CPAR

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

MANAGEMENT ADVISORY SERVICES PREWEEK

BATCH 93 MAY 2023

1. Bakeshop, Inc. produces two types of cakes, a round cake and a heart-shaped cake. Total
fixed costs for the firm are ₱92,000. Variable costs and sales data for these cakes are
presented below.

Selling price per unit ₱12 ₱20

Variable cost per unit 8 15
Budgeted sales (units) 10,000 15,000

How many cakes will be required to reach the breakeven point?

a. 9,000 round cakes and 11,000 heart-shaped cakes.
b. 10,000 round cakes and 10,000 heart-shaped cakes.
c. 23,000 round cakes and 18,400 heart-shaped cakes.
d. 8,000 round cakes and 12,000 heart-shaped cakes.

2. Which type of short-term financing allows a business to borrow up to a specified limit during
a particular time period?
a. Promissory note.
b. Line of credit.
c. Accrued expenses.
d. Bankers' acceptance.

3. If the net present value (NPV) of a capital budgeting project is positive, it would indicate
that the:
a. present value divided by the initial cash outlay would be less than 100%.
b. present value (PV) of cash outflows exceeds the PV of cash inflows.
c. rate of return for this project is greater than the discount percentage rate
used in the NPV computation.
d. internal rate of return (IRR) is equal to the discount percentage rate used in
the NPV computation.

4. A company occasionally has capacity problems in its metal shaping division, where the chief
cost driver is machine hours. In evaluating the attractiveness of its individual products for
decision-making purposes, which measurement tool should the firm select?

If Machine Hours Do No If Machine Hours Constrain

Constrain the Number of the Number of
Units Produced Units Produced

a. Contribution margin Contribution margin ratio.

b. Gross profit margin Contribution margin.
c. Contribution margin contribution margin per machine hour.
d. Contribution margin/machine hour Contribution margin ratio.

5. Viable short-term financing options for a pharmaceutical company include all of the
following except:
a. issues of preferred stock.
b. trade credit.
c. bankers' acceptances.
d. commercial paper.

6. An increase in the gross profit margin for a merchandising firm indicates that the firm:
a. is increasing its revenues.
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b. is decreasing its fixed costs.
c. has been managing its quality control better, which results in fewer returns.
d. is doing a better job of managing cost of sales.

7. A company realized ₱15,000,000 in sales, with a cost of goods sold of ₱6,000,000, and
operating expenses of ₱4,500,000. Their operating profit margin would be:
a. 25%. c. 30%.
b. 35%. d. 40%.

8. Which of the following statements is true regarding common-size statements?

a. Common-size statements indexed over two years for two companies, with
both showing a 10% increase in profits, show that both companies would
make equally attractive investments.
b. All of the other three answers are correct.
c. Common-size statements can be used to compare companies of different
sizes.
d. Horizontal common-size statements can be made only for companies with at
least ten years of operational data.

9. A company is considering the acquisition of a new computer-aided machine tool to replace

an existing, outdated model. Relevant information includes the following.

Projected annual cash savings ₱28,400

Annual depreciation – new machine 16,000
Annual depreciation – old machine 1,600
Income tax rate 40%

Annual after-tax cash flows for the project would amount to:
a. ₱22,800. c. ₱5,600.
b. ₱17,040. d. ₱7,440.

Cash savings after tax but before depreciation (₱28,400 x 60%) ₱17,040
Tax savings due to incremental depreciation (₱16,000 - ₱1,600) x 40% 5,760
Annual after-tax cash flows ₱22,800

10. The key components of enterprise risk management (ERM) include all of the following
except:
a. Assess risks. c. Improved shareholder value.
b. Monitor risk. d. Set strategy and objectives.

11. A company makes two types of motors for use in various products. Operating data and unit
cost information for its products are presented below.

Product A Product B
Annual unit capacity 10,000 20,000
Annual unit demand 10,000 20,000

Selling price ₱100 ₱80

Variable manufacturing cost 53 45
Fixed manufacturing cost 10 10
Variable selling and administrative 10 11
Fixed selling and administrative 5 4
Fixed other administrative 2 0
Unit operating profit ₱ 20 ₱ 10

Machine hours per unit 2.0 1.5

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The company has 40,000 productive machine hours available. The relevant contribution
margins, permachine hour for each product, to be utilized in making a decision on product
priorities for the coming year, are:
a. Product A - ₱37.00; Product B - ₱24.00.
b. Product A - ₱20.00; Product B - ₱10.00.
c. Product A - ₱18.50; Product B - ₱16.00.
d. Product A - ₱17.00; Product B - ₱14.00.

12. A company is considering the purchase of a new state-of-art machine to replace its hand-
operated machine. The company’s effective tax rate is 40%, and its cost of capital is 12%.
Data regarding the existing and new machines are presented below.

Existing New
Machine Machine
Original cost ₱50,000 ₱90,000
Installation costs 0 4,000
Freight and insurance 0 6,000
Expected end salvage value 0 0
Depreciation method Straight-line Straight-line
Expected useful life 10 years 5 years

The existing machine has been in service for seven years and could be sold currently for
₱25,000. If the new machine is purchased the company expects to realize a ₱30,000 before-
tax annual reduction in labor costs.

If the new machine is purchased, what is the net amount of the initial cash outflow at Time
0 for net present value calculation purposes?
a. ₱65,000. c. ₱100,000.
b. ₱75,000. d. ₱79,000.

13. The controller of a company asked a financial analyst to calculate common size financial
statements for the past four years. The controller is most likely looking for which of the
following?
a. How the company is earning its profits.
b. The growth rate for sales.
c. Trends in expenses as a percentage of sales.
d. How efficiently the company is using assets.

14. A company has a cost of capital of 15% and is considering the acquisition of a new machine
which costs ₱400,000, has a useful life of five years, and a zero estimated final salvage
value. The company projects that earnings and cash flow will as follows:

Year Net Earnings After-Tax Cash Flow

1 ₱100,000 ₱160,000
2 100,000 140,000
3 100,000 100,000
4 100,000 100,000
5 200,000 100,000

PV FACTORS AT 15%
PV of an Annuity
Period PV of ₱1 of ₱1
1 0.87 0.87
2 0.76 1.63
3 0.66 2.29
4 0.57 2.86
5 0.50 3.36
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The net present value (NPV) of this investment is:
a. ₱(64,000). c. ₱200,000.
b. ₱18,600. d. ₱600,000.

15. Which one of the following factors would likely cause a firm to increase its use of debt
financing as measured by the debt-to-total-capitalization ratio?
a. an increase in the corporate income tax rate.
b. an increase in the degree of operating leverage.
c. increased economic uncertainty.
d. a decrease in times interest earned.

16. In differential cost analysis, which one of the following best fits the description of a sunk
cost?
a. Direct materials required in the manufacture of a table.
b. Purchasing department costs incurred in acquiring material.
c. Cost of the forklift driver to move the material to the manufacturing floor.
d. Cost of a large crane used to move materials.

17. A company wants to earn a 6% return on sales after taxes. The company's effective income
tax rate is 40%, and its contribution margin is 30%. If the company has fixed costs of
₱240,000, the amount of sales required to earn the desired return is:
a. ₱400,000. c. ₱1,000,000.
b. ₱1,200,000. d. ₱375,000.

18. A company’s net accounts receivable were ₱68,000 and ₱47,000 at the beginning and end
of the year, respectively.

The company’s condensed Income Statement is shown below.

Sales ₱900,000
Cost of goods sold 527,000
Operating expenses 175,000
Operating income ₱198,000
Income tax 79,000
Net income ₱119,000

Cornwall's average number of days' sales in accounts receivable (using a 365-day year) is:
a. 23 days. c. 8 days.
b. 13 days. d. 19 days.

19. A company is analyzing the market potential for its specialty turbines. It developed its
pricing and cost structures for their specialty turbines over various relevant ranges.

The pricing and cost data for each relevant range are presented below.

1–5 6 – 10 11 – 15 16 – 20
Units produced and sold 200,000 400,000 600,000 800,000
Unit variable cost 50,000 50,000 45,000 45,000
Unit selling price ₱100,000 ₱100,000 ₱100,000 ₱100,000
Fixed Cost 200,000 400,000 600,000 800,000
Which one of the following production/sales levels would produce the highest operating
income for Parker?
a. 8 units.` c. 14 units.
b. 17 units. d. 10 units.

20. What is the effective annual interest rate on a ₱5 million loan with an interest rate of 8%,
a commitment fee of ¼ %, and a compensating balance of 10%?
a. 11.11%. c. 8.64%.
b. 9.17%. d. 8%.
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21. A company wishes to calculate its return on assets (ROA). You know that the return on
equity (ROE) is 12% and that the debt ratio is 40%. What is the ROA?
a. 20%. c. 7.2%.
b. 4.8%. d. 12%.

22. A company is planning to introduce a new product, DMA. It is expected that 10,000 units
of DMA will be sold. The full product cost per unit is ₱300. Invested capital for this product
amounts to ₱20 million. The company’s target rate of return on investment is 20%. The
markup percentage for this product, based on operating income as a percentage of full
product cost, will be:
a. 57.1%. c. 42.9%.
b. 133.3%. d. 233.7%.

23. An analyst gathers the following data about a company:

Net annual sales ₱40 million
Cost of goods sold ₱25 million
Average inventory ₱10 million
Average receivables ₱5 million

The company's average collection period is closest to:

a. 73 days. c. 146 days.
b. 54 days. d. 45.6 days.

24. The level of safety stock in inventory management depends on all of the following except
the:
a. cost of running out of inventory.
b. cost to reorder stock.
c. level of uncertainty in lead time for stock shipments.
d. level of uncertainty of the sales forecast.

25. Which of the following is an inventory control procedure that determines the optimum order
size, taking into consideration demand and costs?
a. Economic order quantity (EOQ).
b. Lead quantity.
c. Lockbox system.
d. Safety stock.

26. Which of the following correctly defines the relationship between profit margin and asset
turnover?
a. ROA using the DuPont model is calculated by subtracting asset turnover from
profit margin.
b. ROA using the DuPont model is calculated by multiplying profit margin times
asset turnover.
c. There is no relationship between profit margin and asset turnover.
d. ROA using the DuPont model is calculated by dividing profit margin by asset
turnover.

27. Which of the following items is not an example of a capital expenditure?

a. A ventilation system upgrade for government regulations compliance.
b. Project bonuses paid to employees.
c. Purchase of a new assembly machine that will cut labor and maintenance
costs.
d. Purchase of a new computer server for the research and development group.
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28. An analyst at a company estimates that a project has the following after-tax net cash Flows

If the company's cost of capital is 12%, the project's discounted payback period is closest
to:
a. 3 years. c. 4 years.
b. 4.48 years. d. 5 years.

29. Organizations face many different types of risk. Risks that relate to natural disasters such
as storms, floods, earthquakes, and volcanoes are commonly called:
a. Operational risks.
b. Financial risks.
c. Hazard risks.
d. Strategic risks.

30. At a company, the controller is one of the key decision makers in recommending consulting
projects to local accounting professionals. The controller would often receive gifts around
the holidays. In considering whether or not to accept these gifts, the controller should refer
to which IMA Statement of Ethical Professional Practice?
a. Confidentiality. c. Competence.
b. Integrity. d. Credibility.

31. What is a primary caution when using a company's cost of capital as the discount rate to
evaluate a capital project?
a. Opportunity costs can be distorted.
b. The cost of capital may need to be risk-adjusted.
c. Evaluation typically rejects high-risk projects.
d. Low-risk projects are favored.

32. A company evaluates capital projects using a variety of performance screens; including a
hurdle rate of 16% and a payback period of 3 years or less. Management is completing
review of a project on the basis of the following projections.

The projected internal rate of return (IRR) is 20%. Which one of the following alternatives
reflects the appropriate conclusions for the indicated evaluative measures?
a. IRR − Reject; Payback − Reject.
b. IRR − Accept; Payback − Reject.
c. IRR − Accept; Payback − Accept.
d. IRR − Reject; Payback − Accept.

33. Which of the following actions will most likely result in a successful foreign business venture
in Islamic countries?
a. Adhere to Islamic beliefs.
b. Have property in an Islamic nation.
c. Employ Islamic people.
d. Behave in a manner that is consistent with Islamic ethics.
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34. A company is developing a new product, surge protectors for high-voltage electrical flows.
The following unit cost information relates to the product.

Direct materials ₱3.25

Direct labor 4.00
Distribution 0.75

The company will also be absorbing ₱120,000 of additional fixed costs associated with this
new product. A corporate fixed charge of ₱20,000 currently absorbed by other products will
be allocated to this new product.

If the selling price is ₱14 per unit, the breakeven point in units (rounded to the nearest
hundred) for surge protectors is:
a. 10,000 units. c. 8,500 units.
b. 23,300 units. d. 20,000 units.

35. A company is an online book company. The company recently changed its credit policy in
an attempt to increase sales. Its variable cost ratio is 70% and its required rate of return is
12%. The company projects that annual sales will increase from the current level of
₱360,000 to ₱432,000, but the average collection period on receivables will go from 30 to
40 days.

Ignoring any tax implications, what is the cost of carrying the additional investment in
accounts receivable, using a 365-day year?
a. ₱2,160. c. ₱1,761.
b. ₱1,492. d. ₱2,601.

37. That type of accounting which deals with how accounting and other financial data can be
used for decision-making in controlling, monitoring, and directing business activity is called
a. management accounting c. financial accounting
b. responsibility accounting d. general accounting

38. In financial accounting, certain rules and regulations must be followed on how financial
statements must be presented to readers. In managerial accounting, no such restrictions
generally apply because it is
a. an entirely different field that need not observe the broad guidelines in financial
accounting.
b. designed to provide management with non-financial information for decision-
making.
c. designed to provide accounting and other financial data to assist management in
making business decisions.
d. a discipline that does not require preparation of financial statements.

39. In comparing management and financial accounting, which of the following more accurately
describes management accounting information?
a. comparable, verifiable, monetary
b. budgeted, informative, adaptable
c. required, estimated, internal
d. historical, precise, useful

40. Which of the following is not an objective of management accounting?

a. maximization of profit and minimization of costs.
b. measuring the performance of managers of subunits.
c. providing information for planning and decision making.
d. providing assistance in directing and controlling operations.

41. Cost is the monetary measure of the amount of resources given up in obtaining goods and
services. Costs may be classified as unexpired or expired.
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Which of the following costs is not always considered to be expired immediately upon being
recognized?
a. salesmen’s commission
b. depreciation expense for factory equipment
c. cost of goods sold
d. salary of the company president

42. It refers to anything (a product, product line, a business segment) for which cost is
computed.
a. Cost object c. Cost control
b. Cost driver d. Cost variance

43. An activity that adds costs to the product or service, but does not make such product or
service more valuable to customers is called
a. non-value-adding activity. c. costly activity.
b. value-adding activity. d. valuable activity.

44. Product costs or inventoriable costs

a. are charged to expense when products become part of the finished goods inventory.
b. include only the prime costs of producing a product.
c. are treated as assets before the products are sold.
d. include only the conversion costs of producing the products.

ITEMS 45 to 51 ARE BASED ON THE FOLLOWING INFORMATION:

Data about A company’s production and inventories for the month of June are as follows:

Purchases – direct materials ₱143,440

Freight in 5,000
Purchase returns and allowances ₱ 2,440
Direct labor 175,000
Actual factory overhead 120,000
Inventories: June 1 June 30
Finished goods ₱ 68,000 ₱ 56,000
Work in process 110,000 135,000
Direct materials 52,000 44,000

The company applies factory overhead to production at 80% of direct labor cost.
Over– or underapplied overhead is closed to cost of goods sold at year-end. The
company’s accounting period is on the calendar year basis.

45. The company’s prime cost for June was

a. ₱154,000. c. ₱198,000.
b. ₱329,000. d. ₱315,000.

46. The company’s conversion cost for June was

a. ₱315,000. c. ₱329,000.
b. ₱295,000. d. ₱444,000.

47. For the month of June, the company’s total manufacturing cost was
a. ₱469,000. c. ₱644,000.
b. ₱444,000. d. ₱449,000.

48. For June, the company’s cost of goods transferred to the finished goods inventory account
was
a. ₱579,000 c. ₱469,000.
b. ₱461,000. d. ₱444,000.
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49. The company’s cost of goods sold for June was
a. ₱441,000. c. ₱456,000.
b. ₱481,000. d. ₱444,000.

50. The amount of over/underapplied overhead factory for the month of June was
a. ₱140,000 overapplied. c. ₱20,000 overapplied.
b. ₱120,000 underapplied. d. ₱20,000 underapplied.

51. The cost of goods sold for the month of June should be increased (decreased) by the amount of
over/ under-applied factory overhead of
a. ₱20,000. c. (₱120,000).
b. (₱20,000). d. ₱0.

52. For decision-making purposes, relevant costs are

a. variable past costs.
b. all fixed and variable costs.
c. anticipated future costs that will differ among various alternatives.
d. costs incurred within the relevant range of production.

53. An income or benefit that is given up when one alternative is selected over another is called
a. loss. c. relevant cost.
b. opportunity cost. d. differential cost.

54. When production (in units) decreases, the average cost per unit of product increases. This
increase in the average cost per unit is due to the
a. increase in variable cost per unit.
b. increase in fixed cost per unit.
c. increase in total variable costs.
d. increase in total fixed costs.

55. The following data were collected from the records of the Receiving Department of a
company:
Number of Receiving and
Month Items Received Handling Costs
January 2,800 ₱17,500
February 2,000 12,500
March 1,190 7,450
April 5,200 32,500
May 4,410 27,600
June 4,016 25,100

The receiving and handling cost is most likely to be a

a. step cost. c. fixed cost.
b. variable cost. d. semi-variable cost.

ITEMS 56 to 58 ARE BASED ON THE FOLLOWING INFORMATION:

A company is preparing a flexible budget for next year and requires a breakdown of the
factory maintenance cost into the fixed and variable elements.

The maintenance costs and machine hours (the selected cost driver) for the past six months
are as follows:
Maintenance Costs Machine Hours
January ₱15,500 1,800
February 10,720 1,230
March 15,100 1,740
April 15,840 2,190
May 14,800 1,602
June 10,600 1,590
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56. If the company uses the high-low method of analysis, the estimated variable rate of
maintenance cost per machine hour is
a. ₱7.23. c. ₱5.46.
b. ₱8.73. d. ₱5.33.

57. The average annual fixed maintenance cost amounts to

a. ₱4,160. c. ₱49,920.
b. ₱8,320. d. ₱ 5,120.

58. What is the average rate per hour at a level of 1,500 machine hours?
a. ₱5.33 c. ₱7.23
b. ₱8.11 d. ₱5.46

59. The coefficient of correlation that indicates the strongest linear association between the
dependent and independent variables is
a. – 0.08 c. – 0.80
b. 0.40 d. 0.04

60. If the coefficient of correlation between two variables is –0.95, how might a scatter diagram
of these variables appear?
a. A least squares line that slopes up to the right.
b. A least squares line that slopes down to the right.
c. Random points
d. A least squares line that slopes down to the left.

61. Under absorption costing, fixed manufacturing overhead could be found in all of the
following except the
a. work-in-process account.
b. finished goods inventory account.
c. Cost of Goods Sold.
d. period costs.

62. Absorption costing differs from variable costing in all of the following except
a. treatment of fixed manufacturing overhead.
b. treatment of variable production costs.
c. acceptability for external reporting.
d. arrangement of the income statement.

63. A total variance is best defined as the difference between total

a. actual cost and total cost applied for the standard output of the period.
b. standard cost and total cost applied to production.
c. actual cost and total standard cost of the actual input of the period.
d. actual cost and total cost applied for the actual output of the period.

64. A company incurred 2,300 direct labor hours to produce 600 units of product. Each unit
should take 4 direct labor hours. The company applies variable overhead to production on
a direct labor hour basis. The variable overhead efficiency variance
a. will be unfavorable.
b. will be favorable.
c. will depend upon the capacity measure selected to assign overhead to production.
d. is impossible to determine without additional information.

Use the following information for questions 65 – 67.

A company has the following information available for October when 3,500 units were produced
(round answers to the nearest peso).
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Standards:
Material 3.5 pounds per unit @ ₱4.50 per pound
Labor 5.0 hours per unit @ ₱10.25 per hour

Actual:
Material purchased 12,300 pounds @ ₱4.25
Material used 11,750 pounds

17,300 direct labor hours @ ₱10.20 per hour

65. What is the labor rate variance?

a. ₱875 F c. ₱865 U
b. ₱865 F d. ₱875 U

66. What is the material quantity variance?

a. ₱2,250 F c. ₱225 F
b. ₱2,250 U d. ₱2,475 U

67. Assume that the company computes the material price variance on the basis of material
issued to production. What is the total material variance?
a. ₱2,850 U c. ₱5,188 F
b. ₱5,188 U d. ₱2,850 F

68. Actual fixed overhead is ₱33,300 (12,000 machine hours) and fixed overhead was estimated
at ₱34,000 when the predetermined rate of ₱3.00 per machine hour was set. If 11,500
standard hours were allowed for actual production, applied fixed overhead is
a. ₱33,300 c. ₱34,500
b. ₱34,000 d. ₱36,000

Use the following information for questions 69 – 72.

A company has developed standard overhead costs based on a capacity of 180,000 machine
hours as follows:

Standard costs per unit:

Variable portion 2 hours @ ₱3 = P 6
Fixed portion 2 hours @ ₱5 = 10
₱16

During April, 85,000 units were scheduled for production, but only 80,000 units were actually
produced. The following data relate to April:

Actual machine hours used were 165,000.

Actual overhead incurred totaled ₱1,378,000 (₱518,000 variable plus ₱860,000 fixed).

All inventories are carried at standard cost.

69. The variable overhead spending variance for April was

a. ₱15,000 U. c. ₱38,000 F.
b. ₱23,000 U. d. ₱38,000 U.

70. The variable overhead efficiency variance for April was

a. ₱15,000 U. c. ₱38,000 F.
b. ₱23,000 U. d. ₱38,000 U.

71. The fixed overhead spending variance for April was

a. ₱40,000 U. c. ₱60,000 F.
b. ₱40,000 F. d. ₱60,000 U.
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72. The fixed overhead volume variance for April was
a. ₱60,000 U. c. ₱100,000 F.
b. ₱60,000 F. d. ₱100,000 U.

73. The sum of the labor mix and labor yield variances equals
a. the labor efficiency variance.
b. the total labor variance.
c. the labor rate variance.
d. nothing because these two variances cannot be added since they use different costs

74. Total quality management is inseparable from the concept of

a. ISO certification.
b. centralized organizational structure.
c. continuous improvement.
d. the product life cycle.

75. A significant cost of quality that is not recorded in the accounting records is the
a. failure cost for a customer complaint center.
b. cost of reworking products to bring them up to specification.
c. opportunity costs of forgone future sales.
d. appraisal cost for product equipment.

76. A company’s cost of compliance is ₱58,000. Appraisal cost is ₱21,000 and failure cost is
₱32,000. The company’s total quality cost is
a. ₱53,000. c. ₱90,000.
b. ₱79,000. d. ₱111,000.

77. A company has the following expected pattern of collections on credit sales: 70 percent
collected in the month of sale, 15 percent in the month after the month of sale, and 14
percent in the second month after the month of sale. The remaining 1 percent is never
collected. At the end of May, the company has the following accounts receivable balances:

From April sales ₱21,000

From May sales 48,000

The company’s expected sales for June are ₱150,000. What were total sales for April?
a. ₱150,000 c. ₱70,000
b. ₱72,414 d. ₱140,000

78. Budgeted sales for a company for the first quarter of 2023 are shown below:
January 35,000
February 25,000
March 32,000

The company has a policy that requires the ending inventory in each period to be 10 percent
of the following period’s sales. Assuming that the company follows this policy, what quantity
of production should be scheduled for February?
a. 24,300 units c. 25,000 units
b. 24,700 units d. 25,700 units

79. Production of Product X has been budgeted at 200,000 units for May. One unit of X requires
2 kgs. of raw material. The projected beginning and ending materials inventory for May are:

Beginning inventory 2,000 kgs.

Ending inventory 10,000 kgs.

How many kgs. of material should be purchased during May?

a. 192,000 c. 408,000
b. 208,000 d. 416,000
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80. The weighted average cost of capital that is used to evaluate a specific project should be
based on the
a. mix of capital components that was used to finance a project from last year.
b. overall capital structure of the corporation.
c. cost of capital for other corporations with similar investments.
d. mix of capital components for all capital acquired in the most recent fiscal year.

81. A company bought a piece of machinery with the following data:

Useful life 6 years

Yearly net cash inflow ₱45,000
Salvage value –0–
Internal rate of return 18%
Cost of capital 14%

Present Value factors, 6th year:

14% 0.456
18% 0.370

Present value factors, 6 periods:

14% 3.889
18% 3.498

The initial cost of the machinery was

a. ₱175,000 c. ₱20,520
b. ₱157,410 d. ₱16,650

81. An investment project is expected to yield ₱10,000 in annual revenues, has ₱2,000 in fixed
costs per year, and requires an initial investment of ₱5,000, with an estimated useful life of
5 years. Given a cost of goods sold of 60 percent of sales, what is the payback period in
years?
a. 2.50 c. 2.00
b. 5.00 d. 1.25

82. A project has an initial cost of ₱100,000 and generates a present value of net cash inflows
of ₱120,000. What is the project’s profitability index?
a. 0.20 c. 0.80
b. 1.20 d. 5.00

83. All other things being equal, as the time period for receiving an annuity lengthens,
a. the related present value factors increase.
b. the related present value factors decrease.
c. the related present value factors remain constant.
d. it is impossible to tell what happens to present value factors from the information
given.

84. In evaluating the performance of a profit center manager, he/she should be evaluated on
a. all revenues and costs that can be traced directly to the unit.
b. all revenues and costs under his/her control.
c. the variable costs and the revenues of the unit.
d. the same costs and revenues on which the unit is evaluated.

85. Office Products Inc. manufactures and sells various high-tech office automation products.
Two divisions of Office Products Inc. are the Computer Chip Division and the Computer
Division. The Computer Chip Division manufactures one product, a “super chip,” that can
be used by both the Computer Division and other external customers. The following
information is available on this month’s operations in the Computer Chip Division:
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Selling price per chip ₱50
Variable costs per chip ₱20
Fixed production costs ₱60,000
Fixed SG&A costs ₱90,000
Monthly capacity 10,000 chips
External sales 6,000 chips
Internal sales 0 chips

Presently the Computer Division purchases no chips from the Computer Chips Division, but
instead pays ₱45 to an external supplier for the 4,000 chips it needs each month.

Assume that next month’s costs and levels of operations in the Computer and Computer
Chip Divisions are similar to this month. What is the appropriate transfer price range for a
possible transfer of the super chip from one division to the other?
a. ₱45 to ₱50 c. ₱20 to ₱45
b. ₱20 to ₱50 d. ₱30 to ₱45

86. ABC Corp. is composed of three operating divisions. Overall, the ABC Corp. has a return on
investment of 20%. Division A has a return on investment of 25%. If ABC Corp. evaluates
its managers on the basis of return on investment, how would the Division A manager and
the ABC Corp. president react to a new investment that has an estimated return on
investment of 23%?
a. Division A manager – ACCEPT; ABC Corp. president – ACCEPT
b. Division A manager – ACCEPT; ABC Corp. president – REJECT
c. Division A manager – REJECT; ABC Corp. president – ACCEPT
d. Division A manager – REJECT; ABC Corp. president – REJECT

87. Presently, the Division A of a company has a profit margin of 30%. If total sales rise by
₱100,000, both the numerator and the denominator of the profit margin will increase. The
net result will be
a. an increase in the profit margin ratio to above 30%.
b. a decrease in the profit margin ratio to below 30%.
c. no change in the profit margin ratio.
d. a change in the profit margin ratio that cannot be determined from this information.

88. A division of a company reported a return on investment of 20% for a recent period. If
the division's asset turnover was 5, its profit margin must have been
a. 100% c. 25%
b. 4% d. 2%

89. Z Division of XYZ Corp. has the following information for 2022:

Assets available for use ₱1,800,000

Target rate of return 10%
Residual income ₱ 270,000

What was Z Division's return on investment for 2022?

a. 15% c. 25%
b. 10% d. 20%

90. A company uses 10,000 units of a part in its production process. The costs to make a part
are: direct material, ₱12; direct labor, ₱25; variable overhead, P13; and applied fixed
overhead, ₱30. The company has received a quote of ₱55 from a potential supplier for this
part. If the company buys the part, 70 percent of the applied fixed overhead would
continue. The company would be better off by
a. ₱50,000 to manufacture the part.
b. ₱150,000 to buy the part.
c. ₱40,000 to buy the part.
d. ₱160,000 to manufacture the part.
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Use the following information for questions 91 and 92.

A company sells a product for ₱18 per unit, and the standard cost card for the product
shows the following costs:

Direct material ₱ 1
Direct labor 2
Overhead (80% fixed) 7
Total ₱10

The company received a special order for 1,000 units of the product. The only additional
cost to the company would be foreign import taxes of ₱1 per unit.

91. If the company is able to sell all of the current production domestically, what would be the
minimum sales price that it would consider for this special order?
a. ₱18.00 c. ₱5.40
b. ₱11.00 d. ₱19.00

92. Assume that the company has sufficient idle capacity to produce the 1,000 units. If it wants
to increase its operating profit by ₱5,600, what would it charge as a per-unit selling price?
a. ₱18.00 c. 11.00
b. ₱10.00 d. ₱16.60

93. Suklay, Inc. makes and sells brushes and combs. It can sell all of either product it can make.
The following data are pertinent to each respective product:

Brushes Combs
Units of output per machine hour 8 20
Selling price per unit P12.00 P4.00
Product cost per unit:
Direct material P1.00 P1.20
Direct labor 2.00 0.10
Variable overhead 0.50 0.05

Total fixed overhead is P380,000.

The company has 40,000 machine hours available for production. What sales mix will
maximize profits?
a. 320,000 brushes and 0 combs
b. 0 brushes and 800,000 combs
c. 160,000 brushes and 600,000 combs
d. 252,630 brushes and 252,630 combs

94. Just-in-time (JIT) inventory systems

a. result in a greater number of suppliers for each production process.

b. focus on a “push” type of production system.
c. can only be used with automated production processes.
d. result in inventories being either greatly reduced or eliminated.

95. A firm estimates that its annual carrying cost for material X is ₱0.30 per kilo If the firm
requires 50,000 kilos per year, and ordering costs are ₱100 per order, what is the EOQ
(rounded to the nearest kilo)?
a. 5,774 kilos c. 1,732 kilos
b. 4,082 kilos d. 1,225 kilos

96. A company annually consumes 10,000 units of Part C. The carrying cost of this part is ₱2
per year and the ordering costs are ₱100. The company uses an order quantity of 500 units.
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If the company operates 200 days per year, and the lead time for ordering Part C is 5 days,
what is the order point?
a. 250 units c. 500 units
b. 1,000 units d. 2,000 units

Use the following information for questions 97 and 98.

The following information relates to financial projections of a company for 2023:

Projected sales 60,000 units

Projected variable costs ₱2.00 per unit
Projected fixed costs ₱50,000 per year
Projected unit sales price ₱7.00

97. How many units would the company need to sell in 2023 to earn a profit before taxes of
₱10,000?
a. 25,714 c. 8,571
b. 10,000 d. 12,000

98. If the company achieves its projections in 2023, what will be its degree of operating
leverage?
a. 6.00 c. 1.68
b. 1.20 d. 2.40

99. In a CVP graph, the area between the total cost line and the total fixed cost line yields the
a. fixed costs per unit. c. profit.
b. total variable costs. d. contribution margin.

100. Which of the following statements about activity-based costing is NOT true?
a. Activity-based costing is useful for allocating marketing and distribution costs.
b. Activity-based costing is more likely to result in major differences from traditional
costing systems if the firm manufactures only one product rather than multiple
products.
c. Activity-based costing seeks to distinguish batch-level, product-sustaining, and
facility-sustaining costs, especially when they are not proportionate to one another.
d. Activity-based costing differs from traditional costing systems in that products are
not cross-subsidized.

101. If a group of consumers decide to boycott a particular product, the expected result would
be
a. an increase in the product price to make up lost revenue.
b. a decrease in the demand for the product.
c. that demand for the product would become completely inelastic.
d. an increase in product supply because of increased availability.

102. A target in the balanced scorecard framework is

a. a statement of what the strategy must achieve and what is critical to its success.
b. a key action program required to achieve strategic objectives.
c. the level of performance or rate of improvement needed in the performance
measure.
d. a diagram of the cause-and-effect relationships between strategic objectives.

103. Which of the following formulas can often reconcile the difference between absorption- and
variable-costing net income?
a. Ending inventory units x predetermined variable-overhead rate per unit.
b. Ending inventory units x predetermined fixed-overhead rate per unit.
c. Change in inventory units x predetermined fixed-overhead rate per unit.
d. Change in inventory units x predetermined variable-overhead rate per unit.
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104. A supply curve illustrates the relationship between
a. price and consumer tastes. c. supply and demand
b. price and quantity demanded. d. price and quantity supplied

105. A company is offered trade credit terms of 3/15,net 45. The firm does not take advantage
of the discount, and it pays the account after 67 days. Using a 365-day year, what is the
nominal annual cost of not taking discount?
a. 18.2% c. 21.71%
b. 23.48% d. 26.45%

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