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MANAGEMENT ADVISORY SERVICES

NATIONAL FEDERATION OF JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS


NATIONAL CAPITAL REGION
2017 Search for the NCR Frontliners
October 8, 2017

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. In a manufacturing environment, which one of the following is a non-value-added activity?


a. machining a metal casting
b. painting an assembled unit prior to shipment
c. moving partly finished production to a work-in-process storage area
d. packing finished production into containers for shipment to customers

____ 2. An organization has adopted the balanced scorecard (BSC) as its primary management planning and control
system. Each manager at every level has their own BSC. Individual BSCs show performance targets for the
manager, and link that manager’s performance to lower and higher levels in the organizational hierarchy.
Which statement below about this BSC-based performance management system is not correct?
a. Cascading is the key to organizational alignment around strategy.
b. Individual scorecards link day-to-day work with corporate strategy.
c. The scorecard system provides for upstream or downstream integration.
d. Accountability follows the organization’s strategic objectives, because ownership is
defined at each level.

____ 3. Roberts Pty Ltd (Roberts) has decided to adopt the target-costing approach for all new products. The
following data for a new product has been made available by the company’s design department:

Forecast annual sales volume 100,000


Target selling price per unit P300
Desired profit margin per unit as a percentage of selling price 20%
Expected standard cost per unit prior to value engineering initiatives P260

For Roberts to achieve the desired profit margin per unit, what reduction in per unit cost will the
design department need to achieve through the value engineering process?
a. 20
b. 30
c. 35
d. 520

____ 4. Hewlitt Apel Pty Ltd (HA) owns Compu-serve, an information technology (IT) company that provides
various levels of data-processing services and computer hardware to business units within the HA group of
companies. To facilitate the provision of timely IT services throughout the group, HA has introduced service-
level agreements between Compu-serve and other business units. What is the main objective of establishing
the service-level agreements?
a. To establish the fixed fee that each business unit will pay for the services provided by
Compu-serve.
b. To establish a mechanism for resolving disputes between Compu-serve and HA business
units over specific IT problems.
c. To set clear and unambiguous performance measures that Compu-serve is expected to
achieve in the IT services it provides to HA business units.
d. To place the terms and conditions of the service to be provided by Compu-serve to HA
business units into a legal contractual document.

____ 5. TGC Pty Ltd (TGC) manufactures air-cooling fan components for the Australasian personal computer
assembly market. TGC is about to establish a total quality improvement program and has analyzed its
operating and accounting records for the year ending 30 June 20X0 and established that the following
quality-related costs have been incurred:

Expense item Total expense


Legal fees defending allegation of defective products 20,000
Down-time due to avoidable machine breakdowns 50,000

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Incoming-materials testing 120,000


Employee training 180,000
Rework for slightly defective units 30,000
Warranty costs 50,000
Design engineering 210,000
Product-liability insurance premium 10,000
Depreciation of production-line testing equipment 40,000
Scrapped units 70,000
Product specification database 30,000
Recalls of defective products 20,000
Preventative maintenance on production-line equipment 60,000
Production-line inspection 70,000
Total quality costs 960,000

If TGC prepared a quality cost report for the year, what would be the total external failure costs?
a. 50,000
b. 80,000
c. 90,000
d. 100,000

____ 6. Rennie Fashions Ltd has recently completed the process of identifying a suitable supplier for its new winter
product range. One of the key raw materials is to be sourced from overseas. The costs associated with two
potential suppliers are provided below.

Supplier X Supplier Y
Total supplier-related costs P350,000 P160,000
Invoice cost of raw materials P1,500,000 P1,800,000
Total procurement costs P1,850,000 P1,960,000
Anticipated volume 200,000 200,000

Which one of the following combinations shows the supplier cost performance ratio for each of the suppliers?
a. Supplier X (18.9%); Supplier Y (8.16%)
b. Supplier X (23.3%); Supplier Y (8.9%)
c. Supplier X (P1.75 per unit); Supplier Y (P0.80 per unit)
d. Supplier X (23.3%); Supplier Y (8.16%)

____ 7. Which one of the following does the project sponsor have responsibility for?
a. organizing the team for the project
b. communicating with the project customer
c. helping to solve day-to-day problems with the project
d. delivering the project specifications on schedule and on budget
____ 8. A project has an initial cost of P25,000 and ongoing costs of P5000 per annum. It is expected to generate
revenues of P16,000 per annum for three years. What is the project’s net present value if the cost of capital for
the project is 20 per cent per annum?
a. (1,829)
b. 8,000
c. 23,171
d. 48,171
____ 9. The following information is available for the Wholesale Products Division of Seth Corporation:

Operating profit before interest and taxes 30,000,000


Depreciation expense 10,000,000
Change in working capital 5,000,000
Capital expenditures 4,000,000
Invested capital (total assets - current liabilities) 50,000,000
Weighted average cost of capital 10%
Tax rate 40%

What is the amount of economic value added (EVA) for the division?
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a. 30,000,000
b. 13,000,000
c. 25,000,000
d. 5,000,000
____ 10. The term cost driver refers to
a. any activity that can be used to predict cost changes.
b. the attempt to control expenditures at a reasonable level.
c. the person who gathers and transfer cost data to the management accountant.
d. any activity that causes to be incurred.
____ 11. A company’s rate of return on investment (ROI) is equal to the
a. Percentage of profit on sales divided by the capital employed turnover rate.
b. Percentage of profit on sales multiplied by the capital employed turnover rate.
c. Investment capital divided by the capital employed turnover rate.
d. Investment capital multiplied by the capital employed turnover rate.

____ 12. Charlie 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, Charlie Company has the following
accounts receivable balances:

From April sales P21,000


From May sales 48,000

Charlie’s expected sales for June are P150,000. What were total sales for April?
a. 150,000
b. 72,414
c. 70,000
d. 140,000
____ 13. In a decentralized company in which divisions may buy goods from one another, the transfer pricing system
should be designed primarily to
a. Increase the consolidated value of inventory.
b. allow division managers to buy from outsiders.
c. minimize the degree of autonomy of division managers.
d. aid in the appraisal and motivation of managerial performance.
____ 14. When a profitable corporation sells an asset at a loss, the after-tax cash flow on the sale will
a. exceed the pre-tax cash flow on the sale.
b. be less than the pre-tax cash flow on the sale.
c. be the same as the pre-tax cash flow on the sale.
d. increase the corporation’s overall tax liability.
____ 15. Management accounting and cost accounting
a. are required for record keeping as are financial accounting and tax accounting.
b. provide cost information about products and services, as well as information for
internal decision making.
c. require an entirely separate group of accounts than financial accounting.
d. focus solely on the determination of costs to produce a product or provide a service.
____ 16. A company has two divisions, A and B; each are operated as a profit center. A charges B P35 per unit for
each unit transferred to B. Other data follow:

A’s variable cost per unit P30


A’s fixed costs P10,000
A’s annual sales to B 5,000 units
A’s annual sales to outsiders 50,000 units

A is planning to raise its transfer price to P50 per unit. Division B can purchase units at P40 each from
outsiders, but doing so would idle A’s facilities now committed to producing units for B. Division A cannot
increase its sales to outsiders. From the perspective of the company as a whole, from whom should Division
B acquire the units, assuming B’s market is unaffected?
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a. outside vendors
b. Division A, but only at the variable cost per unit
c. Division A, but only until fixed costs are covered, then should purchase from outside
vendors.
d. Division A, in spite of the increased transfer price.

____ 17. The following data pertain to operators at Paul Incorporated:

Throughout time 4 hours


Delivery cycle time 8 hours
Process time 1 hour
Queue time 2 hours

The manufacturing cycle efficiency (MCE) for this operation would be:
a. 50%
b. 75%
c. 25%
d. 12%
____ 18. Information on Envy Company’s direct labor cost is as follows:

Standard direct labor rate P12.50


Actual direct labor rate 11.25
Standard direct labor hours 12,000
Direct labor adverse usage variance P14,500

What were the actual hours worked?


a. 13,160
b. 13,289
c. 14,622
d. 15,460

____ 19. Cost volume profit analysis is a key factor in many decisions, including choice of product lines, pricing of
products, marketing strategy, and use of productive facility. A calculation used in a CVP analysis is the
breakeven point. Once the breakeven point has been reached, operating income will increase by the
a. gross margin per unit for each additional unit sold
b. contribution margin per unit for each additional unit sold
c. variable costs per unit for each additional unit sold
d. sales price per unit for each additional unit sold
____ 20. The major objectives of any budget system are to
a. define responsibility centers, provide a framework for performance evaluation,
and promote communication and coordination among organization segments
b. define responsibility centers, facilitate the fixing of blame for missed budget
predictions, and ensure goal congruence between superiors and subordinates
c. foster the planning of operations, provide a framework for performance evaluation,
and promote communication and coordination among organization segments
d. foster the planning of operations, facilitate the fixing of blame for missed budget
predictions, and ensure goal congruence between superiors and subordinates

____ 21. Conversion cost pricing


a. places minimal emphasis on the cost of materials used in manufacturing a product
b. could be used when the customer furnishes the materials used in manufacturing a product
c. places heavy emphasis on indirect costs and disregards consideration of direct costs
d. places heavy emphasis on direct costs and disregard consideration of indirect costs

____ 22. Larz 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
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Income taxes 40,000


Net income P 60,000

In an attempt to improve its product in the coming year, Larz 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 Larz 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. 27.00
b. 25.00
c. 32.50
d. 28.33

____ 23. 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. 341,250
b. 262,500
c. 183,750
d. 300,000

____ 24. 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 P42,952
Janitorial P12,800
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

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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.

The contribution margin per patient day is


a. 49.92
b. 52.50
c. 50.00
d. 52.00

____ 25. 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 P42,952
Janitorial P12,800
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
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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.

The number of patient days needed to cover total costs is


a. 14,200
b. 15,200
c. 15,820
d. 14,220

____ 26. Ms. Casserole started a pizza restaurant in 2008. 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 2008 and 2021. Profits have more than
doubled since 2008. 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
Depreciation:
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.

What is the breakeven point in number of pizzas that must be sold?


a. 25,929
b. 23,569
c. 18,150
d. 42,114

____ 27. 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.
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____ 28. Which of the following statements about the selection of standards is true?
a. Ideal standards tend to extract higher performance levels since they give
employees something to live up to.
b. Currently attainable standards may encourage operating inefficiencies.
c. Currently attainable standards discourage employees from achieving their
full performance potential.
d. Ideal standards demand maximum efficiency which may leave workers frustrated,
thus causing a decline in performance.

____ 29. If actual overhead is P14,000, overhead applied is P13,400, and overhead budgeted for the standard hours
allowed is P15,600, then the overhead controllable variance is
a. P600 F
b. P2,200 U
c. P1,600 F
d. P1,600 U

____ 30. The Lustre Company produces its only product, Kool Chewing Gum. The standard overhead cost for one pack
of the product follows:

Fixed overhead (1.50 hours at P18.00) P27.00


Variable overhead (1.50 hours at P10.00) 15.00
Total application rate P42.00

Lustre uses expected volume of 20,000 units. During the year, Lustre used 31,500 direct labor hours for the
production of 20,000 units. Actual overhead costs were P545,000 fixed and P308,700 variable.

The overhead efficiency variance is


a. P22,500 Favorable
b. P15,000 Favorable
c. P22,500 Unfavorable
d. P15,000 Unfavorable
____ 31. Which of the following does not apply to the content of managerial reports?
a. Reporting standard is relevant to the decision to be made.
b. May extend beyond double-entry accounting system.
c. Pertain to subunits of the entity and may be very detailed.
d. Pertains to the entity as a whole and is highly aggregated.
____ 32. If the investment turnover increased by 30% and ROS decreased by 20%, the ROI would
a. increase by 4%
b. increase by 6%
c. increase by 30%
d. decrease by 50%

____ 33. Jap Company’s unit cost of manufacturing and selling a given item at an activity level of 10,000 units per
month are:

Manufacturing costs
Direct materials P39
Direct labor 6
Variable overhead 8
Fixed overhead 9
Selling expenses
Variable 30
Fixed 11

The company desires to seek an order for 5,000 units from a foreign customer. The variable selling expenses
will be reduced by 40%, but the fixed costs for obtaining the order will be P20,000. Domestic sales will not
be affected by the order.

The minimum break-even price per unit to be considered on this special sale is
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a. 71
b. 75
c. 69
d. 84

____ 34. Bulusan Company normally produces and sells 30,000 units of E14 each month. E14 is a small electrical relay
used in the automotive industry as a component part in various products. The selling price is P22 per unit,
variable costs are P14 per unit, fixed manufacturing overhead costs total P150,000 per month, and fixed selling
costs total P30,000 per month.

Employment-contract strikes in the companies that purchase the bulk of the E14 have caused Bulusan
Company’s sales to temporarily drop to only 9,000 units per month. Bulusan Company estimates that the
strikes will last for about two months, after which time sales of E14 should return to normal. Due to the
current low level of sales, however, Bulusan Company is thinking about closing down its own plant during
the two months that the strikes are on. If Bulusan Company does close down its plant, it is estimated that
fixed manufacturing overhead costs can be reduced to P105,000 per month and that fixed selling costs can be
reduced by 10%. Start-up costs at the end of the shutdown period would total P8,000. Since Bulusan
Company uses just-in-time production method, no inventories are on hand.

At what level of unit sales for the two-month period should Bulusan Company be indifferent between
closing the plant or keeping it open?
a. 11,000
b. 24,125
c. 10,000
d. 8,000

____ 35. Tamaraw Company is negotiating to purchase equipment that would cost P200,000, with the expectation that
P40,000 per year could be saved in after-tax cash costs if the equipment were acquired. The equipment’s estimated
useful life is 10 years, with no salvage value, and would be depreciated by the straight-line method. Tamaraw’s
minimum desired rate of return is 12 percent. Present value of an annuity of 1 at 12 percent for 10 periods is 5.65.
Present value of 1 due in 10 periods at 12 percent is 0.322.

The average accrual accounting rate of return during the first year of asset’s use is
a. 20.0 percent
b. 10.5 percent
c. 10.0 percent
d. 40.0 percent

____ 36. The ratio that measures a firm’s ability to generate earnings is
a. times interest earned.
b. sales to working capital.
c. days’ sales in receivables.
d. operating asset turnover.

____ 37. Taylor company paid out one-half of its 2020 earnings in dividends. Taylor’s earnings increased by 20%,
and the amount of its dividends increased by 15% in 2021. Taylor’s dividend payout ratio for 2021 was
a. 75.0%
b. 52.3%
c. 47.9%
d. 41.7%
____ 38. Designing and redesigning are activities that are classified as
a. facility level
b. batch level
c. unit level
d. product level
____ 39. ABC Manufacturing Corporation has the following information:

Moving time 8 days


Inspection time 2 days
Processing time 10 days
Storage time 30 days
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What is the manufacturing cycle efficiency?


a. 20%
b. 25%
c. 60%
d. 80%
____ 40. GHI Company is approached by a customer to fulfill a large one-time-only special order for a product similar
to one offered to regular customers. The following per unit data apply for sales to regular customers:

Direct materials 455


Direct labor 300
Variable manufacturing support 45
Fixed manufacturing support 100
Total manufacturing support 900
Mark-up (60%) 540
Targeted selling price 1,440

GHI Company has excess capacity. If GHI accepts the order, direct materials cost will increase by P30 per
unit. What is the minimum acceptable price of this one-time-only special order?
a. 830
b. 900
c. 930
d. 1,470
____ 41. Under Theory of Constraints
a. no company has constraints
b. improvement efforts should be focused on non-constraints
c. efforts that are designed to improve the rte of output of a workstation should generally
be focused on the constraint
d. a company that wants to improve its operations should focus its improvement efforts on
the workstation with the highest productive capacity.

____ 42. The Jimmy Company is considering continuing Department B, one of the three departments it currently
maintains. The following information has been gathered for the three departments:

Dept. A Dept. B Dept. C


Sales 60,000 50,000 80,000
Cost of sales 40,000 42,000 60,000
Operating expenses:
Salaries 8,000 6,400 12,000
Rent 2,000 2,000 3,000
Utilities 1,000 2,700 2,000
Total costs 51,000 53,100 77,000
Net income 9,000 (3,100) 3,000

If Department B is eliminated, the space it occupies will be divided equally among Departments A and C.
Utilities are allocated on the basis of floor space occupied. 70 percent of the salaries in Department B
would be eliminated; the other 30 percent would be split equally between Department A and C. If
Department B is eliminated, income would have
a. Decreased by P3,520
b. Decreased By P1,520
c. Increased by P1,180
d. Increased by P1,520
____ 43. Cagas Corporation is negotiating with a bank for a P300,000 one-year loan. The loan is discounted with a 9
percent interest rate and a 20% compensating balance. Suppose that Cagas Corporation requires the entire
amount of P300,000 as net proceeds, how much is the Loan’s required compensating balance?
a. 60,000
b. 65,934
c. 75,000
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d. 84,507
____ 44. Advantages of decentralization include all of the following except
a. divisional management is able to react to changing market conditions more rapidly
than top management
b. divisional management is a source of personnel for promotion to top
management positions
c. decentralization can motivate divisional managers
d. decentralization permits divisional management to concentrate on company-wide
problems and long-range planning
____ 45. When a manager takes an action that benefits his or her responsibility center, but not the company as a whole,
a. it is a non-controllable action
b. there is a lack of goal congruence
c. the center must be an artificial profit center
d. the manager should be fired
____ 46. Some basic elements of responsibility accounting are
a. chart of accounts classification
b. budgeting system
c. control-based reports
d. all are correct

____ 47. The accumulation of accounting data on the basis of the individual manager who has the authority to make
day-to-day decisions about activities in an area is called
a. static reporting
b. flexible accounting
c. responsibility accounting
d. master budgeting
____ 48. Which of the following would promote goal congruence?
a. return on investment
b. income based compensation
c. single measures of performance
d. economic value added
____ 49. Controllable costs are costs that
a. fluctuate in total in response to small changes in the rate of capacity utilization
b. will be unaffected by current managerial decisions
c. management decides to incur in the current period to enable the company to achieve
objectives other than filling customers’ orders
d. are likely to respond to the amount of attention devoted to them by a specified manager
____ 50. Return on investment (ROI) is calculated as
a. divisional operating income/divisional investment
b. divisional investment – divisional income
c. divisional investment/divisional operating income
d. divisional income – (divisional investment x required rate of return)

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Answer Key

1. ANS: C
SOL:
Moving partly finished production to a work-in-process storage area is not essential because it does not
change or transform the physical characteristics of the product. Moving could be eliminated by
reorganizing the manufacturing process.

The other options are incorrect because they are all essential activities in creating a final product.

TOP: Performance Measurement


2. ANS: C
SOL:
The scorecard system provides for upstream or downstream integration is incorrect because it makes
reference to upstream and downstream (vertical) integration as discussed in the section on industry
value chain analysis. Concepts of upstream and downstream integration are not relevant to the BSC.

TOP: Performance Measurement


3. ANS: A
SOL:
For Roberts Pty Ltd to achieve the desired profit margin per unit, its value engineering exercise will need to
reduce the expected standard cost per unit by P20.
Target selling price per unit P300
Desired profit margin (20% x P300.00) (P60)
Target standard cost P240
Expected standard cost per unit prior to value engineering P260
initiatives
Reduction in per unit cost to be achieved through value engineering (P20)

TOP: Performance Measurement


4. ANS: C
SOL:
HA will expect that the main purpose of the service-level agreements between Compu-serve and other HA
business units is to set clear and unambiguous performance measures in terms of the IT services Compu-serve
has agreed to deliver to its internal clients.

TOP: Performance Measurement


5. ANS: D
SOL:
20X0 Quality cost report
Expense item Total Prevention Appraisal Internal External
expense failure failure
Legal fees defending allegation
of defective products 20,000 20,000
Downtime due to avoidable
machine breakdowns 50,000 50,000
Incoming materials testing 120,000 120,000
Employee training 180,000 180,000
Rework for slightly defective
units 30,000 30,000
Warranty costs 50,000 50,000
Design engineering 210,000 210,000
Product-liability insurance
premium 10,000 10,000
Depreciation of production-line 40,000 40,000
testing equipment
Scrapped units 70,000 70,000
Product specification database 30,000 30,000
Recalls of defective products 20,000 20,000
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Preventative maintenance on 60,000 60,000


production-line equipment
Production-line inspection 70,000 70,000
Total 960,000 480,000 230,000 150,000 100,000

The product-liability insurance contract protects the organization from a financial perspective, but it does not
prevent the products from being defective. Claims against the insurance policy will arise from external
failures.

TOP: Performance Measurement


6. ANS: B
SOL:
The supplier cost-performance ratio = supplier-related costs / invoice cost.
For supplier X: P350,000 / P1,500,000 23.3%
For supplier Y: P160,000 / P1800,000 8.9%

TOP: Performance Measurement


7. ANS: B
SOL:
If a project has an outside customer as one of the stakeholders, the project sponsor may be the key intermediary
for negotiating the contract and ensuring continuing communication over the life of the project.

TOP: Performance Measurement


8. ANS: A
SOL:
Year 0 1 2 3
Initial cost (25,000)
Cash inflow P16,000 P16,000 P16,000
Cash outflow 5,000 5,000 5,000
Net cash flow 11,000 11,000 11,000
Discount rate 1/1.20 = 0.8333 1/(1.20)^2 = .6944 1/(1.20)^3 = .5787
PV (25,000) 9,167 7,639 6,365
NPV (Σ PV) (P1,829)

TOP: Performance Measurement


9. ANS: B
SOL:
Actual after tax income (P30,000,000 x 60%) 18,000,000
Capital charge on invested capital (P50,000,000 x 10%) 5,000,000
Economic value added 13,000,000
TOP: Performance Measurement

10. ANS: D TOP: Relevant Costing


11. ANS: B TOP: Financial Statement Analysis
12. ANS: D
SOL:
Balances in A/R from April sales: P21,000/0.15 = P140,000
15% represents the amount of April receivables uncollected at the end of May.

TOP: Budgeting
13. ANS: D TOP: Transfer Pricing
14. ANS: A TOP: Performance Measurement
15. ANS: B TOP: Introduction to MAS
16. ANS: D TOP: Transfer Pricing
17. ANS: C TOP: Budgeting
18. ANS: A
SOL:
Standard labor cost (12,000 x P12.50) 150,000

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Add: Adverse usage variance 14,500


Actual time at standard rate 164,500
Divide by standard labor rate 12.50
Actual hours worked 13,160
TOP: Standard Costing

19. ANS: B TOP: Cost Volume Profit Analysis


20. ANS: C TOP: Budgeting
21. ANS: B TOP: Budgeting
22. ANS: D TOP: Cost Volume Profit Analysis
23. ANS: B TOP: Cost Volume Profit Analysis
24. ANS: C TOP: Cost Volume Profit Analysis
25. ANS: C TOP: Cost Volume Profit Analysis
26. ANS: A TOP: Cost Volume Profit Analysis
27. ANS: C TOP: Absorption Costing
28. ANS: D TOP: Standard Costing
29. ANS: C TOP: Variable Costing and Variance Analysis
30. ANS: D TOP: Variable Costing and Variance Analysis
31. ANS: D TOP: Standard Costing
32. ANS: A TOP: Financing Decisions
33. ANS: B TOP: Cost Volume Profit Analysis
34. ANS: A TOP: Relevant Costing
35. ANS: B TOP: Financing Decisions
36. ANS: A TOP: Financial Statement Analysis
37. ANS: C TOP: Financial Statement Analysis
38. ANS: D TOP: Activity Based Costing
39. ANS: A
SOL:
Manufacturing cycle efficiency (MCE)
MCE: value added time / throughput time (manufacturing cycle) = 10/50

TOP: Financial Management


40. ANS: A
SOL:
Minimum price (with excess capacity) = (455 +30) + 300 + 45

TOP: Financial Management


41. ANS: C TOP: Financial Management
42. ANS: A
SOL:
Dept. B’s segment margin:
50,000 - 42,000 - 6,400 (70%) =
P3,520 TOP: Business Planning
43. ANS: D
SOL:
[300,000 / (100% - 9% - 20%)] 20% = P84,507

TOP: Financial Management


44. ANS: D TOP: Responsibility Accounting
45. ANS: B TOP: Responsibility Accounting
46. ANS: D TOP: Responsibility Accounting
47. ANS: C TOP: Responsibility Accounting
48. ANS: D TOP: Responsibility Accounting
49. ANS: D TOP: Responsibility Accounting
50. ANS: A TOP: Responsibility Accounting

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