Page 1 of 21 | Pre-week

MANAGEMENT SERVICES (MS)

MAY 2024 BATCH

REO CPA REVIEW

MANAGEMENT SERVICES
PRE-WEEK MAY 2024 BATCH

1. Accumulating, interpreting, and reporting financial information is important for

A. service-related firms only.
B. manufacturing firms only.
C. virtually all types of organizations.
D. external financial reporting only.

2. Which of the following is not included in the cost of quality?

A. Inspection costs
B. Costs of handling customer complaints
C. Rework costs
D. Inventory ordering costs

3. Staff management includes:

A. manufacturing managers
B. human-resource managers
C. purchasing managers
D. distribution managers

4. Suppose a management accountant becomes aware that a poor judgment he or she made
has resulted in the loss of one of the company's clients. Is the accountant bound to
share this information with the company? (The accountant doubts that the company will
ever find out about it directly.)
A. The management accountant is bound to honestly respond to inquiries regarding the
adequacy of professional judgments but is not bound to communicate them if not directly
asked.
B. The management accountant is bound to communicate this error in judgment only if
another client cannot be found.
C. The management accountant is not bound to communicate this error.
D. The management accountant is bound to communicate unfavorable and favorable judgments
made even if not directly asked.

5. Depreciation on a personal computer used in the marketing department of a

manufacturing firm would be classified as:
A. a product cost that is fixed with respect to the company's output.
B. a period cost that is fixed with respect to the company's output.
C. a product cost that is variable with respect to the company's output.
D. a period cost that is fixed with respect to the company's output

6. John Johnson decided to leave his former job where he earned P12 per hour to go to a
new job where he will earn P13 per hour. In the decision process, the former wage of
P12 per hour would be classified as a(n):
A. sunk cost.
B. direct cost.
C. fixed cost.
D. opportunity cost

7. A particular manufacturing job is subject to an estimated 80% learning curve. The

first unit required 50 labor hours to complete. If the learning curve is based on a
cumulative average time per unit assumption, what is the time required to complete the
second unit?
A. 30.0 hours. B. 40.0 hours. C. 45.0 hours. D. 50.0 hours

8. A steep slope in the variable cost line indicates a

A. low variable cost per unit.
B. high influence of activity on total variable costs.
C. low influence of activity on total variable costs.
D. large amount of fixed costs.

REO.CPA.ACADEMICS.F2.04.00
 Page 2 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

9. Which of the following expenses incurred by a department store is a direct cost for
the women's shoe department?
A. the salespersons' commissions in the women's shoe department
B. the salaries for individuals working in the accounting department
C. the advertising expense for the service department
D. the allocated rent expense for the clothing department

10. Which of the following costs is a product cost?

A. lease payments on cars used by salespersons
B. president's salary
C. property taxes on factory building
D. depreciation on office equipment

11. Assume the following information:

Volume Total Cost
80 units P1,200
88 units P1,300
96 units P1,400

Using high-low points method, what is the total cost of producing 110 units?
A. P1,575
B. P1,650
C. P1,604
D. can not be determined based on the information given.

12. Which of the following would be classified as an appraisal cost on a quality cost
report?
A. Final product testing and inspection.
B. Net cost of spoilage.
C. Repairs and replacements beyond the warranty period.
D. Rework labor and overhead.

13. Cost-volume-profit (CVP) analysis is a simple but powerful tool to assist

management make operating decisions. Which of the following does not represent a
potential use of CVP analysis?
A. Ability to compute the break-even point.
B. Ability to determine optimal sales volumes.
C. Aids in evaluating tax planning alternatives.
D. Aids in determining optimal pricing policies

14. Which of the following changes to a company's contribution income statement will
always lower the break-even point (either in units or in pesos)?
A. Sales price increases by 10%.
B. Sales price decreases by 5%.
C. Variable costs increase by 10% and fixed costs decrease by 5%.
D. Variable costs decrease by 5% and fixed costs increase by 10%.

15. You have been provided with the following information:

Per Unit Total
Sales P15 P45,000
Less: Variable cost 9 27,000
Contribution margin P 6 18,000
Less: Fixed cost 12,000
Profit P 6,000
If sales decrease by 500 units, how much will fixed expenses have to be reduced by to
maintain the current operating profit of P6,000?
A. P9,000. B. P7,500. C. P6,000. D. P3,000.

16. During 20x6, Thor Lab supplied hospitals with a comprehensive diagnostic kit for
P120. At a volume of 80,000 kits, Thor had fixed costs of P1,000,000 and a profit
before income taxes of P200,000. Due to an adverse legal decision, Thor's 20x7
liability insurance increased by P1,200,000 over 20x6. Assuming the volume and other
costs are unchanged, what should the 20x7 price be if Thor is to make the same
P200,000 profit before income taxes?
A. P122.50 B. P135.00 C. P152.50 D. P240.00

REO.CPA.ACADEMICS.F2.04.00
 Page 3 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

17. If breakeven point is 1,000 units, each unit sells for P30, and fixed costs are
P10,000, then on a graph the:
A. total revenue line and the total cost line will intersect at P30,000 of revenue
B. total cost line will be zero at zero units sold
C. revenue line will start at P10,000
D. All of these answers are correct.
18. Assume the following cost information for Fernandez Company:
Selling price P120 per unit
Variable costs P80 per unit
Total fixed costs P80,000
Tax rate 40%
What is the number of units that must be sold to earn an after-tax net income of
P42,000?
A. 3,750 units B. 4,625 units C. 3,050 units D. 1,875 units

19. Information about the Harmon Company's two products includes:

Product X Product Y
Unit selling price P9.00 P9.00
Unit variable costs:
Manufacturing P5.25 P6.75
Selling 0.75 0.75
Total P6.00 P7.50
Monthly fixed costs are as follows:
Manufacturing P 82,500
Selling and administrative 45,000
Total P127,500

What is the total monthly sales volume in units required to break even when the sales
mix in units is 70 % Product X and 30 % Product Y?
A. 8,333 units B. 50,000 units C. 16,667 units D. 56,667 units

20. When a greater proportion of costs are fixed costs, then:

A. a small increase in sales results in a small decrease in operating income
B. when demand is low the risk of loss is high
C. when demand is high the breakeven point is increased
D. a decrease in sales reduces the cost per unit
21. A cost that would be included in product costs under both absorption costing and
variable costing is:
A. supervisory salaries.
B. factory rent.
C. variable manufacturing costs.
D. variable selling expenses.

22. Badoni Corporation has provided the following data for its two most recent years of
operation:
Selling price per unit P85
Manufacturing costs:
Variable manufacturing cost per unit produced:
Direct materials P10
Direct labor P6
Variable manufacturing overhead P4
Fixed manufacturing overhead per year P96,000
Selling and administrative expenses:
Variable selling and administrative expense per unit sold P5
Fixed selling and administrative expense per year P77,000
Year 1 Year 2
Units in beginning inventory 0 1,000
Units produced during the year 8,000 6,000
Units sold during the year 7,000 3,000
Units in ending inventory 1,000 4,000

The net operating income (loss) under variable costing in Year 2 is closest to:
A. P180,000 B. P195,000 C. P59,000 D. P7,000

REO.CPA.ACADEMICS.F2.04.00
 Page 4 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

23. When sales exceed production and the company uses the LIFO inventory flow assumption,
the net operating income reported under variable costing generally will be:
A. less than net operating income reported under absorption costing.
B. greater than net operating income reported under absorption costing.
C. equal to net operating income reported under absorption costing.
D. higher or lower because no generalization can be made.

24. Veach Corporation incurred fixed manufacturing costs of P6,000 during 20x1. Other
information for 20x1 includes:
The budgeted denominator level is 1,000 units.
Units produced total 750 units.
Units sold total 600 units.
Beginning inventory was zero.

The company uses variable costing and the fixed manufacturing cost rate is based
on the budgeted denominator level. Manufacturing variances are closed to cost of goods
sold.

Fixed manufacturing costs expensed on the income statement (excluding adjustments

for variances) total:
A. P3,600 B. P4,800 C. P6,000 D. 0

Use the following information for the next two questions:

Zela Company is preparing its annual profit plan. As part of its analysis of the
profitability of individual products, the controller estimates the amount of overhead
that should be allocated to the individual product lines from the information provided
below.
Wall Mirrors Specialty Windows
Units produced 40 20
Material moves per product line 5 15
Direct labor hours per product line 200 300

Budgeted material handling costs: P50,000

25. Under a traditional costing system that allocates overhead on the basis of direct
labor hours, the materials handling costs allocated to one unit of wall mirrors would
be
A. P1,000 B. P500 C. P2,000 D. P5,000

26. Under an activity-based costing (ABC) system, the materials handling costs allocated
to one unit of wall mirrors would be
A. P625.00 B. P312.50 C. P833.33 D. P1,000.00

Use the following information for the next two questions:

The Gows Company processes unprocessed goat milk up to the splitoff point where
two products, condensed goat milk and skim goat milk result. The following information
was collected for the month of October:
Direct Materials processed: 130,000 gallons (shrinkage was 10%)

Production: condensed goat milk 52,200 gallons

skim goat milk 64,800 gallons

Sales: condensed goat milk P3.50 per gallon

skim goat milk P2.50 per gallon

The costs of purchasing the 130,000 gallons of unprocessed goat milk and processing
it up to the split off point to yield a total of 117,000 gallons of salable product was
P144,480. There were no inventory balances of either product.

Condensed goat milk may be processed further to yield 39,000 gallons (the
remainder is shrinkage) of a medicinal milk product, Xyla, for an additional
processing cost of P3 per usable gallon. Xyla can be sold for P18 per gallon.

REO.CPA.ACADEMICS.F2.04.00
 Page 5 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

Skim goat milk can be processed further to yield 56,200 gallons of skim goat ice
cream, for an additional processing cost per usable gallon of P2.50. The product can be
sold for P9 per gallon.

There are no beginning and ending inventory balances.

27. What is the estimated net realizable value of the skim goat ice cream at the splitoff
point?
A. P365,300 B. P505,800 C. P220,400 D. P170,900

28. Using estimated net realizable value, what amount of the P144,480 of joint costs
would be allocated Xyla and the skim goat ice cream?
A. P83,942 and P60,538 C. P65,592 and P78,888
B. P88,942 and P55,538 D. P144,480 and P72,140

29. Which type of budgeting utilizes employees at all levels of the company?
A. Group budgeting C. Target budgeting
B. Selective budgeting D. Participative budgeting

30. Which of the following is not a guideline for budget preparation?

A. Include financial data only.
B. Know the sources of budget information.
C. Know the purpose of the budget.
D. Identify the format of the budget.

31. Which of the following is a true statement?

A. The direct materials purchases budget is determined from the direct labor budget.
B. The only budget providing input into the revenue budget is the sales budget.
C. The direct materials purchases budget and the capital expenditures budget are both
determined from the production budget.
D. The selling and administrative expense budget is input into the forecasted cost of
goods sold.

32. Which of the following is not true about the direct materials purchases budget?
A. It is determined by the anticipated change in the direct materials inventory level
and the production budget.
B. The direct materials purchases budget does not affect the forecasted balance sheet.
C. The direct materials purchases budget is expressed in units and pesos.
D. It is used in preparing the budgeted income statement.

33. The Tobler Company had budgeted production for the year as follows:
Quarter 1 2 3 4
Production in units 10,000 12,000 16,000 14,000

Four pounds of raw materials are required for each unit produced. Raw materials on
hand at the start of the year total 4,000 lbs. The raw materials inventory at the end
of each quarter should equal 10% of the next quarter's production needs in materials.
Budgeted purchases of raw materials in the third quarter would be (in lbs.)
A. 63,200 lbs. B. 62,400 lbs. C. 56,800 lbs. D. 50,400 lbs.

34. Kaufman Industries has just completed its sales forecasts and its marketing
department estimates that the company will sell 36,000 units during the upcoming year.
In the past, management has maintained inventories of finished goods at approximately
three months' sales. However, the estimated inventory at the start of the year of the
budget period is only 6,000 units. Sales occur evenly throughout the year. What is the
estimated production level (units) for the first month of the upcoming budget year?
A. 12,000 B. 9,000 C. 6,000 D. 3,000

35. Pardee Company makes 30% of its sales for cash and 70% on account. 60% of the account
sales are collected in the month of sale, 25% in the month following sale, and 12% in
the second month following sale. The remainder is uncollectible. The following
information has been gathered for the current year:
Month 1 2 3 4
Total sales P60,000 P70,000 P50,000 P30,000
Total cash receipts in Month 4 will be
A. P38,000. B. P47,900. C. P27,230. D. P36,230.

REO.CPA.ACADEMICS.F2.04.00
 Page 6 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

36. From the perspective of corporate management, the use of budgetary slack (CMA
adapted)
A. increases the effectiveness of the corporate planning process.
B. increases the ability to identify potential budget weaknesses.
C. encourages the use of effective corrective actions.
D. increases the likelihood of inefficient resource allocation.

37. Selana Company's total costs of operating five sales offices last year were P500,000,
of which P70,000 represented fixed costs. Selana has determined that total costs are
significantly influenced by the number of sales offices operated. Last year's costs and
number of sales offices can be used as the basis for predicting annual costs. What would
be the budgeted cost for the coming year if Selana were to operate seven sales offices?
A. P700,000 B. P672,000 C. P602,000 D. P586,000

38. Harrison Company manufactures card tables. The company has a policy of maintaining
a finished goods inventory equal to 40 % of the next month's planned sales. Each card
table requires 3 hours of labor. The budgeted labor rate for the coming year is P13 per
hour. Planned sales for the months of April, May, and June are respectively 4,000;
5,000; and 3,000 units. What is Harrison Company’s budgeted direct labor cost for May?
A. P54,600 B. P163,800 C. P226,200 D. P179,400

39. For the month of October, P Corp. predicts total cash collections to be P1 million.
Also for October, P Corp. estimates that its beginning cash balance will be P50,000 and
that it will borrow cash in the amount of P70,000. If P Corp. estimates an ending cash
balance of P30,000 for October, what must its projected cash disbursements be?
A. P1,090,000 B. P1,120,000 C. P1,070,000 D. P1,020,000

40. Bebee Corporation currently produces cardboard boxes in an automated process.

Expected production per month is 40,000 units, direct-material costs are P0.60 per unit,
and manufacturing overhead costs are P18,000 per month. Manufacturing overhead is all
fixed costs. What is the flexible budget for 20,000 and 40,000 units, respectively?
A. P21,000; P33,000
B. P21,000; P42,000
C. P30,000; P42,000
D. None of these answers are correct.

41. If raw materials are carried in the Direct Materials Inventory at standard cost,
then it is reasonable to assume that the
A. price variance is recognized when materials are purchased.
B. price variance is recognized when materials are placed into production.
C. company does not follow generally accepted accounting principles.
D. efficiency variance is recognized when the materials are purchased.

42. Which of the following statements is (are) false?

(A) All variances should be prorated to inventories and cost of goods sold at the end
of the accounting period.
(B) If the number of units produced exceeds the number of units sold, the full-absorption
operating profit will be lower than variable costing operating profit.
A. Only A is false.
B. Only B is false.
C. Both A and B are false.
D. Neither A nor B is false.

43. What is the correct journal entry to record direct labor when the actual labor mix
is favorable and the total standard hours allowed is greater than the total actual
hours worked?

A. Work in process inventory xxx

Direct labor yield variance xxx
Direct labor mix variance xxx
Wages payable xxx

REO.CPA.ACADEMICS.F2.04.00
 Page 7 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

B. Work in process inventory xxx

Direct labor yield variance xxx
Direct labor mix variance xxx
Wages payable xxx

C. Finished goods inventory xxx

Direct labor mix variance xxx
Direct labor yield variance xxx
Work in process inventory xxx

D. Finished goods inventory xxx

Direct labor yield variance xxx
Direct labor mix variance xxx
Work in process inventory xxx

Use the following information for the next two questions:

The following information is presented to you by Stay Company:
Denominator hours for May 15,000
Actual hours allowed for May 14,000
Standard hours allowed for May 12,000
Flexible budget fixed overhead cost P45,000
Actual fixed overhead costs for May P48,000

44. What is the fixed overhead spending (budget) variance for May?
A. P1,000 unfavorable C. P2,000 unfavorable
B. P3,000 unfavorable D. P2,000 favorable

45. What is the production volume variance for May?

A. P2,000 favorable C. P6,000 favorable
B. P3,000 unfavorable D. P9,000 unfavorable

46. Which one of the following variances is of least significance from a behavioral
control perspective?
A. Unfavorable materials quantity variance amounting to 20% of the quantity allowed for
the output attained.
B. Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours
for the output attained.
C. Favorable materials price variance obtained by purchasing raw materials from a new
vendor.
D. Fixed factory overhead volume variance resulting from management's decision midway
through the fiscal year to reduce its budgeted output by 20%.

Use the following information for the next two questions:

A machine distributor sells two models, basic and deluxe. The following information
relates to its master budget.
Basic Deluxe
Sales units 8,000 2,000
Sales price per unit P8,000 P12,000
Variable cost per unit P6,400 P9,000

Actual sales were 7,000 basic models and 2,800 deluxe models. The actual sales
prices were the same as the budgeted sales prices for both models.

47. What is the sales activity variance for the basic model?
A. P1,280,000 u B. P1,600,000 u C. P11,200,000 f D. P12,800,000 f

48. What is the sales mix variance for the basic model?
A. P256,000 u B. P1,344,000 u C. P1,600,000 f D. P2,520,000 f

49. ABC Corp. is composed of three operating divisions. Overall, the ABC Corp. has a
return on investment of 20%. A Division has a return on investment of 25%. If ABC Corp.
evaluates its managers on the basis of return on investment, how would the A Division
manager and the ABC Corp. president react to a new investment that has an estimated
return on investment of 23%?
REO.CPA.ACADEMICS.F2.04.00
 Page 8 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

A Division manager ABC Corp. president

A. accept accept
B. accept reject
C. reject accept
D. reject reject

50. A sub-unit of an organization is evaluated on the basis of its ROI. If this sub-
unit's sales and expenses both increase by P30,000, how will the following measures be
affected?
ROI Assert turnover Profit margin
A. increase increase increase
B. indeterminate increase decrease
C. no change increase decrease
D. no change decrease no change

Use the following information for the next three questions:

Texas Division of the Houston Company has the following statistics for its most
recent operations:
Assets available for use (Market Value) P3,600,000
Assets available for use (Book Value) P2,000,000
Texas Division's return on investment 25%
Texas Division's residual income 200,000
Return on investment (entire Houston Company) 20%

51. Compute EVA assuming the cost of capital is 10% and the tax rate is 40%.
A. P 90,000 B. P 150,000 C. P0 D. P (60,000)

52. What is the target rate of return in Houston Company?

A. 25% B. 20% C. 15% D. 10%

53. If Houston Company evaluates its managers on the basis of return on investment,
the manager of Texas Division would invest in a project costing P100,000 only if it
increased net segment income by at least
A. P10,000 B. P15,000 C. P20,000 D. P25,000

54. In general, if a potential transfer has no effect on divisional profits,

A. no transfer will take place between the divisions.
B. managers will be indifferent between making the transfer or not.
C. the organization should not intervene to force a transfer.
D. the optimal transfer price is the opportunity cost for the buying division.

Use the following information for the next two questions:

Avery Corporation has two divisions, A and B, which are both organized as profit centers;
Division A produces and sells widgets to Division B and to outside customers. Division
A has total costs of P35, P20 of which are variable. Division A is operating significantly
below capacity and sells the widgets for P50.
Division B has received an offer from an outsider vendor to supply all the widgets it
needs (20,000 widgets) at a cost of P45. The manager of Division B is considering the
offer but wants to approach Division A first.

55. What would be the profit impact to Avery Corporation as a whole if Division B
purchased the 20,000 widgets it needs from the outside vendor for P45?
A. no change in profit to Avery C. P100,000 decrease in profits
B. P100,000 increase in profits D. P500,000 decrease in profits

56. What is the maximum transfer price from Division A to Division B?

A. P20 B. P35 C. P45 D. P50

57. Which of the following is the throughput measure?

A. Processing time/Total time
B. Good units/Total time
C. Good units/Processing time
D. Total units/Total time

REO.CPA.ACADEMICS.F2.04.00
 Page 9 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

58. On a balanced scorecard, which of the following would be most appropriate to measure
innovation:
A. Rapid time-to-market of new products
B. Corporate financial profits
C. On-time delivery
D. Manufacturing cycle efficiency

59. Which of the following nonfinancial measures would not be used to evaluate a middle
manager's performance?
A. Frequency of meeting customer delivery requirements.
B. Amount of unwanted employee turnover.
C. Success in dealing with suppliers.
D. Fulfilling responsibilities to company shareholders.

60. The Pepin Company collected the following information (in days):
Manufacturing product 20
Storing product 8
Transporting product 2
Inspecting product 1

What is the manufacturing cycle efficiency?

A. 28.6% B. 64.5% C. 71.4% D. 90.9%

Use the following information for the next two questions:

Wingard Company makes a household appliance with model number X200. The goal for 20x2
is to reduce direct materials usage per unit. No defective units are currently produced.
Manufacturing conversion costs depend on production capacity defined in terms of X200
units that can be produced. The industry market size for appliances increased 10% from
20x1 to 20x2. The following additional data are available for 20x1 and 20x2:
20x1 20x2
Units of X200 produced and sold 10,000 11,000
Selling price P100 P95
Direct materials (square feet) 30,000 29,000
Direct material costs per square foot P10 P11
Manufacturing capacity for X200 (units) 12,500 11,000
Total manufacturing conversion costs P250,000 P220,000
Manufacturing conversion costs per unit of capacity P20 P20

61. What is the revenue effect of the price-recovery component?

A. P5,000 U B. P55,000 U C. P50,000 F D. P102,500 F

62. What is the cost effect of the price-recovery component?

A. P30,500 F B. P31,500 U C. P2,500 F D. P33,000 U

63. What is the net effect on operating income as a result of the price-recovery
component?
A. decreased operating income due to decreased selling price and inability to recover
increased costs
B. decreased operating income due to the inability to recover increased costs
C. increased operating income due to the increased number of units produced and sold
D. increased operating income due to the revenue effect of the price-recovery component

64. Overall, was Wingard's strategy successful for 20x2?

A. No, because the selling price per unit decreased.
B. Yes, because operating income increased.
C. Yes, because less direct materials were used.
D. No, because more units were produced and sold.

65. Which of the following qualitative factors favors the buy choice in a make or buy
decision for a part?
A. maintaining a long-term relationship with suppliers
B. quality control is critical
C. utilization of idle capacity
D. part is critical to product

REO.CPA.ACADEMICS.F2.04.00
 Page 10 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

66. When a scarce resource, such as space, exists in an organization, the criterion
that should be used to determine production is
A. contribution margin per unit.
B. selling price per unit.
C. contribution margin per unit of scarce resource.
D. total variable costs of production.

67. Paulson Company has only 25,000 hours of machine time each month to manufacture its
two products. Product X has a contribution margin of P50, and Product Y has a contribution
margin of P64. Product X requires 5 hours of machine time, and Product Y requires 8
hours of machine time. If Paulson Company wants to dedicate 80 % of its machine time to
the product that will provide the most income, the company will have a total contribution
margin of
A. P250,000. B. P240,000. C. P210,000. D. P200,000.

68. Knox Company uses 10,000 units of a part in its production process. The costs to
make a part are: direct material, P12; direct labor, P25; variable overhead, P13;
and applied fixed overhead, P30. Knox has received a quote of P55 from a potential
supplier for this part. If Knox buys the part, 70 % of the applied fixed overhead
would continue. Knox Company would be better off by
A. P50,000 to manufacture the part. C. P40,000 to buy the part.
B. P150,000 to buy the part. D. P160,000 to manufacture the part.

69. Albany Industries produces two products. Information about the products is as
follows:
Product 1 Product 2
Units produced and sold 4,000 10,000
Selling price per unit P15 P13
Variable cost per unit P9 P8

The company's fixed costs totaled P70,000, of which P15,000 can be directly
traced to Product 1 and P40,000 can be directly traced to Product 2. The effect on the
firm's profits if Product 2 is dropped would be a
A. P10,000 increase C. P35,000 decrease
B. P35,000 increase D. P10,000 decrease

70. The following information relates to a product produced by Ashland Company:

Direct materials P10
Direct labor 7
Variable overhead 6
Fixed overhead 8
Unit cost P31

Fixed selling costs are P1,000,000 per year. Variable selling costs of P4 per
unit sold are added to cover the transportation cost. Although production capacity is
500,000 units per year, Ashland expects to produce only 400,000 units next year. The
product normally sells for P40 each. A customer has offered to buy 60,000 units for
P30 each. The customer will pay the transportation charge on the units purchased. If
Ashland accepts the special order, the effect on income would be a
A. P60,000 increase C. P420,000 increase
B. P180,000 increase D. P600,000 decrease

71. Zurek Inc has 5,400 machine hours available each month. The following information
on the company's three products is available:
Product 1 Product 2 Product 3
Contribution margin per unit P15.00 P18.00 P7.50
Machine hours per unit 3 hrs 2 hrs 1 hr

The market demand is limited to 2,000 units of each of the three products. What
is the maximum possible contribution margin that Zurek could make in any month?
A. P81,000 B. P46,500 C. P43,000 D. P51,000

REO.CPA.ACADEMICS.F2.04.00
 Page 11 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

72. For the past five years, the Selin Company has produced and sold frequency meters
to genetics labs throughout the United States. Recently, a strong competitor has
entered the market and Selin is considering whether it should continue to produce and
sell the frequency meters. The following information has been gathered to assist
management in their decision:
A) Sales volume (units) is estimated to drop by 25% once the competitor becomes fully
operational.
B) The equipment used to produce the meters was purchased five-years ago for
P1,500,000.
C) The space now used to produce the meters would be reallocated to eliminate the need
to rent warehouse space.
D) Three of the employees who produce meters would be reassigned to the oscillator
division.
Which of the items listed above is (are) relevant to the decision to continue the
production and sale of the frequency meters?
A. A and C. B. B and C. C. C and D. D. A, B, and D.

73. A major advantage of the target costing approach to pricing is that target costing
A. allows a company to analyze the potential profit of a product before spending money
to produce the product.
B. is not dependent on customers' quality versus price decisions.
C. identifies unproductive assets.
D. anticipates the product's profitability midway through its life cycle.

74. The following information pertains to Dodge Company's three products:

A B C
Unit sales per year 250 400 250

Selling price per unit P9.00 P12.00 P 9.00

Variable costs per unit 3.60 9.00 9.90
Unit contribution margin P5.40 P 3.00 P(0.90)
Contribution margin ratio 60% 25% (10)%

Assume that product C is discontinued and the extra space is rented for P300 per
month. All other information remains the same as the original data. Annual profits
will
A. increase by P75. C. increase by P525.
B. decrease by P75. D. remain the same.

75. Manning Company uses a joint process to produce products W, X, Y, and Z. Each
product may be sold at its split-off point or processed further. Additional processing
costs of specific products are entirely variable. Joint processing costs for a single
batch of joint products are P120,000. Other relevant data are as follows:
Sales Value Additional Sales Value of
Product at Split-Off Processing Costs Final Product
W P40,000 P60,000 P 80,000
X P12,000 P 4,000 P 20,000
Y P20,000 P32,000 P120,000
Z P28,000 P20,000 P 32,000
P100,000 P116,000 P252,000

Which products should Manning process further?

A. all B. all except Z C. X and Y D. none

76. Wallen Corporation is considering eliminating a department that has an annual

contribution margin of P80,000 and P160,000 in annual fixed costs. Of the fixed costs,
P90,000 cannot be avoided. The annual financial advantage (disadvantage) for the
company of eliminating this department would be:
A. P10,000 B. (P10,000) C. P80,000 D. (P80,000)

77. The Prep Club sells fresh hot cider at Ivy University's home football games. The
frequency distribution of the demand for cups of hot cider per game is presented
below.

REO.CPA.ACADEMICS.F2.04.00
 Page 12 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

Unit Sales Volume Probability

10,000 cups .10
20,000 cups .15
30,000 cups .20
40,000 cups .35
50,000 cups .20

The hot cider is sold for P1.00 a cup, and the cost per cup is P.40. Any unsold
hot cider is discarded because it will spoil before the next home game.

The estimated demand for hot cider at the next Ivy University home football game
using an expected value approach is:
A. 30,000 cups B. 34,000 cups C. 40,000 cups D. 50,000 cups

78. The following information is available for Wilson Trailer Company, which sells two
products:
Trailer A Trailer B
Processing time 2 hours 4 hours
Vinyl cover used 16 sq. ft. 12 sq. ft.
Selling price P50.00 P80.00
Variable cost P35.00 P50.00
Fixed cost P10.00 P20.00

There are 100 hours available in the plant and 75 square feet of vinyl available
per operating period.

Which of the following statements is INCORRECT?

A. The materials constraint favors Trailer B over Trailer A.
B. The time constraint favors Trailer A over Trailer B.
C. The material constraint favors Trailer A over Trailer B.
D. The objective function favors Trailer B over Trailer A.

79. Using the graphic approach to linear programming, the solution is usually
A. a corner point where two or more constraints intersect.
B. where the lines intersect farthest from zero.
C. the point farthest from the Y-axis.
D. the point farthest from the X-axis.

80. The following table contains the profit outcomes for each state of nature and
decision combination for a firm
States of Nature
S1 S2 S3
Decision 1 P24 P14 P(6)
Decision 2 P20 P10 P 5
Decision 3 P(20) P 8 P15
Probabilities 0.10 0.50 0.40
The expected value of perfect information for this firm in this case is
A. P6.40. B. P8.40. C. P9.00. D. P8.60.

81. A ________ is responsible for evaluating and recommending proposed long-term

investments.
A. financial analyst C. pension fund manager
B. credit manager D. capital expenditures manager

82. The wealth of the owners of a corporation is represented by ________.

A. profits C. share value
B. earnings per share D. cash flow

83. Profit maximization as a goal is ideal because it directly considers ________.

A. risk and book value of assets C. timing and risk
B. timing and cash flow D. EPS and stock price.

REO.CPA.ACADEMICS.F2.04.00
 Page 13 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

84. Which of the following is true of cash flows and risk?

A. Low cash flow and low risk result in an increase in share price.
B. High cash flow and low risk result in an increase in share price.
C. High cash flow and high risk result in an increase in share price.
D. Lo cash flow and high risk result in an increase in share price.

85. A financial manager is interested in the cash inflows and outflows of a firm, rather
than the accounting data, in order to ________.
A. ensure profitability
B. maintain healthy public relations
C. ensure timely payment of taxes
D. maintain an optimum solvency level

86. A financial manager's investment decisions determine ________.

A. both the mix and the type of assets found on the firm's balance sheet
B. both the mix and the type of liabilities found on the firm's balance sheet
C. both the mix and the type of assets and liabilities found on the firm's balance
sheet
D. both the mix and the type of short-term and long-term financing

2.Analyze and use financial data derived from financial statements in evaluating the
performance of the management and make business decisions. (5) 87 - 96

87. Cristin Company reported the following information for the current year:
Most recent EPS P10
Forecasted EPS P11
Trailing P/E Ratio 5 times
Industry P/E Ratio 4 times

What is Cristin Co.’s Forward P/E ratio?

A. 4.55 times B. 4.77 times C. 3.64 times D. 5.50 times

Use the following information for the next four questions:

Drivon Corporation uses a calendar year for financial reporting purposes. Condensed
financial statements for a recent year are reproduced below.

Drivon Corporation
Income Statement
For the Year Ended December 31
P(000 omitted)

Sales P1,200
Cost of goods sold 700
Gross margin 500
Operating expenses 250
Net operating income 250
Interest expense 50
Net income before taxes 200
Income taxes 100
Net income P100

Drivon Corporation
Statement of Financial Position
December 31
P(000 omitted)

Cash P100
Marketable securities 150
Accounts receivable 200
Inventories 400
Prepaid expenses 50
Property, plant, & equipment, net 530
Patents 70
Total assets P1,500
REO.CPA.ACADEMICS.F2.04.00
 Page 14 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

Accounts payable P120

Short-term note 180
Wages payable 100
Long-term bonds payable 400
Preferred stock, par 200
Common stock, par 200
Additional paid-in capital--common stock 100
Retained earnings 200
Total liabilities and equities P1,500

The Accounts Receivable balance at the beginning of the year was P180,000. Total assets
at the beginning of the year were P1,300,000. Preferred dividends during the year were
P16,000. Total common stockholders' equity at the beginning of the year was P500,000.
Assume all other ending balances are representative of an average during the year.

88. Drivon's net profit margin was closest to

A. 20.83% B. 16.67% C. 41.67% D. 8.33%

89. Drivon's times interest earned for the year was closest to:
A. 4 times B. 5 times C. 6 times D. 10 times

90. Drivon's intangible asset turnover for the year was closest to:
A. 1.24 times B. 2.26 times C. 17 times D. 2 times

91. Drivon's tangible fixed asset turnover for the year was closest to:
A. 1.24 times B. 2.26 times C. 17 times D. 2 times

Use the following information for the next two questions:

MEGAFRAME COMPUTER COMPANY
Balance Sheet
As of December 31, 20x9

ASSETS
Cash P 50,000
Accounts Receivable 70,000
Inventory 110,000
Net Plant and Equipment 220,000
Total Assets P450,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts Payable P 70,000
Accrued Expenses 50,000

Long-Term Debt 130,000

Common Stock 70,000
Paid-In Capital 40,000
Retained Earnings 90,000
Total Liabilities and Stockholders’ Equity P450,000

MEGAFRAME COMPUTER COMPANY

Income Statement
For the Year Ended December 31, 20x9

Sales (all on credit) P 875,000

Cost of Goods Sold 600,000
Gross Profit 275,000
Sales and Administrative Expense 30,000
Depreciation 55,000
Operating Profit 190,000
Interest Expense 25,000
Profit before Taxes 165,000
Taxes (30%) 49,500
Net Income P 115,500

REO.CPA.ACADEMICS.F2.04.00
 Page 15 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

92. Using the DuPont method, return on assets (investment) for Megaframe Computer is
approximately
A. 15% B. 22% C. 26% D. 35%
93. The firm's return on equity is
A. 52.8 B. 55.6% C. 58.0% D. 100.0%

94. Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants
you to forecast the firm's additional funds needed (AFN). Data for use in your forecast
are shown below:
Last year's sales = S0 P200,000
Sales growth rate = g 40%
Last year's total assets = A0* P135,000
Last year's profit margin = PM 20.0%
Last year's accounts payable P50,000
Last year's notes payable P15,000
Last year's accruals P20,000
Target payout ratio 25.0%

What is the AFN for the coming year?

A. −P14,440 B. −P15,200 C. −P16,000 D. −P16,800

95. All of the following are common examples of possible distortion in reported income
except
A. inflation C. cash flow statements
B. treatment of nonrecurring items D. reporting of revenue

96. Select information from a company’s year-end balance sheet is shown below.
Balance Sheet
As of December 31, Year 1
Cash P 50,000
Accounts receivable 120,000
Inventory 75,000
Property, plant and equipment, net 250,000
Total assets P495,000

Accounts payable P 35,000

Long-term debt 100,000
Total liabilities P135,000

Common stock P 300,000

Retained earnings 60,000
Total equity P360,000
Total liabilities and equity P495,000

Based on the above information, a common-size balance sheet for the company will show
A. accounts receivable at 24%.
B. long-term debt at 74%.
C. property, plant and equipment, net at 69%.
D. retained earnings at 17%.

97. One major risk a firm assumes in an aggressive financing strategy is ________.
A. the possibility that collections will be slower than expected
B. the possibility that long-term funds may not be available when needed
C. the possibility that short-term funds may not be available when needed
D. the possibility that it will run out of cash

98. Studio San, a dealer in contemporary art, has forecasted its seasonal financing
needs for the next six months as follows:
Month Seasonal Requirement
January P1,450,000
February 1,895,000
March 2,000,000
April 1,575,000
May 1,342,000
June 1,562,000
REO.CPA.ACADEMICS.F2.04.00
 Page 16 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

The firm projects that short-term funds will cost 11 % and long-term funds will
cost 13 % annually. The firm's permanent funds requirement is P500,000.

Calculate financing costs for the first six months using the aggressive and
conservative strategies.
A. P245,106 and P325,000 C. P239,460 and P20,540
B. P122,553 and P162,500 D. P11,550 and P155,675

Use the following information for the next three questions:

Seal Company has the following information available concerning one of its
inventory items:
Cost of placing an order P32.00
Unit carrying cost per year P4.00
Annual unit demand 5,625
Safety stock 100
Average daily demand 25
Normal lead time in days 10

99. The economic order quantity for this item is

A. 900,000 units. B. 600 units. C. 75 units. D. 300 units.

100. The reorder point for the inventory item is

A. 250 units. B. 600 units. C. 350 units. D. 1,500 units.

101. If there is a delay in shipping the item, approximately how many days can be
covered by the safety stock?
A. 100 days B. 30 days C. 25 days D. 4 days

102. A firm is considering relaxing credit standards which will result in an increase
in annual sales from P3 million to P3.75 million, a decrease in the cost of annual
sales from P2,225,000 to P2,000,000, an increase in additional profit contribution
from sales of P10,000, and an increase in the average collection period of 15 days,
from 20 to 35 days. The bad debt loss is expected to increase from 1 % to 1.5 % of
sales. The firm's required return on investments is 15 %. The net result of the firm
relaxing its credit standards is ________. (Assume a 360-day year.)
A. P10,000 B. -P16,250 C. -P26,875 D. -P16,875

103. ________ float results from the lapse between the time when a firm deducts a
payment from its checking account ledger and the time when funds are actually
withdrawn from its account.
A. Mail B. Processing C. Collection D. Disbursement

104. Tangshan Mining has extended credit terms of 3/15 net 30. The cost of giving up
the cash discount, assuming payment would be made on the last day of the credit
period, is 75.26 %. If the firm were able to stretch its accounts payable to 60 days
without damaging its credit rating, the cost of giving up the cash discount would only
be ________.
A. 18.81% B. 18.25% C. 21.90% D. 24.74%

105. Tisha Gold borrowed P100,000 for one year under a line of credit with a stated
interest rate of 7.5 % and a 15 % compensating balance. Normally, the firm keeps a
balance of about P10,000 in its checking account. Based on this information, the
effective annual interest rate on the loan is ________.
A. 7.89% B. 8.05% C. 8.89% D. 7.29%

Use the following information for the next two questions:

Hayley's Theatrical Supply is in the process of negotiating a line of credit with two
local banks. The prime rate is currently 8 %. The terms follow:
1st National Bank: 1% above prime rate on a discounted bases and a 20% compensating
balance on the face vale of the loans.
2nd National Bank: 2% above prime rate and a 15% compensating balance.

106. Compute for 1st National bank’s effective rate.

A. 11.76% B. 11.25% C. 9.4% D. 10%

REO.CPA.ACADEMICS.F2.04.00
 Page 17 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

107. Hayley should choose

A. 1st National because it has the lower effective interest
B. 2nd National because it has the lower effective interest
C. any of the two because both have the same effective interest
D. 1st National because it has the lower stated interest

108. Global Logistics purchased a new machine on October 20th, 20x4 for P1,000,000 on
credit. The supplier has offered A&A terms of 2/10, net 45. The current interest rate
the bank is offering is 16 %. What is the effective rate of interest if the firm
decides to take the cash discount by borrowing money on a discount basis?
A. 12.81% B. 21.00% C. 16.48% D. 16.00%

109. You buy a new piece of equipment for P7,360, and you receive a cash inflow of
P1,000 per year for 10 years. What is the internal rate of return?
A. 5% B. 6% C. 7% D. more than 7%

110. Stone Inc. is evaluating a project with an initial cost of P9,500. Cash inflows
are expected to be P1,500, P1,500 and P10,000 in the three years over which the project
will produce cash flows. If the discount rate is 9%, what is the net present value of
the project?
A. less than P0 C. between P400 and P800
B. between P0 and P400 D. more than P800

111. A firm utilizes a strategy of capital rationing, which is currently P375,000 and
is considering the following 2 projects: Project A has a cost of P335,000 and the
following cash flows: year 1 P140,000; year 2 P150,000; and year 3 P100,000. Project B
has a cost of P365,000 and the following cash flows: year 1 P220,000; year 2 P110,000;
and year 3 P150,000. Using a 12% cost of capital, which decision should the financial
manager make?
A. Select project A C. Do not select either project
B. Select project B D. Select both projects

112. Project X has a cost of P100,000 and provides the following annual cash flows after
tax: year 1 P35,000; year 2 P25,000; year 3 P175,000; and year 4 P10,000. Under the
present value payback method using 8% discount period, in which year is the investment
recouped?
A. year 2 B. year 3 C. year 4 D. not enough information to determine

113. Projects C and D are mutually exclusive and have normal cash flows. Project C has
a higher NPV if the WACC is less than 12%, whereas Project D has a higher NPV if the
WACC exceeds 12%. Which of the following statements is CORRECT?
A. Project D probably has a higher IRR.
B. Project D is probably larger in scale than Project C.
C. Project C probably has a faster payback.
D. Project C probably has a higher IRR.

114. Westchester Corp. is considering two equally risky, mutually exclusive projects,
both of which have normal cash flows. Project A has an IRR of 11%, while Project B's
IRR is 14%. When the WACC is 8%, the projects have the same NPV. Given this information,
which of the following statements is CORRECT?
A. If the WACC is 13%, Project A's NPV will be higher than Project B's.
B. If the WACC is 9%, Project A's NPV will be higher than Project B's.
C. If the WACC is 6%, Project B's NPV will be higher than Project A's.
D. If the WACC is 9%, Project B's NPV will be higher than Project A's.

115. A firm is evaluating two projects that are mutually exclusive with initial
investments and cash flows as follows:
Cash Flows
Year Project A Project B
1 20,000 40,000
2 20,000 40,000
3 20,000 80,000

Investment 34,000 110,000

Discount % 6% 10%

REO.CPA.ACADEMICS.F2.04.00
 Page 18 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

Which of the following is true?

A. Choose Project A because it has a higher NPV
B. Choose Project B because it has a higher NPV
C. Choose Project A because it has a higher EAA
D. Choose Project B because it has a higher EAA

116. A firm must choose from six capital budgeting proposals outlined below. The firm
is subject to capital rationing and has a capital budget of P1,000,000; the firm's cost
of capital is 15 %.
Project Initial Investment IRR NPV
1 P200,000 19% P100,000
2 400,000 17% 20,000
3 250,000 16% 60,000
4 200,000 12% (5,000)
5 150,000 20% 50,000
6 400,000 15% 150,000

Using the internal rate of return approach to ranking projects, which project(s)
should the firm accept?
A. 1, 2, 3, 4, and 5 C. 2, 3, 4, and 6
B. 1, 2, 3, and 5 D. 1, 3, 4, and 6

117. Springer Company is considering the purchase of a new machine for P80,000. The
machine would generate an annual cash flow before depreciation and taxes of P28,778 for
five years. At the end of five years, the machine would have no salvage value. The
company's cost of capital is 12 %. The company uses straight-line depreciation with no
mid-year convention and has a 40 % tax rate.
What is the accounting rate of return on the original investment in the machine
approximated to two decimal points?
A. 35.97% B. 19.17% C. 15.97% D. 9.58%

118. A firm is considering a project with an annual cash flow of P200,000. The project
would have a 7-year life, and the company uses a discount rate of 10 %. Ignoring income
taxes, what is the maximum amount the company could invest in the project and have the
project still be acceptable?
A. P718,200 B. P1,400,000 C. P973,600 D. P200,000

119. Tim purchased a bounce house one year ago for P6,500. During the year it generated
P4,000 in cash flow. If Time sells the bounce house today, he could receive P6,100 for
it. What would be his rate of return under these conditions?
A. 67.69% B. 55.38% C. 61.54% D. 50.02%

120. Following is a table of probabilities for two separate product lines, X and Y:
Probability X profit Y profit
.20 P500 P 50
.70 300 400
.10 600 800
The product line to obtain maximum utility for a risk-averse decision maker is
A. X because it has the highest expected profit.
B. Y because it has the highest expected profit.
C. Y because it has the highest dispersion.
D. X because it has the lowest dispersion.
120.a. An investment banker has recommended a P100,000 portfolio containing assets B,
D, and F. P20,000 will be invested in asset B, with a beta of 1.5; P50,000 will be
invested in asset D, with a beta of 2.0; and P30,000 will be invested in asset F, with
a beta of 0.5. The beta of the portfolio is ________.
A. 1.25 B. 1.33 C. 1.45 D. 1.85

121. Combining two assets having perfectly negatively correlated returns will result in
the creation of a portfolio with an overall risk that ________.
A. remains unchanged
B. decreases to a level below that of either asset
C. increases to a level above that of either asset
D. stabilizes to a level between the asset with the higher risk and the asset with the
lower risk
REO.CPA.ACADEMICS.F2.04.00
 Page 19 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

122. Strikes, lawsuits, regulatory actions, or the loss of a key account are all examples
of ________.
A. diversifiable risk C. economic risk
B. market risk D. systematic risk

123. A firm has a beta of 1.2. The market return equals 14 % and the risk-free rate of
return equals 6 %. The estimated cost of common stock equity is ________.
A. 6% B. 7.2% C. 14% D. 15.6%

124. What would be the cost of new common stock equity for Temple Company if the firm
just paid a dividend of P4.25, the stock price is P55.00, dividends are expected to grow
at 8.5% indefinitely, and flotation costs are P6.25 per share?
A. 17.22% B. 16.88% C. 17.96% D. 12.57%

124.a. A firm has determined its cost of each source of capital and optimal capital
structure, which is composed of the following sources and current market value mix:
Source of Capital Mix After-tax Cost
Long-term debt 45% 5%
Preferred stock 10% 14
Common stock 45% 22

Other things remaining constant, if the firm were to shift toward a capital
structure with ________ the weighted average cost of capital will be higher.
A. 45% long-term debt, 40% common stock, and 15% preferred stock
B. 60% long-term debt, 20% common stock, and 20% preferred stock
C. 20% long-term debt, 60% common stock, and 20% preferred stock
D. 60% long-term debt, 30% common stock, and 10% preferred stock

125. A firm has P50 million in assets and its optimal capital structure is 60% equity.
If the firm has P12 million in retained earnings, at what asset level will the firm need
to issue additional stock? (Assume no growth in retained earnings.)
A. The firm should have already issued additional stock.
B. The firm can increase assets to P30 million.
C. The firm can increase assets to P20 million.
D. There is insufficient information to determine an answer.

126. Daves Inc. recently hired you as a consultant to estimate the company's WACC. You
have obtained the following information. (1) The firm's noncallable bonds mature in 20
years, have an 8.00% annual coupon, a par value of P1,000, and a market price of
P1,050.00. (2) The company's tax rate is 40%. (3) The risk-free rate is 4.50%, the
market risk premium is 5.50%, and the stock's beta is 1.20. (4) The target capital
structure consists of 35% debt and the balance is common equity. The firm uses the CAPM
to estimate the cost of equity, and it does not expect to issue any new common stock.
What is its WACC?
A. 7.16% B. 7.54% C. 7.93% D. 8.93%

127. The key securities traded in the capital markets are ________.
A. commercial papers and Treasury bills
B. Treasury bills and certificates of deposit
C. stocks and bonds
D. bills of exchange and commercial papers

128. The current yield on a bond is measured by ________.

A. the annual interest payment divided by the current price
B. the annual interest payment divided by the par value
C. the annual interest payment divided by the maturity value
D. the annual interest payment divided by the yield to maturity

129. A firm has an issue of P1,000 par value bonds with a 12 % stated interest rate
outstanding. The issue pays interest annually and has 10 years remaining to its maturity
date. If bonds of similar risk are currently earning 8 %, the firm's bond will sell for
________ today. Round of PV factors to three decimal places.
A. P1,000 B. P805.20 C. P1,115.50 D. P1,268.20

REO.CPA.ACADEMICS.F2.04.00
 Page 20 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

130. Trina Company's stock is currently selling for P160.00 per share and the firm's
dividends are expected to grow at 5 % indefinitely. In addition, Trina's most recent
dividend was P5.50. If the expected risk free rate of return is 3 %, the expected market
premium is 4 %, and Trina has a beta of 1.2, Trina's stock would be ________.
A. overvalued because the market price is higher than the resulting share value
B. undervalued because the market price is less than the resulting share value
C. overvalued because the resulting share value is higher than the market value
D. undervalued because the resulting share value is less than the market value

131. Kam Atis grows tomatoes for home consumption. This activity is:
A. excluded from GDP in order to avoid double counting.
B. excluded from GDP because an intermediate good is involved.
C. productive but is excluded from GDP because no market transaction occurs.
D. included in GDP because it reflects production.

132. The phase of the business cycle in which real GDP is at a minimum is called:
A. the peak. B. a recession. C. the trough. D. the pits.

133. The country of Wakanda presented the following figures in relation to its
employment statistics. All figures are in millions.
Not in the labor force 45
Unemployed 7
Total population 145
Employed 95
Discouraged workers 3

Q1. The unemployment rate in Wakanda is:

A. 2.5% B. 3.2% C. 5.0% D. 6.9%

Q2. If the natural rate of unemployment in Wakanda is 5 percent, then:

A. structural unemployment is 3%
B. frictional unemployment is 2%
C. cyclical unemployment is 2%
D. hidden unemployment is 5%

133.a. If the unemployment rate is 9 percent and the natural rate of unemployment is 5
percent, then the:
A. frictional unemployment rate is 5 percent.
B. cyclical unemployment rate and the frictional unemployment rate together are 5
percent.
C. cyclical unemployment rate is 4 percent.
D. natural rate of unemployment will eventually increase. Answer: C

134. If the Consumer Price index rises from 300 to 333 in a particular year, the rate
of inflation in that year is:
A. 11% B. 33% C. 91% D. 10%

134.a. Between 2004 and 2024 the price level approximately doubled. The average annual
rate of inflation over this 20-year period was about:
A. 5.5% B. 4.7% C. 3.5% D. 2.8%

135. Suppose that in an economy with a MPC of .5 the government wanted to shift the
aggregate demand curve rightward by P80 billion at each price level to expand real
GDP. It could:
A. reduce taxes by P160 billion.
B. increase government spending by P80 billion.
C. reduce taxes by P40 billion.
D. increase government spending by P40 billion.

136. A nation will neither export nor import a specific product when its:
A. domestic price (no-international-trade price. equals the world price.
B. export supply curve lies above its import demand curve.
C. export supply curve is upsloping.
D. import demand curve is downsloping.

REO.CPA.ACADEMICS.F2.04.00
 Page 21 of 21 | Pre-week

MAY 2024 BATCH

MANAGEMENT SERVICES (MS)

137. An increase in the price of a product will reduce the amount of it purchased
because:
A. supply curves are upsloping.
B. the higher price means that real incomes have risen.
C. consumers will substitute other products for the one whose price has risen.
D. consumers substitute relatively high-priced for relatively low-priced products.

138. Which of the following will cause a decrease in market equilibrium price and an
increase in equilibrium quantity?
A. an increase in supply
B. an increase in demand
C. a decrease in supply
D. a decrease in demand

139. An industry comprised of four firms, each with about 25 percent of the total market
for a product is an example of:
A. monopolistic competition
B. oligopoly
C. pure monopoly
D. pure competition

140. Suppose that a business incurred implicit costs of P200,000 and explicit costs of
P1 million in a specific year. If the firm sold 4,000 units of its output at P300 per
unit, its accounting profits were:
A. P100,000 and its economic profits were zero.
B. P200,000 and its economic profits were zero.
C. P100,000 and its economic profits were P100,000.
D. zero and its economic loss was P200,000.

- END OF EXAMINATION -

REO.CPA.ACADEMICS.F2.04.00