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The following characterize management advisory services except

A. involve decision for the future
B. broader in scope and varied in nature
C. utilize more junior staff than senior members of the firm
D. relate to specific problems where expert help is required

2. Which of the following is not classifiable as a management advisory service by CPA?

A. Systems design. C. Make or buy analysis.
B. Project feasibility study. D. Assistance in budget preparation.

3. The following are inherent to either management accounting or financial accounting:

1. External report
2. Historical information
3. Contribution approach income statement
4. Generally accepted accounting principles
5. Prospective financial statements
Which of the foregoing are related to management accounting and financial accounting, respectively?
Management Accounting Financial Accounting
A. 1, 2, 5 3, 4
B. 3, 5 1, 2, 4
C. 2, 3 1, 4, 5
D. 3 1, 2, 4, 5

4. Total production costs for SYMBIONT Inc. are budgeted at P230,000 for 50,000 units of budgeted output and
P280,000 for 60,000 units of budgeted output. Because of the need for additional facilities, budgeted fixed costs
for 60,000 units are 25% more than budgeted fixed costs for P50,000 units. How much is SYMBIONT’s budgeted
variable cost per unit of output?
A. P1.60 C. P3.00
B. P1.67 D. P5.00

5. ABSORPTION Company has fixed costs of P90,000. At a sales volume of P300,000, return on sales is 10%; at
a P500,000 volume, return on sales is 22%. What is the break-even volume?
A. P120,000 C. P225,000*
B. P200,000 D. P450,000

6. BEAUTY Electronics, Inc. had the following sales results for 2004:
TV sets CD player Radios
Peso sales component ratio 0.30 0.30 0.40
Contribution margin ratio 0.40 0.40 0.60
BEAUTY Electronics, Inc. had fixed costs of P2,400,000.
The break-even sales in pesos for BEAUTY Electronics, Inc. are:
TV sets CD player Radios
A. P1,800,000 P1,800,000 P3,600,000
B P1,800,000 P1,800,000 P1,600,000
C. P1,500,000 P1,500,000 P2,000,000
D. P1,531,915 P1,531,915 P2,042,553

7. BUZZWOLE Company manufactures and sells sunglasses. Price and cost data are as follows:
Selling price per pair of sunglasses P25.00
Variable costs per pair of sunglasses:
Raw materials P11.00
Direct labor 5.00
Manufacturing overhead 2.50
Selling expenses 1.30
Total variable costs per unit P19.80
Annual fixed costs:
Manufacturing overhead P192,000
Selling and administrative 276,000
Total fixed costs P468,000
Forecasted annual sales volume (120,000 pairs) P3,000,000
Income tax rate 40%
BUZZWOLE Company estimates that its direct labor costs will increase 8 percent next year. How many units will
BUZZWOLE have to sell next year to reach breakeven?
A. 97,500 units C. 83,572 units
B. 101,740 units D. 86,250 units

8. PHEROMOSA Company manufactures a single electronic product called LIGHTING. LIGHTING sells for P900
per unit. In 2000, the following variable costs were incurred to produce each LIGHTING device.
Direct labor P180
Direct materials 240
Factory overhead 105
Selling costs 75
Total variable costs P600
PHEROMOSA is subject to 40 percent income tax rate, and annual fixed costs are P6,600,000. Except for an
operating loss incurred in the year of incorporation, the firm has been profitable over the last five years.
In 2001, a significant change in PHEROMOSA’s production technology caused a 10% increase in annual fixed
costs and a 20% unit cost increase in the direct labor component as a result of higher skilled direct labor. However,
this change permitted the replacement of a costly imported component with a local component. The effect was to
reduce unit material costs by 25%. There has been no change in the LIGHTING selling price.
The annual sales units required for PHEROMOSA to breakeven are:
A. B. C. D.
2000 22,000 22,000 14,000 14,000
2001 20,840 22,407 22,407 20,840

9. XURKITREE Co. manufactures a single product. For 2000, the company had sales of P90,000, variable costs of
P50,000, and fixed costs of P30,000. XURKITREE expects its cost structure and sales price per unit to remain
the same in 2001, however total sales are expected to jump by 20%. If the 2001 projections are realized, net
income in 2001 should exceed net income in 2000 by
A. 100% C. 20%
B. 80% D. 50%

10. BLADE Convenience Store currently opens only Monday through Saturday. BLADE is considering opening on
Sundays. The annual incremental fixed costs of Sunday openings are estimated at P39,000. BLADE’s gross
margin on sales is 25 percent. BLADE estimates that 60 percent of its Sunday sales to customers would be made
on other days if the stores were not open on Sundays. The one-day volume of Sunday sales that would be
necessary for BLADE to attain the same weekly operating income as the current six-day week is
A. P6,000 C. P7,500
B. P5,000 D. P4,500
11. BLASTER, Co. provides two products, M and W. M accounts for 60 percent of total sales, variable cost as a
percentage of selling price are 60% for M and 85% for W. Total fixed costs are P225,000. If fixed costs will
increase by 30 percent, what amount of peso sales would be necessary to generate an operating profit of P48,000?
A. P1,350,000 C. P1,135,000
B. P486,425 D. P910,000

12. KARTANA, Inc. had the following economic information for the year 2002:
Sales(50,000 units @ P20) P1,000,000
Variable manufacturing costs 400,000
Fixed costs 250,000
Income tax rate 40 percent
KARTANA budgets its 2003 sales at 60,000 units or P1,200,000. The company anticipates increased competition;
hence, an additional P75,000 advertising costs is budgeted in order to maintain its sales target for 2003.
What is the amount of peso sales needed for 2003 in order to equal the after-tax income in 2002?
A. P1,125,000 C. P1,187,500
B. P1,325,000 D. P1,387,500

13. CELESTEELA Company produces a single product. It sold 25,000 units last year with the following results:
Sales P625,000
Variable costs P375,000
Fixed costs 150,000 525,000
Net income before taxes P100,000
Income taxes 40,000
Net income P 60,000
In an attempt to improve its product in the coming year, CELESTEELA is considering replacing a component part
in its product that has a cost of P2.50 with a new and better part costing P4.50 per unit. A new machine will also
be needed to increase plant capacity. The machine would cost P18,000 with a useful life of 6 years and no salvage
value. The company uses straight-line depreciation on all plant assets.
If CELESTEELA wishes to maintain the same contribution margin ratio after implementing the changes, what
selling price per unit of product must it charge next year to cover the increased material costs?
A. P27.00 C. P32.50
B. P25.00 D. P28.33

14. GLUTTONY Company recently expanded its manufacturing capacity to allow it to produce up to 15,000 pairs of
cross-country skis of either the mountaineering model or the touring model. The sales department assures
management that it can sell between 9,000 and 13,000 pairs (units) of either product this year. Because the
models are very similar, GLUTTONY will produce only one of the two models. The information below was compiled
by the accounting department.
Mountaineering Touring
Selling price per unit P880.00 P800.00
Variable costs per unit P528.00 P528.00
Fixed costs will total P3,696,000 if the mountaineering model is produced but will be only P3,168,000 if the touring
model is produced. GLUTTONY is subject to a 40% income tax rate.
The total sales revenue at which GLUTTONY Company would make the same profit or loss regardless of the ski
model it decided to produce is
A. P8,800,000 C. P9,240,000
B. P4,224,000 D. P6,864,000

15. GUZZLORD of Fire Corporation has one department that produces three replacement parts for the company.
However, only one part can be produced in any month because of the adjustments that must be made to the
equipment. The department can produce up to 15,000 units of any one of the three parts in each month. The
company expresses the monthly after tax cost/volume/profit relationships for each part using an equation method.
The format of the equations and the equation for each replacement part are given below:
(ATR) X ((SP – VC) x (U) – FC)
ATR = after-tax rate VC = variable cost FC = fixed costs
SP = selling price U = units
Part Part Equations
AL45 .6 ((P4.00 – P1.25) (U) – P33,400)
BT65 .6 ((P4.05 – P2.55) (U) – P15,000)
GM17 .6 ((P4.10 - P2.00) (U) - P22,365)
The production and unit sales volume level at which GUZZLORD will be indifferent as to whether Part BT62 or
GM17 is produced is
A. 7,365 C. 10,380
B. 4,092 D. 12,275

16. NECROZMA, Inc. employs 40 sales personnel to market its line of luxury automobiles. The average car sells for
P1,200,000 and a 6% commission is paid to the salesperson. NECROZMA is considering a change to a
commission arrangement that would pay each salesperson a salary of P24,000 per month plus a commission of
2% of the sales made by that salesperson.
The amount of total car sales at which NECROZMA would be indifferent as to which plan to select is
A. P22,500,000 C. P24,000,000
B. P30,000,000 D. P12,000,000

17. Zapatero, Inc. operates a chain of shoe stores around the country. The stores carry many styles of shoes that are
all sold at the same price. To encourage sales personnel to be aggressive in their sales efforts, the company pays
a substantial sales commission on each pair of shoes sold. Sales personnel also receive a small basic salary.
The following cost and revenue data relate to Store 9 and are typical of the company’s many sales outlets:
Selling price P800
Variable expenses:
Invoice costs P360
Sales commission 140
Fixed expenses per year:
Rent P1,600,000
Advertising 3,000,000
Salaries 1,400,000
Total P6,000,000
The company is considering eliminating sales commissions entirely in its stores and increasing fixed salaries by
P2,142,000 annually.
If this change is made, what will be the number of pairs of shoes to be sold by Store 9 to be indifferent to
commission basis?
A. 25,300 C. 18,505
B. 15,300 D. 21,000

18. If fixed costs increase while variable cost per unit remains constant, the contribution margin will be
A. lower C. unchanged
B. higher D. unpredictable

19. Firm D and Firm S are competitors within the same industry. Firm D produces its product using large amounts of
direct labor. Firm S has replaced direct labor with investment in machinery. Projected sales for both firms are
fifteen percent less than in the prior year. Which statement regarding projected profits is true?
A. Firm D will lose more profit than Firm S.
B. Firm S will lose more profit than Firm D.
C. Firm D and Firm S will lose the same amount of profit.
D. Neither Firm D nor Firm S will lose profit.

20. Last month, Zamora Company had an income of P0.75 per unit with sales of 60,000 units. During the current
month when the unit sales are expected to be only 45,000, there is a loss of P1.25 per unit. Both the variable cost
per unit and total fixed costs remain constant. The fixed costs amounted to
A. P80,000 C. P247,500
B. P360,000 D. P210,000

21. The Liberal Marketing Co., is expecting an increase of fixed costs by P78,750 upon moving their place of business
to the downtown area. Likewise it is anticipating that the selling price per unit and the variable expenses will not
change. At present, the sales volume necessary to breakeven is P750,000 but with the expected increase in fixed
costs, the sales volume necessary to breakeven would go up to P975,000. Based on these projections, what were
the total fixed costs before the increase of P78,750?
A. P341,250 C. P183,750
B. P262,500 D. P300,000

22. Machan Co.’s year-end income statement is as follows:

Sales (20,000 units) P360,000
Variable costs 220,000
Contribution margin P140,000
Fixed costs 105,000
Net income P 35,000
Management is unhappy with the results and plans to make some changes for next year. If management
implements a new marketing program, fixed costs are expected to increase by P19,200 and variable costs to
increase by P1 per unit. Unit sales are expected to increase by 15 percent. What is the effect on income if the
foregoing changes are implemented?
A. Decrease of P21,200 C. Increase of P13,800
B. Increase of P1,800 D. Increase of P14,800

23. Candyman Company is a wholesale distributor of candy. The company services grocery, convenience, and drug
stores in Metro Manila. Small but steady growth in sales has been achieved by the company over the past few
years while candy prices have been increasing. The company is formulating its plans for the coming fiscal year.
Presented below are the data used to project the current year’s after-tax net income of P110,400.
Manufacturers of candy have announced that they will increase prices of their products an average of 15% in the
coming year due to increases in raw material (sugar, cocoa, peanuts, etc.) and labor costs. Candyman Company
expects that all other costs will remain at the same rates or levels as the current year. Candyman is subject to 40
percent tax rate.
Average selling price P4.00 per box
Average variable costs
Cost of candy P2.00 per box
Selling expenses 0.40 per box
Total P2.40 per box
Annual fixed costs
Selling P169,000
Administrative 280,000
Total P440,000
Expected annual sales volume (390,000 boxes) P1,560,000
If net income after taxes is to remain the same after the cost of candy increases but no increase in the sales price
is made, how many boxes of candy must Candyman sell?
A. 480,000 C. 27,600
B. 400,000 D. 29,300

24. Claremont Company had is a manufacturer of its only one product line. It had sales of P400,000 for 2002 with a
contribution margin ratio of 20 percent. Its margin of safety ratio was 10 percent. What are the company’s fixed
A. P72,000 C. P288,000
B. P80,000 D. P320,000

25. Lemery Corporation had sales of P120,000 for the month of May. It has a margin of safety ratio of 25 percent,
and after-tax return on sales of 6 percent. The company assumes its sales constant every month. If the tax rate
is 40 percent, how much is the monthly fixed costs?
A. P36,000 C. P432,000
B. P90,000 D. P360,000

26. A very high operating leverage indicates that a firm

A. has high fixed costs
B. has a high net income
C. has high variable costs
D. is operating close to its breakeven point

27. The Didang Company has an operating leverage of 2. Sales for 2001 are P2,000,000 with a contribution margin
of P1,000,000. Sales are expected to be P3,000,000 in 2002. Net income for 2002 can be expected to increase
by what amount over 2001?
A. P250,000 C. P500,000
B. 200 percent D. 40 percent

Questions 28 thru 34 are based on the following information:

Calamba Hospital operates a general hospital but rents space and beds to separate entities for specialized treatment
such as pediatrics, maternity, psychiatric, etc. Calamba charges each separate entity for common services to its
patients like meals and laundry and for all administrative services such as billings, collections, etc. All uncollectible
accounts are charged directly to the entity. Space and bed rentals are fixed for the year.
For the entire year ended June 30, the Pediatrics Department at Calamba Hospital charged each patient an average
of P65 per day, had a capacity of 60 beds, operated 24 hours per day for 365 days, and had revenue of P1,138,800.
Expenses charged by the hospital to the Pediatrics Department for the year ended June 30 were:
Basis of Allocation
Patient Days Bed Capacity
Dietary P 42,952
Janitorial P 12,800
Laundry 28,000
Lab, other than direct charges to patients 47,800
Pharmacy 33,800
Repairs and maintenance 5,200 7,140
General administrative services 131,760
Rent 275,320
Billings and collections 40,000
Bad debt expense 47,000
Other 18,048 .
P262,800 P453,000
The only personnel directly employed by the Pediatrics Department are supervising nurses, nurses, and aides. The
hospital has minimum personnel requirements based on total annual patient days. Hospital requirements beginning at
the minimum, expected level of operation follow:
Annual Patient Days Aides Nurses Supervising Nurses
10,000 – 14,000 21 11 4
14,001 – 17,000 22 12 4
17,001 – 23,725 22 13 4
23,726 – 25,550 25 14 5
25,551 – 27,375 26 14 5
27,376 – 29,200 29 16 6
The staffing levels above represent full-time equivalents, and it should be assumed that the Pediatrics Department
always employs only the minimum number of required full-time equivalent personnel.
Annual salaries for each class of employee follow: supervising nurses, P18,000; nurses, P13,000; and aides, P5,000.
Salary expense for the year ended June 30 for supervising nurses, nurses, and aides was P72,000, P169,000, and
P110,000, respectively.
The Pediatrics Department operated at 100% capacity during 111 days of the past year. It is estimated that during 90
of these capacity days, the demand average 17 patients more than capacity and even went as high as 20 patients
more on some days. The hospital has an additional 20 beds available for rent for the coming fiscal year.

28. The variable expense per patient day is

A. P15.08 C. P15.00
B. P12.50 D. P50.00

29. The contribution margin per patient day is

A. P49.92 C. P50.00
B. P52.50 D. P52.00

30. How many patient days are necessary to cover fixed costs for bed capacity and for supervisory nurses?
A. 9,500 C. 12,500
B. 11,500 D. 10,500

31. The number of patient days needed to cover total costs is

A. 14,200 C. 15,820
B. 15,200 D. 14,220

32. If the Pediatrics Department rented an additional 20 beds and all other factors remain the same as in the past
year, what would be the increase in revenue?
A. P99,450 C. P105,450
B. P87,750 D. P89,750

33. Continuing to consider the 20 additional rented beds, the increase in total variable cost applied per patient day is
A. P22,935 C. P22,965
B. P22,950 D. P23,935

34. What is the increased fixed cost applied for bed capacity, given the increased number of beds?
A. P151,000 C. P147,000
B. P173,950 D. P152,000

Questions 35 thru 37 are based on the following information.

Ms. Casserole started a pizza restaurant in 1998. For this purpose a building was rented for P400 per month. Two
women were hired to work full time at the restaurant and six college students were hired to work 30 hours per week
delivering pizza. This level of employment has been consistent. An outside accountant was hired for tax and
bookkeeping purposes, for which Ms. Casserole pays P300 per month. The necessary restaurant equipment and
delivery cars were purchased with cash. Ms. Casserole has noticed that expenses for utilities and supplies have been
rather constant. Ms. Casserole increased her business between 1998 and 2001. Profits have more than doubled
since 1998. Ms. Casserole does not understand why profits have increased faster than volume.
A projected income statement for the year ended December 31, 2002, prepared by the accountant, is shown below:

Sales P95,000
Cost of food sold P28,500
Wages & fringe benefits:
Restaurant help 8,150
Delivery help 17,300
Rent 4,800
Accounting services 3,600
Delivery equipment 5,000
Restaurant equipment 3,000
Utilities 2,325
Supplies 1,200 73,875
Net income before taxes P21,125
Income taxes (40%) 8,450
Net income P12,675
Note: The average pizza sells for P2.50.

35. What is the tax shield on the noncash fixed costs?

A. P3,200 C. P3,400
B. P14,950 D. P5,400

36. What is the breakeven point in number of pizzas that must be sold?
A. 25,929 C. 18,150
B. 23,569 D. 42,114

37. What is the cash flow breakeven point in number of pizzas that must be sold?
A. 19,529 C. 12,990
B. 21,284 D. 10,773

38. When a firm prepares financial reports by using absorption costing, it may find that
A. profits will always increase with increase in sales.
B. profits will always decrease with decreases in sales.
C. profit may decrease with increased sales even if there is no change in selling price and costs.
D. decreased output and constant sales result in increased profit.

39. The Bush Company has provided information concerning its projections for the coming year as follows:
Net sales P10,000,000
Fixed manufacturing costs P 1,000,000
Bush projects variable manufacturing costs of 60% of net sales. Assuming no change in inventory, what will the
projected cost of goods sold be?
A. P5,000,000 C. P7,000,000
B. P6,000,000 D. P8,000,000
40. Colger Company manufactures a single product using standard costing. Variable production costs are P12 and
fixed production costs are P125,000. Colger uses a normal activity of 12,500 units to set its standard costs. Colger
began the year with 1,000 units in inventory, produced 11,000 units, and sold 11,500 units. The standard costs of
goods sold under absorption costing would be
A. P115,000 C. P242,000
B. P132,000 D. P253,000

41. The Trinkets Company estimated the following data for the coming year:
Fixed manufacturing costs P565,000
Variable production costs per peso of sales
Materials P0.125
Direct labor 0.150
Variable overhead 0.075
Variable selling costs per peso of sales 0.150
Trinkets estimates its sales for the coming year to be P2,000,000.
The expected cost of goods sold for the coming year is
A. P1,265,000 C. P1,115,000
B. P1,565,000 D. P 700,000

42. Nirvana Co. employs a normal (nonstandard) absorption cost system. The information below is from the financial
records of the company for the year.
 Total manufacturing costs were P2,500,000.
 Costs of goods of manufactured was P2,425,000.
 Applied factory overhead was 30 percent of total manufacturing costs.
 Factory overhead was applied to production at a rate of 80% of direct labor cost.
 Work-in-process inventory at January 1 was 75% of work-in-process inventory at December 31.
What are the amounts/value of the following cost elements and inventory?
Direct labor Direct materials Work-in-process inventory
A. P750,000 P750,000 P225,000
B. P937,500 P812,500 P225,000
C. P937,500 P812,500 P300,000
D. P750,000 P750,000 P300,000

43. Black Forest, Inc. began operations on January 3. Standard costs were established in early January assuming a
normal production volume of 160,000 units. However, Black Forest produced only 140,000 units of product and
sold 100,000 units at a selling price of P180 per unit during the year. Variable costs totaled P7,000,000, of which
60% were manufacturing and 40% were selling. Fixed costs totaled P11,200,000, of which 50% were
manufacturing and 50% were selling. Black Forest had no raw materials or work-in-process inventories at
December 31. Actual input prices and quantities per unit of product were equal to standard.
Using absorption costing, Black Forest’s income statement would show:
Cost of Goods Sold at Standard Cost Overhead Volume Variance
A. P8,200,000 P800,000 Unf
B. P7,200,000 P800,000 Fav
C. P6,500,000 P700,000 Unf
D. P7,000,000 P700,000 Fav

44. Southseas Corp. uses a standard cost system. The standard cost per unit of one of its products are as follows:
Direct Materials P4.00
Direct labor 6.00
Factory overhead
Variable 3.00
Fixed (based on a normal capacity of 10,000 units) 2.00
Total 15.00

Beginning inventory 2,000 units

Production 8,000 units
Units sold (selling price P50) 7,000 units

Actual costs:
Direct materials P 35,000
Direct labor 50,000
Variable overhead 23,000
Fixed 18,000
Variable selling and adm. 60,000
Fixed selling and adm. 35,000

Variances are closed to cost of sales monthly

How much are the net income under absorption costing and variable costing methods?
A. B. C. D.
Absorption P144,000 P143,000 144,000 142,000
Variable 143,000 144,000 142,000 144,000

45. Lord Industries manufactures a single product. Variable production costs are P10 and fixed production costs are
P75,000. Lord uses a normal activity of 10,000 units to set its standard costs. Lord began the year with no
inventory, produced 11,000 units and sold 10,500 units. The volume variance under each product costing are:
A. B. C. D.
Under Absorption Costing P3,750 P3,750 P7,500 P7,500
Under Variable Costing P 0 P7,500 P0 P0

46. Simple Corp. produces a single product. The following cost structure applied to their first year of operations, 2000:
Variable Costs per Unit Annual Fixed Costs
SG&A P2.00 P14,000
Production 4.00 P20,000
Assume that during 2000 Simple Corp. manufactured 5,000 units and sold 3,800. There was no beginning or
ending work-in-process inventory. How much larger or smaller would Simple Corp.’s income be if it uses
absorption rather than variable costing?
A. The absorption costing income would be P6,000 larger
B. The absorption costing income would be P6,000 smaller
C. The absorption costing income would be P4,800 larger*
D. The absorption costing income would be P4,000 smaller