cost per unit for each additional unit sold.
D. Sales price per unit for each additional unit sold.

B is the correct answer because, at the breakeven point, total revenue equals total fixed costs
plus the variable costs incurred at that level of production. Beyond the breakeven point,
each unit sale will increase operating income by the unit contribution margin because fixed
cost will already have been recovered.

27. The term “relevant range” as used in cost accounting means the range over which
A. cost relationships are valid
B. production may vary
C. costs may fluctuate
D. relevant costs are incurred

A is the correct answer, because relevant range is normal activity level or volume in which there
an abnormal relationship between the level activity and volume in the variable cost per unit.

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28. Cost-volume-profit analysis assumes that over the relevant range total.
A. Revenues are linear.
B. Variable costs are nonlinear.
C. Costs are unchanged.
D. Fixed costs are nonlinear.

A is the correct answer, because revenues are linear is covered in determining the cost volume
profit.

29. Breakeven analysis assumes linearity over the relevant range with respect to
Total costs Total revenue
A. Yes No
B. Yes Yes
C. No Yes
D. No No

B is the correct answer because, total cost and total revenue is connected in computing the
breakeven, if it’s assumed the linearity over the relevant range.

30. An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost
pool, which is then applied to work-in-process using a single application base. The assembly plant
management wants to estimate the magnitude of the total manufacturing overhead costs for different
volume levels of the application activity base using a flexible budget formula. If there is an increase
in the application activity base that is within the relevant range of activity for the assembly plant,
which one of the following relationship regarding variable and fixed costs is correct?
A. The variable cost per unit is constant, and the total fixed costs decrease.
B. The variable cost per unit is constant, and the total fixed costs increase.
C. The variable cost per unit and the total fixed costs remain constant.
D. The variable cost per unit increases, and the total fixed costs remain constant.

C is the correct answer because, the requirement is to identify the valid cost relationship.
Within the relevant range for the application activity base, the variable cost per unit and the
total fixed cost would be constant.

31. A company manufactures a single product. Estimated cost data regarding this product and other
information for the product and the companies are as follows:
Sales price per unit P40
Total variable production cost per unit P22
Sales commission (on sales) 5%
Fixed costs and expenses:
Manufacturing overhead P5,598,720
General and administrative P3,732,480
Effective income tax rate 40%

The number of units the company must sell in the coming year in order to reach its breakeven point is

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 A. 388,800 units. C. 583,200 units.
B. 518,400 units. D. 972,000 units.

C is the correct answer because,

Break-even point (volume) = Fixed cost / Contribution Margin per unit

= P9,331,200 / [(P40 – P22 – (P40 X 0.05)]
= 583,200 units

32. Mother’s Co. reported the following for the year just ended:
Budgeted sales P 3,000,000
Break-even sales 2,100,000
Budgeted contribution margin 1,800,000
Cash flow break-even 600,000

The company’s margin of safety is

A. P 900,000 C. P1,200,000
B. P2,400,000 D. P1,500,000

B is the correct answer:

Margin of Safety = Sales Units - Break-Even Sales Units
= P3,000,000 – P2,100,000
= P900,000

33. A company is concerned about its operating performance, as summarized below:

Revenues (P12.50 per unit) P300,000
Variable costs 180,000
Operating loss (40,000)

How many additional units should have been sold in order for the company to break even in 2013?
A. 32,000 C. 16.000
B. 24,000 D. 8.000

Fixed Cost = Revenue – Variable Cost + Operating Loss

= 300,000 – 180,000 + 40,000
= P160,000

Contribution Margin Ratio = Total Revenue – Variable Cost / Total Rvenue

= 300,000 – 180,000 / 300,000
= 0.40 or 40%

Break-even Point (volume) = Fixed cost / Contribution Margin per Unit

= 160,000 / 0.40
=P400,000

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 Additional peso to break-even = 400,000 – 300,000
= P100,000
Additional units to break even = 100,000 / 12.50
= 8,000 units

34. For the period just ended Chanda Inc. generated the following operating results in percentages
Sales 100%
Cost of sales
Variable 50%
Fixed 10% 60%
Gross profit 40%
Operating expense
Variable 20%
Fixed 15% 35%
Operating income 5%

Total sales amounted to P3.0 million. at what level is break-even sales?

A. P3,750,000 C. P1,875,000
B. P1,850,000 D. P2,500,000

Sales P3,000,00
0
Cost of sales
Variable 1,500,000
Fixed 300,000 1,800,000
Gross profit 1,200,000
Operating expense
Variable 600,000
Fixed 450,000 1,050,000
Operating income P150,00

Sales P3,000,000
Less: Variable Cost 2,100,000
Contribution Margin 900,000
Less: Fixed Cost 750,000
Operating Income P150,00

Breakeven point (peso) = Fixed Cost / Contribution Margin Ratio

= 750,000 / (3,000,000-2,100,000 / 3,000,000)
= 750,000 / (0.30)
= P2,500,000

35. The following information pertains to Nova Company’s cost-volume-profit relationships:

Breakeven point in units sold 1,000
Variable costs per unit P 500
Total fixed costs P150,000

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 How much will be contributed to profit before income taxes by the 1,001 st unit sold?
A. P650 C. P150
B. P500 D. P 0

Break even point = Fixed Cost / Breakeven in units sold

= 150,000 / 1,000
= P150

Data for questions 15 and 16 are as follows:

Tropical Stuff Toys manufactures and sells dolls. The following information relates to the operating
results for the last quarter:
Stuff toys sold 19,375
Breakeven point in number of toys 15,500
Breakeven point in peso sales P 65,875
Total fixed costs P 47,275

36. What was Tropical’s variable cost per doll?

A. P 4.25 C. P 1.20
B. P 3.05 D. P 0.96

= Breakeven point in (peso) – Fixed cost

= P65,875 – P47,275
=18,600

=18,600 / 15,500
=P1.20

37. What was the margin of safety percentage for the last quarter of Tropical? (rounded to the nearest
percent)
A. 20% C. 28%
B. 25% D. 72%

Margin of Safety = Sales Units - Break-Even Sales Units

= P19,375 – P15,500
=P3,975
Percentage Margin of safety = 3,875 / 19,375
=0.20 or 20%

38. How many surge protectors (rounded to the nearest hundred) must Tribal sell at a selling price of P14
per unit to increase after tax income by P30,000? Tribal’s effective tax rate is 40%.
A. 10,700 units C. 25,000 units
B. 20,000 units D. 28,300 units

INVALID

39. Anna Co. would like to market a new product at a selling price of P15 per unit. Fixed costs for this
product are P1,000,000 for less than 500,000 units of output and P1,500,000 for 500,000 or more
units of output. The contribution margin percentage is 20%. How many units of this product must be
sold to earn a target operating income of P1 million?
A. 754,900 C. 825,530
B. 833,334 D. 785,320

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 Contribution Margin Ratio = P15 x 0.20 = 3
Sales = (Fixed Costs + Target Profit)/Contribution Margin Ratio

= (1,500,000 + 1,000,000 / 3

= P833,334

40. LC & Company has sales of P400,00 with variable costs of P300,000, fixed costs of P120,000 and an
operating loss of P20,000. By how much would LC need to increase its sales in order to achieve a
target operating income of 10% of sales?
A. P400,000 C. P500,000
B. P462,000 D. P800,000

Total peso sales required 120,000 / (.25-0.1) 800,000

Less prior sales 400,000

Required increase in sales 400,000

41. A company has revenues of P500,000, variable costs of P300,000, and pretax profit of P150,000. If
the company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left variable
cost per unit unchanged, what would be the new breakeven point in pesos?
A. P 88,000 C. P110,000
B. P100,000 D. P125,000

Sales (500,000 x 1.10) 550,000

Variable Cost 300,000

Contribution Margin 250,000

CMR = 250 ÷ 550 = 45.45%

Original fixed costs:

500,000 – 300,000 – 150,000 = 50,000

New fixed cost = 50,000 x 0.80 = 40,000

Breakeven sales = 40,000/0.4545 = P88,000

42. Austin Manufacturing, which is subject to a 40% income tax rate, had the following operating data
for the period just ended:
Selling price per unit P 60
Variable cost per unit 22
Fixed costs 504,000

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 Management plans to improve the quality of its sole product by (1) replacing a component that costs
P3.50 with a higher-grade unit that costs P5.50 and (2) acquiring a P180,000 packing machine. Austin
will depreciate the machine over a 10-year life with no estimated salvage value by the straight-line
method of depreciation. If the company wants to earn after tax income of P172,800 in the upcoming
period, it must sell
A. 19,300 units. C. 22,500 units.
B. 21,316 units. D. 27,000 units.

= Selling Price – Unit Variable Cost

= 60 – 22

=33 units

Breakeven point = Fixed Cost + Desire Profit /Contribution Margin per unit
= [(P522,000 + P288,000) ÷ P36]

= 22,500 units

43. Singsing, Inc. manufactures and sells key rings embossed with college names and slogans. Last year
the key rings sold for P75 each, and the variable costs to manufacture them were P22.50 per unit. The
company needed to sell 20,000 key rings to break-even. The nest income last year was P50,400. The
company expects the following for the coming year:
 The selling price of the key rings will be P90.
 Variable manufacturing costs per unit will increase by one-third.
 Fixed cost will increase by 10%.
 The income tax rate will remain unchanged.

For the company to break-even the coming year, the company should sell
A. 21,600 C. 21,250
B. 2,600 D. 19,250

Breakeven point (units) = Fixed cost / Contribution Margin Unit

= [(P75 – P22.5) X P20,000] x 1.10 / (P90*-P30**)

= P1,155,000 / 60

= P19,250
*New selling price
*New Variable cost = P22.50 X 1.1333
=P30

44. Hope’s degree of operating leverage is

A. 1.875 C. 2.143
B. 1.800 D. 1.250

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= (P1,050,000 /1,500,000)
= .70 OR 70%
= P1,500,000 / 0.70
= 2.143

45. The percentage change in EBIT in the coming period as compared to the last period is
A. 42.86% C. 37.50%
B. 36.00% D. 25.00%

Previous Current

Sales P1,500,000 P1,800,000

Variable Cost 450,000 600,0000
Gross Margin 1,050,000 1,200,000
Fixed Cost 1,155,000 1,155,000
Net Income (P105,000) 45,000

Percentage Change in EBIT = Current Period NI / Previous Period NI

= P45,000 / P105,000
= 0.4285 or 42.86%

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