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LAGUNA COLLEGE
Department of Commerce and Accountancy

Bachelor of Science in Accountancy
MANAGEMENT ADVISORY SERVICES

Preboard Examination of October 2017
In Partial Fulfillment of the Course Requirements in Management Consultancy
Presented to:
Mr. Demetrio A. Asacta, CPA
Presented By:
Fernandez, Ruth Ann A.

Guese, Prince Ricky Lenard L.
Malijan, Joshua B.
Obias, Gianuel G.
Perez, Romneil Ray B.
BSA IV
March 25, 2019

CPA REVIEW SCHOOL OF THE PHILIPPINES
FIRST PREBOARD EXAMINATION
Management Advisory Services
1. Story Manufacturing Incurs annual fixed costs of P250,000 In producing and selling ‘Tales.”
Estimated unit sales for 2013 are 125,000. An after-tax Income of P75,000 is desired by
management. The company projects its income tax rate at 40 percent. What is the maximum
amount that Story car expend for variable costs per unit and still meet its profit objective If the
sales price per unit is estimated at P6?
a. P3.37 c. P3.00
b. P3.59 d. P3.70
2. The process of choosing among competing alternatives is called
a. controlling c. decision making

b. planning d. performance evaluation
3. Which of the following is a not a characteristic of management accounting?
a. Internal focus
b. Broad-based and multidisciplinary
c. Subjective information may be used
d. Historical orientation
ITEMS 4 AND 5 ARE BASED ON THE FOLLOWING:
Castelo, Villasin and Barrera is a large, local accounting firm located In Cebu. Belle Castelo, one of the
Firm’s founders, appreciates the success her firm has enjoyed and wants to give something back to her
community. She believes that an inexpensive accounting services clinic could provide basic accounting
services for small businesses located In the province. She wants to price the services at cost.
Since the clinic is brand new, it has no experience to go oct. Belle decided to operate the clinic for two
months before determining how much to charge per hour on an ongoing basis. As a temporary measure,
the clinic adopted art hourly charge of P50, half the amount charged by Castelo, Villasir and Barrera for
professional services.
The accounting services clinic opened on January 1. During January, the clinic had 120 hours of
professional service. During February, the activity was 150 hours. Costs for these two level of activity
usage are as follows:
Professional hours 120 hours 150 hours

Salaries:
Senior accountant P 2,500 P 2,500
Office assistant 1,200 1,200
Internet and software subscriptions 700 850
Consulting by senior partner 1,200 1,500
Depreciation (equipment) 2,400 2,40O
Supplies 905 1,100
Administration 500 500
Rent (offices) 2,000 2,000
Utilities 332 365
OCTOBER 2017
4. The clinic’s monthly fixed costs amount to:
a. P8,600 c. P 425
b. P9,025 d. P12,189
5. Apple Baby, the chief paraprofessional of the clinic, has estimated that the clinic will average 140
professional hours per month. If the clinic is to be operated as a non-profit organization, how
much will it need to charge per professional hour?
a. P97.81 c. P82.77
b. P87.06 d. P22.60
6. Historical experience, engineering studies, and input from operating personnel are three potential
sources for quantitative standards. Although historical experience may provide an initial guideline
for setting standards, it should be used with caution because
a. most companies have very poor records.

b. ideal standards are better than historical standards.
c. they may not be achievable by operating personnel.
d. they may perpetuate operating inefficiencies.
7. Which of the following characteristics distinguishes computer processing from manual

processing?
a. Computer processing virtually eliminates the occurrence of computational error normally
associated with manual processing.
b. Errors or fraud in computer processing will be detected soon after their occurrences.
c. The potential for systematic error Is ordinarily greater In manual processing than In
computerized processing.
d. Most computer systems are designed so that transaction trails useful for audit purposes do not
exist.
8. What type or computer system is characterized by data that are assembled from more than one
location and records that are updated immediately?
a. Microcomputer system c. Batch processing system

b. Minicomputer system d. Online real-time system
9. The local video store’s business increased by 12% after the movie theater raised the cost from
P300 to P400. Thus, relative to movie theater admissions, videos are
a. substitute goods c. complementary goods

b. superior goods d. public goods
10. In national income terms, aggregate demand is the

a. demand for money by a community in a period of full employment.
b. total expenditure on a capital goods be entrepreneurs during a period full employment.
c. demand that is needed if the country’s economy is to operate at optimum level and the level of
investment is to be raised.
d. total expenditures on consumer goods and investment, including government and foreign
expenditures, during a given period.
OCTOBER 2017
11. Which of the following statements is correct?
a. MAS is confined only to such areas as financing, accounting, auditing, and tax services.
b. Because the MAS practitioner must be independent, he must not allow the client participate in
any phase of his engagement.
c. Although MAS extends beyond the traditional accounting services. CPAs in the MS practice
are still bound by the rules of professional ethics in the practice of accounting in general.
d. CPAs provide management services to go around the ethical constraints as mandated by the
Accountancy Act.
12. Producer Company makes two products, X and Z. X is being introduced this period, whereas Z
has been from production for two years. For the period about to begin, 1,000 units of each
product are to be manufactured. Assume that the only relevant overhead item is the cost of
engineering change orders: that X and Z are expected to require eight and two change orders; that
X and Z are expected to require 3 and 2 machine hours, respectively; and that the cost of a change
order is P600. If Producer applies engineering cost order costs on the basis of machine hours, the
cross subsidy per unit arising from this peanut butter-costing approach is
a. P1.20 c. P3.60
b. P2.40 d. P4.80
13. How will a favorable volume variance affect its net income under each of the following methods?
Absorption Variable
a. reduce no effect
b. reduce increase
c. increase no effect
d. increase reduce
14. Consider the equation X = Sales — [(CM/Sales) x (Sales)]. What is X?

a. net income c. contribution margin
b. fixed costs d. variable costs
15. As projected n- income Increases the

a. degree of operating leverage declines c. break-even point goes down.
b. margin of safety stays constant. d. contribution margin ratio goes up.
ITEMS 16 TO 18 ARE BASED ON THE FOLLOWING:
The following information is available for X Co. for its first year of operations:
Sales In units 5,000

Production in units 8,000
Manufacturing cost:
Direct labor P3 per unit
Direct material 5 per unit
Variable overhead 1 per unit
Fixed overhead P100,000
Net income (absorption method) P30,000
Sales price per unit P40
OCTOBER 2017
16. What would X Co. have reported as its income before income taxes if it had used variable
costing?
a. P30,000 c. P67,500
b. (P7,500) d. can’t be determined from the given information
17. What was the total amount of SG&A expense incurred by X Co.
a. P30,000 c. P6,000
b. P62,500 d. can’t be determined from the given information
18. Based on variable costing, what would X Co. show as the value of its ending inventory?
a. P120,000 c. P27,000
b. P 64,500 d. F24,000
19. The most likely strategy to reduce the break-even point would be
a. increase both the fixed costs and the contribution margin
b. decrease both the fixed costs and the contribution margin
c. decrease the fixed costs and increase the contribution margin
d. increase the fixed costs and decrease the contribution margin
20. Which of the following is an advantage of using variable costing?

a. Variable costing complies with Generally Accepted Accounting Principles.
b. Variable costing complies with the National Internal Revenue Code.
c. Variable costing is most relevant to long-run pricing strategies.
d. Variable costing makes cost-volume-profit relationships more apparent.
21. Uniformly assigning the costs of resources to cost objects when those resources are actually used
in a non-uniform way is called
a. overcosting. c. peanut-butter costing.
b. undercosting. d. department costing.
22. The standard direct materials cost to produce a unit of a product is four meters of materials at P2.50
per meter. During June, 2017, 4,200 meters of materials costing P10,080 were purchased and used
to produce 1,000 units of the product. What was the materials price variance for June 2017?
a. P480 unfavorable c. P400 favorable
b. p 80 unfavorable d. P420 favorable
23. Chubby Company’s total costs of operating five sales offices last year were P500,000, of which
P430000 represented variable costs. Chubby 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 bases for predicting annual costs. What would be the budgeted costs for the
coming year if Chubby were to operate eight sales offices?
a. P800,000 c. P688,000
b. P758,000 d. P 70,000
OCTOBER 2017
24. Using regression analysis, Nasty Company graphed the following relationship of its cheapest
product line’s sales with its customer’s income levels:
If there is a strong statistical relationship between the sales and customers’ income levels, which
of the following numbers best represents the correlation efficient for this relationship?
a. +0.93 c. -.93
b. - 9.00 d. +9.00
25. In connection with a standard cost system being developed by Faopao Company, the following
information is being considered with regard to standard hours allowed for output of one unit of
product:
HOURS
Average historical performance for the past three years 3.70

Production level to satisfy average consumer demand over
a seasonal time span 3.20
Engineering estimates based on attainable performance 3.00
Engineering estimates based on ideal performance 2.50
To measure controllable production inefficiencies, what is the best basis for Paopao to use in
establishing standard hours allowed?
a. 3.00 c. 2.50
b. 3.20 d. 3.70
26. A company produces three products; if one product is overcosted then

a. one product is undercosted. c. two products are undercosted.
b. one or two products are undercosted. d. no product is undercosted.
27. Spikey Company produces two products: Pat and Chin. The projected income for the coming year
segmented by product line, follow:
Pat Chin Total
Sales P300,000 P2,500,000 P2,800,00

Less variable expenses 100,000 500,000 600,000
Contribution margin P200,000 P2,000,000 P2,200,000
Less direct fixed expenses 28,000 1,500,000 1,528,000
Product margin P172.000 P500,000 P672,000
Less common fixed cost 100,000
Operating income P 572.000
OCTOBER 2017
The selling prices are P10 for Pat and P50 for Chin.
Spikey company can increase the sales of Pat with increased advertising. The extra advertising
would cost at additional P245;000, and some of the potential purchasers of Chin would switch
to Pat. In total, sales of Pat would increase by 25,000 units, and sales of Chin would decrease
by 5,000 units. This strategy would
a. increase Spikey’s total sales by P750,003.

b. decrease Spikey’s total contribution margin by P300,000.
c. increase Spikey’s total income by P55,000.
d. not affect Spikey’s total fixed costs.
28. Which of the following standard costing variances would be least controllable by a production
supervisor?
a. material usage c. overhead volume
b. overhead efficiency d. labor efficiency
29. Meriman Company provides the following ABC costing information:
Activities Total Costs Activity cost driver

Account inquiry hours P400,000 10,000 hours
Account billing lines P280,000 4,000,000 lines
Account verification accounts P150,000 40,000 accounts
Correspondence letters P50,000 4,000 letters
Total costs P880,000
The above activities are used by Departments A and B as follows:
Department A Department B
Account inquiry hours 2,000 hours 4,000 hours

Account billing lines 400,000 lines 200,000 tines
Account verification accounts 10,000 accounts 8,000 accounts
Correspondence letters 1,000 letters 1,600 letters
How much of the total costs will be assigned to Department A?

a. P224,000 c. P158,000
b. P80,000 d. P880,000
30. Buchoy Company manufactures one product with a standard direct manufacturing labor cost of
four hours at P12.00 per hour. During June, 1,000 units were produced using 4,100 hours at
P12.20 per hour. The unfavorable direct labor efficiency variance was:
a. P820 c. P1,200
b. P400 d. P1,220
31. The determination of a cost as either direct or indirect depends upon the:
a. accounting system c. cost object chosen
b. allocation system d. cost tracing system
OCTOBER 2017
Vhong, Inc. evaluates manufacturing overhead in its factory by using variance analysis. The following
information applies to the month of July:
ACTUAL BUDGETED
Number of units produced 19,000 20,000
Variable overhead costs P4,100 P2 per direct labor hour
Fixed overhead costs P22,000 P20,000
Direct labor hours 2,100 0.1 hour per unit
32. The controllable variance amounts to

a. P2,500 unfavorable c. 2,300 unfavorable
b. P1,000 unfavorable d. P2,000 unfavorable
33. Using the three—way variance analysis, the spending variance amounts to
a. P100 favorable c. P2,000 unfavorable
34. The efficiency variance amounts to

35. The non-controllable variance is

a. P2,300 unfavorable c. P2,000 unfavorable
b. P400 unfavorable d. P1,000 unfavorable
36. The fixed overhead efficiency variance is:

b. PP2,000 unfavorable d. 0
37. The primary purpose of management advisory services is

a. to achieve the objectives of the MAS firm.
b. to help the client maximize its resources,
c. to improve the client’s use of its capabilities and resources to achieve the objectives of such
client’s organization.
d. to help the client identify its problems.
38. Which of the following statements is FALSE?

a. Fixed cost have cost drivers over the short run.
b. There is a cause-and-effect relationship between the cost driver and the level of activity.
c. Over the long run all costs have cost drivers.
d. Volume of production is a cost driver of direct manufacturing costs.
39. Iking company uses a standard costing system in connection with the manufacture or a “one size
fits all” product made of rubber. Each unit of finished product contains two feet of direct material.
However, a 20% direct material spoilage calculated on input quantities occurs during the
manufacturing process. The cost of the direct material is P3 per foot. The standard direct
materials cost per unit of finished product is:
a. P7.50 c. P7.20
b. P6.00 d. P4.80
OCTOBER 2017
40. A major accounting contribution to the managerial decision-making process in evaluating

possible costs of action is to
a. decide which actions the management should consider.
b. determine the amount of money that should be spent on a project.
c. assign responsibility for the decision.
d. provide relevant revenue and cost data about each course of action.
ITEMS 41 to 43 ARE BASED ON THE FOLLOWING INFORMA TION:
Racel Company is a manufacturer of electronic switches. One of their products, “Sensory Switch” is used
as a component of most electrical appliances.
Sensory Switch has the following financial data per unit:

Selling price P180
Variable costs:
Materials P24
Labor 18
Factory overhead 15
Shipping and handling 3 P 60
Fixed costs: Factory overhead P36
Selling and administrative 14 50
Total P110
During the month, Racel has received a special, one-time order for 1,500 units of Sensory
Switch.
41. Assuming that the company has excess capacity that is enough to produce this special order
without affecting sales to regular customers, and the company wants to improve its profitability,
the price that is acceptable for this special, one-time order is in excess of
a. P180. c. P60.
b. P110. d. P50.
42. Assume that Racel is operating at full capacity and that it does not want to incur a loss from this
order, the minimum acceptable price is
a. P180. c. P60.
b. P1l0. d. P50.
43. Assume that the excess capacity available for this special order is only 1,000 units, so that if the
order were accepted, Racel would have to reduce sales to regular customers. What is the
minimum price for this special order?
a. P180 c. P60
b. P110 d. P100
44. A linear cost function can represent:

a. mixed cost behaviors c. variable cost behaviors
b. fixed cost behaviors d. All of these answers are correct.
OCTOBER 2017
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 45 AND 46:
Mark’s 5-year-old Lancer requires repairs estimated at P3,000 to make it again. His friend, Mickey,
suggested that he should try a 5-year-old used Honda Civic instead for P3,000 cash. Mickey estimated the
following costs for the two cars:
Lancer Honda Civic
Acquisition cost P600,000 P120,000
Repairs P120,000
Annual operating costs
(Gas, maintenance, insurance) P91,200 P84,000
45. The cost NOT relevant for this decision is the:

a. acquisition cost of the Lancer
b. acquisition cost of the Honda Civic
c. repairs to the Lancer
d. annual operating costs of the Honda Civic
46. What should Mark do? What are his savings in the first year?
a. Buy the Honda Civic; P391,200
b. Fix the Lancer; P220,720
c. Buy the Honda Civic; P7,200
d. Fix the Lancer; P211,200
47. For decision making, a listing of the relevant costs:

a. will help the decision maker concentrate on the pertinent data
b. will only include future costs
c. will only include costs that differ among alternatives
d. All of these answers are correct.
48. DSP Company earned P100,000 on sales of P1,000,000. It earned 130,000 on sales of
P1,100,000. Contribution margin as a percentage of sales is
a. 30%. c. 70%.
b. 40%. d. 90%.
49. MNO has a break-even point of 200,000 units and earns a P100,000 profit at sales of 250,000
units. Which of the following is true?
a. Fixed costs are P100,000.
b. Total contribution margin at 200,000 units is P400,000.
c. Profit at sales of 300,000 units is P120,000.
d. Selling price per unit is P2.
50. What factor, related to manufacturing costs, causes the difference in net earnings computed using
absorption costing and net earnings computed using variable costing
a. Absorption costing considers all costs in the determination of net earnings of the variable
costing considers fixed costs to be period costs.
b. Absorption costing allocates fixed overhead costs between cost of goods sold and inventories,
and variable costing considers all fixed costs to be period costs.
c. Absorption costing “inventories” all direct costs, but variable costing considers direct costs to
be period costs.
d. Absorption costing “inventories” all fixed costs for the period in ending finished goods
inventory, but variable costing expenses all fixed costs.
OCTOBER 2017
ANSWER KEY
1. C 26. B
2. C 27. C
3. D 28. C
4. B 29. C
5. B 30. C
6. D 31. C
7. A 32. C
8. D 33. B
9. A 34. A
10. D 35. D
11. C 36. D
12. A 37. C
13. C 38. A
14. D 39. A
15. A 40. D
16. B 41. C
17. B 42. A
18. C 43. D
19. C 44. D
20. D 45. A
21. C 46. C
22. D 47. D
23. B 48. A
24. C 49. B
25. A 50. B
OCTOBER 2017
FINAL PREBOARD EXAMINATION
USE THE FOLLOWING TO ANSWER QUESTIONS 1 AND 2:
Broyles Company makes four products in a single facility. These products have the following unit
product costs:
Product A B C D
Direct materials P10.70 P 5.40 P 5.10 P 7.20
Direct labor 19.10 21.40 29.00 34.40
Variable manufacturing overhead 1.20 1.50 1.80 1.60
Fixed manufacturing overhead 22.40 16.00 15.00 17.60
Unit product cost P53.40 P44.30 P50.90 P60.80
Additional data concerning these products are listed below:

Product A B C D
Grinding minutes per unit 2.20 1.20 1.70 1.80
Selling price per unit P65.40 P58.50 P70.70 P76.20
Variable selling cost per unit P3.60 P3.80 P2.00 P3.40
Monthly demand in units 1,000 4,000 1,000 4,000
The grinding machines are potentially the constraint in the production facility. A total of 14,480
minutes are available per month on these machines. Direct labor is a variable cost in this
company.
1. How many minutes of grinding machine time would be required to satisfy demand for all four
products?
a. 13,400 c. 10,000
b. 15,900 d. 14,400
2. Up to how much should the company be willing to pay for one additional hour of grinding
machine time if the company has made the best USE of the existing grinding machine capacity?
a. P26.40 c. P14.00
b. P12.00 d. P 0.00
3. Which of the following decision-making models evaluates the initial investment with the present
value of the future cash inflows?
a. Accounting rate of return. c. Internal rate of return.
b. Payback period. d. Cost-benefit ratio.
4. A company’s controller is adjusting next year’s budget to reflect the impact of an expected 5%
inlflation rate. Listed below are selected items from next year’s budget before the adjustment:
Total salaries expense P250,000

Health costs 100,000
Depreciation expense 65,000
Interest expense on 10-year fixed-rate notes 37,750
After adjusting for the 5% inflation rate, what is the company’s total budget for the selected items
before taxes for next year?
a. P470,250 c. P473,500
b. P472,138 d. P475,388
OCTOBER 2017
5. DJ Co. has a job-order cost system. The following debits (credits) appeared in the Work in
Process account for the month of March:
March 1, balance P 12,000
March 31, direct materials 40,000
March, 31, direct labor 30,000
March 31, manufacturing overhead applied 27,000
March 31, to finished goods (100,000)
DJ Co. applies overhead at a predetermined rate of 90% of direct Labor cost. Job No. 101, the
only job still In process at the end of March, has been charged with manufacturing overhead of
P2,250.
What was the amount of direct materials charged to Job No. 101?
a. P2,250 c. P4250
b. P2,500 d. P4,725
6. Which of the following changes would result in the highest present value for a series of cash
flows?
a. A P100 decrease in taxes each year to tour years.
b. A P100 decrease in the cash outflow each year for three years.
c. A P100 increase in disposal value at the end of four years.
d. A P100 increase in cash inflow each year for three years.
7. Which of the following is usually a benefit of transmitting transactions in an electronic data

interchange (EDI) environment?
a. Elimination of the need to continuously update antivirus software
b. Assurance of the thoroughness of transaction data because of standardized controls.
c. Automatic protection of information that has eiectronically left the entity.
d. Elimination of the need to verify the receipt of goods before making payment.
8. The optimal capitalization for an organization usually can be determined by the

a. Maximum degree of financial leverage (DFL).
b. Maximum degree of total leverage (DTL)
c. Lowest total weighted-average cost of capital (WACC).
d. Intersection of the marginal cost of capital and the marginal efficiency of investment.
9. Ryan Co. projects the following monthly revenues for next year:
January P100,000 July P250,000
February 500,000 August 275,000
March 425,000 September 300,000
April 450,000 October 350,000
May 575,000 November 400,000
June 300,000 December 525,000
Ryan’s terms are net 30 days. The company typically receives payment on 80% of sales the month
following the sale and 17% is collected two months after the sale. Approximately 3% of sales are
deemed bad debt. What amount represents he expected cash collection in thr second calendar
quarter of next year?
a. P1,450,000 c. 1,325,000
b. P1,393,750 d. 1,234,150
OCTOBER 2017
10. Bander Co. is determining how to finance some long –term projects. Bander has decided it
prefers the benefits of no fixed charges, no fixed maturity date and increase in the credit
worthiness of the company. Which of the following would best meet Bander’s financing
requirements?
a. Bonds c. long-term debt.
b. Common Stock d. short-term debt
11. Shimon Corporation manufactures industrial-sized water coolers and uses budgeted machine-
hours to allocate variable manufacturing overhead. The following information pertains to the
company’s manufacturing overhead data:
Budgeted output units 15,000 units

Budgeted machine-hours 5000 hours
Budgeted variable manufacturing overhead costs for 15,000 units P161,250
Actual output units produced 22,000 units
Actual machine-hours used 7,200 hours
Actual variable manufacturing overhead costs P242,000
What is the flexible-budget variance for variable manufacturing overhead?
a. P5,500 favorable c. P4,300 favorable

b. P5,500 unfavorable d. None of these answers is correct.
12. Which of the following terms represents the residual income that remains after the cost of all
capital, including equity capital, has been deducted?
a. Free cash flow. c. economic value-added
b. Market value-added. d. Net operating capital
13. The following information is available for the wholesale products division of Watco:
Net operating profit before interest and taxes P30,000000

Depredation expense 10,000,000
Change in net 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?
a. P30,000,000 c. P25,000,000
b. P13,000,000 d. P 5,000,000
14. Fargo, Mfg., a small business, is developing a budget for next year. Which of the following steps
should Fargo perform first?
a. Forecast Fargo’s sales volume.
b. Determine the price of Fargo’s products.
c. Identify costs of Fargo’s forecasted sales volume
d. Compute the peso amount of Fargo’s forecasted sales.
OCTOBER 2017
15. What is the effect when a foreign competitor’s currency becomes weaker compared to the U.S.
dollar?
a. The foreign company will have an advantage in the U.S. market.
b. The foreign company will be disadvantaged in the U.S. market.
c. The fluctuation in the foreign currency’s exchange rare has no effect on the U.S. company’s
sales or cost of goods sold.
d. It is better for the U.S. company when the value of the dollar strengthens.
16. When a firm finances each asset with a financial instrument of the same approximate maturity as
the life of the asset, it is applying
a. Working capital management. c. Financial leverage.
b. Return maximization. d. A hedging approach.
17. Tam Co. is negotiating for the purchase of equipment that would cost P100,000, with the
expectation that P20,000 per year could be saved in after-tax costs if the equipment were
acquired. The equipment’s estimated useful life is 10 years, with no residual value, and it would
be depreciated by the straight-line method. Tam predetermined minimum desired rate of return is
12%. The present value of an annuity of t at 2% for ten periods is 5.65. The present value of 1 due
In ten periods at 12% is .322. accrual accounting rate of return based on the 10% initial
investment is
a. 30% c. 12%
b. 20% d. 10%
18. If an investment project has a profitability index of 1.15, then the

a. Project’s internal rate of return is 15%.
b. Project’s cost of capital is greater than its internal rate of return.
c. Project’s internal rate of return exceeds its net present value.
d. Net present value of the project is positive.
19. An economy is at the peak of the business cycle. Which of the following policy packages is the
most effective way to dampen the economy and prevent Inflation?
a. Increase government spending, reduce taxes, increase money supply, and reduce interest rates.
b. Reduce government spending, increase taxes, increase money supply, and increase interest
rates.
c. Reduce government spending, increase taxes, reduce money supply, and increase interest rates.
d. Reduce government spending, reduce taxes, reduce money supply, and reduce interest rates.
20. Eagle Sporting Goods has P2.5 million in inventory and P2 million in accounts receivable. Its
average daily sales are P100,000. The firm’s payables deferral period is 30 days and average
daily cost of sales are P50,000. What is the length of the firm’s cash conversion period?
a. 100 days. c. 50 days.
b. 60 days. d. 40 days.
21. Which changes in costs are most conducive to switching from a traditional inventory ordering
system to a just-in-time ordering system?
Cost per purchase order Inventory unit carrying cost
a. Increasing Increasing
b. Decreasing Increasing
c. Decreasing Decreasing
d. Increasing Decreasing
OCTOBER 2017
22. Newton Corporation is offered trade credit terms of 3/15, net 45. The firm does not take
advantage of the discount, and it pays the account after 67 days. Using a 365- day year, what is
the nominal annual cost of not taking the discount?
a. 18.2% c 23.48%
b. 21.71% d. 26.45%
23. Management of Terra Corp. is attempting to estimate the firm’s cost of equity capital. Assuming
that the firm has a constant growth rate or 5%, a forecasted dividend of P2.11, and a stock price
of P23.12, what is the estimated cost of common equity using the dividend-yield-plus growth
approach?
a. 9.1% c. 15.6%
b. 14.1% d. 12.3%
ITEMS 24-26 ARE BASED ON THE FOLLOWING INFORMATION:
Alex Company is a manufacturer of electronic switches. One of their products, “Sensory Switch” is used
as a component of most electrical appliances.
Sensory Switch has the following financial data per unit:

Selling price P180
Variable costs:
P24
Materials
Labor 18
Factory overhead 15
Shipping and handling 3 P 60
Fixed costs: Factory overhead P36
Selling and administrative 14 50
Total P110
During the month, Alex has received a special, one-time order for 1,500 units of Sensory Switch.
24. Assuming that the company has excess capacity that is enough to produce this special order
without affecting sales to regular customers, and the company wants to improve its profitability,
the price that is acceptable for this special, one-time order is in excess of
a. P180. c. P60.
b. P110. d. P50.
25. Assume that Alex is operating at full capacity and that it does not want to incur a loss from this
order, the minimum acceptable price is
a. P180. c. P60.
b. P1l0. d. P50.
26. Assume that the excess capacity available for this special order is only 1,000 units, so that if the
order were accepted, Alex would have to reduce sales to regular customers. What is the minimum
price for this special order?
a. P180 c. P60
b. P110 d. P100
OCTOBER 2017
27. All of the following statements in regard to working capital are correct except:
a. Current liabilities are an important source of financing for many small firms.
b. Profitability varies inversely with liquidity.
c. The hedging approach to financing involves matching maturities of debt with specific financing
needs.
d. Financing permanent inventory build-up with long-term debt is an example of an aggressive
working capital policy.
ITEMS 28 THROUGH 32 ARE BASED ON THE FOLLOWING INFORMATION:
The following is selected data for the Consumer Product division of Aaron Corporations for 2013:
Sales P50,000,000
Average invested capital (assets) 20,000,000
Net income 2,000,000
Cost of capital 3%
28. What is the return on sales (ROS)?

a. 8% c. 10%
b. 4% d. 20%
29. What is the asset turnover ratio for the division?

a. 0.25 c. 2.5
b. 10 d. 8
30. What is the return on investment (ROI) for the division?

a. 10% c. 4%
b. 8% d. 2%
31. What is the amount of residual Income (RI) for the division?
a. P2,000,000 c. P1,000,000
b. P1,600,000 d. P 400,000
32. What is the amount of interest rate spread for the division?
a. 8% c. 2%
b. 10% d. 20%
33. In the cost of quality, which of the following Is an example of an “Internal failure”?
a. Cost of Inspecting products on the production line by quality inspectors.
b. Labor cost of product designers whose task is to design components that will not break under
extreme temperature conditions.
c. Cost of reworking defective parts detected by the quality assurance group.
d. Cost of parts returned by customers.
34. Mien Co. is budgeting sales of 53,000 units of product Nous for October 2013. The manufacture
of one unit of Nous requires four kilos of chemical Loire. During October 2013, Mien plans to
reduce the inventory of Loire by 50,000 kilos and increase the finished goods inventory of Nous
by 6,000 units. There is no Nous work in process inventory.
OCTOBER 2017
How many kilos of Loire is Mien budgeting to purchase in October 2013?

a. 138,000 c. 186,000
b. 162,000 d. 238,000
35. The master budget

a. Shows forecasted and actual results.
b. Reflects controllable costs only.
c. Can be used to determine manufacturing cost variances.
d. Contains the operating budget.
36. Kern Co. is planning to invest in a two-year project that is expected to yield cash flows from
operations, net of income taxes, of P50,000 n the first year and P80,000 in the second year. Kern
requires an internal rate of return of 15%. The present value of Pl for one period at 15% is 0.870
and for two periods at 15% is 0.756. The future value of Pl for one period at 15% is 1.150 and for
two periods at 15% is 1.323. The maximum that Kern should invest immediately is
a. P 81,670 c. P130,000
b. P103,980 d. P163,340
37. When production levels are expected to increase within a relevant range, and a flexible budget is
used, what effect would be anticipated with respect to each of the following costs?
Fixed costs Variable costs

per unit per unit
a. Decrease Decrease
b. No change No change
c. No change Decrease
d. Decrease No change
38. Controllable revenue would be included in a performance report for a
Profit center Cost center

a. No No
b. No Yes
c. Yes No
d. Yes Yes
39. The following is a summarized income statement of Carr Co.’s profit center No. 43 for March
2013:
Contribution margin P70,000
Period expenses:
Manager’s salary P20,000
Facility depreciation 8,000
Corporate expense allocation 5,000 33,000
Profit center income P37,000
Which of the following amounts would most likely be subject to the control of the profit
center’s manager?
a. P70,000 c. P37,000
b. P50,000 d. P33,000
OCTOBER 2017
40. A company obtained a short-term bank loan of P250,000 at an annual interest rate of 6%. As a
condition of the loan, the company Is required to maintain a compensating balance of P50,000 in
its checking account. The company’s checking account earns interest at an annual rate of 2%.
Ordinarily, the company maintains a balance of P25,000 in its checking account for transaction
purposes. What is the effective interest rate of the loan?
a. 6.44% c. 5.80%
b. 7.11% d. 6.66%
41. The following direct manufacturing labor information pertains to the manufacture of product Glu:
Time required to make one unit 2 direct labor hours
Number of direct workers 50
Number of productive hours per week, per worker 40
Weekly wages per worker P500
Workers’ benefits treated as
direct manufacturing labor costs 2% of wages
What is the standard direct manufacturing labor cost per unit of product Glu?
a. P30 c. P15
b. P24 d. P12
42. Following are the operating results of the two scg;ner.ts cf Priden Corporation:
Segment A Segment B Total
Sales P10,000 P15,000 P25,000

Variable cost of goods sold 4,000 8,500 12,500
Fixed cost of goods sold 1,500 2,500 4,000
Gross margin 4,500 4,000 8,500
Variable selling and administrative 2,000 3,000 5,000
Fixed selling and administrative 1,500 1,500 3,000
Operating income (loss) P1,000 P(500) P500
Fixed costs of goods sold are allocated to each segment based on the number of employees.
Fixed selling and administrative expenses are allocated equally. If segment B is eliminated,
P1,500 of fixed costs of goods sold would be eliminated. Assuming segment b is closed, the
effect on operating income would be
a. An increase of P500. c. A decrease of P2,000.
b. An increase of P2,000. d. A decrease of P2,500
43. Which of the following is true about activity-based costing?

a. It should not be used with process or job costing.
b. It can be used only with process coting.
c. It can be used only with job costing.
d. It can be used with either process or job costing.
44. The ABC Company is trying to decide between keeping an existing machine and replacing it with
a new machine. The old machine was purchased just two years ago for P50,000 and had an expected
life of 10 years. It now costs P1,000 a month for maintenance and repairs due to a mechanical
problem. A new machine is being considered to replace it at a cost of P60,000. The new machine
is more efficient and it will only cost P200 a month for maintenance and repairs. The new machine
OCTOBER 2017
has an expected life of 10 years. In deciding to replace the old machine, which of the following
factors, ignoring income taxes, should ABC not consider?
a. Any estimated salvage value on the old machine.
b. The original cost of the old machine.
c. The estimated useful life of the new machine.
d. The lower maintenance cost on the new machine.
45. Black Co.’s breakeven point was P780,000. Variable expenses averaged 60% of sales, and the
margin of safety was P130,000. What was Black’s contribution margin?
a. P 364,000 c. P 910,000
b. P 546,000 d. P1,300,000
46. Limitations of an activity-based costing system include which of the following?

a. Control of overhead costs is enhanced.
b. Activity-based costing systems are less reliable.
c. The expense of obtaining cost data is relatively high.
d. It eliminates arbitrary assignment of overhead costs.
47. Jackson Co. is considering a project that will use 2,000 square feet of storage space at one of its
facilities to store used equipment. What Will determine Jackson’s opportunity cost?
a. The net present value of the project.
b. The internal rate of return of the project.
c. The value of the next best use of the space.
d. The depreciation expense on the space.
48. The following information pertains to Roe Co.’s 2013 manufacturing operations:
Standard direct manufacturing labor hours per unit 2
Actual direct manufacturing labor hours 10,500
Number of units produced 5,000
Standard variable overhead per standard
Direct manufacturing labor hour P3
Actual variable overhead P28,000
Roe’s 2013 unfavorable variable overhead efficiency variance was

a. P0 c. P2,000
b. P1,500 d. P3,500
49. Which of the following indicates that the economy is in a recessionary phase?
a. The rate of unemployment decreases.
b. The purchasing power of money declines rapidly.
c. Potential national income exceeds actual national income.
d. There is a shortage of essential raw materials and costs are rising.
50. A company produces and sells two products. The first product accounts for 75% of sales and the
second product accounts for the remaining 25% of sales. The first product has a selling price of
P10 per unit, variable costs of P6 per unit, and allocated fixed costs of P100,000. The second
product has a selling price of P25 per unit, variable costs of P13 per unit, and allocated fixed costs
of P212,000. At the breakeven point, what number of units of the first product will have been sold?
a. 52,000 c. 25,000
b. 39,000 d. 14,625
OCTOBER 2017
51. Which of the following is one of the four perspectives of a balanced scorecard?
a. Just in time. c. Benchmarking.
b. Innovation. d. Activity-based costing.
52. The New Wave Co. is considering a new method for allocating overhead to its two products, regular
and premium coffee beans. Currently New Wave is using the traditional method to allocate
overhead, in which the cost driver is direct labor costs. However, it is interested in using two
different drivers: machine hours (MH) for separating and roasting beans, and pounds of coffee for
packing and shipping.
Machine hours for the current month are 700 hours, direct labor cost per pound of coffee is P1.25,
and direct materials cost per pound of coffee is P1.50, There are 1,000 pounds of coffee packed
and shipped for the current month.
The following data are also available:

Regular Premium
Overhead for the current month P5,000.00
Cost pool for separating
and roasting beans 3,500.00 150 MH 550 MH
Cost pool for packing and shipping 1,500.00 500 pounds 500 pounds
What is the total cost per pound for the premium coffee using the new activity-based costing
method?
a. P5.00 c. P7.75
b. P5.75 d. P9.75
53. Which of the following statements below shows the contrast between data and information?
a. Data is the output of an AIS.
b. Information is the primary output of an AIS.
c. Data is more useful in decision-making than information.
d. Data and information are the same.
54. The Internet has changed the way many processes are performed in business today. The Internet
has had a material effect on the five primary characteristics In the value chain and on the strategy
adopted by businesses that incorporate use of the Web into their business systems. Which
statement below is true regarding the internet relative to a strategic position that a business may
adopt?
a. Use of the internet has reduced the power of buyers.
b. The Internet has increased the barriers to entry in many industries.
c. Use of the Internet reduces pressure to compete on price.
d. The most important effect of the development of the Internet in business is the increased
importance of adopting a viable business strategy.
55. The Wood Furniture company produces a specialty wood furniture product, and has the following
information available concerning its inventory items:
Relevant ordering costs per purchase order P150

Relevant carrying costs per year:
Required annual return on investment 10%
Required other costs per year P1.40
OCTOBER 2017
Annual demand is 10,000 packages per year. The purchase price per package is P16. What are the
relevant total costs at the economic order quantity?
a. P1,000 c. P3,000
b. P1,500 d. P3,500
56. Quality of design measures how closely the characteristics of product or services match the needs
and wants of customers. Conformance quality:
a. measures the same things
b. Is the performance of a product or service according to design and product specifications
c. Is making the product according to design, engineering, and manufacturing specifications
d. focuses on fitness of uses from a customer perspective
57. The balanced scorecard is said to be “balanced” because it measures:

a. short-term and long-term objectives
b. financial and nonfinancial objectives
c. Internal and external objectives
d. All of these answers are correct.
58. The most likely strategy to reduce the break-even point would be
a. increase both the fixed costs and the contribution margin
b. decrease both the fixed costs and the contribution margin
c. decrease the fixed costs and increase the contribution margin
d. increase the fixed costs and decrease the contribution margin
59. Which of the following factors should NOT be considered when pricing a special order?
a. the likely bids of competitors
b. the incremental cost of one unit of product
c. revenues that will be lost on existing sales if prices are lowered
d. stable pricing to earn the desired long-run return.
60. A company produces three products; if one product is overcosted then

a. one product is undercosted. c. two products are undercosted.
b. one or two products are undercosted. d. no product is undercosted.
61. After conducting a market research study, Schultz Manufacturing decided to produce a new interior
door to complement its exterior door line. It is estimated that the new interior door can be sold at a
target price of P60. The annual target sales volume for interior doors is 20,000. Schultz has target
operating income of 20% of sales.
What is the target cost for each interior door?

a. P48 c. P60
b. P58 d. P45
62. Local Steel Construction Company produces two products, steel and wood beams. Steel beams
have a unit contribution margin of P200, and wood beams have a unit contribution margin of P150.
The demand for steel beams exceeds Local Steel Construction Company’s production capacity,
which is limited by available direct labor and machine-hours. The maximum demand for wood
beams is 90 per week. Management desires that thee product mix should maximize the weekly
contribution toward fixed costs and profits.
OCTOBER 2017
Direct manufacturing labor is limited to 3,000 hours a week and 1,000 hours is all that the
company’s outdated machines can run a week. The steel beams require 120 hours of labor and 60
machine-hours. Wood beams require 150 labor hours and 120 machine-hours.
Let S = units of steel beams; W = units of wood beams

Which of the following is not a constraint function in this case?
a. 120S+150W<3,000 c. 60S+120W<1,000
b. W<90 d. 200S=150W
63. A recent college graduate has the choice of buying a new auto for 20,000 or investing the money
for four years with a 6% expected annual rate of return. If the graduate decides to purchase the
auto, the BEST estimate of the opportunity cost of that decision is:
a. P1,200 c. P20,000
b. P4,800 d. zero since there is no opportunity cost
64. Which of the following statements related to assumptions about estimating linear cost functions is
FALSE?
a. Variations in a single cost driver explain variations in total costs
b. A cost object is anything for which a separate measurement of costs is desired.
c. A linear function approximates cost behavior within the relevant range of the cost driver.
d. A high correlation between two variables ensures that a cause-and-effect relationship.
65. Mount Vernon Furniture manufactures expensive tables. Its varnishing department is fully
automated and requires substantial inspection to keep the machines operating properly. An
improperly varnished table is very expensive to correct. Inspection hours for the 10,000 tables
varnished in September totaled 2,500 hours by 16 employees. Eight quarts of varnish were used,
on average, for each table. The standard amount of varnish per table is nine quarts. The cost of
inspection for September was equal to the budgeted amount of P76,000.
What is the inspection cost per unit?

a. P30.40 c. P3,800
b. P7.60 d. P4,000
66. Penny’s TV and Appliance Store 1s a small company that has hired you to perform some
management advisory services. The fo1lowing information pertains to 20X5 operations.
Sales (2,000 televisions) P900,000

Cost of goods sold 400,000
Store manager’s salary per year 70,000
Operating costs per year 157,000
Advertising and promotion per year 15,000
Commissions (4% of sales) 36,000
What are the estimated total costs if Penny’s expects to sell 3,000 units next year?
a. P896,000 c. P1,017,000
b. P678,000 d. P799,000
OCTOBER 2017
67. To complete the first setup on a new machine took an employee 200 minutes using an 80%
cumulative average-time learning curve indicates that the second set up on the new machine is
expected to take:
a. 160 minutes c. 80 minutes
b. 120 minutes d. 60 minutes
68. The Institute of Management Accountants (IMA) has developed ethical standards for
management accountants. What four categories has the IMA classified these standards into?
a. Reliability, Objectivity, Commitment, and Competence
b. Objectivity, Integrity, Commitment, and Confidentiality
c. Observation, Integrity, Closure, and Competence
d. Competence, Objectivity, Integrity, and Confidentiality
69. Adolphson Corporation has provided the following summary of its quality cost report for the last
two years:
Summary of Quality Cost Report (in thousands)
This Year Last Year % change

Prevention costs P 300 P 200 +5
Appraisal costs 315 210 +50
Internal failure costs 114 190 -40
External failure costs 621 1,200 -48
Total quality costs P1,350 P1,800 -25
On the basis of this report, which one of the following statements is most likely correct?
a. An increase in prevention and appraisal costs resulted in fewer defects, and therefore, resulted
in a decrease in internal and external failure costs.
b. A decrease in internal and external failure costs resulted in less need for prevention and
appraisal costs.
c. Quality costs Such as scrap and rework decreased by 48%.
d. Quality costs such as returns and repairs under warranty decreased by 40%
70. Which of the following is a characteristic of management advisory services?

a. Services rendered are for third parties.
b. Engagements are usually recurring.
c. Human relations do not play a vital role in each engagement.
d. It involves problem solving.
OCTOBER 2017
ANSWER KEY
1. B 36. B
2. C 37. D
3. C 38. C
4. A 39. A
5. C 40. A
6. A 41. A
7. B 42. C
8. C 43. D
9. B 44. B
10. B 45. A
11. B 46. C
12. C 47. C
13. B 48. B
14. A 49. C
15. A 50. B
16. D 51. B
17. D 52. D
18. D 53. B
19. C 54. D
20. D 55. C
21. B 56. B
22. B 57. D
23. B 58. D
24. C 59. D
25. A 60. C
26. D 61. A
27. D 62. D
28. B 63. B
29. C 64. D
30. A 65. B
31. D 66. A
32. C 67. B
33. C 68. D
34. C 69. A
35. D 70. D
OCTOBER 2017
CRC-ACE
1. Cost-volume-profit analysis is a technique available to management to understand better the

interrelationships of several factors that affect a firm's profit. As with many such techniques,
the accountant oversimplifies the real world by making assumptions. Which of the following
is not a major assumption underlying CVP analysis?
a. All costs incurred by a firm can be separated into their fixed and variable components.
b. The product selling price per unit is constant at all volume levels.
c. Operating efficiency and employee productivity are constant at all volume levels.
d. For multi-product situations, the sales mix can vary at all volume levels.
2. Which of the following costs is irrelevant in making a decision about a special order price if
some of the company facilities are currently idle?
a. direct labor
b. equipment depreciation
c. variable cost of utilities
d. opportunity cost of production
3. The basis for measuring the cost of capital derived from bonds and preferred stock,
respectively, is the
a. pre-tax rate of interest for bonds and stated annual dividend rate less the expected
earnings per share for preferred stock.
b. pre-tax rate of interest for bonds and stated annual dividend rate for preferred stock.
c. after-tax rate of interest for bonds and stated annual dividend rate less the expected
earnings per share for preferred stock.
d. after-tax rate of interest for bonds and stated annual dividend rate for preferred stock.
4. Chronologically, the first part of the master budget to be prepared would be the
a. sales budget.
b. production budget.
c. cash budget.
d. pro forma financial statements.
5. Pink Construction needs an on-site office for its Forbidden Kingdom Construction project.
Pink can rent a house trailer for this purpose at a rate of P 100 per month. As an alternative,
Pink can construct an on-site office. Pink estimates that the construction of an on-site office
would require materials costing P 1,500 (20 percent of which are salvageable upon dismantling)
and labor costing P 1,000. Ignoring interest and income tax effects, Pink will realize a net
benefit by constructing its own on-site office of Forbidden Kingdom project only if the length
of the project is estimated to be at least:
a. 18 mos.
b. 20 mos
c. 22 mos
d. 25 mos
6. 10% is the profit margin when sales level last year reached P 100,000. If the operating leverage
last year was 4 times, then what would have been the variable costs last year to break-even?
a. P45,000
b. P40,000
c. P30,000
d. P50,000
OCTOBER 2017
CRC-ACE
Problem 7 – 10
Langley Corporation has the following standard costs associated with the manufacture and sale of one of
its products:
Direct material P3.00 per unit

Direct labor 2.50 per unit
Variable manufacturing overhead 1.80 per unit
Fixed manufacturing overhead 4.00 per unit (based on an estimate
of 50,000 units per year)
Variable selling expenses .25 per unit
Fixed SG&A expense $75,000 per year
During its first year of operations Langley manufactured 51,000 units and sold 48,000. The
selling price per unit was P25. All costs were equal to standard.
7. Refer to Langley Corporation. Under absorption costing, the standard production cost per unit
for the current year was
a. P11.30.
b. P7.30.
c. P11.55.
d. P13.05.
8. Refer to Langley Corporation. The volume variance under absorption costing is

a. P8,000 F.
b. P4,000 F.
c. P4,000 U.
d. P8,000 U.
9. Refer to Langley Corporation. Under variable costing, the standard production cost per unit
for the current year was
a. P11.30.
b. P7.30.
c. P7.55.
d. P11.55.
10. Refer to Langley Corporation. Based on variable costing, the income before income taxes for
the year was
a. P570,600.
b. P560,000.
c. P562,600.
d. P547,500.
11. Datasoft Industries is considering the purchase of a $100,000 machine that is expected to
result in a decrease of $15,000 per year in cash expenses. This machine, which has no
residual value, has an estimated useful life of 10 years and will be depreciated on a straight-
line basis. For this machine, the accounting rate of return would be
a. 10 percent.
b. 15 percent.
c. 30 percent.
d. 35 percent.
OCTOBER 2017
CRC-ACE
12. An investment project is expected to yield $10,000 in annual revenues, has $2,000 in fixed
costs per year, and requires an initial investment of $5,000. Given a cost of goods sold of 60
percent of sales, what is the payback period in years?
a. 2.50
b. 5.00
c. 2.00
d. 1.25
13. In capital budgeting, a firm's cost of capital is frequently used as the

a. internal rate of return.
b. accounting rate of return.
c. discount rate.
d. profitability index.
14. When using one of the discounted cash flow methods to evaluate the desirability of a capital
budgeting project, which of the following factors is generally not important?
a. method of financing the project under consideration
b. timing of cash flows relating to the project
c. impact of the project on income taxes to be paid
d. amounts of cash flows relating to the project
15. When a project has uneven projected cash inflows over its life, an analyst may be forced to
use _______ to find the project's internal rate of return.
a. a screening decision
b. a trial-and-error approach
c. a post investment audit
d. a time line
16. A manager is attempting to determine whether a segment of the business should be eliminated.
The focus of attention for this decision should be on
a. the net income shown on the segment's income statement.
b. sales minus total expenses of the segment.
c. sales minus total direct expenses of the segment.
d. sales minus total variable expenses and avoidable fixed expenses of the segment.
17. If a company's fixed costs were to increase, the effect on a profit-volume graph would be that
a. the contribution margin line would shift upward parallel to the present line.
b. the contribution margin line would shift downward parallel to the present line.
c. the slope of the contribution margin line would be more pronounced (steeper).
d. the slope of the contribution margin line would be less pronounced (flatter).
Problem 18 - 20
Rhodes Corporation is involved in the evaluation of a new computer-integrated manufacturing system. The
system has a projected initial cost of $1,000,000. It has an expected life of six years, with no salvage value,
and is expected to generate annual cost savings of $250,000. Based on Rhodes Corporation's analysis, the
project has a net present value of $57,625.
18. Refer to Rhodes Corporation. What discount rate did the company use to compute the net
present value? Present value tables or a financial calculator are required.
OCTOBER 2017
CRC-ACE
a. 10%
b. 11%
c. 12%
d. 13%
19. Refer to Rhodes Corporation. What is the project's profitability index?

a. 1.058
b. .058
c. .945
d. 1.000
20. Refer to Rhodes Corporation. What is the project's internal rate of return? Present value tables
or a financial calculator are required.
a. between 12.5 and 13.0 percent
b. between 11.0 and 11.5 percent
c. between 11.5 and 12.0 percent
d. between 13.0 and 13.5 percent
21. Edwards 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, Edwards Company has the following accounts receivable balances:
From April sales $21,000
From May sales 48,000
Edwards expected sales for June are $150,000. How much cash will Edwards Company expect
to collect in June?
a. $127,400
b. $129,000
c. $148,600
d. $152,520
22. Production of Product X has been budgeted at 200,000 units for May. One unit of X requires
2 lbs. of raw material. The projected beginning and ending materials inventory for May are:
Beginning inventory: 2,000 lbs.

Ending inventory: 10,000 lbs.
How many lbs. of material should be purchased during May?
a. 192,000
b. 208,000
c. 408,000
d. 416,000
23. The term incremental cost refers to

a. the profit foregone by selecting one choice instead of another.
b. the additional cost of producing or selling another product or service.
c. a cost that continues to be incurred in the absence of activity.
d. a cost common to all choices in question and not clearly or feasibly allocable to any of
them.
OCTOBER 2017
CRC-ACE
24. Ledbetter Company reported the following results from sales of 5,000 units of Product A for
June:
Sales $200,000
Variable costs (120,000)
Fixed costs (60,000)
Operating income $ 20,000
Assume that Ledbetter increases the selling price of Product A by 10 percent in July. How many
units of Product A would have to be sold in July to generate an operating income of $20,000?
a. 4,000
b. 4,300
c. 4,545
d. 5,000
25. Sombrero Company manufactures a western-style hat that sells for $10 per unit. This is its sole
product and it has projected the break-even point at 50,000 units in the coming period. If fixed
costs are projected at $100,000, what is the projected contribution margin ratio?
a. 80 percent
b. 20 percent
c. 40 percent
d. 60 percent
26. If a firm produces more units than it sells, absorption costing, relative to variable costing, will
result in
a. higher income and assets.
b. higher income but lower assets.
c. lower income but higher assets.
d. lower income and assets
27. Which of the following costs should consider the tax shield effect in computing the costs of
capital?
a. Cost of debt
b. Cost of common stock
c. Cost of preferred stock
d. Cost of retained earnings
28. The path that has the highest slack time in the PERT network is
a. Critical path
b. Longest path
c. Shortest path
d. Psychopath
29. The distinction between direct and indirect costs depends on whether a cost
a. is controllable or non-controllable.
b. is variable or fixed.
c. can be conveniently and physically traced to a cost object under consideration.
d. will increase with changes in levels of activity.
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30. Red Company established a standard cost for raw materials at P 25.00 per unit. During the
year, a total of 10,000 units were purchased of which 50% was at P 24.70 each, 20% was at P
24.90 each, and the balance, P 25.60 each. The raw materials cost variance is
a. P 100 debit
b. P 100 credit
c. P 900 debit
d. P 900 credit
31. Purchases = 80% of cost of sales; Fixed overhead is, on the average, 20% of inventory cost. If
cost of goods sold is P 250,000, then how much is the difference in income reported under
absorption costing and variable costing?
a. 8,000
b. 10,000
c. 15,000
d. 20,000
32. Thomas Company is currently operating at a loss of $15,000. The sales manager has received
a special order for 5,000 units of product, which normally sells for $35 per unit. Costs
associated with the product are: direct material, $6; direct labor, $10; variable overhead, $3;
applied fixed overhead, $4; and variable selling expenses, $2. The special order would allow
the use of a slightly lower grade of direct material, thereby lowering the price per unit by $1.50
and selling expenses would be decreased by $1. If Thomas wants this special order to increase
the total net income for the firm to $10,000, what sales price must be quoted for each of the
5,000 units?
a. $23.50
b. $24.50
c. $27.50
d. $34.00
33. An increase in direct fixed costs could reduce all of the following except
a. product line contribution margin.
b. product line segment margin.
c. product line operating income.
d. corporate net income.
34. The following information pertains to Saturn Company’s cost-volume-profit relationships:

Break-even point in units sold 1,000
Variable costs per unit $500
Total fixed costs $150,000
How much will be contributed to profit before taxes by the 1,001st unit sold?
a. $650
b. $500
c. $150
d. $0
35. 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 transfers cost data to the management accountant.
d. any activity that causes costs to be incurred.
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36. Activity-based costing and activity-based management are effective in helping managers do all
of the following except
a. trace technology costs to products.
b. promote excellence standards.
c. identify only value-added activities.
d. analyze performance problems.
37. The amount of time between the development and the production of a product is
a. the product life cycle.
b. lead time.
c. production time.
d. value-added time.
38. Irrelevant costs generally include
Sunk costs Historical costs Allocated costs
a. yes yes no
b. yes no no
c. no no yes
d. yes yes yes
39. In a make or buy decision, the reliability of a potential supplier is

a. an irrelevant decision factor.
b. relevant information if it can be quantified.
c. an opportunity cost of continued production.
d. a qualitative decision factor.
40. Paulson Company has only 25,000 hours of machine time each month to manufacture its two
products. Product X has a contribution margin of $50, and Product Y has a contribution margin
of $64. Product X requires 5 hours of machine time, and Product Y requires 8 hours of machine
time. If Paulson Company wants to dedicate 80 percent of its machine time to the product that
will provide the most income, the company will have a total contribution margin of
a. 250,000.
b. 240,000.
c. 210,000.
d. 200,000.
41. 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 transfers cost data to the management accountant.
d. any activity that causes costs to be incurred.
42. Which of the following situations is among the concerns of a controller (as opposed to those of
a treasurer)?
a. The company is in need of financing from external sources.
b. The company is already late in filing its monthly VAT returns.
c. The company is guilty of unplanned material bank overdraft.
d. The company is in default of its account payable to suppliers.
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43. Unique Company manufactures a single product. In the prior year, the company had sales of
$90,000, variable costs of $50,000, and fixed costs of $30,000. Unique expects its cost structure
and sales price per unit to remain the same in the current year, however total sales are expected
to increase by 20 percent. If the current year projections are realized, net income should exceed
the prior year’s net income by:
a. 100 percent.
b. 80 percent.
c. 20 percent.
d. 50 percent.
44. Budgeted sales for Knox Inc. for the first quarter the year are shown below:
JANUARY FEBRUARY MARCH

UNITS: 35,000 25,000 32,000
The company has a policy that requires the ending inventory in each period to be 10 percent of
the following period's sales. Assuming that the company follows this policy, what quantity of
production should be scheduled for February?
a. 24,300 units
b. 24,700 units
c. 25,000 units
d. 25,700 units
45. Unabsorbed fixed overhead costs in an absorption costing system are

a. fixed manufacturing costs not allocated to units produced.
b. variable overhead costs not allocated to units produced.
c. excess variable overhead costs.
d. costs that cannot be controlled.
46. A firm presently has total sales of $100,000. If its sales rise, its
a. net income based on variable costing will go up more than its net income based on
absorption costing.
b. net income based on absorption costing will go up more than its net income based on
variable costing.
c. fixed costs will also rise.
d. per unit variable costs will rise.
47. The costing system that classifies costs by both functional group and behavior is
a. process costing.
b. job order costing.
c. variable costing.
d. absorption costing.
48. 20. A factor that is dealt with by both ‘linear programming’ and ‘best product combination.’
a. Efficiency
b. Productivity
c. Solvency
d. Scarcity
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49. Which of the following always has a direct cause-effect relationship to a cost?
Predictor Cost driver
a. yes yes
b. yes no
c. no yes
d. no no
50. The distinction between direct and indirect costs depends on whether a cost
a. is controllable or non-controllable.
b. is variable or fixed.
c. can be conveniently and physically traced to a cost object under consideration.
d. will increase with changes in levels of activity.
51. Doyle Company has 3 divisions: R, S, and T. Division R's income statement shows the
following for the year ended December 31:
Sales 1,000,000
Cost of goods sold (800,000)
Gross profit 200,000
Selling expenses 100,000
Administrative expenses 250,000 (350,000)
Net loss (150,000)
Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60 percent
are avoidable if the division is closed. All of the selling expenses relate to the division and
would be eliminated if Division R were eliminated. Of the administrative expenses, 90 percent
are applied from corporate costs. If Division R were eliminated, Doyle’s income would
a. increased by $150,000.
b. decreased by $ 75,000.
c. decreased by $155,000.
d. decreased by $215,000.
52. A functional classification of costs would classify "depreciation on office equipment" as a

a. product cost.
b. general and administrative expense.
c. selling expense.
d. variable cost.
53. If a firm uses variable costing, fixed manufacturing overhead will be included
a. only on the balance sheet.
b. only on the income statement.
c. on both the balance sheet and income statement.
d. on neither the balance sheet nor income statement.
54. Knox Company uses 10,000 units of a part in its production process. The costs to make a part
are: direct material, $12; direct labor, $25; variable overhead, $13; and applied fixed overhead,
$30. Knox has received a quote of $55 from a potential supplier for this part. If Knox buys the
part, 70 percent of the applied fixed overhead would continue. Knox Company would be better
off by
a. $50,000 to manufacture the part.
b. $150,000 to buy the part.
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c. $40,000 to buy the part.

d. $160,000 to manufacture the part.
55. Glamorous Grooming Corporation makes and sells brushes and combs. It can sell all of either
product it can make. The following data are pertinent to each respective product:
Brushes Combs
Units of output per machine hour 8 20
Selling price per unit 12.00 4.00
Product cost per unit
Direct material 1.00 1.20
Direct labor 2.00 0.10
Variable overhead 0.50 0.05
Total fixed overhead is $380,000.
The company has 40,000 machine hours available for production. What sales mix will
maximize profits?
a. 320,000 brushes and 0 combs
b. 0 brushes and 800,000 combs
c. 160,000 brushes and 600,000 combs
d. 252,630 brushes and 252,630 combs
56. Budgeted sales for the first six months for Porter Corp. are listed below:
JAN FEB MAR APR MAY JUN

UNITS: 6,000 7,000 8,000 7,000 5,000 4,000
Porter Corp. has a policy of maintaining an inventory of finished goods equal to 40 percent of
the next month's budgeted sales. If Porter Corp. plans to produce 6,000 units in June, what are
budgeted sales for July?
a. 3,600 units
b. 1,000 units
c. 9,000 units
d. 8,000 units
57. Houston Footwear Corporation has been asked to submit a bid on supplying 1,000 pairs of
military combat boots to the Armed Forces. The company's costs per pair of boots are as
follows:
Direct material 8
Direct labor 6
Variable overhead 3
Variable selling cost (commission) 3
Fixed overhead (allocated) 2
Fixed selling and administrative cost 1
Assuming that there would be no commission on this potential sale, the lowest price the firm
can bid is some price greater than
a. 23. c. 17.
b. 20. d. 14.
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58. A firm estimates that it will sell 100,000 units of its sole product in the coming period. It
projects the sales price at $40 per unit, the CM ratio at 60 percent, and profit at $500,000. What
is the firm budgeting for fixed costs in the coming period?
a. 1,600,000
b. 2,400,000
c. 1,100,000
d. 1,900,000
59. Black Merchandising has an optimal order quantity of 2,000 units. Black’s customers demand
50,000 units each year. Transaction cost incurred is P 12 per order. If Black also maintains a
safety stock of 100 units, then how much is the total annual carrying costs?
a. 300
b. 310
c. 330
d. 340
a. 50
b. 60
c. 70
d. 80
a. 6.67%
b. 6
c. 7
d. 8
62. Assuming P 20,000 net annual cash inflows from a 4-year P 59,120-capital investment project,
the break-even rate of return (IRR) for the project is closest to
a. 11.1%
b. 12.2%
c. 13.3%
d. 14.4%
63. If the economy is facing demand-pull inflation, which of the following would be a logical action
by the government?
a. Increase income taxes
b. Lower the discount rate
c. Buy government securities
d. Increase government spending
64. On January 1, 2008, Brown Company has a receivable balance of P 1 M. During 2008, it
generated sales amounting to P 20 M, of which 60% is made on credit. 2008 receivable
collections amounted to P 9,000,000. The accounts receivable turnover is
a. 12.4 x c. 4.8 x
b. 6.0 x d. 2.4 x
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65. A careful study by a company’s cost analyst has determined that if a truck is driven 120,000
miles during a year, the average operating cost is P 11.6 per mile. If a truck is driven only
80,000 miles, the average operating cost increases to P 13.6 per mile. Using the high-low
method, estimate the unit variable cost.
a. 7.6
b. 12.4
c. 12.6
d. 20,000
66. The net present value method of evaluating proposed investments

a. measures a project's internal rate of return.
b. ignores cash flows beyond the payback period.
c. applies only to mutually exclusive investment proposals.
d. discounts cash flows at a minimum desired rate of return.
67. Strategic planning is

a. planning activities for promoting products for the future.
b. planning for appropriate assignments of resources.
c. setting standards for the use of important but hard-to-find materials.
d. stating and establishing long-term plans.
68. The time value of money is explicitly recognized through the process of
a. interpolating.
b. discounting.
c. annuitizing.
d. budgeting.
69. If investment A has a payback period of three years and investment B has a payback period
of four years, then
a. A is more profitable than B.
b. A is less profitable than B.
c. A and B are equally profitable.
d. the relative profitability of A and B cannot be determined from the information given.
70. All other factors equal, a large number is preferred to a smaller number for all capital project
evaluation measures except
a. net present value.
b. payback period.
c. internal rate of return.
d. profitability index.
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ANSWER KEY
1. D 36. C
2. B 37. B
3. D 38. D
4. A 39. D
5. C 40. B
6. A 41. D
7. A 42. D
8. B 43. B
9. B 44. D
10. C 45. A
11. C 46. A
12. A 47. C
13. C 48. D
14. A 49. C
15. B 50. C
16. D 51. C
17. B 52. B
18. B 53. B
19. A 54. C
20. A 55. A
21. C 56. C
22. C 57. C
23. B 58. D
24. A 59. C
25. B 60. C
26. B 61. A
27. A 62. C
28. C 63. A
29. C 64. C
30. A 65. A
31. B 66. D
32. A 67. D
33. A 68. B
34. C 69. D
35. C 70. B
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1. Productivity is measured by the

a. total quantity of output generated from a limited amount of input during a time period.
b. quantity of good output generated from a specific amount of input during a time period.
c. quantity of good output generated from the quantity of good input used during a time period.
d. total quantity of input used to generate total quantity of output for a time period.
2. Failure Corporation is a manufacturer of a versatile statistical calculator. The following information is

a summary of defective and returned units for the previous year.
Total defective units 1,000
Number of units reworked 750
Number of customer units returned 150
Profit for a good unit P40
Profit for a defective unit P25
Cost to rework a defective unit P10
Cost of a returned unit P15
Total prevention cost P10,000
Total appraisal cost P5,000
The total quality cost is

a. P15,000. c. P28,500.
b. P15,750. d. P11,250.
3. A small manufacturing company recently stated its sales goal for a period was P100,000. At this level
of activity, its budgeted expenses were P80,000. Its actual sales were P100,000, but its actual
expenses were P85,000. This company operated
a. effectively and efficiently. c. effectively but not efficiently.
b. neither effectively nor efficiently. d. efficiently but not effectively.
4. Computer Solutions Corporation manufactures and sells various high-tech office automation products.
Two divisions of Computer Solutions Corporation are the Computer Chip Division
and the Computer Division. The Computer Chip Division manufactures one product, a "super chip,"
that can be used by both the Computer Division and other external customers. The following
information is available on this month's operations in the Computer Chip Division:
Selling price per chip P50
Variable costs per chip P20
Fixed production costs P60,000
Fixed SG&A costs P90,000
Monthly capacity 10,000 chips
External sales 6,000 chips
Internal sales 0 chips
Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead
pays P45 to an external supplier for the 4,000 chips it needs each month.
Assume, for this question only, that the Computer Chip Division is selling all that it can produce to
external buyers for P50 per unit. How would overall corporate profits be affected if it sells 4,000 units
to the Computer Division at P45? (Assume that the Computer Division can purchase the super chip
from an outside supplier for P45.)
a. no effect c. P20,000 decrease

b. P20,000 increase d. P90,000 increase
5. The following information is given for the Alpha Division of Sorority Corporation. Sales
P600,000
Var. cost of goods sold 200,000
Fixed manufacturing costs 50,000
Variable selling 30,000
Fixed admin. (50% allocated) 20,000
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Fixed selling (20% allocated) 50,000

Assets at cost 800,000
Accumulated depreciation 200,000
If Sorority Corporation uses ROI to evaluate division managers and uses historical cost as
the investment base, the ROI for Alpha Division is:
a. 31.25% c. 41.67%
b. 33.75% d. 45.00%
6. The following year-end data pertain to Adan Corporation:

Earning before interest and taxes P 800,000
Current assets 800,000
Non-current assets 3,200,000
Current liabilities 400,000
Non-current liabilities 1,000,000
Adan Corporation pays an income tax rate of 32%. Its weighted-average cost of capital is 10%. What
is Adan Corporation’s Economic Value Added (EVA)?
a. P184,000 c. P440,000
b. P144,000 d. P400,000
7. A company annually consumes 10,000 units of Part C. The carrying cost of this part is P2 per year
and the ordering costs are P100. The company uses an order quantity of 500 units. By how much
could the company reduce its total costs if it purchased the economic order quantity instead of 500
units?
a. P 500 c. P2,500
b. P2,000 d. P 0
8. In the two following constraint equations, X and Y represent two products (in units) produced by the
Uncommon Products Corporation.
Constraint 1: 3X + 5Y < 4,200

Constraint 2: 5X + 2Y > 3,000
What is the maximum number of units of Product X that can be produced?

a. 4,200 c. 600
b. 3,000 d. 1,400
9. King Corporation operates its factory 300 days per year. Its annual consumption of Material Y is
1,200,000 gallons. It carries a 10,000 gallon safety stock of Material Y and its lead time is 12 business
days. What is the order point for Material Y?
a. 10,000 gallons c. 48,000 gallons b. 38,000 gallons d. 58,000 gallons
10. The school canteen can sell either halo-halo or mami (hot noodle soup) on any given day. The
contribution margin that the canteen could earn from halo-halo and mami is affected by the weather,
as follows:
CONTRIBUTION MARGIN
Item sold
Hot Weather Cold Weather
Halo-Halo P15,000 P 6,000
Mami 11,400 12,000
If the probability of hot weather on a given day at this time is 60%, which item(s) should the
company sell?
a. Halo-Halo, because this item is salable when weather is hot.
b. Mami, because it has the higher expected payoff.
c. Halo-Halo and mami, so the canteen could maximize contribution margin.
d. 60% halo-halo and 40% mami.
Castelo, Villasin and Barrera is a large, local accounting firm located in Cebu. Belle Castelo, one of
the Firm’s founders, appreciates the success her firm has enjoyed and wants to give something back to
her community. She believes that an inexpensive accounting services
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clinic could provide basic accounting services for small businesses located in the province.
She wants to price the services at cost.
Since the clinic is brand new, it has no experience to go on. Belle decided to operate the clinic for two
months before determining how much to charge per hour on an ongoing basis. As a temporary
measure, the clinic adopted an hourly charge of P50, half the amount charged by Castelo, Villasin and
Barrera for professional services.

Salaries:
Senior accountant P2,500 P2,500
Depreciation (equipment) 2,400 2,400
Supplies 905 1,100
Utilities 332 365

a. P8,600 c. P 425
b. P9,025 d. P12,189
professional hours per month. If the clinic is to be operated as a nonprofit organization,
how much will it need to charge per professional hour?
a. P97.81 c. P82.77
b. P87.06 d. P22.60
13. HSR Computer System designs and develops specialized software for companies and use a normal
costing system. The following data are available for the current year:
Budgeted
Overhead P600,000
Machine hours 24,000
Direct labor hours 75,000
Actual
Units produced 100,000
Overhead P603,500
Prime costs P900,000
Overhead is applied on the basis of direct labor hours.
What is the unit cost for the year?

a. P15.03 c. P15.09
b. P15.06 d. P15.00
14. Hazelnut Company uses activity-based costing. The company produces two products: coats and hats.
The annual production and sales volume of coats is 8,000 units and of hats is 6,000 units. There are
three activity cost pools with the following expected activities and estimated total costs:
Activity Estimated Expected Expected

Cost Pool Cost Activity Activity
Coats Hats Total
Activity 1 P20,000 100 400 500
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Activity 2 P37,000 800 200 1,000

Activity 3 P91,200 800 3,000 3,800
Using ABC, the cost per unit of coats is approximately:

a. P2.40 c. P 6.60
b. P3.90 d. P10.59
15. Elaine Hospital plans to use the activity-based costing to assign hospital indirect costs to the care of
patients. The hospital has identified the following activities and activity rates for the
hospital indirect costs:
Activity Activity Rate
Room and meals P150 per day
Radiology P95 per image
Pharmacy P28 per physician order
Chemistry lab P85 per test
Operating room P550 per operating room hour
The records of two representative patients were analyzed, using the activity rates. The activity
information associated with the two patients are as follows:
Patient 1 Patient 2
Number of days 7 3
Number of images 4 2
Number of physician orders 5 1
Number of tests 6 2
Number of operating room hours 4.5 1
Determine the activity cost associated with Patient 2.

a. P1,388 c. P1,816
b. P 908 d. P4,555
16. Balat Leather Works, which manufactures saddles and other leather goods, has three departments.
The Assembly Department manufactures various leather products, such as belts, purses, and saddle
bags, using automated production process. The Saddle Department produces handmade saddles and
uses very little machinery. The Tanning Department produces leather. The tanning process requires
little in the way of labor or
machinery, but it does require space and process time. Due to the different production processes in
the three departments, the company uses three different cost drivers for the application of
manufacturing overhead. The cost drivers and overhead rates are as follows:
Cost Driver Predetermined Overhead Rate
Tanning Department Square-feet of leather P3 per square-foot
Assembly Department Machine time P9 per machine hour
Saddle Department Direct-labor time P4 per direct labor hour
The company’s deluxe saddle and accessory set consists of handmade saddle, two saddlebags, a
belt, and a vest, all coordinated to match. The entire set uses 100 square-feet of leather from the
Tanning Department, 3 machine hours in the Assembly Department, and 40 direct-labor hours in
the Saddle Department. The company is processing Job No. 20 consisting of 20 deluxe saddle and
accessory sets.
How much is the applied manufacturing overhead in Assembly Department for Job No. 20?
a. P3,200 c. P6,000
b. P 540 d. P3,000
17. If activity-based costing is implemented in an organization without any other changes being
effected, total overhead costs will
a. be reduced because of the elimination of non-value-added activities.
b. be reduced because organizational costs will not be assigned to products or services.
c. be increased because of the need for additional people to gather information on cost drivers
and cost pools.
d. remain constant and simply be spread over products differently.
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18. Harry Manufacturing incurs annual fixed costs of P250,000 in producing and selling a single product.
Estimated unit sales are 125,000. An after-tax income of P75,000 is desired by management. The
company projects its income tax rate at 40 percent. What is the maximum amount that Harry can
expend for variable costs per unit and still meet its profit objective if the sales price per unit is
estimated at P6?
a. P3.37 c. P3.00
b. P3.59 d. P3.70
19. For its most recent fiscal year, a firm reported that its contribution margin was equal to 40 percent of
sales and that its net income amounted to 10 percent of sales. If its fixed costs for
the year were P60,000, how much was the margin of safety?
a. P150,000 c. P600,000
b. P200,000 d. P 50,000
20. Sam Company manufactures a single product. In the prior year, the company had sales of P90,000,
variable costs of P50,000, and fixed costs of P30,000. Sam expects its cost structure and sales price
per unit to remain the same in the current year, however total sales are expected to increase by 20
percent. If the current year projections are realized, net income should exceed the prior year’s net
income by:
a. 100 percent. c. 20 percent.
b. 80 percent. d. 50 percent.
21. Edil Company produces and sells a single product. The costs and selling prices on a per-unit basis
are as follows:
Selling Price P120
Materials 35
Labor 15
Variable overhead 10
Fixed overhead 10
Variable selling and administrative 20
Fixed selling and administrative 5
The above per-unit figures are computed based on the company’s normal capacity of 20,000 units.
The company’s expected margin of safety is

a. 7,500 units. c. 62.5%.
b. P2,400,000. d. P12,500.
A company is making plans for next year, using cost-volume-profit analysis as its planning tool.
Next year’s sales data about its product are as follows:

Selling price P60.00
Variable manufacturing costs per unit 22.50
Variable selling and administrative costs 4.50
Fixed operating costs (60% is manufacturing cost) P148,500
Income tax rate 32%
22. How much should sales be next year if the company wants to earn profit after tax of P22,440, the
same amount that it earned last year?
a. P310,800 c. P330,000
b. P397,500 d. P222,000
23. Assume that the company’s management learned that a new technology that will increase the quality
of its product is available. If implemented, its projections for next year will be changed:
1. The selling price of the product will increase to P75 per unit.
2. Fixed manufacturing costs will increase by 20%.
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3. Additional advertising costs will be incurred to promote the higher-quality product.

This will increase fixed non-manufacturing cost by 10%.
4. The improved product will require a new material that will increase direct materials cost
by P4.50
If the new technology is adapted, how much sales should the company make to earn a pre-tax profit
of 10% on sales?
a. P366,130 c. P253,324
b. P358,875 d. P353,897
24. As projected net income increases the

a. degree of operating leverage declines. c. break-even point goes down.
25. Yamyam Company is considering introducing a new product that will require a P250,000 investment
of capital. The necessary funds would be raised through a bank loan at an interest rate of 8%. The
fixed operating costs associated with the product would be P122,500 while the variable cost ratio
would be 58%. Assuming a selling price of P15 per unit, determine the number of units (rounded to
the nearest whole unit) Yamyam would have to sell to generate
earnings before interest and taxes (EBIT) of 32% of the amount of capital invested in the new product.
a. 35,318 units c. 32,143 units
b. 25,575 units d. 23,276 units
26. The materials mix variance for a product is P450 unfavorable and the materials yield variance is P150
unfavorable. This means that
a. the materials price variance is P600 unfavorable.
b. the materials quantity variance is P600 unfavorable
c. the total materials cost variance is definitely P600 unfavorable.
d. the materials price variance is also unfavorable, but the amount cannot be determined from
the given information.
27. Samson Company uses a standard costing system in the production of its only product. The 84,000
units of raw materials inventory were purchased for P126,000 and 4 units of raw materials are
required to produce one unit of final product. In October, the company produced 14,400 units of
product. The standard cost allowed for materials was P72,000, and there was an unfavorable usage
variance of P3,000.
The materials price variance for the units used in October was
a. P15,000 unfavorable. c. P3,000 unfavorable.
b. P15,000 favorable. d. P3,000 favorable.
28. The standard direct materials cost to produce a unit of a product is four meters of materials at P2.50
per meter. During June, 2015, 4,200 meters of materials costing P10,080 were purchased and used to
produce 1,000 units of the product. What was the materials price variance for June, 2015?
b. P 80 unfavorable d. P420 favorable
29. Buchoy Company manufactures one product with a standard direct manufacturing labor cost of four
hours at P12.00 per hour. During June, 1,000 units were produced using 4,100 hours
at P12.20 per hour. The unfavorable direct labor efficiency variance was:
a. P820 c. P1,200
b. P400 d. P1,220
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ACTUAL BUDGETED

31. Using the three-way variance analysis, the spending variance amounts to



35. A basic tenet of variable costing is that period costs should be currently expensed. What is the
rationale behind this procedure?
a. Period costs are uncontrollable and should not be charged to a specific product.
b. Period costs are generally immaterial in amount and the cost of assigning the amounts to
specific products would outweigh the benefits.
c. Allocation of period costs is arbitrary at best and could lead to erroneous decision by
management.
d. Because period costs will occur whether production occurs, it is improper to allocate these
costs to production and defer a current cost of doing business.
36. The following information regarding fixed production costs from a manufacturing firm is available for
the current year:
Fixed costs in the beginning inventory P16,000

Fixed costs incurred this period 100,000
Which of the following statements is not true?

a. The maximum amount of fixed production costs that this firm could deduct using absorption
costs in the current year is P116,000.
b. The maximum difference between this firm's the current year income based on absorption
costing and its income based on variable costing is P16,000.
c. Using variable costing, this firm will deduct no more than P16,000 for fixed production costs.
d. If this firm produced substantially more units than it sold in the current year, variable costing
will probably yield a lower income than absorption costing.
37. If a firm produces more units than it sells, absorption costing, relative to variable costing, will result in
a. higher income and assets. c. lower income but higher assets.
b. higher income but lower assets. d. lower income and assets.
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Sales in units 5,000
Manufacturing costs:
38. What would X Co. have reported as its income before income taxes if it had used variable costing?
a. P30,000 c. P67,500
b. (P7,500) d. can’t be determined from the given
information
39. What was the total amount of SG&A expense incurred by X Co.?
a. P30,000 c. P6,000
b. P62,500 d. can’t be determined from the given
information
a. P120,000 c. P27,000
b. P 64,500 d. P24,000

d. Variable costing makes cost-volume-profit relationships more easily apparent.
42. In its first year of operations, Nasty Company had the following costs when it produced
100,000 units and sold 80,000 units of its only product:
Fixed P180,000
Variable 160,000
Selling and administrative costs:
Fixed 90,000
Variable 40,000
How much higher would Nasty’s net income be if it used full absorption costing instead of variable
costing?
a. P94,000 c. P36,000
b. P68,000 d. P54,000
43. Ning 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 Ning Company wants to dedicate 80 percent 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. c. P210,000.
b. P240,000. d. P200,000.
44. Mangit Company is currently operating at a loss of P15,000. The sales manager has received a special
order for 5,000 units of product, which normally sells for P35 per unit. Costs associated with the
product are: direct material, P6; direct labor, P10; variable overhead, P3; applied fixed overhead, P4;
and variable selling expenses, P2. The special order would allow the use of a slightly lower grade of
direct material, thereby lowering the price per unit by P1.50 and selling expenses would be decreased
by P1. If Mangit wants this special order to
increase the total net income for the firm to P10,000, what sales price must be quoted for each of the
5,000 units?
a. P23.50 c. P27.50
b. P24.50 d. P34.00
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45. Dolly Company has 3 divisions: R, S, and T. Division R's income statement shows the following for
the year ended December 31:
Sales P1,000,000
Gross profit P 200,000
Selling expenses P100,000
Net loss P (150,000)
Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60 percent are
avoidable if the division is closed. All of the selling expenses relate to the division and would be
eliminated if Division R were eliminated. Of the administrative expenses, 90 percent are applied from
corporate costs. If Division R were eliminated, Dolly’s income would
a. increase by P150,000. c. decrease by P155,000.
b. decrease by P 75,000. d. decrease by P215,000.
46. The opportunity cost of making a component part in a factory with excess capacity for which there is
no alternative use is
a. the total manufacturing cost of the component.
b. the total variable cost of the component.
c. the fixed manufacturing cost of the component.
d. zero.
Schundel Hair Care Company produces shampoo with conditioner. This is the company’s only
product, which it sells under the name “Shamcon.”
The manufacturing cost data for Shamcon are as follows:

Quantity required Current market price
Materials: per 1,000-ml bottle per ml
Chem 1 4 ml P0.54
Chem 2 3 ml 0.36
Chem 3 2 ml 0.20
Direct labor: 2 hours per bottle @ P3 per hour

Factory overhead:
Variable overhead – P2.00 per direct labor hour
Fixed overhead – 4.00 per direct labor hour
Clever Company, owner and operator of a chain of hotels, asked Schundel Hair Care Company to
submit a bid for 500 boxes of Shamcon. Each box will contain 24 bottles. Per Clever’s specifications,
its order should be different in chemical composition from the regular Shamcon. According to
Schundel Company’s production manager, Clever’s specifications can be met if an additional
chemical, Chem 4 would be used. Schundel Company has 60,000 ml of this chemical. Chem 4 was
used by the company in one of its brands that it decided to eliminate. The remaining inventory of
Chem 4 was not sold or discarded because it does not deteriorate and the company has adequate space
for its storage. Schundel Company can sell Chem 4 at the prevailing market price of P0.40 per ml less
P0.10/ml selling and handling costs. Clever’s order would require 5 ml of Chem 4 per bottle.
The company has a stock of Chem 5. This was used by Schundel Hair Care for its manufacture of
another product that is no longer being produced. Chem. 5, which cannot be used in Shamcon, can be
substituted for Chem 1 on a one-for-one basis without affecting the quality of the Clever order. There
is no problem about the supply of Chem 1. At present, the company has 20,000 ml of Chem 5 in its
inventory, which has a salvage value of P6,000.
The production of the Clever’s order would require the same direct labor hours per bottle as in the
regular Shamcon. However, at present, the company has only 20,000 direct labor hours available. The
Clever order can be produced if the workers would work overtime, although an overtime premium of
30% of the regular rate should be paid.
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Schundel Hair Care Company’s policy is to price new products at 130% of full manufacturing cost.
47. If Schundel Company bids this month for the special one-time order of 500 boxes of the product, the
special order’s total direct materials cost will be
a. P73,944. c. P68,880.
b. P61,680. d. P56,880.
48. If Schundel Hair Care Company bids this month for the special one-time order of 500 boxes of the
product, the special order’s total relevant conversion cost will be
a. P123,600. c. P120,000.
b. P219,600. d. P216,000.
49. If the company’s policy is to price new products at 130% of full manufacturing cost, what is the bid
price per unit for this one-time special order of Clever Company?
a. P19.55 c. P29.95
b. P 6.91 d. P23.80
50. What will be the total variable manufacturing costs for the subsequent, recurring 500-box orders?
a. P180,480 c. P287,280
b. P373,464 d. P191,280
Jane Corporation produces wood glue that is used by furniture manufacturers. The company
normally produces and sells 10,000 gallons of the glue each month. White Glue is sold for P280 per
gallon, variable costs is P168 per gallon, fixed factory overhead cost totals P460,000 per month, and
the fixed selling costs totals P620,000 per month.
Labor strikes in the furniture manufacturers that buy the bulk of White Glue have caused the
monthly sales of Jane Corporation to temporarily decrease to only 15% of its normal monthly
volume. Jane Corporation’s management expects that the strikes will last for about 2 months, after
which, sales of White Glue should return to normal. However, due to the dramatic drop in the sales
level, Jane Corporation’s management is considering to close down its plant during the two-moth
period that the strikes are on.
If Jane Corporation will temporarily shut down its operations, it is expected that the fixed factory
overhead costs can be reduced to P340,000 per month and that the fixed selling costs can be reduced
by P62,000 per month. Start-up costs at the end of the shut-down period would total P56,000. Jane
Corporation uses the JIT system, so no inventories are on hand.
51. The shut down point in units is

a. 2,750.00. c. 3,250.00.
b. 9,642.86. d. 1,100.00.
52. At the sales level of only 30% of the normal volume, should the company continue operating or
shut down temporarily for two months?
a. Continue, because the expected sales is above the shutdown point.
b. Shut down, because the expected sales is above the shutdown point.
c. Continue, so that the shutdown costs may be avoided.
d. Shut down, because the shutdown costs is less than the contribution margin under continued
operations.
53. Spikey Company produces two products: Pat and Chin. The projected income for the coming year,
Pat Chin Total
Sales P300,000 P2,500,000 P2,800,000
Product margin P172,000 P 500,000 P 672,000
Operating income P 572,000
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Spikey company can increase the sales of Pat with increased advertising. The extra advertising would
cost an additional P245,000, and some of the potential purchasers of Chin would switch to Pat. In
total, sales of Pat would increase by 25,000 units, and sales of Chin would decrease by 5,000 units.
This strategy would
Ricky Ironworks is considering a proposal to sell an existing lathe and purchase a new computer-
operated lathe. Information on the existing lathe and the computer-operated lathe follow:
Computer-
Existing Lathe operated
Lathe
Cost P100,000 P300,000
Accumulated depreciation 60,000 0
Salvage value now 20,000
Salvage value in 4 years 0 60,000
Annual depreciation 10,000 75,000
Annual cash operating costs 200,000 50,000
Remaining useful life 4 years 4 years
54. What is the payback period for the computer-operated lathe?

a. 1.87 years c. 3.53 years
b. 2.00 years d. 3.29 years
55. If the company uses 10 percent as its discount rate, what is the net present value of the
proposed new lathe purchase? (Round present value factors to four decimal places)
a. P236,465 c. P195,485
b. P256,465 d. P30,422
56. RPI Corporation bought a piece of machinery. Selected data is presented below:
Useful life 6 years

Yearly net cash inflow P45,000
Salvage value -0-
Internal rate of return 18%
Cost of capital 14%
The initial cost of the machinery was (round present value factor to four decimal places)
a. P157,392. c. P165,812.
b. P174,992. d. impossible to determine from the information given.
57. Tanya Corporation issued preferred stocks for P120 per share. The issue price is P20 more than the
stock’s par value. The company incurred underwriting fees of P10 per share. The stocks will earn
annual dividends of P12 per share. If the tax rate is 30%, the cost of capital (preferred stocks) is
a. 10% c. 7.42%
b. 12% d. 10.91%
58. At the beginning of the year, Djorn Corporation purchased a new equipment for P360,000. The
machine has an estimated useful life of four (4) years with no salvage value. It is expected to produce
cash flows from operations, net of income taxes of 32%, as follows:
Year 1 P128,000
2 112,000
3 144,000
4 96,000
5 80,000
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Djorn Corporation uses the sum-of-the-years-digits method (SYD) in computing depreciation of its
depreciable assets. Using SYD, the new equipment will be depreciated as follows:
Year 1 (P360,000 x 4/10) P144,000
2 (P360,000 x 3/10) 108,000
3 (P360,000 x 2/10) 72,000
4 (P360,000 x 1/10) 36,000
The company’s cost of capital is 10%. The present value factors at 10% are as follows:
End of Year 1 0.909
2 0.826
3 0.751
4 0.683
Total, 4 years 3.170
If Djorn Corporation used the straight-line method of depreciation instead of the SYD method, the
net present value provided by the equipment would increase (decrease) by:
a. P13,464 c. (P4,308.48)
b. (P13,464) d. P4,308.48
59.Harold Co. is considering an investment in a capital project. The sole outlay will be
P716,417.90 at the outset of the project and the annual net after-tax cash inflow will be
P216,309.75 for 6 years. The present value factors at Harold’s 8% cost of capital are:
Year PV Factors
1 0.926
2 0.857
3 0.794
4 0.735
5 0.681
6 0.630
What is the break-even time (BET)?

60.The investment banking firm of M and Associates will use a dividend valuation model to appraise the
shares of the L&L Corporation. Dividends (D) at the end of the current year will be P1.20. The
growth rate (g) is 9% and the discount rate (K) is 13%?
What should be the price of the stock to the public?

a. P28.75 c. P30.00
b. P31.50 d. P29.00
61. BSR Co, has an opportunity to purchase a new conveyor line for P250,000. They can borrow
P200,000, paying P50,000 down with annual payments for five years and an interest of 15%. They
also have an opportunity to lease the line for P65,000 a year. The present value of an annuity of P1 for
five years at 9% and 15% are 3.8897 and 3.3522, respectively. At the end of five years, the estimated
salvage value is P40,000. If owned, the cost of maintenance is expected to be P10,000 per year.
Assume straight-line depreciation, a 40% tax rate, a cost of debt of 15%, and a cost of capital of 9%.
What is the present value of the after-tax cost of leasing for the five-year period?
a. P151,698 c. P144,000
b. P 98,698 d. P165,800
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62. After careful planning, Change Style, Inc. has decided to switch to a just-in-time inventory system
effective on July 1 of the current year. As of July 1, the corporation has 70 units of product in
inventory. It has 1,000 labor hours available for the month of July. These hours could produce 250
units of product. Customer demand for July is 200 units. If just-in-time principles are correctly
followed, how many units should Change Style Inc. plan to produce
a. 200 c. 180
b. 130 d. 250
63. Ideally, the number of units that should be produced in a just-in-time manufacturing system is equal
to
a. the maximum productive capacity for the current period.
b. actual customer demand for the current period.
c. budgeted customer demand for the current period.
d. budgeted customer demand for the following period
64. The projected sales price for a new product (which is still in the development stage of the product life
cycle) is P50. The company has estimated the life-cycle cost to be P30 and the first-year cost to be
P60. On this type of product, the company requires a P12 per unit profit. What is the target cost of the
new product?
a. P60 c. P38
b. P30 d. P43
65. Ivory 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, Ivory Company
has the following accounts receivable balances:
From April sales P21,000
Ivory's expected sales for June are P150,000. What were total sales for April?
a. P150,000 c. P 70,000
b. P 72,414 d. P140,000
66. Bali Company has a policy of maintaining an inventory of finished goods equal to 30 percent of the
following month's sales. For the forthcoming month of March, Bali has budgeted the beginning
inventory at 30,000 units and the ending inventory at 33,000 units. This suggests that
a. February sales are budgeted at 10,000 units less than March sales.
b. March sales are budgeted at 10,000 units less than April sales.
c. February sales are budgeted at 3,000 units less than March sales.
d. March sales are budgeted at 3,000 units less than April sales.
The cost of goods sold section of Dale Corporation’s operating budget for 2015 is presented below:
Materials: Inventory, January 1 (16,000 units) P 960,000

Purchases 9,120,000
Available for use P10,080,000
Inventory, December 31 (18,500 units) 1,184,000 P 8,896,000
Labor 784,000
Factory overhead: Variable P 2,009,600
Fixed 1,120,000 3,129,600
Cost of goods manufactured (140,000 units) P12,809,600
Add finished goods inventory, January 1 (9,300 units) 744,000
Cost of goods available for sale P13,553,600
Less finished goods inventory, December 31 (3,300 units) 301,600
Budgeted cost of goods sold P13,255,000
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The actual results for the first quarter of 2015 require the following changes in the budget
assumptions:
The budgeted production for the year is expected to increase by 5,000 units. During the first
quarter, the company has already produced 25,000 units. The balance of production will be
scheduled in equal segments over the last 3 quarters of the budget year.
The expected finished goods inventory on January 1 dropped to only 9,000 units, but its
total value will not be revised anymore. The ending inventory value is computed using the
average manufacturing cost for the year.
A new Labor Bill passed by Congress is expected to be signed into a law by the President.
The new law will take effect beginning the last quarter of the budget year, including a
provision for an increase of 8% in wage rates.
The company uses the FIFO method in valuing its materials inventory. During the first
quarter, the company purchased 27,500 units of direct materials for P1,760,000. The
remaining direct materials requirement will be purchased evenly for the last 9 months of the
budget year. Effective July 1, 2015, the beginning of the third quarter, direct materials cost
is expected to increase by 5%. The assumptions regarding the quantity of materials
inventories at the beginning and end of the year will remain unchanged.
The variable factory overhead of P2,009,600 includes indirect materials and factory
supplies amounting to P889,600. It is computed at 10% of the cost of materials used. The
balance of the variable factory overhead varies directly with production.
There will be no change in the budgeted fixed factory overhead cost.
Based on actual data for the first quarter, as well as the changes in assumptions and estimates in the
budgeted data for the year, the company’s accountant prepared a revised budgeted cost of goods
sold statement. This revised statement should show:
67. budgeted materials purchases of

a. P9,696,000. c. P9,280,000.
b. P9,120,000. d. P9,440,000.
68. budgeted cost of materials inventory at December 31, 2015 of

a. P1,024,000. c. P1,184,000.
b. P1,243,200. d. P1,216,100.
69. the budgeted direct labor cost of

a. P846,720. c. P876,960.
b. P784,000. d. P829,920.
70. the budgeted cost of goods manufactured of

a. P12,809,600. c. P14,208,000.
b. P13,464,000. d. P12,344,000.
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ANSWER KEY
1. ANSWER B
2. ANSWER C
Failure costs:
Rework cost (750 units x P10) P7,500
Returned units (150 x P15) 2,250
Not reworked (250 units x P15) 3,750 P13,500
Prevention costs 10,000
Appraisal cost 5,000
Total quality costs P28,500
3. ANSWER C
4. ANSWER C
Purchase price P45

Cost if purchased from within:
Variable cost P20
Opportunity cost 30 50
Loss per unit P 5
x number of units 4,000
Decrease in profit P20,000
5. ANSWER B
Sales P600,000
Less cost of goods sold 250,000
Gross margin P350,000
Variable selling P30,000
Fixed selling (P50,000 x 80%)40,000
Fixed admin (P20,000 x 50%) 10,000 80,000
Controllable income P270,000
÷ Assets 800,000
ROI 33.75%
6. ANSWER A
After-tax operating income (P800,000 x [1 – 0.32]) P544,000

Less desired return on investment:
Total assets (P800,000 + P3,200,000)P4,000,000
Less current liabilities 400,000
Investment base P3,600,000
x Weighted-average cost of capital 10% 360,000
Economic value added P184,000
7. ANSWER A
2 𝑥 10,000 𝑥 𝑃100
EOQ = √ 2
= 1,000 units
500 units 1,000 units

Carrying cost (500/2)2; (1,000/2)2 P 500 P1,000
Ordering cost (10,000/500) x P100 2,000
(10,000/1,000) x P100 1,000
Total cost P2,500 P2,000
Savings (P2,500 – P2,000) P500
8. ANSWER D
1,400 units is the only amount that will not cause Constraint 1 to be violated.
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9. ANSWER D
Average daily usage (1,200,000 ÷ 300) 4,000

x lead time 12
Lead time usage 48,000
add safety stock 10,000
Order point 58,000
10. ANSWER B
Based on the given data, the expected payoffs are:

Sell halo-halo (15,000 x 60%) + (6,000 x 40%) P11,400
Sell mami (11,400 x 60%) + (12,000 x 40%) 11,640
Therefore, despite the fact that the weather is hot, the canteen should sell mami because it has the
higher expected value or expected payoff.
11. ANSWER B
Diff. in costs (P12,415 – P11,737) P 678

÷ diff. in hours (150 – 120) 30
Variable rate per hour P22.60
Total cost P12,415 P11,737

Less variable cost (22.60x150) 3,390 (22.60x120) 2,712
Fixed costs P 9,025 P 9,025
12. ANSWER B
Variable cost (140 x P22.60) P 3,164

Fixed cost 9,025
Total cost P12,189
÷ number of hours 140
Cost per hour P 87.06
13. ANSWER B
Prime costs P 900,000

Applied overhead (P600,000/75,000 DLH x 75,700) 605,600
Total cost P1,505,600
÷ Units produced 100,000
Unit cost P 15.06
14. ANSWER C
Activity 1 (P20,000 x 100/500) P 4,000

Activity 2 (P37,000 x 800/1,000) 29,600
Activity 3 (P91,200 x 800/3,800) 19,200
Total allocated cost P52,800
÷ number of units 8,000
Cost per unit P 6.60
15. ANSWER A
Activity costs, Patient 2:

Room and meals (3 x P150) P 450
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Radiology (2 x P95) 190

Pharmacy (1 x P28) 28
Chemistry lab (2 x P85) 170
Operating room (1 x P550) 550
Total P1,388
16. ANSWER B
Assembly department = P9/machine hour x 3 machine hours x 20 sets = P540
17. ANSWER D
18. ANSWER C
Projected sales (125,000 x P6) P750,000

Less contribution margin:
Income before tax (75,000/0.60) P125,000
Add fixed cost 250,000 375,000
Variable costs P375,000
Variable cost per unit P 3.00
19. ANSWER D
Let S = Sales; CM = 0.40S; NY = 0.10S

Fixed Cost = (0.40S – 0.10S) = 0.30S
Sales (P60,000 ÷ 0.30) P200,000

Less breakeven sales (P60,000 ÷ 0.40) 150,000
Margin of safety P 50,000
20. ANSWER B
Increase in profit (P40,000 x 20%) P 8,000

÷ Present profit:
Less fixed costs 30,000 10,000
% change in profit 80%
21. ANSWER C
Expected sales - units 20,000
Less break-even sales:
Fixed costs (20,000 x [10 + 5]) P300,000
÷ Unit contribution margin
(120 – [35 + 15 + 10 + 20]) P40 7,500
Margin of safety 12,500 units
Margin of safety in pesos (12,500 x P120) P1,500,000
Margin of safety ratio (12,500 ÷ 20,000) 62.5%
22. ANSWER C
Fixed costs P148,500

P22,440
Add desired profit ( )
1 – 0.32 33,000
Total P181,500
60 – [22.50 + 4.50]
÷ CMR ( )
60 55%_
Required sales to earn desired profit P330,000
23. ANSWER B
Fixed costs:
Manufacturing (148,500 x 60% x 120%) P106,920
Non-manufacturing (148,500 x 40% x 110%) 65,340
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Total fixed costs P172,260

Contribution margin ratio:
Less variable costs:
Manufacturing (P22.50 + P4.50) P27.00
Selling and administrative 4.50 31.50
Contribution margin per unit P43.50
÷ Selling price 75.00
Contribution margin ratio P 58%
Required peso-sales to earn a desired profit ratio:
Fixed Cost P172,260

RS = = = P358,875
CMR – PR 58% – 10%
24. ANSWER A
25. ANSWER C
Fixed cost P122,500

Add desired profit (P250,000 x 32%) 80,000
Total P202,500
÷ CM per unit [P15 x (100% - 58%)] 6.30
Required sales in units 32,143
26. ANSWER B
Mix variance P450 U
Yield variance 150 U
Quantity variance P600 U
27. ANSWER A
Total standard cost P72,000

÷ Std qty for actual production (14,400 x 4) 57,600
Standard price per unit of materials P1.25
The usage variance is P3,000 unfavorable. The standard price is P1.25. Using the formula for
Usage variance, the difference in quantity may be computed as follows:
Usage variance =Difference in quantity x Std. price
3,000 U = Difference in quantity x P1.25

Difference in quantity = 3,000 ÷ P1.25
= 2,400 unfavorable
If the difference in quantity is unfavorable, the actual quantity is greater than the standard quantity:
Standard quantity (14,400 x 4) 57,600

Add unfavorable difference in quantity 2,400
Actual quantity used 60,000 units
Price Variance = (AP – SP) x AQ

= ([P126,000 ÷ 84,000] – P1.25) x 60,000
= P15,000 unfavorable
28. ANSWER D
Actual price (P10,080 ÷ 4,200) P2.40

Standard price 2.50
Difference in prices - favorable P 0.10
X actual quantity purchased 4,200
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Price variance – favorable P 420
29. ANSWER C
Actual time – hours 4,100

Less standard time (1,000 x 4) 4,000
Difference in time – unfavorable 100
X standard rate per hour P 12
Efficiency variance – unfavorable P1,200
30. ANSWER C
31. ANSWER B
32. ANSWER A
33. ANSWER D
34. ANSWER D
30 TO 34
Actual variable overhead P4,100
Actual time x std. var. rate (2,100 x P2) 4,200
Spending variance – favorable P 100
Actual time x std. var. rate (2,100 x P2) P4,200

Std. variable overhead [(19,000 x 0.1) x P2] 3,800
Efficiency variance – unfavorable P 400
Actual fixed overhead P22,000

Less budgeted fixed overhead 20,000
Fixed spending variance – unfavorable P 2,000
Budgeted fixed overhead P20,000

Less standard fixed overhead
[1,900 x (P20,000/<20,000 x 0.1>)] 19,000
Volume variance – unfavorable P 1,000
30. Controllable variance (P100 F + P400 U + P2,000 U) = 2,300 U
31. Spending variance (P100 F + P2,000 U) = P1,900 U
35. ANSWER D
36. ANSWER C
37. ANSWER A
38. ANSWER B
Absorption income P30,000

Diff. in income (8,000-5,000) x (P100k/8k) 37,500
Variable costing income (P 7,500)
39. ANSWER B
Sales (5,000 x P40) P200,000

Less cost of goods sold (5,000 x P21.50) 107,500
Less profit 30,000
Selling, gen. & admin. expenses P 62,500
40. ANSWER C
Ending inventory – units (8,000 – 5,000) 3,000

CRC-ACE
X product cost per unit (3 + 5 + 1) P 9

Cost of ending inventory P 27,000
41. ANSWER D
42. ANSWER C
Change in inventory (100k – 80k) 20,000
x fixed overhead cost per unit (P180k ÷ 100 1.80
Difference in income P36,000
43. ANSWER B
Product X Product Y
CM per unit P 50 P 64
÷ hours per unit 5 8

CM per hour P 10 P 8
80% of capacity must be applied to Product X, the product with the higher CM per hour.
Product X (25,000 x 80%) ÷ 5 = 4,000 units x P50 P 200,000

Product Y (25,000 x 20%) ÷ 8 = 625 units x P64 40,000
Total contribution margin P240,000
44. ANSWER A
Loss P15,000
Desired profit 10,000
Required increase in profit P25,000
Profit per unit P 5.00
Add production costs:
Materials (P6.00 – P1.50) P 4.50
Labor 10.00
Variable overhead 3.00
Variable selling exp (P2 – P1) 1.00 18.50
Sales price per unit P23.50
45. ANSWER C
Avoidable sales P1,000,000

Avoidable costs:
Var. CGS (P800,000 x 75%) P600,000
Fixed CGS (P800,000 – P600,000) x 60% 120,000
Selling expenses 100,000
Admin. exps. (P250,000 x 10%) 25,000 845,000
Decrease in income P155,000
46. ANSWER D
47. ANSWER D
The special order is for 500 boxes of 24 bottles each or a total of 12,000 bottles. Materials costs will
be:
Chem 1: Total required – 12,000 bottles x 4 ml 48,000 ml
Available Chem 5 that can be substituted
for Chem 1, 20,000 ml, salvage value… * P 6,000
Balance of Chem 1 required
(48,000 ml – 20,000 ml) x P0.54 15,120
Chem 2: 12,000 bottles x 3 ml x P0.36 12,960
Chem 3 12,000 bottles x 2 ml x P0.20 4,800
Chem 4 12,000 bottles x 5 ml x (P0.40 – P0.10)* 18,000
Total materials cost P56,880

CRC-ACE
* The relevant cost of existing stocks is equal to their salvage value that will not be realized if the
stocks are used in the Clever order.
48. ANSWER A
Labor: Total required time – 12,000 bottles x 2 hours 24,000 hours

Labor cost at regular rate (24,000 hours x P3) P72,000
Overtime premium (24,000 – 20,000) x P3 x 30% 3,600
Total labor cost P75,600
Factory overhead – variable (24,000 hours x P2) 48,000
Total relevant conversion cost P123,600
The overtime premium is part of labor cost, not of overhead cost, because the overtime work is
attributable to a particular job.
The total fixed factory overhead is assumed to remain constant whether or not the special order is
accepted, hence, irrelevant.
49. ANSWER C
Materials cost (from Item #44) P 56,880

Variable conversion cost (from Item #45) 123,600
Fixed factory overhead (24,000 hours x P4) 96,000
Full manufacturing cost P276,480
÷ Number of bottles ordered (500 boxes x 24) 12,000
Full cost per bottle P 23.04
130%
Bid price per unit P 29.95
50. ANSWER D
Materials:
Chem 1 12,000 bottles x 4 ml x P0.54
P25,920
Chem 2 12,000 bottles x 3 ml x P0.3612,960
Chem 3 12,000 bottles x 2 ml x P0.20 4,800
Chem 4 12,000 bottles x 5 ml x P0.4024,000
P67,680
Variable conversion cost (from Item #45) 123,600
Total variable manufacturing costs P191,280
For subsequent orders, the company will have to buy all the required materials because by this
time, the inventory of Chem 4 and Chem 5 would have been fully utilized in the first order.
51. ANSWER A
Fixed costs under continued operations (for 2 months):
Factory overhead (P460,000 x 2 months) P 920,000
Selling costs (P620,000 x 2 months) 1,240,000
Total P2,160,000
Less shutdown costs*:
Factory overhead (P340,000 x 2 months) P 680,000
Selling costs ([P620,000 – P62,000] x 2 months) 1,116,000
Start-up costs 56,000 1,852,000
Difference P 308,000
Divide by CM per unit (P280 – P168) ÷ P112
Shutdown point in units 2,750 units
52. ANSWER A
53. ANSWER C
PAT CHIN
Cont. margin P200,000 P2,000,000
÷ units (P300k ÷ P30) 10,000 50,000
CRC-ACE
CM per unit P 20 P 40
X change in units 25,000 (5,000)
Change in CM P500,000 (P200,000)
Increase in CM (P500k – P200K) P300,000

Less incremental fixed cost 245,000
Increase in profit P 55,000
54. Answer A
Acquisition cost, new lathe P300,000

Less salvage value of old lathe 20,000
Net cost of investment P280,000
÷ savings in cash operating costs (P50,000 – P200,000) 150,000
Payback period 1.87 years
55. Answer A
Present value of cost savings (P150,000 x 3.1699) P475,485

Present value of salvage value (P60,000 x 0.6830) 40,980
Total PV of cash inflows P516,465
Less net cost of investment 280,000
Net present value P236,465
56. ANSWER A
Yearly net cash inflow P 45,000

x PVF, 18% for 6 years 3.4976
Initial cost of the machine P157,392
57. ANSWER D
DPS P12
Cost of
Net P120 – =
Preferr
= issua = P10 10.9
ed
nce 1%
Stocks
price
58. ANSWER C
Depreciation expense, as a tax shield, provides tax savings. The difference in the present
values of the tax savings under the two depreciation methods will represent the difference in
the net present values of the equipment.
Year 1 P144,000 x 32% = P46,080 0.909 P41,886.72
2 108,000 x 32% = 34,560 0.826 28,546.56
3 72,000 x 32% = 23,040 0.751 17,303.04
4 36,000 x 32% = 11,520 0.683 7,868.16
Total present value of tax savings, SYD method P95,604.48

PV of tax savings, straight-line method
(P360,000 ÷ 4 years = P90,000 x 32% x 3.170) 91,296.00
Decrease in net present value P 4,308.48
59. ANSWER B
Break-even time: the cumulative present value of cash inflows equals the cost of investment
Cash Inflows x PVF = PV
1 216,309.75 0.926 P200,302.83
2 216,309.75 0.857 185,377.46
3 216,309.75 0.794 171,749.94
4 216,309.75 0.735 158,987.67
CRC-ACE
5 216,309.75 0.681 147,306.94
Total PV of cash inflows, first 4 years = P716,417.90
Break even time = 4 years
60. ANSWER C
D 1.20
Price = = = P30
K–G 13 – 9
61. ANSWER A
Annual lease expense, net of tax (P65,000 x 60%) P 39,000

x PVF, 9%, 5 years 3.8897
Present value of the after-tax cost of leasing P151,698
62. ANSWER B
Demand 200
Less beginning inventory 70
Production 130
63. ANSWER B
64. ANSWER C
Projected sales price P50

Less required profit 12
Target cost P38
65. ANSWER D
A/R balance from April sales P 21,000

÷ uncollected portion (100% - 70% - 15%) 15%
April sale P140,000
66. ANSWER B
Increase in inventory 3,000

÷ 30%
Sales increase for April over March 10,000
67. ANSWER A
It is assumed that each unit of product requires one unit of materials. So, production is equal to raw
materials to be used.
Budgeted raw materials to be used (or production) – 140,000+ 5,000145,000 units
Add raw materials ending inventory 18,500
Total 163,500
Less raw materials beginning inventory 16,000
Budgeted purchases 147,500
Less actual purchases, 1st quarter 27,500
Required purchases in the remaining 3 quarters 120,000 units
Cost computation:
First quarter purchases (27,500 units) P1,760,000
Second quarter (120,000/3 or 40,000 x [P1,760,000÷27,500] or P64/unit)2,560,000
Third and fourth quarters ([40,000/qtr. x 2] x[P64 x 105%]) 5,376,000
Total cost of budgeted purchases P9,696,000
68. ANSWER B
CRC-ACE
Materials inventory, December 31, 2015 18,500

x Purchase price (P64 x 1.05) P67.20
Cost of materials inventory, December 31, 2015 P1,243,200
The company uses the FIFO method of costing inventory. Thus, the ending inventory should be
valued at the new purchase price of P67.20.
69. ANSWER D
Original labor cost per unit (P784,000 ÷ 140,000 units) P 5.60

th
Labor cost per unit effective on the beginning of the 4 quarter (P5.60 x 108%) P6.048
Budgeted labor cost:
First to third quarters (25,000 + 40,000 + 40,000) x P5.60) P588,000
Fourth quarter (40,000 x P6.048) 241,920
Total budgeted labor cost P 829,920
70. ANSWER B
Materials:
Inventory, January 1 P 960,000
Add purchases 9,696,000
Less inventory, December 31 1,243,200 P 9,412,800
Labor 829,920
Factory overhead:
Variable:
P
Indirect materials (P9,412,800 x 10%)
941,280
P2,009,600 –
Other variable x .
( P889,600 )
overhead 145,000 1,160,000
140,000
Total variable overhead P2,101,280
Fixed 1,120,000 3,221,280
Budgeted cost of goods manufactured P13,464,000
PROFESSIONAL REVIEW AND TRAINING CENTER
1. 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 most likely to be considered an advantage of a sophisticated multiuser

database?
a) It may operated and maintained without particular computer expertise.
b) Information may be retrieved quickly.
c) Conversion of traditional files to such a format is ordinarily extremely simple.
d) It is easy to distribute information to every possible user.
3. The type of System most likely to be used to initially record the daily
a) Transaction processing System
b) Management information system
c) Decision support system
d) Executive information system
4. Which of the following statements contradicts the philosophy underlying the just-in-time
operating environment?
a) The work force must become multiskilled in order to operate many different machines and
perform other tasks in the work cell.
b) A customer order triggers the purchase of materials and the activation Of the production
process.
c) Large inventories are maintained in order to fulfill customer Orders on a timely basis
d) Flexible Work cells are Created to increase productivity.
5. A manager is attempting to determine whether segment Of the business should eliminated. The
focus Of attention for this decision should be on
a) the net income On the segment's income statement.
b) sales minus total Of the segment.
c) sales minus total direct expenses of the segment.
d) sales minus total variable expenses and avoidable expenses Of the segment.
6. Which one of the following has an inverse relationship the demand for money?
a) Aggregate income.
b) Price
c) Interest rates.
d) Flow of funds.
7. Items prevent the from attaining a level of achievement within its are called the
a) theory of constraints
b) value chain
c) strategic costs :management
d) cost management systems
8. Which of the following statements does not describe continuous improvement?

a) Continuous improvement be readily incorporated into budgets.
b) A product may have higher budgeted improvement rates during initial production than the
budgeted improvement rates for products that have been manufactured for longer periods.
OCTOBER 2017
c) A company using continuous improvement is signaling that it is in trouble because of its

costs.
d) Variances and flexible budgets can be used to measure performance such as continuous
improvement
9. When comparing performance report information for top management with that for lower level
management :
a) Lower-level management reports are typically for longer time periods.
b) Top management reports show control over fewer costs.
c) Lower-level management reports are likely to contain more quantitative data and less
financial data.
d) Top management reports are usually not of the exception type but present a complete
analysis of all variances.
10. A mixed Cost function has a constant component of P20,000. If the total Cost is P100,000 and
the independent variable has the value of 200, what is the value of the slope coefficient?
a) P200
b) P600
c) P400
d) P40,000
11. When a greater proportion of costs are fixed, 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
12. Del Mancha’s Cola was to manufacture 1,000 cases of cola next week. The accountant provided
the total manufacturing costs.
Variable Coefficient Standard Error t-Value
Constant 100 71.94 1.39
Independent 200 91.74 2.18
Variable
r 2 = 0.82
What is the estimated cost of producing the 1,000 cases of cola?

a) P200,000
b) P142,071
c) P100,200
d) P9,000
13. Alona Corporation has developed the following flexible budget formula for monthly indirect
labor costs:
Total Costs = P15,000 + P4.50 per machine hr.
Operating budgets are based upon the monthly average of 10,000 machine hours of planned machine
time. Compute the flexible budget for indirect labor cost for the year where production requires
115,000 machine hours.
a) P532,500
b) P517,500
OCTOBER 2017
c) P690,000
d) P697,500
14. HAGIBIS Motors, Inc. Employs 25 sales personnel to market its line of expensive cars. The
average car sells for P2,500,000 and a 5% commission is paid to the sales force. HAGIBIS Motors is
considering a change to commission arrangement that would pay each salesperson a salary of P30,000
per month plus a commission of 2% of the sales made by that salesperson. The amount of monthly
car sales at which HAGIBIS Motors would be indifferent as to the compensation packages is:
a) P15,000,000
b) P37,500,000
c) P25,000,000
d) P10,715,000
15. One of the first steps to take when using CVP help make decisions is:
a) finding cut where the total costs line intersects with the total revenues line on a graph.
b) identifying which costs ate variable and which costs are fixed.
c) calculation of the degree of operating for the company.
d) estimating how many products will have to be to make a decent profit.
16. Valdez Company is a manufacturer of its only product line. It had sales of P500,000 for 2017
with a contribution margin ratio of 20 percent. Its margin of safety ratio was 25 percent. What are
the company’s fixed costs?
a) P75,000
b) P80,000
c) P100,000
d) P125,000
17. Del Mundo Company sells several products. Information of average revenue and costs is as
follows:
Selling price per unit P20.00
Variable costs per unit
Direct material P4.00
Direct manufacturing labor P1.60
Manufacturing overhead P0.40
Selling costs P2.00
Annual fixed costs P96,000
The number if units that Del Mundo must sell annually to make a profit of P144,000 is:
a) 12,000 units
b) 18,000 units
c) 20,000 units
d) 30,000 units
18. Montemayor Co. had the following economic information for the year 2016:
Sales(50,000 units @ P20) P1,000,000
Variable Costs 400,000
Fixed Costs 250,000
Income Tax Rate 40 percent
OCTOBER 2017
Montemayor budgets its 2017 sales at 60,000 units or P1,200,000. The company anticipates and
increased competition; hence, an additional P75,000 advertising costs is budgeted in order to
maintain its sales target for 2017.
Assuming the company can sell 60,000 units, what is the required selling price in 2017 in order to
equal the 2016 net income?
a) P20.00
b) P19.25
c) P18.75
d) P21.50
19. Corporation C is a wholesaler that sells a single product. Management has provided the
following cost data for two levels of monthly sales volume. The company sells the product for
P133.60 per unit
Sales Volume (units) 4,000 5,000
Cost of sales P383,600 P479,500
Selling, general, and administrative costs P124,400 P136,000
The best estimate of the total contribution margin when 4,300 units are sold is:
a) P112,230
b) P162,110
c) P28,380
d) P45, 150
20. Kayornoto Company developed the following for year ended December 31, 2017
Product A Product B Total
Units Sold 4,000 6,000 10,000
Sales P12,000 P27,000 P39,000
Variable Costs 6,000 15,000 21,000
Contribution P6,000 P12,000 18,000
Margin
Fixed costs 12,600
Net income P5,400
If the sales mix changes in 2017 to 5,000 units of product A and 5.000 units of product B, the effect
on the company’s break-even point would be
a) to increase it by 200 units.
b) to decrease it by 200 units.
c) to increase it by 1,200 units.
d) no change
21. Del Potro Company sells only two products, Product A and Product B..
Product A Product B Total
Selling price P40 P50
Variable cost per unit P24 P40
Del Potro sells two units of Product A for each unit it sells of Product B. Del ,Potro faces a tax rate
of 30%. Del Potro desires a net income of P73,500, it needs to sell:
a) 52,500 units of Product A and 20,250 units of Product B
b) 22,500 units of Product A and 45,000 units of product B
OCTOBER 2017
c) 43.500 units of Product A and 21,750 units of Product B

d) 45.000 units of Product A and 22,500 units of Product B
22. Company A has a lower variable cost per unit and higher total fixed costs than Company B. The
selling prices of their products are the same. Sales fluctuate considerably for both companies.
Therefore.
a) Company A has a lower break-even point than Company B.
b) Company A earns more profit than Company B.
c) Company A is more risky than Company B.
d) Company A has a lower contribution margin percentage than Company B.
23. The indifference point is the level of volume at which a company

a) earns the same profit under different operating schemes.
b) earns no profit.
c) earns its target profit.
d) any of the above.
24. Swift Company introduced a new product last year for which it trying to find an optimal selling
price. Marketing studies suggest that the company can increase sales by 5,000 units for each P2
reduction in the price. The present selling price is P70 per unit, and variable expenses are P40 per
unit. Fixed expenses are P540,000 per year. The present annual sales volume (at the P70 selling
price) is 15.000 units.
Assuming that the marketing studies are correct. what is the maximum profit that the company can
earn yearly?
a) P 20.000
b) P270,000
c) P110,000
d) P260,000
25. At the end the accounting period Delas Alas Corporation reports operating income of P30,000
and the fixed overhead cost rate is P20 per unit. Under variable costing. if this company produces
100 more inventory, then operating income:
a) will increase by P2,000
b) will increase by P2,000 only if the additional units of inventory are sold
c) will not be affected
d) is indeterminable
26. Laurel Company produces a single product. During December, the company had net operating
income under absorption costing that was P6,000 lower than under variable costing. The company
sold 15,000 units in March, and its variable costs were P3 per unit, of which P3 was variable selling
expense. If fixed manufacturing overhead was P1.50 per unit under absorption costing and fixed
selling & administrative expense was P0.50, then how many units did the company produce during
March?
a) 12,000 units
b) 18,000 units
c) 11.000 units
d) 19,000 units
27. Del Mar Manufacturing expects to produce and sell 6,000 units of H20 from Heaven, its only
product, for P20 each; Direct material cost is P2 per unit. direct labor cost P8 per unit. and variable
OCTOBER 2017
manufacturing overhead is P3 per unit. Fixed manufacturing overhead is P24,000 in total. Variable
selling and administrative expenses are P1 per unit, and fixed selling and administrative costs are
P3,000 in total. According to generally accepted accounting principles, inventoriable cost per unit of
H20 from Heaven would be:
a) P13.00 per unit
b) P14.00 per unit
c) P17.00 per unit
d) P18.50 per unit
28. King Corporation produces a single product. The following cost structure applied to its first year
of operations:
Variable costs:
Selling expenses
Production
Fixed costs (total cost incurred for the year):
Selling expenses
Production
Assume that King Corporation produced 5,000 units and sold 4,500 units in the current year. If King
uses absorption costing, it would deduct period costs of
a) P24,000
b) P27.000
c) P34,000
d) P23,000
29. York Company had P200,000 income using absorption costing, York has no variable
manufacturing costs. Beginning inventory was P15,000 and ending inventory was P22,000. Income
under variable costing would have been
a) P178.000
b) P193,000.
c) P200,000.
d) P207,000.
USE THE FOLLOWING SET OF INFORMATION TO ANSWER QUESTION NO. 30 TO 35.

You have recently graduated from a university and have accepted a position with Villar Company, the
manufacturer of a popular consumer product. During your first week on the job, the vice president has been
favorably impressed with your work. She has been so impressed, in fact, that yesterday she called you into
her office and asked you to attend the executive committee meeting this morning for the purpose of leading
a discussion on the variances reported for last period. Anxious to favorably impress the executive
committee, you took the variances and supporting data home last night to study.
On your way to work this morning, the papers were laying on the seat of your new, red convertible. As
you were crossing a bridge on the highway, a sudden gust of wind caught the papers and blew them over
the edge of the bridge and into the stream below. You managed to retrieve only one page, which contains
the following information:
Standard Cost Summary
Direct materials, 6 pounds at P3 P18.00
Direct labor, 0.8 hours at P5 4.00
Variable overhead, 0.8 hours at P3 2.40
Fixed overhead, 0.8 hours at P7 5.60
P30.00
OCTOBER 2017
Total VARIANCES REPORTED

Standard Price or Spending or Quantity or Volume
Cost Rate Budget Efficiency
Direct materials P405,000 P6,900 F P9,000 U
Direct labor 90,000 4,850 U 7,000 U
Variable overhead 54,000 P1,300 F ?@
Fixed overhead 126,000 500 F P14,000U
Applied to Work in process during the period

@ Figure obliterated.
You recall that manufacturing overhead cost is applied to production on the basis of direct labor-hours
and that all of the materials purchased during the period were used in production. Since the company
uses JIT to control work flows, work in process inventories are insignificant and can be ignored.
It is now 8:30 A.M. The executive committee meeting starts in just one hour; you realize that to avoid
looking like a bungling fool you must somehow generate the necessary “backup” data for the variances
before the meeting begins. Without backup data it will be impossible to lead the discussion or answer
any questions.
30. How many pounds of direct materials were purchased and used in the production of 22,500 units?
a) 138,000 lbs.
b) 132,000 lbs.
c) 135,000 lbs.
d) 137,300 lbs.
31. What was the actual cost per pound of material?

a) P3.00
b) P3.05
c) P2.95
d) P3.10
32. How many actual direct labor hours were worked during the period?
a) 18,000
b) 16,600
c) 19,400
d) 18,970
33. How much actual variable manufacturing overhead cost was incurred during the period?
a) P55,300
b) P58,200
c) P56,900
d) P59,500
34. What is the total fixed manufacturing overhead cost in the company’s flexible budget?
a) P112,500
b) P140,000
c) P139,500
d) P125,500
OCTOBER 2017
35. What were the denominator hours for last period?

a) 18,000 hours
b) 22,000 hours
c) 20,000 hours
d) 25,000 hours
Allo foundation, a tax-exempt organization, invested P200, 000 in a five-year project at the beginning of
19x5. Allo estimates that the annual cash savings from this project will amount to P65, 000. The P200, 000
of assets will be depreciated over their five-year life on the straight-line basis. On investments of this type,
Allo’s desired rate of return is 12%.
36. The net present value of the project is

a) P34, 325
b) P36, 400
c) P90, 000
d) P125, 000
37. Allo’s time-adjusted rate of return on this project is

a) Less than 12%
b) Less than 14%, but more than 12%
c) Less than 16%, but more than 14%
d) More than 16%
38. Under the time-adjusted rate of return capital budgeting technique, it is assumed that cash flows are
reinvested at the
a) Cost of capital
b) Hurdle rate of return
c) Rate earned by the investment
d) There is no assumption about reinvestment of cash flows
39. Which of the following is not an activity covered by feasibility study?

a) Activity based accounting of the endeavor leading to a conclusion
b) Collection of data
c) Evaluation and analysis of data collected
d) Formulation of recommendation
40. Among the following major parts of a project feasibility study, which grouping is considered critical?
a) Management, financial and social returns
b) Technical. Financial and environmental aspects
c) Economic benefits, management, financial
d) Marketing, engineering or technical and financial
41. The statements below about project feasibility studies are the true except:
a) Any change which can materially alter the assumptions used in the preparation of the forecast
will render it useless
b) It is important for government agencies in order to determine entitlement to government
incentives
c) It also covers the social desirability aspects of a proposed undertaking
d) Since data gathering is a basic step in its preparation, all the necessary and required information
will always be available.
OCTOBER 2017
42. Santos Company is planning its advertising campaign for next year and has prepared the following
budget data based on a zero-advertising expenditure:
Normal plant capacity 200,000 units
Sales 150,000 units
Selling price P25 per unit
Variable manufacturing costs P15 per unit
Fixed manufacturing costs P800,000
Fixed selling and administrative costs P700,000
An advertising agency claims that an aggressive advertising campaign would enable Santos to increase
its unit sales by 20%. What is the maximum amount that Santos Company can pay for advertising and
have an operating profit of P200,000 next year?
a) P100,000
b) P200,000
c) P300,000
d) P550,000
43. The Rizal 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
expense 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 would be the total fixed costs after the increase of P78,750?
a) P341,250
b) P262,500
c) P183,750
d) P300,000
44. A flexible budget:

a) is another name for management by exception
b) is developed at the end of the period
c) is based on the budgeted level of output
d) provides favorable operating results
45. The following items are the same for the flexible budget and the master budget EXCEPT the
same:
a) variable cost per unit
b) total fixed costs
c) units sold
d) sales price per unit
46. 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.
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
OCTOBER 2017
Selling P160,000
Administrative 280,000
Expected annual sales volume (390,000 boxes) P1,560,000
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.
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
b) 423,385
c) 503,225
d) 443,871
47. The following information pertains to Dove Corporation for the year ending December 31, 2017:
Budgeted sales P1,000,000
Breakeven sales 700,000
Budgeted contribution margin 600,000
Cashflow breakeven 200,000
Dove’s margin of safety is
a) P300,000
b) P400,000
c) P500,000
d) P800,000
48. Russini, Inc. had the following economic data for 2017:
Net sales P400,000
Margin of safety P 40,000
What is Russini's breakeven point in 2017?
a) P360,000
b) P320,000
c) P288,000
d) P 80,000
49. Which of the following statements is true for a firm that uses variable (direct) costing?
a) The cost of a unit of product changes because of changes in the number of units manufactured
b) Profits fluctuate with sales
c) An idle facility variation is calculated
d) Product costs include “direct” (variable) administrative costs
50. In a project feasibility study, which of the following is true?

a) The study is not affected by any significant change in actual business conditions as compared to
the assumptions used in making the forecast
b) The study is based on available information and opinions of the party involved in the preparation
of the study.
c) (a) and (b)
d) None of the above
OCTOBER 2017
51. 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 and fixed costs constant
every month. If the tax rate is 40 percent, how much is the annual fixed costs?
a) P36,000
b) P90,000
c) P432,000
d) P360,000
52. The Auto Division of Fly Insurance employs three claims processors capable of processing 5,000
claims each. The division currently processes 12,000 claims. The manager has recently been
approached by two sister divisions. Division A would like the auto division to process approximately
2,000 claims. Division B would like the auto division to process approximately 5.000 claims. The
Auto Division would be compensated Division A or Division B for processing these claims. Assume
that these are mutually exclusive alternatives. Claims processor salary cost is relevant for
a) division A alternative only
b) division B alternative only
c) both Division A and Division B alternatives
d) neither Division A nor Division B alternatives
53. Gup Co. estimates that 90,000 special zippers will be used in the manufacture of industrial bags
during the year. Sure Zipper Co. has quoted a price of P5 per zipper. Gup would prefer to purchase
7,500 units per month but Sure is unable to guarantee this delivery schedule. In order to ensure the
availability of these zippers, Gup is considering the purchase of all 60,000 units at the beginning of
the year. Assuming that Gup can invest cash at 12%, the company's opportunity cost of purchasing
the 60,000 units at the beginning of the year is
a) P21,600
b) P24,750
c) P27,000
d) P49,500
54. Roxan Company currently sells 15,000 units of product X for PIO each. Variable costs are P7.OO.
A discount store has offered P8.50 per unit for 1,000 units of product M. The managers believe that
if they accept the special order, they will lose some sales at the regular price. Determine the number
of units they could lose before the order become unprofitable.
a) 200 units
b) 160 units
c) 400 units
d) 500 units
55. Division Y earns a contribution margin of P500,000 and has a divisional margin of P110,000. If
Division Y is closed, all of the direct divisional expenses and P70,000 of common expenses can be
eliminated. These facts indicate that closing the division will cause the firm's oper ating income to
a) increase by P320,000
b) decrease by P320,000
c) increase by P40,000
d) increase by P40,000
56. Beal Company is starting business and is unsure of whether to sew its product assembled or
unassembled. The unit cost of V the unassembled product is P40 and Beal Company would sell it for
P90. The cost to assemble the product is estimated at P18 per unit and Beal Company believes the
OCTOBER 2017
market would support a price of P116 on the assembled unit. What is the correct decision using the
sell or process further decision rule?
a) Sell before assembly, the company will be better off by P18 per unit.
b) Sell before assembly, the company will be better off by P26 per unit.
c) Process further, the company will be better off by P26 per unit.
d) Process further, the company will be better off by P8 per unit.
57. In the decision on whether or not to drop an unprofitable product line, the product line will most
likely be dropped if:
a) all of the product line's fixed costs are unavoidable.
b) the product line's total fixed costs are less than the contribution margin lost from dropping
the product line.
c) the contribution margin lost from dropping the product line is less than the fixed costs
avoided from dropping the product line.
d) the contribution margin lost from dropping the product line is more than the fixed costs
avoided from dropping the product line.
58. A company may set predetermined overhead rates based on normal, expected annual, or
theoretical capacity. At the end of a period, the fixed overhead spending variance would
a) be the same regardless of the capacity level selected
b) the largest if theoretical capacity had been selected
c) be the smallest if theoretical capacity had been selected
d) not occur if actual capacity were the same as the capacity level selected
59. At the end of a period, a significant material spending variance should be

a) closed to Cost of Goods Sold.
b) allocated among Raw Material, Work In Process, Finished Goods, and Cost of Goods Sold.
c) allocated among Work in Process, Finished Goods, and Cost of Goods Sold.
d) carried forward as a balance sheet account to the next period.
60. One of the primary reasons for using cost variances is:
a) they diagnose the cause of a problem and what should be done to correct it
b) for superiors to communicate expectations to lower-level employees
c) to administer appropriate disciplinary action
d) for financial control of operating activities and understanding why variances arise
61. Holly Co. had a P18,000 favorable volume variance, a P15,000 unfavorable variable overhead
spending variance, and P12,000 total under-applied overhead. The fixed overhead budget variance
was
a) P 9,000 U
b) P15,000 U
c) P9,000 F
d) P15,000 F
62. Information on Cutter Company's direct labor costs for the month of January is as follows:
Actual direct labor hours 34,500
Standard direct labor hours 35,000
Total direct labor payroll P241,500
Direct labor efficiency variance - favorable P3,200
OCTOBER 2017
What is the standard direct labor rate?

a) P6.90
b) P6.81
c) P6.40
d) P7.00
63. An improvement in technology that in turn leads to improved worker productivity would most
likely result in
a) A shift to the right in the supply curve and a towering of the price of the output
b) A shift to the left in the supply curve and a towering of the price of the output
c) An increase in the price of the output if demand is unchanged
d) Wage increase
64. If a product's demand is elastic and there is a decrease in price, the effects will be
a) A decrease in total revenue
b) No change in total revenue
c) A decrease in total revenue and the demand curve shifts to the left
d) An increase in total revenue
65. Del Rosario Company has the following information:

Month Budgeted Purchases
January 26,800
February 29,000
March 30,520
April 29,480
May 27,680
Purchases are paid or in the following manner:

10% of the purchase amount in the month of purchase
50% of the purchase amount in the month after purchase
40% of the purchase amount 2 months after purchase
What is the expected balance in Accounts Payable as of April 30?
a) P26,352
b) P38,740
c) P12,208
d) P17,688
66. Simple regression differs from multiple regression in that:

a) multiple regression uses all available data to estimate the cost function, whereas simple
regression only uses simple data
b) simple regression limited to the use of only the dependent variables and multiple regression
can use both dependent and independent variables
c) simple regression uses only one independent variable and multiple repression uses more
than one independent variable
d) simple regression uses only one dependent variable and multiple regression uses more than
one dependent variable
OCTOBER 2017
Questions 67 through 70 are based on the following information.

Dela Torre Corporation employs an absorption costing system for internal reporting purposes; the
company is considering using variable costing. Data regarding Dela Torre's planned and actual
operations for the 2017 calendar year are presented below.
Planned Activity Actual Activity
Beginning finished goods
Inventory in units 35,000 35,000
Sales in units 140,000 125,000
Production in units 140,000 130,000
The planned per unit cost figures shown were based on the estimated production in the next
schedule and sale of 140,000 units in 2017. Dela Torre uses a predetermined manufacturing
overhead rate for applying manufacturing overhead to its product. Thus, a combined manufacturing
overhead rate of P9.00 per unit was employed for absorption costing purposes in 2017. Any over- or
under-applied manufacturing overhead is closed to the cost of goods sold account at the end of the
reporting year.
Planned Cost Incurred
Per unit Total Costs
Direct materials P12.00 P1,680,000 P1,560,000
Direct labor 9.00 1,260,000 1,170,000
Variable Manufacturing Overhead 4.00 560,000 520,000
Fixed Manufacturing Overhead 5.00 700,000 715,000
Variable Selling Expenses 8.00 1,120,000 1,000,000
Fixed Selling Expenses 7.00 980,000 980,000
Variable Administrative Expenses 2.00 280,000 250,000
Fixed Administrative Expenses 3.00 420,000 425,000
Total P50.00 P7,000,000 P6,620,000
The 2017 beginning finished goods inventory for absorption costing purposes was valued at the
2016 planned unit manufacturing cost, which was the same as the 2017 planned unit manufacturing
cost. There are no work-in-process inventories at either the beginning or the end of the year. The
planned and actual unit selling price for 2017 was P 70.00 per unit.
67. The value of Dela Torre Corporation's 2017 actual ending finished goods inventory on the
absorption costing bases was
a) P900,000
b) P1,220,000
c) P1,200,000
d) P1,350,000
68. The value of Dela Torre Corporation's 2017 actual ending finished goods inventory on the
variable costing basis was
a) P1,400,000
b) P1,000,000
c) P1,125,000
d) P750,000
OCTOBER 2017
69. Dela Torre Corporation's total fixed costs expensed in 2017 on the absorption costing bases were
a) P2,095,000
b) P2,055,000
c) P2,120,000
d) P2,030,000
70. Dela Torre Corporation's actual manufacturing contribution margin for 2017 calculated on the
variable costing basis was
a) P4,375,000
b) P4,910,000
c) P4,935,000
d) P5,625,000
OCTOBER 2017
ANSWER KEY
1. C 36. A
2. B 37. D
3. A 38. C
4. C 39. A
5. D 40. D
6. C 41. D
7. A 42. A
8. C 43. A
9. C 44. B
10. C 45. C
11. B 46. A
12. B 47. A
13. D 48. A
14. C 49. B
15. B 50. B
16. A 51. C
17. C 52. B
18. B 53. B
19. A 54. D
20. A 55. D
21. C 56. D
22. C 57. C
23. D 58. A
24. A 59. B
25. C 60. D
26. B 61. B
27. D 62. C
28. D 63. A
29. A 64. D
30. A 65. B
31. C 66. C
32. C 67. C
33. D 68. B
34. B 69. A
35. C 70. D
OCTOBER 2017

ACTUAL BUDGETED

2. Using the three-way variance analysis, the spending variance amounts to




6.The following information regarding fixed production costs from a manufacturing firm is available for
the current year:
Fixed costs in the beginning inventory P16,000

Fixed costs incurred this period 100,000
Which of the following statements is not true?

a. The maximum amount of fixed production costs that this firm could deduct using absorption
costs in the current year is P116,000.
b. The maximum difference between this firm's the current year income based on absorption
costing and its income based on variable costing is P16,000.
c. Using variable costing, this firm will deduct no more than P16,000 for fixed production costs.
d. If this firm produced substantially more units than it sold in the current year, variable costing
will probably yield a lower income than absorption costing.
7.If a firm produces more units than it sells, absorption costing, relative to variable costing, will result in
a. higher income and assets. c. lower income but higher assets.
b. higher income but lower assets. d. lower income and assets.
OCTOBER 2017

Sales in units 5,000
8.What would X Co. have reported as its income before income taxes if it had used variable costing?
a. P30,000 c. P67,500
b. (P7,500) d. can’t be determined from the given
information
9.What was the total amount of SG&A expense incurred by X Co.?
a. P30,000 c. P6,000
b. P62,500 d. can’t be determined from the given
information
a. P120,000 c. P27,000
b. P 64,500 d. P24,000

d. Variable costing makes cost-volume-profit relationships more easily apparent.
12. In its first year of operations, Nasty Company had the following costs when it produced 100,000 units
and sold 80,000 units of its only product:
Fixed P180,000
Variable 160,000
Selling and administrative costs:
Fixed 90,000
Variable 40,000
How much higher would Nasty’s net income be if it used full absorption costing instead of variable
costing?
a. P94,000 c. P36,000
b. P68,000 d. P54,000
13. Ning 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 Ning Company
wants to dedicate 80 percent 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. c. P210,000.
b. P240,000. d. P200,000.
OCTOBER 2017
14. Mangit Company is currently operating at a loss of P15,000. The sales manager has received a special
order for 5,000 units of product, which normally sells for P35 per unit. Costs associated with the product
are: direct material, P6; direct labor, P10; variable overhead, P3; applied fixed overhead, P4; and
variable selling expenses, P2. The special order would allow the use of a slightly lower grade of direct
material, thereby lowering the price per unit by P1.50 and selling expenses would be decreased by P1.
If Mangit wants this special order to increase the total net income for the firm to P10,000, what sales
price must be quoted for each of the 5,000 units?
a. P23.50 c. P27.50
b. P24.50 d. P34.00
15. Dolly Company has 3 divisions: R, S, and T. Division R's income statement shows the following for
the year ended December 31:
Sales P1,000,000
Selling expenses P100,000
Net loss P (150,000)
Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60 percent are
eliminated if Division R were eliminated. Of the administrative expenses, 90 percent are applied from
corporate costs. If Division R were eliminated, Dolly’s income would
a. increase by P150,000. c. decrease by P155,000.
b. decrease by P 75,000. d. decrease by P215,000.
16. The opportunity cost of making a component part in a factory with excess capacity for which there is
no alternative use is
a. the total manufacturing cost of the component.
b. the total variable cost of the component.
c. the fixed manufacturing cost of the component.
d. zero.

Schundel Hair Care Company produces shampoo with conditioner. This is the company’s only product,
which it sells under the name “Shamcon.”
The manufacturing cost data for Shamcon are as follows:

Quantity required Current market price
Materials: per 1,000-ml bottle per ml
Chem 1 4 ml P0.54
Chem 2 3 ml 0.36
Chem 3 2 ml 0.20
Direct labor: 2 hours per bottle @ P3 per hour

Factory overhead:
Variable overhead – P2.00 per direct labor hour
Fixed overhead – 4.00 per direct labor hour
OCTOBER 2017
Clever Company, owner and operator of a chain of hotels, asked Schundel Hair Care Company to
submit a bid for 500 boxes of Shamcon. Each box will contain 24 bottles. Per Clever’s specifications,
its order should be different in chemical composition from the regular Shamcon. According to
Schundel Company’s production manager, Clever’s specifications can be met if an additional chemical,
Chem 4 would be used. Schundel Company has 60,000 ml of this chemical. Chem 4 was used by the
company in one of its brands that it decided to eliminate. The remaining inventory of Chem 4 was not
sold or discarded because it does not deteriorate and the company has adequate space for its storage.
Schundel Company can sell Chem 4 at the prevailing market price of P0.40 per ml less P0.10/ml selling
and handling costs. Clever’s order would require 5 ml of Chem 4 per bottle.
The company has a stock of Chem 5. This was used by Schundel Hair Care for its manufacture of
another product that is no longer being produced. Chem. 5, which cannot be used in Shamcon, can be
substituted for Chem 1 on a one-for-one basis without affecting the quality of the Clever order. There
is no problem about the supply of Chem 1. At present, the company has 20,000 ml of Chem 5 in its
inventory, which has a salvage value of P6,000.
The production of the Clever’s order would require the same direct labor hours per bottle as in the
regular Shamcon. However, at present, the company has only 20,000 direct labor hours available. The
Clever order can be produced if the workers would work overtime, although an overtime premium of
30% of the regular rate should be paid.
Schundel Hair Care Company’s policy is to price new products at 130% of full manufacturing cost.
17. If Schundel Company bids this month for the special one-time order of 500 boxes of the product, the
special order’s total direct materials cost will be
a. P73,944. c. P68,880.
b. P61,680. d. P56,880.
18. If Schundel Hair Care Company bids this month for the special one-time order of 500 boxes of the
product, the special order’s total relevant conversion cost will be
a. P123,600. c. P120,000.
b. P219,600. d. P216,000.
19. If the company’s policy is to price new products at 130% of full manufacturing cost, what is the bid
price per unit for this one-time special order of Clever Company?
a. P19.55 c. P29.95
b. P 6.91 d. P23.80
20. What will be the total variable manufacturing costs for the subsequent, recurring 500-box orders?
a. P180,480 c. P287,280
b. P373,464 d. P191,280
ITEMS 21 and 22 ARE BASED ON THE FOLLOWING INFORMATION:

Jane Corporation produces wood glue that is used by furniture manufacturers. The company normally
produces and sells 10,000 gallons of the glue each month. White Glue is sold for P280 per gallon,
variable costs is P168 per gallon, fixed factory overhead cost totals P460,000 per month, and the fixed
selling costs totals P620,000 per month.
Labor strikes in the furniture manufacturers that buy the bulk of White Glue have caused the monthly
sales of Jane Corporation to temporarily decrease to only 15% of its normal monthly volume. Jane
OCTOBER 2017
Corporation’s management expects that the strikes will last for about 2 months, after which, sales of
White Glue should return to normal. However, due to the dramatic drop in the sales level, Jane
Corporation’s management is considering to close down its plant during the two-moth period that the
strikes are on.
If Jane Corporation will temporarily shut down its operations, it is expected that the fixed factory
overhead costs can be reduced to P340,000 per month and that the fixed selling costs can be reduced
by P62,000 per month. Start-up costs at the end of the shut-down period would total P56,000. Jane
Corporation uses the JIT system, so no inventories are on hand.
21. The shut down point in units is

a. 2,750.00. c. 3,250.00.
b. 9,642.86. d. 1,100.00.
22. At the sales level of only 30% of the normal volume, should the company continue operating or shut
down temporarily for two months?
a. Continue, because the expected sales is above the shutdown point.
b. Shut down, because the expected sales is above the shutdown point.
c. Continue, so that the shutdown costs may be avoided.
d. Shut down, because the shutdown costs is less than the contribution margin under continued
operations.
23. Spikey Company produces two products: Pat and Chin. The projected income for the coming year,
Pat Chin Total
Sales P300,000 P2,500,000 P2,800,000

Product margin P172,000 P 500,000 P 672,000
Operating income P 572,000
Spikey company can increase the sales of Pat with increased advertising. The extra advertising would
cost an additional P245,000, and some of the potential purchasers of Chin would switch to Pat. In total,
sales of Pat would increase by 25,000 units, and sales of Chin would decrease by 5,000 units. This
strategy would
ITEMS 24 AND 25 ARE BASED ON THE FOLLOWING
Ricky Ironworks is considering a proposal to sell an existing lathe and purchase a new computer-
operated lathe. Information on the existing lathe and the computer-operated lathe follow:
OCTOBER 2017
Computer-operated
Existing Lathe Lathe
Cost P100,000 P300,000
Salvage value now 20,000
Annual depreciation 10,000 75,000
Remaining useful life 4 years 4 years
24. What is the payback period for the computer-operated lathe?

25. If the company uses 10 percent as its discount rate, what is the net present value of the proposed new
lathe purchase? (Round present value factors to four decimal places)
a. P236,465 c. P195,485
b. P256,465 d. P30,422
26. RPI Corporation bought a piece of machinery. Selected data is presented below:
Useful life 6 years

Yearly net cash inflow P45,000
Salvage value -0-
Internal rate of return 18%
Cost of capital 14%
The initial cost of the machinery was (round present value factor to four decimal places)
a. P157,392. c. P165,812.
b. P174,992. d. impossible to determine from the information given.
27. Tanya Corporation issued preferred stocks for P120 per share. The issue price is P20 more than the
stock’s par value. The company incurred underwriting fees of P10 per share. The stocks will earn
annual dividends of P12 per share. If the tax rate is 30%, the cost of capital (preferred stocks) is
a. 10% c. 7.42%
b. 12% d. 10.91%
28. At the beginning of the year, Djorn Corporation purchased a new equipment for P360,000. The machine
has an estimated useful life of four (4) years with no salvage value. It is expected to produce cash flows from
operations, net of income taxes of 32%, as follows:
Year 1 P128,000
2 112,000
3 144,000
4 96,000
5 80,000
Djorn Corporation uses the sum-of-the-years-digits method (SYD) in computing depreciation of its
depreciable assets. Using SYD, the new equipment will be depreciated as follows:
OCTOBER 2017
Year 1 (P360,000 x 4/10) P144,000

2 (P360,000 x 3/10) 108,000
3 (P360,000 x 2/10) 72,000
4 (P360,000 x 1/10) 36,000
The company’s cost of capital is 10%. The present value factors at 10% are as follows:
End of Year 1 0.909
2 0.826
3 0.751
4 0.683
Total, 4 years 3.170
If Djorn Corporation used the straight-line method of depreciation instead of the SYD method, the net
present value provided by the equipment would increase (decrease) by:
a. P13,464 c. (P4,308.48)
b. (P13,464) d. P4,308.48
29.Harold Co. is considering an investment in a capital project. The sole outlay will be P716,417.90 at the
outset of the project and the annual net after-tax cash inflow will be P216,309.75 for 6 years. The
present value factors at Harold’s 8% cost of capital are:
Year PV Factors
1 0.926
2 0.857
3 0.794
4 0.735
5 0.681
6 0.630
What is the break-even time (BET)?

30.The investment banking firm of M and Associates will use a dividend valuation model to appraise the
shares of the L&L Corporation. Dividends (D) at the end of the current year will be P1.20. The
growth rate (g) is 9% and the discount rate (K) is 13%?
What should be the price of the stock to the public?

a. P28.75 c. P30.00
b. P31.50 d. P29.00
31. BSR Co, has an opportunity to purchase a new conveyor line for P250,000. They can borrow P200,000,
paying P50,000 down with annual payments for five years and an interest of 15%. They also have an
opportunity to lease the line for P65,000 a year. The present value of an annuity of P1 for five years at
9% and 15% are 3.8897 and 3.3522, respectively. At the end of five years, the estimated salvage value
is P40,000. If owned, the cost of maintenance is expected to be P10,000 per year. Assume straight-
line depreciation, a 40% tax rate, a cost of debt of 15%, and a cost of capital of 9%.
What is the present value of the after-tax cost of leasing for the five-year period?
a. P151,698 c. P144,000
b. P 98,698 d. P165,800
OCTOBER 2017
32. After careful planning, Change Style, Inc. has decided to switch to a just-in-time inventory system
effective on July 1 of the current year. As of July 1, the corporation has 70 units of product in inventory.
It has 1,000 labor hours available for the month of July. These hours could produce 250 units of
product. Customer demand for July is 200 units. If just-in-time principles are correctly followed, how
many units should Change Style Inc. plan to produce in July?
a. 200 c. 180
b. 130 d. 250
33. Ideally, the number of units that should be produced in a just-in-time manufacturing system is equal to
a. the maximum productive capacity for the current period.
b. actual customer demand for the current period.
c. budgeted customer demand for the current period.
d. budgeted customer demand for the following period
34. The projected sales price for a new product (which is still in the development stage of the product life
cycle) is P50. The company has estimated the life-cycle cost to be P30 and the first-year cost to be P60.
On this type of product, the company requires a P12 per unit profit. What is the target cost of the new
product?
a. P60 c. P38
b. P30 d. P43
35. Ivory 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, Ivory Company has
the following accounts receivable balances:
From April sales P21,000
Ivory's expected sales for June are P150,000. What were total sales for April?
a. P150,000 c. P 70,000
b. P 72,414 d. P140,000
36. Bali Company has a policy of maintaining an inventory of finished goods equal to 30 percent of the
following month's sales. For the forthcoming month of March, Bali has budgeted the beginning
inventory at 30,000 units and the ending inventory at 33,000 units. This suggests that
a. February sales are budgeted at 10,000 units less than March sales.
b. March sales are budgeted at 10,000 units less than April sales.
c. February sales are budgeted at 3,000 units less than March sales.
d. March sales are budgeted at 3,000 units less than April sales.
ITEMS 37 to 41 ARE BASED ON THE FOLLOWING INFORMATION:

The cost of goods sold section of Dale Corporation’s operating budget for 2017 is presented below:
Materials: Inventory, January 1 (16,000 units) P 960,000
Purchases 9,120,000
Inventory, December 31 (18,500 units) 1,184,000 P 8,896,000
Labor 784,000
OCTOBER 2017
Factory overhead: Variable P 2,009,600

Fixed 1,120,000 3,129,600
Cost of goods manufactured (140,000 units) P12,809,600
Add finished goods inventory, January 1 (9,300 units) 744,000
Cost of goods available for sale P13,553,600
Less finished goods inventory, December 31 (3,300 units) 301,600
Budgeted cost of goods sold P13,255,000
The actual results for the first quarter of 2017 require the following changes in the budget
assumptions:
• The budgeted production for the year is expected to increase by 5,000 units. During the first
quarter, the company has already produced 25,000 units. The balance of production will be
scheduled in equal segments over the last 3 quarters of the budget year.
• The expected finished goods inventory on January 1 dropped to only 9,000 units, but its total
value will not be revised anymore. The ending inventory value is computed using the average
manufacturing cost for the year.
• A new Labor Bill passed by Congress is expected to be signed into a law by the President.
The new law will take effect beginning the last quarter of the budget year, including a
provision for an increase of 8% in wage rates.
• The company uses the FIFO method in valuing its materials inventory. During the first quarter,
the company purchased 27,500 units of direct materials for P1,760,000. The remaining direct
materials requirement will be purchased evenly for the last 9 months of the budget year.
Effective July 1, 2017, the beginning of the third quarter, direct materials cost is expected to
increase by 5%. The assumptions regarding the quantity of materials inventories at the
beginning and end of the year will remain unchanged.
• The variable factory overhead of P2,009,600 includes indirect materials and factory supplies
amounting to P889,600. It is computed at 10% of the cost of materials used. The balance of
the variable factory overhead varies directly with production.
• There will be no change in the budgeted fixed factory overhead cost.
Based on actual data for the first quarter, as well as the changes in assumptions and estimates in the
budgeted data for the year, the company’s accountant prepared a revised budgeted cost of goods sold
statement. This revised statement should show:
37. Budgeted materials purchases of

a. P9,696,000. c. P9,280,000.
b. P9,120,000. d. P9,440,000.
38. Budgeted cost of materials inventory at December 31, 2017 of

a. P1,024,000. c. P1,184,000.
b. P1,243,200. d. P1,216,100.
39. The budgeted direct labor cost of

a. P846,720. c. P876,960.
b. P784,000. d. P829,920.
40. The budgeted cost of goods manufactured of

a. P12,809,600. c. P14,208,000.
b. P13,464,000. d. P12,344,000.
OCTOBER 2017
41. The budgeted cost of goods sold of

a. P13,901,578. c. P13,553,600.
b. P13,252,000. d. P14,208,000.
42. At the end of 2017, Gabbuat Company’s total assets was P500,000. In 2018, it earned net income of
P30,000 and paid dividends of P10,000. What is the company’s internal growth rate?
a. 1% c. 5%
b. 4% d. 9%
43. A division of Lockman Corporation reported a return on investment of 20% for a recent period. If the
division's asset turnover was 5, its profit margin must have been
a. 100% c. 4%
b. 25% d. 2%
44. As of the end of 2017, Ice Company had total assets of P375,000 and equity of P206,250. For 2018,
its budget for capital investment projects is P62,500. To finance a portion of the capital budget, the
company may borrow from a bank which set a condition that the loan would be approved, provided
that the 2018 debt-to-equity ratio should be the same as the debt-to-equity ratio in 2017.
How much debt should be incurred to satisfy the bank’s condition?
a. P28,125 c. P34,375
b. P62,500 d. P51,138
45. The management of Seymour Corporation asks you to prepare an analysis of the gross profit variance
based on their comparative income statements for 2017 and 2018:
2018 2017 Variance
Sales P990,000 P800,000 P190,000 F
Cost of goods sold 760,000 640,000 120,000 U
Gross profit P230,000 P160,000 P 70,000 F
The only known information given to you is that volume increased from 2017 to 2018 by 10%.
The variance in gross profit due to the change in volume is

a. P80,000 favorable. c. P16,000 favorable.
b. P64,000 unfavorable. d. P70,000 favorable.
46. Last year’s asset turnover of Johvic Company was 3.0. This year, the company’s sales increased by
25% and average total assets decreased by 5%. What is this year’s asset turnover?
a. 3.9 c. 3.4
b. 3.6 d. 3.1
47. During the year, Tindugan Company earned net income of P60,000. For next year, it has a capital
budget of P80,000. If the company’s plowback ratio is 30%, how much external funding is needed for
the capital investment project?
a. P80,000 c. P56,000
b. P62,000 d. P98,000
48.Belle Corporation provided the following data are for the year ended Dec. 31, 2017:
Net credit sales P576,000
OCTOBER 2017
Average materials inventory 8,000

Average finished goods inventory 12,000
Average accounts receivable 80,000
Average accounts payable 5,000
Net credit purchases 120,000
Raw materials used 96,000
Gross profit rate 25%
Number of days in a year 360 days
What is the average number of days in the company’s operating cash conversion cycle?
a. 50 days c. 105 days

b. 75 days d. 45 days
49.Using the data presented below, calculate the cost of goods sold for the Alpha Corporation for the year
just ended.
Current ratio 3.5
Acid test ratio 3.0
Current liabilities at year-end P600,000
Beginning inventory P500,000
Inventory turnover 8.0
a. P1,600,000 c. P3,200,000
b. P2,400,000 d. P6,400,000
50. Which of the following is necessary for any valid performance measurement?
a. It must be part of the financial accounting system in use.
b. It must be quantifiable.
c. Goal congruence must be promoted by its use.
d. It must be financial in nature.
51. Productivity is measured by the

a. total quantity of output generated from a limited amount of input during a time period.
b. quantity of good output generated from a specific amount of input during a time period.
c. quantity of good output generated from the quantity of good input used during a time period.
d. total quantity of input used to generate total quantity of output for a time period.
52. Failure Corporation is a manufacturer of a versatile statistical calculator. The following information is
a summary of defective and returned units for the previous year.
Total defective units 1,000
Number of units reworked 750
Number of customer units returned 150
Profit for a good unit P40
Profit for a defective unit P25
Cost to rework a defective unit P10
Cost of a returned unit P15
Total prevention cost P10,000
Total appraisal cost P5,000
OCTOBER 2017
The total quality cost is

a. P15,000. c. P28,500.
b. P15,750. d. P11,250.
53. A small manufacturing company recently stated its sales goal for a period was P100,000. At this level
of activity, its budgeted expenses were P80,000. Its actual sales were P100,000, but its actual expenses
were P85,000. This company operated
a. effectively and efficiently. c. effectively but not efficiently.
b. neither effectively nor efficiently. d. efficiently but not effectively.
54. Computer Solutions Corporation manufactures and sells various high-tech office automation products.
Two divisions of Computer Solutions Corporation are the Computer Chip Division and the Computer
Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by
both the Computer Division and other external customers. The following information is available on
this month's operations in the Computer Chip Division:
Selling price per chip P50
Variable costs per chip P20
Fixed production costs P60,000
Fixed SG&A costs P90,000
Monthly capacity 10,000 chips
External sales 6,000 chips
Internal sales 0 chips
Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead
pays P45 to an external supplier for the 4,000 chips it needs each month.
Assume, for this question only, that the Computer Chip Division is selling all that it can produce to
external buyers for P50 per unit. How would overall corporate profits be affected if it sells 4,000 units
to the Computer Division at P45? (Assume that the Computer Division can purchase the super chip
from an outside supplier for P45.)
a. no effect c. P20,000 decrease

b. P20,000 increase d. P90,000 increase
55. The following information is given for the Alpha Division of Sorority Corporation.
Sales P600,000
Var. cost of goods sold 200,000
Fixed manufacturing costs 50,000
Variable selling 30,000
Fixed admin. (50% allocated) 20,000
Fixed selling (20% allocated) 50,000
Assets at cost 800,000
Accumulated depreciation 200,000
If Sorority Corporation uses ROI to evaluate division managers and uses historical cost as the
investment base, the ROI for Alpha Division is:
a. 31.25% c. 41.67%
b. 33.75% d. 45.00%
56. The following year-end data pertain to Adan Corporation:

Earnings before interest and taxes P 800,000
OCTOBER 2017
Current assets 800,000

Non-current assets 3,200,000
Current liabilities 400,000
Non-current liabilities 1,000,000
Adan Corporation pays an income tax rate of 32%. Its weighted-average cost of capital is 10%. What
is Adan Corporation’s Economic Value Added (EVA)?
a. P184,000 c. P440,000
b. P144,000 d. P400,000
57. A company annually consumes 10,000 units of Part C. The carrying cost of this part is P2 per year and
the ordering costs are P100. The company uses an order quantity of 500 units. By how much could the
company reduce its total costs if it purchased the economic order quantity instead of 500 units?
a. P 500 c. P2,500
b. P2,000 d. P 0
58. In the two following constraint equations, X and Y represent two products (in units) produced by the
Uncommon Products Corporation.
Constraint 1: 3X + 5Y < 4,200

Constraint 2: 5X + 2Y > 3,000
What is the maximum number of units of Product X that can be produced?

a. 4,200 c. 600
b. 3,000 d. 1,400
59. King Corporation operates its factory 300 days per year. Its annual consumption of Material Y is
1,200,000 gallons. It carries a 10,000 gallons safety stock of Material Y and its lead time is 12 business
days. What is the order point for Material Y?
a. 10,000 gallons c. 48,000 gallons
b. 38,000 gallons d. 58,000 gallons
60. The school canteen can sell either halo-halo or mami (hot noodle soup) on any given day. The
contribution margin that the canteen could earn from halo-halo and mami is affected by the weather,
as follows:
CONTRIBUTION MARGIN
Item sold
Hot Weather Cold Weather
Halo-Halo P15,000 P 6,000
Mami 11,400 12,000
If the probability of hot weather on a given day at this time is 60%, which item(s) should the company
sell?
a. Halo-Halo, because this item is salable when weather is hot.
b. Mami, because it has the higher expected payoff.
c. Halo-Halo and mami, so the canteen could maximize contribution margin.
d. 60% halo-halo and 40% mami.
OCTOBER 2017
61.Mr. Javee owns a piece of land that is adjacent to a big area of a vacant lot owned by the city government.
Recently, Mr. Javee heard that the city government has plans about the vacant lot. He inquired about
such plans and he was given the following, including each plan’s probability of occurrence:
Probability
Plan A – Lease the lot to a businessman who will construct a mall on the lot 60%
B – Construct a theme park on the vacant lot 30%
C – Construct a building that will house some of the city government’s offices 10%
Mr. Javee knows that the value of his land, which he acquired ten years ago at a cost of only P500
per square meter, will increase depending on which plan would materialize. His estimates are as
follows:
Plan A – P5,000 per square meter
B – 2,000
C – 1,000
What is the expected value of the land?
a. P5,000 c. P2,667
b. P3,000 d. P3,700
62. Bahalana Company produces and sells Product Z. Each unit of Product Z contributes P5 to the
recovery of fixed costs and generation of profit. Total fixed costs amounts to P200,000 per period.
Selling price of Product Z is P20 per unit.
For the coming period, the company believes that there is a 70% chance that the sales of Product Z
will be 80,000 units, and a 30% chance that sales will equal 10,000 units. The expected profit from
Product Z for the coming period is:
a. P 95,000 c. P 80,000
b. P250,000 d. P295,000
63. Consulting services differ fundamentally from CPA’s function of attesting to the assertions of other
parties. In a consulting service,
a. the practitioner expresses a conclusion about the reliability of a written assertion that is the
responsibility of the assertor.
b. the work is generally performed only for the use and benefit of the client.
c. the client develops findings, conclusions, and recommendations.
d. the nature and scope of work is determined solely by the consulting services practitioner.
64. Which of the following statements is correct?

a. MAS is confined only to such areas as financial accounting, auditing, and tax services.
b. Because the MAS practitioner must be independent, he must not allow the client to participate
in any phase of his engagement.
c. Although MAS extends beyond the traditional accounting services, CPAs in the MS practice
are still bound by the rules of professional ethics in the practice of accounting in general.
d. CPAs provide management services to go around the ethical constraints as mandated by the
Accountancy Act.
OCTOBER 2017
65. Engagements should be adequately planned, supervised, and controlled. Controlling involves the
measurement of progress in attaining the engagement plan and objectives. At significant engagement
points, progress should be measured in terms of
a. time schedule, accomplishments, and quality of work.
b. accomplishments, time schedule, and expenses incurred.
c. quality of work, number of reports prepared, and time schedule.
d. accomplishments, number of personnel who played a role in the engagement, and attendance
of the participants in the engagement.
66. The basic principles of accounting information system include all the following, except
a. flexible structure. c. implementation.
b. cost awareness. d. useful output.
67. Which of the following statements is false?

a. Management accounting is an integral part of the controller’s function in an organization.
b. The Standard of Ethical Conduct for Management Accountants include concepts related to
competence, confidentiality, integrity, and objectivity.
c. Modern cost accounting plays a role in planning new products, evaluating operational
procedures, and controlling costs.
d. The COO (Chief Operating Officer) is primarily responsible for management accounting and
financial accounting.
68. Management accounting is considered successful when it

a. helps managers improve their decisions. c. is relevant.
b. is in accordance with GAAP. d. is accurate.
69. Electronic Fund Transfer (EFT) is a service provided by financial institutions worldwide that is based
on EDI Technology. EFT transaction costs are lower than for manual systems because documents and
human intervention are eliminated from the transaction process. However, the EFT system has inherent
and unique risks, one of which is
a. unauthorized access and activity.
b. inadequate disaster recovery procedures.
c. insufficient online edit checks.
d. improper change control procedures.
70. Which of the following descriptions refers to management accounting information?

a. It is prepared for shareholders.
b. It is reliable and verifiable.
c. It is prepared in accordance with GAAP.
d. It provides reasonable and timely estimates
OCTOBER 2017
ANSWER KEY
1. C 36. B
2. B 37. A
3. A 38. B
4. D 39. D
5. D 40. B
6. C 41. A
7. A 42. B
8. B 43. C
9. B 44. A
10. C 45. C
11. D 46. A
12. C 47. B
13. B 48. B
14. A 49. C
15. C 50. C
16. D 51. B
17. D 52. C
18. A 53. C
19. C 54. C
20. D 55. B
21. A 56. A
22. A 57. A
23. C 58. D
24. A 59. D
25. A 60. B
26. A 61. D
27. D 62. A
28. C 63. B
29. B 64. C
30. C 65. A
31. A 66. B
32. B 67. D
33. B 68. A
34. C 69. A
35. D 70. D
OCTOBER 2017
THE REVIEW SCHOOL OF ACCOUNTANCY
ITEMS 1 AND 2 ARE BASED ON THE FOLLOWING INFORMATION
Heart Company provided that following information regarding its biggest branch in suburb Manila:
Operating assets, January 1 P180,000
Operating assets, December 31 300,000
Operating liabilities, January 1 75,000
Operating liabilities, December 31 125,000
Sales P 500,000
Cost of capital 20%
1. Assuming that the branch’s profit margin is 12%, what is the return of investment?
a. 20.00%
b. 25.00%
c. 33.33%
d. 40.00%
2. Assuming a target residual income of P 24,000, how much should be the expenses of the branch for the
year?
a. 476,000 .
b. 452,000
C. 428,000
d. Cannot be determined from the given information
3. Variable costing treats

a. All variable expenses as product costs
b. All variable expenses as period costs
c. All fixed expenses as product costs
d. All fixed expenses as period costs
4. The following data pertains to Brain Company:

Total cost Unit cost
Sales (40,000 units) P1,000,000 P 25
Raw materials 160,000 4

Direct labor 280,000 7
Factory overhead
Variable 80,000 2
Fixed 360,000
Selling and general expenses

Variable 120,000 3
Fixed 225,000
OCTOBER 2017
Assuming that Brain sells 80,000 units, what is the maximum that can be paid for an advertising
campaign while still breaking even?
a. P 135,000
b. p 535,000
c. P 695,000
d. P 1,015,000
5. If DOTC expects that an increase in the LRT/MRT fare will raise mass transportation revenues for the
government, it must think that the demand for LRT/MRT is
a. Elastic
b. Inelastic
c. Unit elastic
d. Perfectly elastic
Liver Corporation has the following sales budget for six months of 2017:
July P 200,000
August 210,000
September 220,000
October 230,000
November 240,000
December 250,000
Historically, the cash collection on sales has been as follows:

• 65% of sales Collected in the month following the sale
• 25% of sales collected in the second month following sale
• 8% of sales collected in the third month following sale, and
• 2% of sales is uncollectible
6. Determine the total cash collection, in the fourth quarter in 2017.

a. 663,900
b. 603,900
c. 578,600
d. 363,000
7. What is the projected year-end balance of accounts receivable assuming uncollectible balance is written
off immediately?
a. 101,700
b. 111,500
c. 342,600
d. 352,200
8. Standard cost variances are not closed to
a. Direct materials inventory
b. Work-in-process inventory
c. Finished goods inventory
d. Cost of goods sold
OCTOBER 2017
9. Spleen Company with P 210,000 of fixed cost has the following data:
Product X Product Y
Unit sales price P 10 P5
Unit variable costs P8 P4
Assume that 3 units of X are sold for each unit of Y. How much is the contribution margin of product X
at its breakeven point?
a. P 900,000
b. P 180,000
c. P 120,000
d. P 90,000
10. Determine the false statement about an accounting information system (AIS) .
a. AIS is often referred to as a transaction processing system
b. AIS supports day-to-day operations by collecting and sorting data about an organization’s transactions
c. AIS is best suited to solve problems where there is great uncertainty and ill-defined reporting problems
d. AIS produces information made available to various levels of management for use in planning and
controlling operations
11. In macroeconomics, the narrow definition of money supply ‘M” consists only of
a. Current and demand deposits
b. Currency, demand deposits, other checkable deposits, and travelers’ checks
c. Currency, demand deposits, and small time deposits
d. Currency, demand deposits, small time deposits and Money Market Mutual Fund balances
12. Pancreas Company has 3,200 machine hours of plant capacity and infinite labor hours available for
manufacturing two products with the following characteristics:
Product S Product T
Selling price P 200 P 165
Costs:
Direct materials 80 40
Direct labor* 40 35
Variable overhead** 15 30
Fixed overhead** 10 20
Operating expenses (variable) 40 20
Total P 185 P 145
Net income P 15 P 20
* applied on the basis of labor hours.
** applied on the basis of machine hours
Assuming that there is no market limit, what is the maximum CM that could be attained under the
scenario?
a. P 96,000
b. P 80,000
c. p 72,000
d. P 64,000
OCTOBER 2017
ITEMS 13 TO 15 ARE BASED ON THE FOLLOWING INFORMATION
Lungs Company incurred the following factory overhead costs for the second quarter of the year:
Machine Hours Factory Overhead
April 150 P 4,200
May 120 P 3,600
June 160 P 4,800
13. Using high-low method, how much is the variable factory overhead costs if Lungs had 160 machine
hours?
a. P 4,400
b. P 3,200
c. P 2,800
d. P 1,200
14.Using high-low method, how much is the fixed factory overhead cost for the second quarter?
a. P 1,200
b. P 2,400
c. P 3,600
d. P 4,800
15. Which of the following equations shall be used under least-squares method?
a. 12,600 = 3a + 69,300 b
b. 1,926,000 = 3 a + 69,300 b
c. 1,890,000 = 450 a + 69,300 b
d. 1,926,000 = 450 a + 69,300 b

Kidney Motors is trying to decide whether it should keep its existing Car washing machine or purchase a
new one that has technological advantages (which translate into cost savings) over the existing machine.
Information on each machine follows:
Old machine New machine
Original cost 9,000 20,000
Current salvage value 2,000
Remaining life 10 yrs 10 yrs
16.The P 4,000 of annual operating costs that are common to both the old and the new machine are an
example of a(n)
a. Sunk cost
b. Irrelevant cost
c. Opportunity Cost
d. Future avoidable cost
17. The P 9,000 cost of the original machine represents a(n)

a. Sunk cost
b. Opportunity cost
c. Future relevant cost
d. Historical relevant cost
OCTOBER 2017
18. The P 20,000 cost of the new machine represents a(n)

a. Sunk cost
b. Opportunity cost
c. Future relevant cost
d. Future irrelevant cost
19. The estimated P 500 salvage value of the existing machine in 10 years represent a(n)
a. Sunk cost
b. Opportunity cost of selling the existing machine now
c. Opportunity cost of keeping the existing machine for 10 years
d. Opportunity cost of keeping the existing machine and buying the new machine
20. Bladder Company manufactures and sells native bracelets to assorted prints. Data for the previous
year were as follows:
Selling price per piece P 8.00
Variable cost per piece P 2.00
Number of bracelets to breakeven 25,000
Net post-tax income P 5,850
For the coming year, the company estimates that the selling price will be p 9.50 per piece, variable cost to
manufacture will increase by 25%, and fixed costs will increase by 20%. Income tax rate of 35% remains
constant. How many units are required to maintain the same income as last year?
a. 26,000 units
b. 27,000 units
c. 28,333 units
d. 29,666 units
21. Contribution margin ratio x (sales - breakeven sales) = _________

a. No meaningful amount
b. Variable costs
c. Fixed costs
d. Profit

The following information is available for Ana Manufacturing Company when it produced 2,100 units in
the month of February;
STANDARD
Material 2 pounds per unit @ P 4.00 per pound
Labor 3 hours per unit
Variable overhead P 15 per hour
ACTUAL
Material 4,500 pounds purchased @ P 17,100
Labor 6,400 direct labor hours
22. What is the materials purchase price variance?

a. P 900 favorable
b. P 900 unfavorable
c. P 840 favorable
d. P 840 unfavorable
OCTOBER 2017
23. Assuming that raw materials inventory increased by 500 pounds in February, then what is the actual
cost of materials used?
a. P 15,200
b. P 15,960
c. P 16,000
d. P 18,000
24. Assuming that raw materials inventory increased by 400 pounds in February, What is the materials
usage variance?
a. P 380 favorable
b. P 400 favorable
c. P 1,140 unfavorable
d. P 1,200 unfavorable
25. How did the company factory workers perform in February?

a. P100 efficient
b. p 100 inefficient
C. 100 hours efficient
d. 100 hours inefficient
26. Assuming that the February payroll amounted to P 76,800 and that the Labor rate variance is P 12,800
unfavorable, then what is the standard labor rate?
a. P 10 per hour
b. P 12 per hour
c. P 14 per hour .
27.Assuming that the overhead cost is applied on the basis of labor hours, what is the variable overhead
efficiency variance?
a. P 1,000 favorable
b. P 1,000 unfavorable
c. P 1,500 favorable
d. 1,500 unfavorable
28.Assuming that the actual factory overhead costs incurred amounted to P 150,000 and 35% of which is
fixed, then what is the variable overhead controllable variance?
a. P 1,500 favorable
29.The cost estimation methods that consider more than two data points to segregate variable and fixed
components of a mixed cost;
a. High-low and scatter diagram methods
b. High-low and least squares regression methods
c. Scatter diagram and least Squares regression methods
d. High-low, scatter diagram and least Squares regression methods
OCTOBER 2017
Colon Co. has 3 divisions A, B, and C. Division A’s income statement shows the following for the year
ended December 31, 2017:
Sales P 1,000,000
Cost of goods sold (600, 000)
Co3 profit P 200,000
Selling expenses P 100,000
Net loss (150,000)
Cost of goods sold is 75 percent Variable and 25 percent fixed. Of the fixed costs, 60 percent are
eliminated if DIVISION A were eliminated. Of the administrative expenses, 90 percent are applIed from
corporate costs. If Division A were eliminated, what is the effect on Colon Company profit?
a. P 150,000 increase
b. P 75,000 decrease
c. P 155,000 decrease
d. P 215,000 decrease
31. A responsibi1ty center that is mostly likely to be organized as an investment center.

a. Shared service department
b. Ticket sales Outlet
c. Provincial branch
d. Factory division
32. The profit increases by 30% when sales go up by 20%. If current profit is P 6,000, then how much is
the contribution margin?
a. P 4,000
b. P 8,000
c. P 9,000
d. P 10,000
33. Monopolistic competition describes

a. Perfect competition that includes strong entry barriers
b. An industry in which there is one seller of many differentiated products.
c. An industry in which there are many sellers of homogeneous products
d. An industry in which there are many sellers of differentiated products
34. Which of the following characteristics distinguishes computer processing from manual processing?
a. Most computer systems are designed so that transaction trails useful for audit purposes do not exist
b. Errors or fraud in computer processing will be detected soon after their occurrences
c. The potential for systematic error is ordinarily greater in manual processing than in computerized
processing.
d. Computer processing virtually eliminates the occurrence of computational error normally associated
with manual processing
35. The minimum transfer price for a selling division with full capacity to accommodate an internal
transfer of produced units to the buying division is usually based on the
a. Buying division’s regular selling price
b. Selling division’s regular selling price
c. Buying division’s variable cost per unit
d. Selling division’s variable cost per unit
OCTOBER 2017
36. Prostate Co. is preparing its cash budget for the month of May. Prostate pays 60% of purchases in the
month of purchase and the remainder the next month. Operational information follows:
Beginning inventory, May 1 P 20,000
Estimated May cost of goods sold 100,000
Estimated May ending inventory 35,000
April purchases 90,000
What are Prostate’s estimated cash payments for shoes in May?
a. P 115,000
b. P 105,000
c. P 87,000
d. P 70,000
37. Management accounting information, compared to those contained in the set of general-purpose
financial statements, tend to be
a. Historical
b. Structured
c. Flexible
d. Less detailed
38. The following costs have been estimated based on sales of 30,000 units:
Total Annual Costs Percent That Is Variable
Direct materials P300,000 100%
Direct labor 250,000 100
Manufacturing overhead 250,000 50
Selling and 150,000 25
Administrative
What unit selling price will yield a contribution margin of 40%?

a. P 59.38
b. P 43.75
c. P 39.58
d. P 33.25
39. In computer information systems, the “system design” phase refers to

a. the process of monitoring, evaluating and modifying a system as needed
b. The process of determining user problems and needs, surveying the present system and developing the
requirements of the proposed system
c. The process of developing specifications for hardware, software, manpower, data resources and
information products required to develop a system
d. The process of determining the technical, economic and operational viability of a system
40. Which of the following is normally associated with capacity variance?

a. Direct materials
b. Direct labor
c. Variable overhead costs
d. Fixed overhead costs
OCTOBER 2017
41. Ovary Company manufactures a single product. Unit variable production costs are P 20 and fixed
production costs are P 750,000. Ovary uses a normal activity of 100,000 units. Ovary began the year with
no inventory, produced 120,000 units, and sold 75,000 units.
Determine the unit product cost under absorption costing.
a. P 20.00
b. P 26.25
c. P 27.50
d. P 30.00
42. The shutdown point is same as the breakeven point in the absence of
a. Avoidable fixed costs
b. Shutdown costs
c. Variable costs
d. Joint costs
43. The following information pertains to data that have been gathered in the process of estimating a
simple least squares regression:
Mean value of the dependent variable 30
Mean value of the independent variable 10
Coefficient of the independent variable 3
Number of observations 12
What is the “a” value for the least square regression model?
a. 60
b. 20
c. 6
d. 0
44. 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%.
45. Spine Corporation presented the following information for its three divisions for the past month.
Divisions A and B are manufacturing divisions, whereas Division C is distribution.
Production level of A Significantly below capacity
Sales price to Division C P50 per unit
Division A’s variable cost P20 per unit
Total fixed costs (Division A and B) P120,000
Division C’s marketing cost 10% of sales price
Division C’s sales price Market Value
What is the minimum transfer price from Division A to Division B?
a. P 10
b. P 20
c. P 30
d. P 50
OCTOBER 2017
ITEMS 46 TO 50 ARE BASED ON FOL1OWING INFORMATION.
Mr. Dennis Lee, A&A Company’s general manager, was requested to drop by the Office of the President
to shed light on the recent dismal performance of the company’s factory operations in spite of
the fact that it has thus far produced its lone product, Forbes Wood. After asking specific information
from the finance division, Mr. Lee was able to secure the following information for the Office of the
President’s perusal:
Variable costs
Direct materials P 12.00
Direct labor 6.00
Factory overhead 4.00
Selling and administrative 2.00
Fixed costs
Factory overhead P 120,000
Selling and administrative 60,000
For its first year of operations (2017), A&A Company produced 12,000 units of the Forbes Wood arid
managed to sell 10,000 units of these for P 40.00 each. For 2017, the Marketing group has projected the
following sales forecasts:
Sales Probability
20,000 units 75%
12,000 units 25%
46. Which of the following is incorrect regarding the company’s cost function based on Y= a + bX?
a. The value of the slope is 24.
b. The y-axis intercept amounted to P 180,000
c. The average unit cost based on 2016 production is P 39.00
d. The total costs based on 2016 sales amounted to P 468,000
47. Assuming that a special order for 1,200 units was received from a foreign customer, what should be
the minimum selling price for this order?
a. P 48,000
b. P 28,800
c. P 19,200
d. The order cannot be accepted due to lack of capacity
48. Assuming the unit sales price remains constant, what is the margin of safety in 2017?
a. 12.5%
b. P 1,250
c. 6,750 units
d. 270,000 units
49. Compared to variable costing, the company’s 2016 profit under absorption costing would have been
a. P 20,000 lower
b. P 20,000 higher
c. P 30,000 lower
d. P 30,000 higher.
OCTOBER 2017
50. Assume that A&A contemplates on outsourcing Forbes Wood from an outside supplier that has
quoted a price of P 36 per unit. How many units will A&A be indifferent between making & buying
Forbes Wood?
a. 12,000 units
b. 15,000 units
c. 18,000 units
d. 540,000 units
FOR ITEMS 51-52
Castelo, Villasin and Barrera is a large, local accounting firm located in Cebu. Belle Castelo, one of the
Firm’s founders, appreciates the success her firm has enjoyed and wants to give something back to her
community. She believes that an inexpensive accounting services clinic could provide basic accounting
services for small businesses located in the province. She wants to price the services at cost.
Since the clinic is brand new, it has no experience to go on. Belle decided to operate the clinic for two
months before determining how much to charge per hour on an ongoing basis. As a temporary measure,
the clinic adopted an hourly charge of P50, half the amount charged by Castelo, Villasin and Barrera
for professional services.

Salaries:
Senior accountant P2,500 P2,500
Depreciation (equipment) 2,400 2,400
Supplies 905 1,100
Utilities 332 365

a. P8,600 c. P 425
b. P9,025 d. P12,189
professional hours per month. If the clinic is to be operated as a nonprofit organization, how much will
it need to charge per professional hour?
a. P97.81 c. P82.77
b. P87.06 d. P22.60
OCTOBER 2017
53. HSR Computer System designs and develops specialized software for companies and use a normal
costing system. The following data are available for the current year:
Budgeted
Overhead P600,000
Actual
Units produced 100,000
Overhead P603,500
Prime costs P900,000
Overhead is applied on the basis of direct labor hours. What is the unit cost for the year?
a. P15.03 c. P15.09
b. P15.06 d. P15.00
54. Hazelnut Company uses activity-based costing. The company produces two products: coats and hats.
The annual production and sales volume of coats is 8,000 units and of hats is 6,000 units. There are
three activity cost pools with the following expected activities and estimated total costs:
Activity Estimated Expected Expected

Cost Pool Cost Activity Activity
Coats Hats Total
Activity 1 P20,000 100 400 500
Activity 2 P37,000 800 200 1,000
Activity 3 P91,200 800 3,000 3,800
Using ABC, the cost per unit of coats is approximately:

a. P2.40 c. P 6.60
b. P3.90 d. P10.59
55. Elaine Hospital plans to use the activity-based costing to assign hospital indirect costs to the care of
patients. The hospital has identified the following activities and activity rates for the hospital indirect
costs:
Activity Activity Rate
Room and meals P150 per day
Radiology P95 per image
Pharmacy P28 per physician order
Chemistry lab P85 per test
Operating room P550 per operating room hour
The records of two representative patients were analyzed, using the activity rates. The activity
information associated with the two patients are as follows:
Patient 1 Patient 2
Number of days 7 3
Number of images 4 2
Number of physician orders 5 1
Number of tests 6 2
Number of operating room hours 4.5 1
OCTOBER 2017
Determine the activity cost associated with Patient 2.

a. P1,388 c. P1,816
b. P 908 d. P4,555
56. Balat Leather Works, which manufactures saddles and other leather goods, has three departments.
The Assembly Department manufactures various leather products, such as belts, purses, and saddle
bags, using automated production process. The Saddle Department produces handmade saddles and
uses very little machinery. The Tanning Department produces leather. The tanning process requires
little in the way of labor or machinery, but it does require space and process time. Due to the different
production processes in the three departments, the company uses three different cost drivers for the
application of manufacturing overhead. The cost drivers and overhead rates are as follows:
Cost Driver Predetermined Overhead Rate
Tanning Department Square-feet of leather P3 per square-foot
Assembly Department Machine time P9 per machine hour
Saddle Department Direct-labor time P4 per direct labor hour
The company’s deluxe saddle and accessory set consists of handmade saddle, two saddlebags, a belt,
and a vest, all coordinated to match. The entire set uses 100 square-feet of leather from the Tanning
Department, 3 machine hours in the Assembly Department, and 40 direct-labor hours in the Saddle
Department. The company is processing Job No. 20 consisting of 20 deluxe saddle and accessory
sets. How much is the applied manufacturing overhead in Assembly Department for Job No. 20?
a. P3,200 c. P6,000
b. P 540 d. P3,000
57. If activity-based costing is implemented in an organization without any other changes being effected,
total overhead costs will
a. be reduced because of the elimination of non-value-added activities.
b. be reduced because organizational costs will not be assigned to products or services.
c. be increased because of the need for additional people to gather information on cost drivers
and cost pools.
d. remains constant and simply be spread over products differently.
58. Harry Manufacturing incurs annual fixed costs of P250,000 in producing and selling a single product.
Estimated unit sales are 125,000. An after-tax income of P75,000 is desired by management. The
company projects its income tax rate at 40 percent. What is the maximum amount that Harry can expend
for variable costs per unit and still meet its profit objective if the sales price per unit is estimated at P6?
a. P3.37 c. P3.00
b. P3.59 d. P3.70
59. For its most recent fiscal year, a firm reported that its contribution margin was equal to 40 percent of
sales and that its net income amounted to 10 percent of sales. If its fixed costs for the year were P60,000,
how much was the margin of safety?
a. P150,000 c. P600,000
b. P200,000 d. P 50,000
60. Sam Company manufactures a single product. In the prior year, the company had sales of P90,000,
variable costs of P50,000, and fixed costs of P30,000. Sam expects its cost structure and sales price per
unit to remain the same in the current year, however total sales are expected to increase by 20 percent.
If the current year projections are realized, net income should exceed the prior year’s net income by:
a. 100 percent. c. 20 percent.
b. 80 percent. d. 50 percent.
OCTOBER 2017
61. Edil Company produces and sells a single product. The costs and selling prices on a per-unit basis are as
follows:
Selling Price P120
Materials 35
Labor 15
Variable overhead 10
Fixed overhead 10
Variable selling and administrative 20
Fixed selling and administrative 5
The above per-unit figures are computed based on the company’s normal capacity of 20,000 units.
The company’s expected margin of safety is

a. 7,500 units. c. 62.5%.
b. P2,400,000. d. P12,500.
ITEMS 62 to 63 ARE BASED ON THE FOLLOWING INFORMATION:

A company is making plans for next year, using cost-volume-profit analysis as its planning tool.
Next year’s sales data about its product are as follows:

Variable manufacturing costs per unit 22.50
Variable selling and administrative costs 4.50
Fixed operating costs (60% is manufacturing cost) P148,500
Income tax rate 32%
62. How much should sales be next year if the company wants to earn profit after tax of P22,440, the
same amount that it earned last year?
a. P310,800 c. P330,000
b. P397,500 d. P222,000
63. Assume that the company’s management learned that a new technology that will increase the quality
of its product is available. If implemented, its projections for next year will be changed:
1. The selling price of the product will increase to P75 per unit.
2. Fixed manufacturing costs will increase by 20%.
3. Additional advertising costs will be incurred to promote the higher-quality product. This
will increase fixed non-manufacturing cost by 10%.
4. The improved product will require a new material that will increase direct materials cost
by P4.50
If the new technology is adapted, how much sales should the company make to earn a pre-tax profit of
10% on sales?
a. P366,130 c. P253,324
b. P358,875 d. P353,897
64. As projected net income increases the

a. degree of operating leverage declines. c. break-even point goes down.
OCTOBER 2017
65. Yamyam Company is considering introducing a new product that will require a P250,000 investment
of capital. The necessary funds would be raised through a bank loan at an interest rate of 8%. The fixed
operating costs associated with the product would be P122,500 while the variable cost ratio would be
58%. Assuming a selling price of P15 per unit, determine the number of units (rounded to the nearest
whole unit) Yamyam would have to sell to generate earnings before interest and taxes (EBIT) of 32%
of the amount of capital invested in the new product.
a. 35,318 units c. 32,143 units
b. 25,575 units d. 23,276 units
66. The materials mix variance for a product is P450 unfavorable and the materials yield variance is P150
unfavorable. This means that
a. the materials price variance is P600 unfavorable.
b. the materials quantity variance is P600 unfavorable
c. the total materials cost variance is definitely P600 unfavorable.
d. the materials price variance is also unfavorable, but the amount cannot be determined from the
given information.
67. Samson Company uses a standard costing system in the production of its only product. The 84,000
units of raw materials inventory were purchased for P126,000 and 4 units of raw materials are required
to produce one unit of final product. In October, the company produced 14,400 units of product. The
standard cost allowed for materials was P72,000, and there was an unfavorable usage variance of
P3,000.
The materials price variance for the units used in October was
a. P15,000 unfavorable. c. P3,000 unfavorable.
b. P15,000 favorable. d. P3,000 favorable.
68. The standard direct materials cost to produce a unit of a product is four meters of materials at P2.50 per
meter. During June, 2017, 4,200 meters of materials costing P10,080 were purchased and used to
produce 1,000 units of the product. What was the materials price variance for June, 2017?
b. P 80 unfavorable d. P420 favorable
69. Buchoy Company manufactures one product with a standard direct manufacturing labor cost of four
hours at P12.00 per hour. During June, 1,000 units were produced using 4,100 hours at P12.20 per hour.
The unfavorable direct labor efficiency variance was:
a. P820 c. P1,200
b. P400 d. P1,220
70. A basic tenet of variable costing is that period costs should be currently expensed. What is the rationale
behind this procedure?
a. Period costs are uncontrollable and should not be charged to a specific product.
b. Period costs are generally immaterial in amount and the cost of assigning the amounts to
specific products would outweigh the benefits.
c. Allocation of period costs is arbitrary at best and could lead to erroneous decision by
management.
d. Because period costs will occur whether production occurs, it is improper to allocate these costs
to production and defer a current cost of doing business.
OCTOBER 2017
ANSWER KEY
1. B 36. B
2. C 37. C
3. D 38. C
4. A 39. C
5. B 40. D
6. A 41. C
7. C 42. B
8. A 43. D
9. B 44. D
10. C 45. B
11. B 46. D
12. B 47. B
13. B 48. C
14. C 49. B
15. D 50. B
16. B 51. B
17. A 52. B
18. C 53. B
19. B 54. C
20. B 55. A
21. D 56. B
22. A 57. D
23. A 58. C
24. B 59. D
25. D 60. B
26. A 61. C
27. D 62. C
28. D 63. B
29. C 64. A
30. C 65. C
31. C 66. B
32. C 67. A
33. D 68. D
34. D 69. C
35. B 70. D
OCTOBER 2017
1. Which of the following ratios in least likely to be used in evaluating the effectiveness of working
capital management?
a. Average collection period
b. Inventory turnover ratio
c. Acid-test ratio
d. Debt ratio

Phuket Company presented the following information for its initial calendar year. There were no
work-in-process inventories.
Units sold 10,000
Units sold 9,000
Direct materials used P 20,000
Direct labor used P 10,000
Fixed Factory overhead P 12,500
Variable Factory overhead P 6,000
Fixed selling and administrative exp. P 15,000
Variable selling and admin. Exp. P2,250
Finished goods inventory, January 1 None
2. What is Phuket’s finished goods inventory cost at December 31 under the variable costing
method?
a. P 3,600
b. P 3,825
c. P 4,000
d. P 4, 850
3. Which costing method, absorption or variable costing, would show a higher annual operating
income and by what amount?
a. Absorption costing, P 1,250
b. Variable costing, P 1,250
c. Absorption costing, P2,750
d. Variable costing, P 2,750
4. In which of the following phases of computer system development would training occur?
a. Implementation phase
b. Planning phase
c. Analysis phase
d. Design phase
5. Shanghai Company estimates that it would incur a P 100,000 cost to prepare a bid proposal.
Shanghai estimates also that would be an 80% chance of being awarded the contract if the bid is
low enough to result in a net profit of P250,000. What is the expected value of the payoff?
a. P 0
b. P150,000
c. P180,000
d. P220,000
OCTOBER 2017
6. Under the balanced scorecard concept developed by Kaplan and Norton, employee satisfaction
and retention are measures used under which of the following perspectives?
a. Learning and growth
b. Internal business
c. Financial
d. Customer
7. Abu Dhabi has daily cash receipts of P 400,000. Abu Dhabi’s bank offers a lockbox service that
will reduce collection time by two days for a P 2,000 monthly fee. Abu Dhabi can earn 8%
annually with any additional funds. What will be the annual increase to income before taxes from
using the lockbox service?
a. P 24,000
b. P32,000
c. P40,000
d. P64,000
8. When markets are perfectly competitive, consumers

a. Do not receive any consumer surplus unless producers choose to overproduce
b. Have goods and services produced at the lowest cost in the long run
c. Must search for the lowest price for the products they buy
d. Are able to avoid the problem of diminishing returns
e.
Genting Foundation is a tax-exempt charitable organization. Genting invested P400,000 in a five-
year project at the beginning of year 1. Genting estimates that the annual cash savings from this
project will amount to P130,000. The P400,00 of assets will be depreciated over their five-year
life on the straight-line basis. On investments of this type, Genting’s desired rate of return of
12%. Information on present value factors is as follows:
12% 14% 16%
PV of 1 for 5 periods 0.57 0.52 0.48
PV of an annuity of P 1 for 5 periods 3.60 3.40 3.30
9. What is the net present value of the project?
a. P 36,000
b. P75,000
c. P68,000
d. P250,000
10. What is the internal rate of return on the project?

a. Less than 12%
b. Less than 14%, but more than 12%
c. Less than 16% but more than 14%
d. More than 16%
11. For the project’s first year, what would be Genting’s accounting rate of return, based on the
project’s average book value for year 1?
a. 12.5%
b. 13.9%
c. 15.6%
d. 36.1%
OCTOBER 2017
12. What is called a spontaneous financing source?

a. Debentures
b. Trade credit
c. Notes payable
d. Preferred stock
13. Which one of the following technological elements of computer-based information systems has
the latest effect in driving the changes that are currently occurring in the workplace?
a. Decision support systems and artificial intelligence (AI)
b. Advances in microcomputer hardware and software
c. Advances in disaster recovery systems
d. Office automation and teleprocessing

Bukit, Inc. has been manufacturing 5,000 units of Part 12345 which is used in the manufacture of
one its products. At this level of production, the cost per unit of manufacturing Part 12345 is as
follows:
Direct material P2
Direct labor 8
Variable overhead 4
Fixed overhead applied 6
Total 20
Bintang Company has offered to sell Bukit 5,000 units of Part 12345 for P19 a unit. Bukit has
determined that it could use the facilities presently used to manufacture Part 12345 to
manufacture Product ABC and generate on operating profit of P4,000. Bukit has also determined
that 2/3 of the fixed overhead applied will continue even if Part 12345 is purchased from Bintang.
14. In deciding whether to make or buy the part, the total relevant costs to make the part are
a. P70,000
b. P80,000
c. P90,000
d. P95,000
15. Should Bukit accept Bintang’s offer, and why?

a. No, because it would be 11,000 cheaper to make the part
b. No, because it would be 15,000 cheaper to make the part
c. Yes, because it would be 5,0000 cheaper to buy the part
d. Yes, because it would be 9,000 to buy the part
16. Gross domestic product includes which of the following measures?

a. The size of a population that must a given output within one year
b. The negative externalities of the production process of a nation within one year
c. The total monetary value of all final goods and services produced within a nation in one
year
d. The total monetary value of all final goods and services, including barter transactions,
within a nation in one year
OCTOBER 2017
17. The following vendors have submitted their proposed terms for Mustafa Center Company which
uses a 360 day calendar year for business purposes:
i. Vendor A: 2/10, n/35
ii. Vendor B: 1/15, n/25
iii. Vendor C: 3/20, n/50
Which vendor shall be chosen by Mustafa based on the lowest annual cost of trade credit?
a. Vendor a
b. Vendor b
c. Vendor c
18. Which working capital policy has the greatest likelihood that a firm will be unable to meet
obligations as they become due?
a. Financing all current assets with long term debt
b. Financing all current assets with short debt
c. Financing fluctuating current assets with short term debt and permanent current assets
with equity
d. Financing fluctuating current assets with short term debt and permanent current assets
with long term debt
19. A certain manufacturing job is subject to a learning curve. The first batch of units required 80
hours to complete, while the second batch took an additional 40 hours to complete. That
percentage of learning curve occurred?
a. 25%
b. 50%
c. 75%
d. 100%
20. A management accountant performs a linear regression of maintenance cost vs. production using
a computer spreadsheet. The regression output shows an “intercept” value of P 332,897. How
should the accountant interpret this information?
a. Y has a value of 322,897 when X equals zero
b. X has a value of 322,897 when Y equals zero
c. The residual error of the regression is 322,897
d. Maintenance cost has an average value of 322,897
21. The capital structure of a firm includes bonds with a coupon rate of 12% and an effective interest
rate of 14%. The corporate tax rate is 30%. What is the firm’s cost of debt?
a. 8.4%
b. 9.8%
c. 12%
d. 14%
22. Which local commodity whose demand tends to be price-elastic?

a. Red horse bar
b. Apple Iphone 5s
c. Absolute distilled drinking water
d. Lipitor – branded maintenance medicine for stroke patients
OCTOBER 2017
23. Penang Company has 5,000 obsolete desk lamps that are carried on inventory at a manufacturing
cost of P50,000. If the lamps are reworked for P 20,000, they could be sold for P 35,000.
Alternatively, the lamps could be sold for P8,000 to a jobber located in a distant city. What
alternative is more desirable and what are the total relevant costs for that alternative?
a. Neither, since there is an overall loss under either alternative
b. Rework and P 20,000
c. Rework and P 70, 000
d. Scrap and P50,000
24. Which of the following characteristics distinguishes electronic data interchange (EDI) from other
forms of electronic commerce?
a. EDI transactions are formatted using standards that are uniform worldwide
b. EDI transactions need not comply with generally accepted accounting principles
c. EDI transactions ordinarily are processed without the Internet
d. EDI transactions are usually recorded without security and privacy concerns
25. Obias Company is evaluating a proposed credit policy change. The proposed policy would change
the average number of days for collection from 60 to 27 days and would reduce total sales by 25%,
all of the decrease due to credit sales. Under the current policy, next year’s sales are estimated at
P128 million, with 75% of the being credit sales. Based on a 360 day year, what is the decrease in
Obias’s average accounts receivable balance of implementing the proposed credit policy change?
a. P 4.8 million
b. P10 million
c. P11.2 million
d. P 16 million
26. To address the problems of a recession, the Central Bank most likely would take which of the
following actions?
a. Sell government bonds in open market transactions
b. Lower the discount rate it charges banks for loans
c. Increase the rate charged by banks when they borrow from one another
d. Increase the level of funds a bank is legally required to hold in reserve
27. What is the most likely time for a PERT network’s activity based on a certain discrete business
project, given that the optimistic time is 6 days, expected time is 9 days and pessimistic time is 16
days?
a. 8 days
b. 8.67 days
c. 9.33 days
d. 9.67 days

Kowloon Company presented the following information:
Units actually produced 76,000
Actual direct labor hours worked 160,000
Actual variable overhead incurred P 500,000
Actual fixed overhead incurred P 384,000
Based on monthly normal volume of 100,000 units ( 200,000 direct labor hours), Kowloon’s
standard cost system contains the following overhead costs:
Variable P 6 per unit
Fixed P 4 per unit
OCTOBER 2017
28. What was fixed overhead budget variance?

a. P8,000 favorable
29. What was unfavorable variable overhead spending variance?

a. 12,000
b. 20,000
c. 24,000
d. 44,000
30. What was fixed overhead volume variance?

a. 96,000 favorable
b. 96,000 unfavorable
c. 80,000 favorable
d. 80,000 unfavorable
31. Pining Girl Company currently has 100,000 shares of common stock outstanding and a price-
earnings ratio of 7. Net income for the recently ended year is P 375,000. Pining girl’s board of
directors declared a 15 for 2 split. Jeju owned 100 shares of Pining girl before the split. What is the
approximate value of Jeju’s investment in Pining girl after split?
a. 26
b. 350
c. 2,645
d. 5,250
32. Which of the following effects would a lockbox most likely provide for receivable management?
a. Minimized collection float
b. Maximized collection float
c. Minimized disbursement float
d. Minimized disbursement float
33. The process of evaluating financial data that change under alternative courses of action is called
a. Double entry analysis.
b. contribution margin analysis.
c. Incremental analysis.
d. Cost-benefit analysis.
34. Nonfinancial information that management might evaluate in making a decision would not
include
a. employee turnover
b. contribution margin.
c. the environment.
d. the corporate profile in the community.
35. Incremental analysis is synonymous with

a. Difficult analysis.
b. Differential analysis.
c. Gross profit analysis.
d. Derivative analysis.
OCTOBER 2017
36. Incremental analysis is synonymous with

a. difficult analysis.
b. differential analysis.
c. gross profit analysis.
d. derivative analysis.
37. In incremental analysis,

a. only costs are analyzed.
b. only revenues are analyzed.
c. both costs and revenues may be analyzed.
d. both costs and revenues that stay the same between alternate courses of action will be
analyzed.
38. Pattaya Company’s current ratio is 2.5 to 1. Pattaya’s current liabilities are 252,000. Load
provisions require that Pattaya’s current ratio not drop below 1.5 to 1. What is the maximum
additional short term debt that Pattaya may incur?
a. 168,000
b. 378,000
c. 420,000
d. 630, 000
39. Monopolistic competition is characterized by

a. A relatively large group of sellers who produce differentiated products
b. A relatively small group of sellers who produce differentiated products
c. A relatively large group of sellers who produce homogeneous products
d. A relatively small group of sellers who produce homogeneous products
40. If a plant is operating at full capacity and receives a one-time opportunity to accept an order at a
special price below its usual price, then
a. Only variable costs are relevant.
b. Fixed costs are not relevant.
c. The order will likely be accepted.
d. The order will likely be rejected.
41. Diggs, Inc. has excess capacity. Under what situations should the company accept a special order
for less than the current selling price?
a. Never
b. When additional fixed costs must be incurred to accommodate the order
c. When the company thinks it can use the cheaper materials without the customer's
knowledge
d. When incremental revenues exceed incremental costs
42. Which of the following is true if a company can accept a special order without affecting its
regular sales and is within plant capacity?
a. Net income will not be affected.
b. Net income will increase if the special sales price per unit exceeds the unit variable costs.
c. Net income will decrease.
d. Additional fixed costs will probably be incurred
OCTOBER 2017

Rod's Manufacturing Company can make 100 units of a necessary component part with the
following costs:
Direct Materials $60,000
Direct Labor 10,000
Variable Overhead 30,000
Fixed Overhead 20,000
43. If Rod's Manufacturing Company purchases the component externally, $15,000 of the fixed costs
can be avoided. At what external price for the 100 units is the company indifferent between
making or buying?
a. $120,000
b. $85,000
c. $115,000
d. $100,000
44. If Rod's Manufacturing Company can purchase the component externally for $110,000 and only
$5,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?
a. Make and save $5,000
b. Buy and save $5,000
c. Make and save $15,000
d. Buy and save $15,000
45. A banking system with a reserve ratio of 20% and a change in reserves of 1,000,000 can increase
its total demand deposits by
a. 5,000,000
b. 1,000,000
c. 800,000
d. 200,000
46. PH Toy Company is unsure of whether to sell its product assembled or unassembled. The unit cost
of the unassembled product is $30 and PH Toy would sell it for $65. The cost to assemble the
product is estimated at $21 per unit and the company believes the market would support a price of
$85 on the assembled unit. What decision should PH Toy make?
a. Sell before assembly, the company will be better off by $1 per unit.
b. Sell before assembly, the company will be better off by $20 per unit.
c. Process further, the company will be better off by $29 per unit.
d. Process further, the company will be better off by $14 per unit.
47. Pratunam company has an average unit cost of P 45 at 10,000 units and P 25 at 30,000 units.
Assuming a unit selling price of 40, what is the margin of safety at P 1,000,000 sales?
a. 6,000 units
b. 12,000 units
c. 13,000 units
d. 20,000 units
e.
48. A company has a process that results in 15,000 pounds of Product A that can be sold for $8 per
pound. An alternative would be to process Product A further at a cost of $100,000 and then sell it
for $14 per pound. Should management sell Product A now or should Product A be processed
further and then sold? What is the effect of the action?
a. Process further, the company will be better off by $10,000.
OCTOBER 2017
b. Sell now, the company will be better off by $10,000.

c. Process further, the company will be better off by $90,000.
d. Sell now, the company will be better off by $100,000.
49. The greatest financial threat to an organization that implemented the financial accounting module
of an enterprise resource planning (ERP) system from a major vendor exists from errors detected
during which of the following times?
a. Implementation
b. Project initiation
c. Table configuration
d. Requirements determination

A company is considering purchasing factory equipment that costs $320,000 and is estimated
to have no salvage value at the end of its 8-year useful life. If the equipment is purchased,
annual revenues are expected to be $90,000 and annual operating expenses exclusive of
depreciation expense are expected to be $38,000. The straight-line method of depreciation
would be used.
50. If the equipment is purchased, the annual rate of return expected on this equipment is
a. 32.5%.
b. 3.8%.
c. 7.5%.
d. 16.3%.
51. The cash payback period on the equipment is

a. 13.3 years.
b. 8.0 years.
c. 6.2 years.
d. 3.1 years.
52. Activity based costing

a. Is typically applied to manufacturing prime costs
b. Uses multiple cost drivers for a single cost pool
c. May be applied to selling overhead costs
d. Is not compatible with standard costing
53. Doris Co. is considering purchasing a new machine which will cost $200,000, but which will
decrease costs each year by $40,000. The useful life of the machine is 10 years. The machine
would be depreciated straight-line with no residual value over its useful life at the rate of
$20,000/year. The cash payback period is
a. 4.0 years.
b. 4.5 years.
c. 5.0 years.
d. 10.0 years.
54. The degree of financial leverage is least associated with

a. Interest payments
b. Common dividend payments
c. Preferred dividend payments
d. Earnings before interest and taxes
OCTOBER 2017
55. Given the following information

i. Current ratio: 2.0
ii. Acid test ratio: 1.5
iii. Total liabilities: P2,000,000 (75% non current)
iv. Cost of goods sold: P 1,000,000
Assuming a 360 day year, what is the inventory conversion period?
a. 90 days
b. 120 days
c. 150 days
d. 180 days
56. The least-square technique of segregating variable and fixed costs

a. Is less objective than the scatter diagram method
b. Considers the sums of observed costs and activities
c. Utilizes the highest at lowest points of activities
d. Cannot be applied to a set of data point where one is considered as an outlier
57. How is annual cash inflow determined?

a. Depreciation is subtracted from net income because it is an expense.
b. Depreciation is added back to net income because it is not an outflow of cash.
c. Depreciation is subtracted from net income because it is an outflow of cash.
d. Depreciation is added back to net income because it is an inflow of cash.
58. A company decided to replace an old machine with a new one as part of its rehabilitation plan. In
evaluating this capital investment, which of the following is generally considered relevant in
determining the initial cost of investment for decision making purpose?
a. Salvage value of the old machine
b. Salvage value of the new machine
c. Purchase price of the new machine
d. Additional working capital required to support the new machine
59. Bangkok has made changes in its inventory handling policies that are expected to increase
turnover from 7 to 8 times per year. Bangkok’s budgeted sales and costs of sales for the next year
are P 42,000,000 and P 28,000,000, respectively. At a 6% interest rate, what are Bangkok’s
expected savings from the lower inventory level?
a. P15,000
b. P30,000
c. P45,000
d. P60,000
60. Which is not a correct comparison of a Just-in-time system with a traditional system?
Traditional Just in time
a. Longer lead time shorter lead time
b. Inventory is an asset Inventory is a liability
c. Some scrap tolerated Zero defects desired
d. Lot size based on Immediate needs Lot size based on formulas
61. If an asset cost $210,000 and is expected to have a $30,000 salvage value at the end of its ten-
year life, and generates annual net cash inflows of $30,000 each year, the cash payback period is
a. 8 years.
b. 7 years.
OCTOBER 2017
c. 6 years.
d. 5 years.
62. Which responsibility accounting center is often considered as “a business within a business?”
a. Cost center
b. Profit center
c. Revenue center
d. Investment center
63. A capital project has a useful life of 5 years but a payback period of 3.25 years. The annual post-
tax cash flows are as follows:
Year Cash Flows
0 ?
1 P100,000
2 80,000
3 60,000
4 40,000
5 20,000
Assuming no salvage value, how much is the annual straight- line depreciation of the capital
investment project
a. P48,000
b. 50,000
c. 52,000
d. 60,000
64. Which information is not necessarily used when determining materials price usage variance?
a. Actual quantity of materials used
b. Actual price of materials purchased
c. Standard price of materials purchased
d. Standard quantity of materials allowed for actual production

Carr Company is considering two capital investment proposals. Estimates regarding each project
are provided below:
Project Soup Project Nuts
Initial investment P400,000 P600,000
Annual net income 20,000 42,000
Net annual cash inflow 100,000 142,000
Estimated useful life 5 years 6 years
Salvage value 0 0
The company requires a 10% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
5 3.890 3.791 3.696 3.605
6 4.486 4.355 4.231 4.111
65. The cash payback period for Project Soup is

a. 20 years.
b. 10 years.
c. 5 years.
d. 4 years.
OCTOBER 2017
66. The annual rate of return for Project Soup is

a. 5%.
b. 10%.
c. 25%.
d. 50%.
67. The net present value for Project Nuts is

a. 618,410.
b. 182,912.
c. 100,000.
d. $18,410.
68. The internal rate of return for Project Nuts is approximately

a. 10%.
b. 11%.
c. 12%.
d. 9%.
69. Mock Plumbing used the net present value method and determined that project 34 had a zero net
present value. What does this tell management about the project?
a. The return from this project is equal to the cost of capital.
b. The project guarantees company profitability.
c. The project's cash inflows will equal its cash outflows.
d. the project earns the company's desired minimum rate of return.
70. The appropriate table to use when an investment promises to return unequal cash flows is the
a. Future value of 1 table.
b. Future value of annuity table.
c. Present value of 1 table.
d. Present value of annuity table.
OCTOBER 2017
ANSWERR KEY
1. D 36. B
2. A 37. C
3. A 38. A
4. A 39. A
5. C 40. B
6. A 41. D
7. C 42. B
8. B 43. C
9. C 44. A
10. D 45. A
11. B 46. A
12. B 47. C
13. C 48. B
14. B 49. A
15. A 50. C
16. C 51. C
17. A 52. C
18. B 53. C
19. C 54. B
20. A 55. A
21. B 56. B
22. B 57. B
23. B 58. D
24. A 59. B
25. C 60. D
26. B 61. B
27. A 62. D
28. C 63. B
29. B 64. D
30. B 65. D
31. C 66. B
32. A 67. D
33. C 68. B
34. B 69. D
35. B 70. C
OCTOBER 2017

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LAGUNA COLLEGE

Department of Commerce and Accountancy

MANAGEMENT ADVISORY SERVICES

In Partial Fulfillment of the Course Requirements in Management Consultancy

Mr. Demetrio A. Asacta, CPA

Fernandez, Ruth Ann A.

March 25, 2019

2. The process of choosing among competing alternatives is called

a. controlling c. decision making

3. Which of the following is a not a characteristic of management accounting?

ITEMS 4 AND 5 ARE BASED ON THE FOLLOWING:

Professional hours 120 hours 150 hours

4. The clinic’s monthly fixed costs amount to:

a. most companies have very poor records.

7. Which of the following characteristics distinguishes computer processing from manual

a. Microcomputer system c. Batch processing system

a. substitute goods c. complementary goods

10. In national income terms, aggregate demand is the

11. Which of the following statements is correct?

14. Consider the equation X = Sales — [(CM/Sales) x (Sales)]. What is X?

15. As projected n- income Increases the

ITEMS 16 TO 18 ARE BASED ON THE FOLLOWING:

Sales In units 5,000

20. Which of the following is an advantage of using variable costing?

Average historical performance for the past three years 3.70

26. A company produces three products; if one product is overcosted then

Pat Chin Total

Sales P300,000 P2,500,000 P2,800,00

a. increase Spikey’s total sales by P750,003.

29. Meriman Company provides the following ABC costing information:

Activities Total Costs Activity cost driver

The above activities are used by Departments A and B as follows:

Account inquiry hours 2,000 hours 4,000 hours

How much of the total costs will be assigned to Department A?

ITEMS 32 TO 36 ARE BASED ON THE FOLLOWING:

32. The controllable variance amounts to

34. The efficiency variance amounts to

35. The non-controllable variance is

36. The fixed overhead efficiency variance is:

37. The primary purpose of management advisory services is

38. Which of the following statements is FALSE?

40. A major accounting contribution to the managerial decision-making process in evaluating

ITEMS 41 to 43 ARE BASED ON THE FOLLOWING INFORMA TION:

Sensory Switch has the following financial data per unit:

44. A linear cost function can represent:

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 45 AND 46:

45. The cost NOT relevant for this decision is the:

47. For decision making, a listing of the relevant costs:

USE THE FOLLOWING TO ANSWER QUESTIONS 1 AND 2:

Additional data concerning these products are listed below:

Total salaries expense P250,000

7. Which of the following is usually a benefit of transmitting transactions in an electronic data

8. The optimal capitalization for an organization usually can be determined by the

Budgeted output units 15,000 units

What is the flexible-budget variance for variable manufacturing overhead?

a. P5,500 favorable c. P4,300 favorable

Net operating profit before interest and taxes P30,000000

18. If an investment project has a profitability index of 1.15, then the

ITEMS 24-26 ARE BASED ON THE FOLLOWING INFORMATION:

Sensory Switch has the following financial data per unit:

ITEMS 28 THROUGH 32 ARE BASED ON THE FOLLOWING INFORMATION:

28. What is the return on sales (ROS)?

29. What is the asset turnover ratio for the division?