Financial Statement Analysis

1. Which of the following statements regarding financial analysis is true?

A. Financial analysis will show how a company is guaranteed to perform in the future.
B. Financial analysis should not be relied upon as an indicator of future performance.
C. Financial analysis should be performed only by managers and creditors.
D. Financial analysis provides supplemental information not provided directly by the
financial statements.
2. Which of the following statements is true regarding ration analysis?
A. A ratio for a particular company is often compared to industry standards using various
publications.
B. A ratio for a particular company is unique and therefore, should not be compared to
other companies’ ratios.
C. Ratio analysis should be kept as simple as possible, often accomplished by using just one
ratio to measure a company’s performance.
D. Ratio analysis will not be affected by different accounting methods or assumptions.
3. Which of these statements is false?
A. Many companies will not clearly fit into any one industry.
B. A financial service uses its best judgment as to which industry the firm best fits.
C. The analysis of an entity’s financial statements can be more meaningful if the results are
compared with industry averages and with results of competitors.
D. A company comparison should not be made with industry averages if the company does
not clearly fit into any one industry.
4. Which of the following most appears most frequently in annual reports?
A. Earnings per share
B. Return on equity
C. Profit margin
D. Debt/ equity
5. Assume that Clone Inc. reported a net loss of P50,000 in 2009 and net income of P250,000 in
2010. The increase in net income of P300,000:
A. Can be stated as 0%
B. Can be stated as 100% increase
C. Cannot be stated as a percentage
D. Can be stated as 200% increase
6. House of Contratista Company had the following financial statistics for 2010:

Long-term debt (average rate of interest is 8%) P400,000

Interest expense 35,000
Net income 48,000
Income tax 46,000
Operating income 107,000
What was the times-interest earned for 2010?

A. 11.4 times
B. 3.3 times
C. 3.1 times
D. 3.7 times
7. The following data were gathered from the annual report of Calendar Product:

Market price per share P30.00

Number of common shares 10,000
Preferred stock, 5% P100 par P10,000
Common equity P140,000
The book value per share is:

A. P30.00
B. P15.00
C. P14.00
D. P13.75
8. The current assets of Canon Enterprise consist of cash, accounts receivable, and inventory. The
following information is available:

Credit sales 75% of total sales

Inventory turnover 5 times
Working capital P1,120,000
Current ratio 2.00 to 1
Quick ratio 1.25 to 1
Average collection period 42 days
Working days 360

Budgeting
9. Which of the following best defines budgeting?
A. Budgeting is planning.
B. Budgeting is communicating objectives and controlling outcomes.
C. Budgeting is communicating specific objectives which can be measured and refined
based upon feedback.
D. Budgeting is communicating the planned objectives.
10. The process of developing budget estimates by requiring all levels of management to estimate
sales, production, and other operating data as though operations were being initiated for the
first ties is referred to as:
A. Forecasting
B. Zero-based budgeting
C. Continuous budgeting
D. Program budgeting
11. The basic difference between a master budget and a flexible budget is that a:
A. Flexible budget considers only variable costs but a master budget considers all costs.
B. Flexible budget allows management latitude in meeting goals whereas as a master
budget is based on a fixed standard.
C. Master budget is for an entire production facility but a flexible budget is applicable to
single department only.
D. Master budget is based on one specific level of production and a flexible budget can be
prepared for any production level within a relevant range.
12. A budget that is established at the beginning of the period and not adjusted for different levels
of actual sales activity is called a:
A. Nonfinancial budget
B. Flexible budget
C. Static budget
D. Zero-based budget
13. Montalbo Company’s sales budget shows the following expected sales for the following year:

Quarter Units
First 120,000
Second 160,000
Third 90,000
Fourth 110,000
Total 480,000

The inventory at December 31 of the prior year was budgeted at 36,000 units. The quantity of
finished goods inventory at the end of each quarter is to equal 30% of the next quarter’s
budgeted unit sales.

How many units should be produced during the first quarter?

A. 48,000
B. 96,000
C. 132,000
D. 144,000
 14. Cascades Company, a merchandising firm, is preparing its master budget and has gathered the
following data to help budget cash disbursements:

Budgeted data:
Cost of goods sold P1,680,000
Desired decrease in inventories 70,000
Desired decrease in Accounts payable 150,000

All of the accounts payables are for inventory purchases and all inventory items are purchased
on account. What are the estimated cash disbursements for inventories for the budget period?

A. P1,460,000
B. P1,600,000
C. P1,900,000
D. P1,760,000

Questions Nos. 15 through 16 are based on the following:

The Cache Corporation has forecast the following sales for the first seven months of the year:

January P120,000 May P120,000

Februar June
160,000 200,000
y
March 180,000 July 220,000
April 240,000

Monthly material purchases are set equal to 20 percent of forecasted sales for the next month. Of the
total material costs, 40 percent are paid in the month of purchase and 60 percent in the following
month. Labor costs will run P60,000 per month, and fixed overhead is P30,000 per month. Interest
payments on the debt will be P45,000 for both March and June. Finally, Atlanta’s sales force will receive
a 3 percent commission on total sales for the first six months of the year, to be paid on June 30.

15. How much will be paid in the month of January for the purchase of materials?
A. P27,200
B. P117,200
C. P137,856
D. P33,600
16. How much does Cache plan to disburse in the month of June?
A. P41,600
B. P100,000
C. P207,200
D. P117,200
 Activity Cost and Cost Analysis

17. An item or event that has a cause-effect relationship with the incurrence of a variable cost is
called a:
A. Mixed cost
B. Predictor
C. Direct cost
D. Cost driver
18. As volume increases,
A. Total fixed costs remain constant and per-unit fixed costs increase.
B. Total fixed costs remain constant and per-unit fixed costs decrease.
C. Total fixed costs remain constant and per-unit fixed costs remains constant.
D. Total fixed costs increase and per-unit fixed costs increase.
19. Weaknesses of the high-low method include all of the following except
A. Only two observations are used to develop the cost function.
B. The high and low activity levels may not be representative.
C. The method does not detect if the cost behavior is nonlinear.
D. The mathematical calculations are relatively complex.
20. High-tech automation combined with a downsizing of a company’s hourly labor force often
results in:
A. Increased fixed costs and increased variable costs.
B. Increased fixed costs and reduced variable costs.
C. Reduced fixed costs and increased variable costs
D. Reduced fixed costs and reduced variable costs.
21. Irma Company manufactures office furniture. During the most productive month of the year,
3,500 desks were manufactured at a total cost of P84,400. In its slowest moth, the company
made 1,100 desks at a cost of P46,000. Using the high-low method of cost estimation, total fixed
costs in August are:
A. P56,000
B. P28,400
C. P17,600
D. P38,400
22. At a sales level of P300,000, Jamaica Company’s gross margin is P15,000 less than its
contribution margin, its net income is P50,000, and its selling and administrative expenses total
P120,000. At this sales level, its contribution margin would be:
A. P250,000
B. P155,000
C. P170,000
D. P185,000
23. Given the following information, choose the cost and activity that would be used as the high
data point in high-low cost estimation:

Costs Activity (hours)

P51,000 40,000
P50,000 41,000
P58,000 42,000
P56,000 43,000
A. P58,000 and 42,000 hours
B. P58,000 and 43,000 hours
C. P56,000 and 43,000 hours
D. P56,000 and 42,000 hours
24. TransEX Company operates a fleet of delivery trucks in Luzon. The company has determined that
if a truck is driven 105,000 kilometers during a year, the average operating cost is P11.40 per
kilometer. If a truck is driven only 70,000 kilometers during a year, the average operating cost
increases to P13.40 per kilometer. Assuming that in a given year, a truck were driven 80,000
kilometers, what total cost would you expect to be incurred?
A. P1,012,000
B. P1,407,000
C. P1,225,143
D. P1,072,000

Cost-Volume-Profit Analysis

25. The term contribution margin is best defined as the:

A. Difference between fixed costs and variable costs
B. Difference between revenue and fixed costs
C. Amount available to cover fixed costs and profit.
D. Amount available to cover variable costs.
26. Operating leverage is high in firms with
A. A small proportion of fixed costs, a high proportion of variable costs, and the resulting
high contribution margin per unit.
B. A small proportion of fixed costs, a high proportion of variable costs, and the resulting
low contribution margin per unit.
C. A high proportion of fixed costs, a small proportion of variable costs, and the resulting
low contribution margin per unit.
D. A high proportion of fixed costs, a small proportion of variable costs, and the resulting
high contribution margin per unit.
27. On a breakeven chart, the breakeven point is located at the point where the total
A. Revenue line crosses the total fixed cost line
B. Revenue line crosses the total contribution margin line
C. Fixed cost line intersects the total variable cost line
D. Revenue line crosses the total cost line
28. Spreadsheets are used in financial modeling. Once you have set up the basic formula, it is easy
to determine the effect of changing price, costs, volume amounts, or any other variable deemed
important to the analysis. This analysis is called
A. Variable analysis
B. Fixed analysis
C. Mixed analysis
D. “what-if” analysis
29. The Red Lions Brotherhood is planning its annual Riverboat Extravaganza. The Extravaganza
committee has assembled the following expected costs for the event:

Dinner per person P70

Programs and souvenir per person 30
Orchestra 15,000
Tickets and advertising 7,000
Riverboat rental 48,000
Floor show and strolling entertainment 10,000

The committee members would like to charge P300 per person for the evening’s activities.

Assume that only 250 persons are expected to attend the extravaganza, what ticket price must
be charged to breakeven?
A. P420
B. P350
C. P320
D. P390
30. An entity has fixed costs of P200,000 and variable costs per unit of P6. It plans on selling 40,000
units in the coming year. If the entity pays income taxes on its income at a rate of 40%, what
sales price must the firm use to obtain an after-tax profit of P24,000 on the 40,000 units?
A. P11.60
B. P11.36
C. P12.00
D. P12.50
31. The Expressive Company currently has fixed cost of P770,500. This cost is expected to increase
by P103,500 if the company expands its production facilities. Currently, it sells its product for
P47. The product has a variable cost per unit of P24. How many more units must the company
sell to break even, at the current sales price per unit, than it did to break even prior to the
increase in fixed cost?
A. 3,500
B. 4,000
C. 4,500
D. 6,000
32. Alexandra Co. provides two products, Wood and Plastic. Wood accounts for 60 percent of total
sales. The variable costs as a percentage of selling prices are 60% for Wood and 85% for Plastic.
Total fixed costs are P225,000.

If fixed costs will increase by 30 percent, what amount of peso sales would be necessary to
generate an operating profit of P48,000?
A. P1,350,000
B. P486,425
C. P1,135,000
D. P910,000

Basic Concepts in Management Accounting

33. The setting objectives and the identification of methods to achieve those objectives is called
A. Planning
B. Controlling
C. Decision making
D. Performance evaluation
34. Which of the following is true of managerial accounting rather than financial accounting?
A. The outputs of this accounting system are the basic financial statements.
B. The methods of this accounting system are established by an overseeing board.
C. The accounting methods are standardized to allow comparisons among companies.
D. The accounting system would be unique to each company.
35. Management accountants would not
A. Assist in budget planning
B. Prepare reports primarily for external users.
C. Determine cost behavior
D. Be concerned with the impact of cost and volume on profits.
36. Management accountants generally exercise which type of authority?
A. Company
B. Functional
C. Line
D. Staff

Management Information Systems

37. The primary functions of a computerized information system include

A. Input, processing, and output
B. Input, processing, output, and storage
C. Collecting, sorting, summarizing, and reporting
D. Input, processing, output, storage, and control
 38. Sequential access means that
A. Data are stored on magnetic tape
B. The address of the location of data is found through the use of either an algorithm or an
index
C. Each record can be accessed in the same amount of time
D. To read 500, records 1 through 499 must be read first
39. The installation of a database management system is not likely to have any direct impact on
A. Data redundancy within files
B. Sharing of common data
C. Inconsistencies within common data fields
D. The logic needed to solve a problem in an application program
40. Document flowcharts
A. Depict logical tasks that are being performed, but not who is performing them
B. Illustrate the relationship between processes, and the documents that flow between
them and trigger activities
C. Represent relationships between key elements of the computer system
D. Describe the logic of the process

Quantitative Methods

Use the following data to answer Question Nos. 41 through 43.

Sun, Inc. manufactures product X and product Y, which are processed as follows:

Type A machine Type B machine

Product X 6 hours 4 hours
Product Y 9 hours 5 hours
The contribution margin is P12 for product X and P7 for product Y. the available time daily for processing
the two products is 120 hours for machine Type A and 80 hours for machine Type B.

41. How would the constraint for machine Type A be expressed?

A. 4X + 5Y
B. 6X + 9Y ≤ 120
C. 4X + 5Y ≤ 80
D. 12X + 7Y
42. How would the constraint for machine Type B be expressed?
A. 4X + 5Y
B. 6X + 9Y ≤ 120
C. 4X + 5Y ≤ 80
D. 12X + 7Y
 43. How would the objective function be expressed?
A. 4X + 5Y
B. 6X + 9Y ≤ 120
C. 4X + 5Y ≤ 80
D. 12X + 7Y
44. Which tool would most likely be used to determine the best course of action under conditions of
uncertainty?
A. Cost-volume-profit analysis
B. PERT
C. Expected value
D. Scattergraph
45. Havenot estimated the first batch of product will take 40 hours to complete. A 90% learning
curve is expected. If labor is paid P15 per hour, the target labor cost for four batches of product
is
A. P600
B. P2,160
C. P1,944
D. P2,400
46. The manager of Batanes Company has developed the following probability distribution of dairy
sales of a highly perishable product. The company restocks the product each morning:

X (Units Sold) P (Sales=X)

150 0.20
175 0.40
200 0.15
225 0.10
250 0.10
275 0.05
If the company desires an 85% service level in satisfying sales demand, what should the initial
balance be for each day?

A. 191
B. 225
C. 234
D. 250

Questions 47 and 48 are based on the following

Assume that Gibson Corporation is considering investing in a project. To evaluate project, management
has developed the following cash flow projections and related probabilities:

PV of future cash flows Probability

P200,000 0.4
P500,000 0.3
 P800,000 0.3
47. What is the expected return for the project?
A. P750,000
B. P500,000
C. P470,000
D. P400,000
48. Assume that the standard deviation of the returns for the project is P150,000. What is the
coefficient of variation for the project?
A. 0.2345
B. 0.3191
C. 0.4256
D. 1.10

Standard Costs and Variance Analysis

49. Which of the following statements is true regarding “management by exception”?

A. It is rarely used in variance analysis.
B. It forces managers to investigate all variances, regardless of size.
C. It requires the use of flexible budgets.
D. It requires managers to calculate standard costs but not actual costs
50. The primary purpose of using a standard cost system is to:
A. Make things easier for managers in the production facility.
B. Provide a distinct measure of cost control.
C. Minimize the cost per unit of production.
D. Assure continuous production of goods.
51. A company employing very tight (high)standards in a standard cost system should expect that
A. No incentive bonus will be paid
B. Most variances will be unfavorable
C. Employees will be strongly motivated to attain the standard
D. Costs will be controlled better than if lower standards were used
52. Standards that represent levels of operation that can be attained with reasonable effort are
called:
A. Theoretical standards
B. Ideal standards
C. Variable standards
D. Normal standards
53. A company may set predetermined overhead rates based on normal, expected, annual, or
theoretical capacity. At the end of the period, the fixed overhead spending variance would:
A. Be the same regardless of the capacity level selected.
B. Be the largest if theoretical capacity.
C. Be the smallest if theoretical capacity had been selected.
D. Not occur if actual capacity were the same as the capacity level selected.
54. Rafa Company uses a standard costing system in connection with the manufacture of a line of T-
shirts. Each unit of finished product contains 2.25 yards of direct material. However, a 25%
direct material spoilage calculated on input quantities occurs during the manufacturing process.
The cost of direct materials P150 per yard. The standard direct material cost per unit of finished
product is
A. P253
B. P422
C. P450
D. P405
55. Safin Corporation’s master budget calls for the production of 5,000 units of product monthly.
The annual master budget includes indirect labor of P144,000 annually. Safin considers indirect
labor to be a variable cost. During the month of April, 4,500 units of product were produced,
and indirect labor costs of P1,100 were incurred. A performance report utilizing flexible
budgeting would report a budget variance for indirect labor of:
A. P1,900 Unfavorable
B. P700 Unfavorable
C. P1,900 Favorable
D. P700 Favorable
56. Palmas Company, which has a standard cost system, had 500 units of raw material X in its
inventory at June 1, purchased in May for P1.20 per unit and carried at a standard cost of P1.00.
the following information pertains to raw material X for the month of June:

Actual number of units purchased 1,400

Actual number of units used 1,500
Standard number of units allowed for actual production 1,300
Standard cost per unit P1.00
Actual cost per unit P1.10
The unfavorable materials purchase price variance for raw material X for June was:
A. P0
B. P130
C. P140
D. P150
57. Powerless Company’s operations for April disclosed the following data relating to direct labor:

Actual cost P10,000

Rate variance 1,000 Favorable
Efficiency variance 1,500 Unfavorable
Standard cost P9,500
Actual direct labor hours for April amounted to 2,000. Powerless’ standard direct labor rate per
hour in April was:
A. P5.50
B. P4.75
C. P5.00
 D. P4.50
58. Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct labor hours were
budgeted. If the fixed overhead volume variance was P12,000 favorable and the fixed overhead
spending variance was P16,000 unfavorable, fixed manufacturing overhead applied must be
A. P516,000
B. P488,000
C. P512,000
D. P496,000
Incremental Analysis
59. Predicted future cost and revenue data that will differ among alternative courses of action are
known as
A. Relevant information
B. Direct information
C. Marginal costs
D. Incremental costs
60. Which of the following best describes a relevant information?
A. Focused on the past and differs between the alternatives under consideration.
B. Focused on the past and not related to the decision under consideration.
C. Focused on the future and differs between the alternatives under consideration.
D. Focused on the future and not related to the decision under consideration.
61. A fixed cost is relevant if it is
A. Future cost
B. Avoidable
C. Sunk
D. A product cost
62. Sensitivity analysis is useful in decision making when:
A. There is a degree of uncertainty about the relevant data.
B. There is an opportunity cost included in the analysis.
C. Sunk cost is included in the analysis.
D. The analysis is subject to a review by the management.
63. In a make-or-buy decision, an opportunity cost that should be considered in the:
A. Income that could be generated from idle production space.
B. Total costs to product the item
C. Variable costs to produce the item
D. Fixed costs to produce the item
64. Shelley & Company has 24,000 defective units of a product that cost of P8 per unit to
manufacture, and can be sold for P4 per unit. These units can be reworked for P2 per unit and
sold at their full price of P12 each. If Shelley reworks the defective units, how much incremental
net income will result?
A. P144,000
B. P72,000
C. P96,000
 D. P48,000
65. For the year ended April 30, 2009, Dela Joya Company incurred direct costs of P800,000 based
on a particular course of action. Had a different course of action been taken, direct costs would
have been P650,000. In addition, Dela Joya’s fixed costs during the fiscal year were P110,000.

The incremental (decremental) cost was:

A. P40,000
B. P(40,000)
C. P150,000
D. P(150,000)
66. You have been approached by a foreign customer who wants to place an order for 15,000 units
of Product C at P22.50 a unit. You currently sell this item for P39 a unit, and the item has a cost
of P29 a unit. Further analysis reveals that you will not be paying sales commission of P2.50 a
unit on this sales and its packaging requirement will save you an additional P1.50 per unit.
However, the additional graphics required on this job will cost you P30,000. Note also that fixed
costs amounting to P400,000 for the production of 50,000 units will not change. You decided to
accept this order but another customer who buys an average of 2,000 units for period wants to
pay you P22.50 rather than the regular price of P39 a unit.

Accepting the special order, the amount of profit will:

A. Increase by P19,500
B. Increase by P16,500
C. Increase by P52,500
D. Decrease by P52,500
67. Ambulong Company’s unit cost of manufacturing and selling a given item at an activity level of
10,000 units per month are:

Manufacturing costs
Direct Materials P39
Direct Labor 6
Variable overhead 8
Fixed overhead 9
Selling expenses
Variable 30
fixed 11
The company desires to seek an order for 5,000 units from a foreign customer. The variable
selling expenses will be reduced by 40%, but the fixed costs for obtaining the order will be
P20,000. Domestic sales will not be affected by the order.
The minimum break-even price per unit to be considered on this special sale is
A. P71
B. P75
C. P69
D. P84
 68. Conde Company plans to discontinue a segment with a P32,000 segment margin. Common
expenses allocated to the segment amounted to P45,000, of which P20,000 cannot be
eliminated if the segment were closed. The effect of closing down the segment on Conde
Company’s before tax profit would be
A. P12,000 decrease
B. P7,000 decrease
C. P12,000 increase
D. P7,000 increase

PERFORMANCE MEASURES

Use the following information to answer questions 69 and 70:

Carlyle Company had the following information pertaining to 2009:

Profit P100,000
Sales P1,000,000
Asset turnover ratio 2 times
The desired minimum rate of return is 15 percent
69. What is the return on sales?
A. 10 percent
B. 5 percent
C. 20 percent
D. 15 percent
70. The manager of Carlyle is paid a bonus based on ROI. Would the manager invest in a project that
will pay a return on investment of 18 percent?
A. Yes, because the project’s ROI exceeds the desired minimum rate or return.
B. Yes, because the project’s ROI greater than the company’s current ROI.
C. Yes, because the project’s ROI equal than the company’s current ROI.
D. No, because the project’s ROI is less than the company’s current ROI.
71. Liberty, Inc. has the following information available for one of its divisions:

Average operating assets P5,000,000

Return on investment (ROI) 40%
Sales P8,000,000

If Liberty requires a minimum return on its investments of 25%, what is their residual income?

A. P1,950,000
B. P4,500,000
C. P6,750,000
D. P750,000
 72. Company Y is highly decentralized. Division X, which is operating at capacity, produces a
component that it currently sells in a perfectly competitive market for P13 per unit. At the
current level of production, the fixed cost of producing the component is P4 per unit and the
variable cost is P7 per unit. Division Z would like to purchase this component from Division X.
what would be the price that Division X should charge Division Z?
A. P7
B. P13
C. P11
D. P9

Question numbers 73 and 74 are based on the following:

Bearing Division of Phantom Corp. sells 80,000 units of Part X to the outside market. Part X sells for
P10.00 and has a variable cost of P5.50 and a fixed cost per unit of P2.50. Bearing has a capacity to
produce 100,000 units per period. Motor Division currently purchases 10,000 units of Part X from
Bearing for P10.00. Motor has been approached by an outside supplier that is willing to supply to P9.00.

73. What is the effect on Phantom’s overall profit if Bearing refuses the outside price and Motor
decides to buy outside?
A. No change
B. P20,000 decrease in Phantom profits
C. P35,000 decrease in Phantom profits
D. P10,000 increase in Phantom profits
74. What is the effect on XYZ’s overall profit if Bearing refuses the outside price and Motor decides
to but inside?
A. No change
B. P20,000 decrease in Phantom profits
C. P35,000 decrease in Phantom profits
D. P10,000 increase in Phantom profits
75. Magdalo, Inc. manufactures a product that experiences the following activities:

Processing (three departments) 40 hours

Moving (four moves) 18 hours
Waiting time 42 hours
Storage time 100 hours

The Manufacturing Cycle Efficiency for the product is

A. 5
B. 25
C. 20
D. 40
SOLUTIONS

1. D
2. A
3. D
4. A
5. C
6. D
Times interest earned: Earnings before interest / Interest

Income before tax (48,000 + 46,000) P94,000

Add Interest expense 35,000
Income before interest expense P129,000

TIE: P129,000 / P35,000 3.7 times

7. C
Book value per share: Common Equity / Outstanding shares
P140,000 / 10,000 shares P14.00
The problem did not give any information as to the liquidation value of the preferred stock. No
preferred dividends have been considered because apparently, the preferred stock has no
feature of having dividends being cumulative.
8. A
The inventory amount can be calculated as follows:

Current liabilities: working capital = current liabilities based on 2:1 current ratio.
At 2:1 current ratio, the amount of working capital and current liabilities are both P1,120,000.

Inventory: Current liabilities x (current ratio – acid test ratio)

1,120,000 x (2.0 – 1.25) P840,000

A detailed computation can be made as follows:

Current assets :P1,120,000 x 2 P2,240,000

Liquid assets: P1,120,000 x 1.25 1,400,000
Inventory P840,000
9. C
10. B
11. D
12. C
13. C
 Budgeted sales, first quarter 120,000 units
Add Required Ending Finished Goods:
30% x 160,000 48,000 units
Total units required 168,000 units
Less Beginning Finished Goods 36,000 units
Budgeted production in units 132,000 units

14. D

Cost of goods sold P1,680,000

Desired decrease in inventories (70,000)
Desired decrease in accounts payable 150,000
Estimated cash disbursements P1,760,000
15. A

Payments for purchases in the month of:

December (0.2 x P120,000 x 0.6) P14,400
January (0.2 x P160,000 x 0.4) 12,800
Total January disbursements for purchases P27,200
16. C

Payments for purchases:

May purchase (0.2 x P200,000 x 0.6) P24,000
June purchase (0.2 x 220,000 x 0.4) 17,600
Total 41,600
Labor costs 60,000
Fixed overhead 30,000
Interest payments 45,000
commission 30,600
Total disbursements P207,200
17. D
18. B
19. D
20. B
21. B

Variable rate = (change in activity cost) / (change in activity level)

= (P84,000 – P46,000) / (3,500 – 1,100)
= P16.00
Fixed costa = y – bx
a = P46,000 – (1,100 x 16)
a = P28,400
22. D

Net income P50,000

Add: selling and admin. Expense 120,000
 Gross margin 170,000
Add: excess of contribution margin over gross margin 15,000
Contribution margin P185,000
23. C
To analyze mixed cost using high- low method, the analyst always identifies and uses the lowest
and the highest levels of activities. The reason is that the activity presumably exhibits a cause
and effect relationship, so the analyst would like to use data that reflect the greatest possible
variation in activity.
24. C

Y = 12 x 30
= P360
a = P360 – (12 x 3 x 10)
= 0
25. C
26. D
27. D
28. D
29. A

Cost of dinner P70.00

Favors and program 30.00
Fixed costs
(15,000 + 7,000 + 48,000 + 10,000) / 250 320.00
Cost to be charged P420.00
30. C

Before- tax profit 24,000 / 0.6 40,000

Add fixed cost 200,000
Total contribution margin 240,000

Selling price = UVC + UCM

Selling price = 6 + (240,000 / 40,000) 12.00
31. C

New break-even point:

P874,000 / 23 38,000
Current break-even point in units:
P770,500 / 23 33,500

Increase in units 38,000 – 33,500 4,500

An alternative solution may be made by just dividing the increase in fixed cost by the
contribution margin per unit because if there is no change in other variables, the additional fixed
 costs should be covered by contribution margin to be provided by the additional units (P103,500
/ P23) or 4,500 units.
32. C

WACMR = (0.6 x 0.4) + (0.4 x 0.15) 30%

Fixed costs = 225,000 x 1.3 P292,500
Sales (292,500 + 48,000) / 0.3 P1,135,000
33. A
34. D
35. B
36. D
37. D
38. D
39. D
40. A
41. B
42. C
43. D
44. C
45. C

Units Cumulative average time computation

1 40.00
2 36.00 (0.9 x 40.00)
4 32.40 (0.9 x 36.00)
Total number of hours used by 4 units:
4 x 32.4 129.6
Total labor cost used by 4 units :
129.6 x P15 P1,944
46. B
At the service level of 85%, there is 15% risk that the company runs out of stock. To achieve 85%
level, 225 units must be purchased at the start of day. (0.20 + 0.40 + 0.15 + 0.10 = 85%); 225
units correspond to 85%.
47. C
The expected return part of a capital budgeting on the weighted average return by considering
the respective probability of the pattern of cash inflows to occur.

(200,000 x 0.4) + (500,000 x 0.3) + (800,000 x 0.3) 470,000

the most difficult part of a capital budgeting analysis is the determination of future cash flows
because of their inherent risk of uncertainty and, therefore, to lessen the effect of such a risk,
the analysis employ the use of probability distribution in ascertaining the reasonable amounts of
cash flows.
48. B
 The coefficient of variation represents the relationship of the standard deviation of the amount
of expected value. Therefore the answer is 0.3191 or calculated as 150,000 / 470,000.
49. C
50. B
51. B
52. D
53. A
54. C
Required inputs to be placed in process per unit of product:
2.25 / 0.75 3.0 yards
Standard material cost per unit of product : 3.0 x P150 P450
55. D

Actual indirect labor cost P10,100

Budget (4,500 x 2.40) 10,800
Favorable budget variance P(700)
The budgeted indirect labor cost per month is P12,000 (P144,000 / 12)
Indirect labor rate per unit: P12,000 / 5,000 P2.40
56. C
MPV = 1,400 (1.10 – 1.00) 140
57. A

Actual cost 10,000

Favorable rate variance 1,000
Actual hours @ standard rate 11,000

SR = (AH @ SR) / AH 11,000 / 2,000 5.50

58. C
A favorable volume variance arises when the applied fixed overhead is higher than the budgeted
fixed overhead.

Budgeted fixed overhead 500,000

Favorable volume variance (overapplied) 12,000
Applied fixed overhead 512,000
59. A
60. C
61. B
62. A
63. A
64. A

Sales revenue after rework (24,000 x 12) P288,000

Less sales revenue without rework (24,000x 4) 96,000
Differential revenue 192,000
 Less additional cost (24,000 x 2) 48,000
Additional profit P144,000

If instead of additional profit, the question is the amount of opportunity cost, the answer is
P96,000.
65. C

Cost of alternative selected P800,000

Cost of alternative rejected 650,000
Incremental cost P150,000

66. A

Total contribution margin from special sale

(15,000 x P5.50) P82,500
Less additional fixed costs 30,000
Profit from special sale P52,500
Less decrease in contribution margin on regular sale
2,000 (P39 – 22.50) 33,000
Additional profit P19,500
67. B

Relevant cost to make and sell:

Direct materials 39
Direct labor 6
Variable OH 8
Reduced selling expenses (30 x 0.6) 18
Add’l fixed cost (20,000 / 5,000) 4
Minimum selling price 75
68. B

Avoidable common expenses (45,000 – 20,000) P25,000

Segment margin lost 32,000
Decrease in profit P(7,000)
69. A
Return on sales = profit / net sales
P100,000 / P1,000,000 10%
70. D
No, because the manger’s bonus would go down because the company’s ROI is 20 percent only.
71. D

Operating income (5M x 0.4) 2,200,000

Less minimum returns (5M x 0.25) 500,000
 Residual income 1,700,000
72. B
The division is operating at capacity (zero excess capacity). Any quantity of production to be
transferred to the Division Z must be at P13; any price below P13, as transfer price, would
decrease its profit.
73. C
The profit of the company will decrease by P35,000 which is the difference between the variable
(relevant) cost and the purchase price.

(P9.00 – P5.50) x 10,000 units P35,000

74. A
There is no change in the profit because the Motor Division did not buy from the outside
supplier.
75. C
MCE = value added time / throughput time
40 / (40 + 18 + 42 + 100) 0.20